Apptuto CFA L1 LOS Changes 2016

CFA® Course of Study Changes 2016

Level I

July 2015

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CFA Level I Curriculum Changes 2016 The CFA Institute has now released the Level I Course of Study for 2016, and there are a number of changes from 2015. We have reviewed and compared the new Learning Objective Statements (LOS) to help Candidates who are either repeating or using prior year materials. While it is important to know the whole curriculum thoroughly, always make sure you have a particularly good understanding of any new Readings or LOS as there is always a high chance that new material may be tested. If you have any comments please contact us at [email protected]

Summary of Changes • 1 new Reading has been added to Study Session 12; Portfolio Management. • 9 out of the 18 Study Sessions have been affected by changing LOS. • In total 29 new LOS have been added, while 23 have been amended, and 8 have been removed. • There has been no change in the exam weighting of subjects in 2016.

Exam Weighting Summary 2016 In 2016 the CFA Institute has indicated that there has been no change in exam weightings. 2015 In the previous year, 2015 there was minimal movement in the weightings, resulting with a greater emphasis on Portfolio Management, which increased from 5% up to 7% and Alternative Investments (up to 4%).


1 Study Session 1: Ethical and Professional Standards

1.1 Reading Text Changes There are no changes in the 2016 curriculum from 2015. Note that last year (2015) was the first year Readings 1 & 2 referred to the 11th Edition of the Standards of Practice Handbook, rather than the 10th Edition (used for the 2014 curriculum). Comment: The Eleventh edition, effective July 1 2014, updates to the Code and Standards and Handbook include the following1:

• The Code of Ethics now includes language that aligns with the mission of CFA Institute and reflects an investment professional's responsibility to protect the integrity of capital markets for the betterment of society.

• Standard IV(C): Responsibilities of Supervisors now focuses on the need for supervisors to take positive steps to promote compliance rather than just preventing violations.

• Standard V(B): Communication with Clients and Prospective Clients now includes a requirement to address risks and limitations as part of the investment process.

• Standard VII(A) now reflects the growth in educational programs of CFA Institute by encompassing additional programs beyond the CFA examination.

• The Handbook chapter “Ethics and the Investment Industry” expands the discussion on the importance of ethical conduct within the industry. The integrity of capital markets and its participants is vital to maintaining levels of efficiencies and trust that ultimately benefit society.

• Throughout the Handbook, guidance enhancements and new examples were added to cover a variety of current practices occurring within the investment industry such as social media usage and reliance upon quantitative models and processes.

1.2 LOS Changes NO CHANGE FROM 2015

1.3 Exam Weighting Change NO CHANGE FROM 2015

1 http://www.cfainstitute.org/ethics/codes/ethics/pages/periodic_review.aspx


2 Study Session 2: Quantitative Methods - Basic Concepts

2.1 Reading Text Changes NO CHANGE FROM 2015



3 Study Session 3: Quantitative Methods – Application




4 Study Session 4: Economics





5 Study Session 5: Economics – Macroeconomic Analysis




6 Study Session 6: Economics – Economics in a Global Context





7 Study Session 7: Financial Reporting and Analysis – An Introduction


7.2 LOS Changes 7.2.1 Reading 22: Financial Statement Analysis: An Introduction LOS Change type 2015 Syllabus 2016 Syllabus

b.

Partial Change: Remove

Word

Describe the roles of the key financial statements (statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows) in evaluating a company’s performance and financial position;

Describe the roles of the statement of financial position, statement of comprehensive income, statement of changes in equity, and statement of cash flows in evaluating a company’s performance and financial position;

7.2.2 Reading 23: Financial Reporting Mechanics

LOS Change type 2015 Syllabus 2016 Syllabus

a. New - Describe how business activities are classified for financial reporting purposes;

e

Partial Change:

Word Addition

Describe the need for accruals and other adjustments in preparing financial statements

Describe the need for accruals and valuation adjustments in preparing financial statements

The new LOS above has impacted the lettering for the remaining LOS in Reading 23. For example LOS a. in 2015 is now LOS b. in 2016.



8 Study Session 8: Financial Reporting and Analysis – Income Statements, Balance Sheets, and Cash Flow Statements


8.2 LOS Changes 8.2.1 Reading 25: Understanding Income Sheets LOS Change type 2015 Syllabus 2016 Syllabus

d. New - Describe key aspects of the converged accounting standards issued by the International Accounting Standards Board and Financial Accounting Standards Board in May 2014;


9 Study Session 9: Financial Reporting and Analysis – Inventories, Long-lived Assets, Income Taxes, and Non-current Liabilities


9.2 LOS Changes

9.2.1 Reading 29: Inventories LOS Change type 2015 Syllabus 2016 Syllabus

c.

Partial Change:

Removal & Addition

Calculate cost of sales and ending inventory using different inventory valuation methods and explain the effect of the inventory valuation method choice on gross profit;

Calculate and compare cost of sales, gross profit and ending inventory using different inventory methods and using perpetual and periodic inventory systems.


d. Removed

Calculate and compare cost of sales, gross profit, and ending inventory using perpetual and periodic inventory systems

-

e. Removed

Compare cost of sales, ending inventory, and gross profit using different inventory valuation methods;

-

h. Removed Calculate and interpret ratios used to evaluate inventory management

-

d. New -

Calculate and explain how inflation and deflation of inventory costs affect the financial statements and ratios of companies that use different inventory valuation methods;

e. New - Explain LIFO reserve and LIFO liquidation and their effects on financial statements and ratios;

f. New - Convert a company’s reported financial statements from LIFO to FIFO for purposes of comparison;

j. New - Explain issues that analysts should consider when examining a company’s inventory disclosures and other sources of information

k. New - Calculate and compare rations of companies, including companies that use different inventory methods;

l. New - Analyse and compare the financial statements of companies, including companies that use different inventory methods

9.2.2 Reading 30: Long-Lived Assets


c. Removed

Describe the different depreciation methods for property, plant, and equipment, the effect of the choice of depreciation method on the financial statements, and the effects of assumptions concerning useful life and residual value on depreciation expense;

-

d. Removed Calculate depreciation expense; -

f. Partial

Change: Removal &

Describe the different amortization methods for intangible assets with finite

Describe the different amortization methods for intangible assets with finite lives and calculate amortisation expense;


Addition lives, the effect of the choice of amortization method on the financial statements, and the effects of assumptions concerning useful life and residual value on amortization expense

b. New - Compare the financial reporting of the following types of intangible assets: purchased, internally developed, acquired in a business combination

c. New - Explain and evaluate how capitalising versus expensing costs in the period in which they are incurred affects financial statements and ratios;

d. New - Describe how different depreciation methods for property, plant, and equipment and calculate depreciation expense;

e. New -

Describe how the choice of depreciation method and assumptions concerning useful life and residual value affect depreciation expense, financial statements, and rations;

g. New -

Describe how the choice of amortisation method and assumptions concerning useful life and residual value affect amortisation expense, financial statements, and ratios;

k. New -

Explain and evaluate how impairment, revaluation, and derecognition of property, plant, and equipment and intangible assets affect financial statements and ratios;

o. New - Explain and evaluate how leasing rather than purchasing assets affects financial statements and ratios;

p. New -

Explain and evaluate how finance leases and operating leases affect financial statements and ratios from the perspective of both the lessor and lessee.

9.2.3 Reading 31: Income Taxes LOS Change type 2015 Syllabus 2016 Syllabus

h. Removed Compare a company’s deferred tax items; -

h. New - Explain recognition and measurement of current and deferred tax items;



10 Study Session 10: Financial Reporting and Analysis – Financial Reporting Quality and Financial Statement Analysis


10.2 LOS Change NO CHANGE FROM 2015


11 Study Session 11: Corporate Finance




12 Study Session 12: Portfolio Management

12.1 Reading Text Changes In 2016 there is one new Reading:

• Reading 42: Risk Management: An Introduction


12.2 LOS Change 12.2.1 Reading 42: Risk Management: An Introduction

LOS Change Type

2014 Syllabus 2015 Syllabus

a. New - Define risk management;

b. New - Describe features of a risk management framework;

c. New - Define risk governance and describe elements of effective risk governance;

d. New - Explain how risk tolerance affects risk management;

e. New - Describe risk budgeting and its role in risk governance;

f. New - Identify financial and non-financial sources of risk and describe how they may interact;

g. New - Describe methods for measuring and modifying risk exposures and factors to consider in choosing among the methods.


13 Study Session 13: Equity – Market Organization, Market Indices, and Market Efficiency


13.2 LOS Changes 13.2.1 Reading 47: Market Efficiency


g. Removed Contrast the behavioural finance view

of investor behaviour to that of traditional finance.

-

g. New - Describe behavioural finance and its potential relevance to understanding market anomalies.



14 Study Session 14: Equity – Equity Analysis and Valuation


14.2 LOS Changes 14.2.1 Reading 50: Introduction to Industry and Company Analysis LOS Change type 2015 Syllabus 2016 Syllabus

d. Partial

Change: Reword

Explain how “peer group” as used in equity valuation relates to a company’s industry classification;

Explain how a company’s industry classification can be used to identify a potential “peer group” for equity valuation

g.

Partial Change:

Removal & Addition

Explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and return on capital;

Explain the effects of barriers to entry, industry concentration, industry capacity, and market share stability on pricing power and price competition;

h. Partial

Change: Removal

Describe product and industry life cycle models, classify an industry as to life cycle phase (embryonic, growth, shakeout, maturity, and decline), and describe limitations of the life-cycle concept in forecasting industry performance;

Describe industry life cycle models, classify an industry as to life cycle stage, and describe limitations of the life-cycle concept in forecasting industry performance;

j. Partial

Change: Addition

Describe demographic, governmental, social, and technological influences on industry growth, profitability, and risk;

Describe macroeconomic, technological, demographic, governmental, and social influences on industry growth, profitability, and risk;

14.2.2 Reading 51: Equity Valuation: Concepts and Basic Tools


f. Partial

Change: Addition

Identify companies for which the constant growth or a multistage dividend discount model is appropriate:

Identify characteristics of companies for which the constant growth or a multi-stage dividend discount model is appropriate;


g.

Partial Change:

Removal & Addition

Explain the rationale for using price multiples to value equity and distinguish between multiples based on comparables versus multiples based on fundamentals;

Explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables;


15 Study Session 15: Fixed Income: Basic Concepts


15.2 LOS Changes 15.2.1 Reading 52: Fixed-Income Securities: Defining Elements LOS Change type 2015 Syllabus 2016 Syllabus

b.

Partial Change:

Removal & Addition

Describe functions of a bond indenture; Describe content of a bond indenture;

15.2.2 Reading 53: Fixed-Income Markets: Issuance, Trading, and Funding LOS Change type 2015 Syllabus 2016 Syllabus

e. New - Describe securities issued by sovereign governments

f. Partial

Change: Removal

Describe securities issued by sovereign governments, non-sovereign governments, government agencies, and supranational entities;

Describe securities issued by non-sovereign governments, quasi-government entities, and supranational entities

i.

Partial Change:

Removal & Addition

Describe repurchase agreements (repos) and their importance to investors who borrow short term

Describe repurchase agreements (repos) and the risks associated with them.


15.2.3 Reading 55: Introduction to asset-backed securities


b.

Partial Change:

Removal & Addition

Describe the securitization process, including the parties to the process, the roles they play, and the legal structures involved;

Describe securitization, including the parties involved in the process and the roles they play;

e.

Partial Change:

Removal & Addition

Describe types and characteristics of residential mortgage-backed securities, and explain the cash flows and credit risk for each type;

Describe types and characteristics of residential mortgage-backed securities, including mortgage pass-through securities and collateralized mortgage obligations, and explain the cash flows and risks for each type;

g. Partial

Change: Removal

Describe the characteristics and risks of commercial mortgage-backed securities;

Describe characteristics and risks of commercial mortgage-backed securities;

h.

Partial Change:

Removal & Addition

Describe types and characteristics of non-mortgage asset-backed securities, including the cash flows and credit risk of each type;

Describe types and characteristics of non-mortgage asset-backed securities, including the cash flows and risks of each type.

i.

Partial Change:

Removal & Addition

Describe collateralized debt obligations, including their cash flows and credit risk.

Describe collateralized debt obligations, including their cash flows and risks.


c. New - Describe typical structures of securitizations, including credit tranching and time tranching

f. New - Define prepayment risk and describe the prepayment risk of mortgage-backed securities


e. Removed

Explain the motivation for creating securitized structures with multiple

tranches (e.g. collateralized mortgage obligations), and the characteristics and risks of securitized structure;

-



16 Study Session 16: Fixed Income Analysis of Risk


16.2 LOS Change 16.2.1 Reading 56: Understanding Fixed-Income Risk and Return LOS Change type 2015 Syllabus 2016 Syllabus

d. Partial

Change: Removal

Define key rate duration and describe the key use of key rate durations in measuring the sensitivity of bonds to changes in the shape of the benchmark yield curve

Define key rate duration and describe the use of key rate durations in measuring the sensitivity of bonds to changes in the shape of the benchmark yield curve

e. Partial

Change: Removal

Explain how a bonds maturity, coupon, embedded options, and yield level affect its interest rate risk;

Explain how a bonds maturity, coupon, and yield level effect its interest rate risk;

16.2.2 Reading 57: Fundamentals of Credit Analysis


b. New - Describe default probability and loss severity as components of credit risk;

f. Partial

Change: Addition

Explain the components of traditional credit analysis;

Explain the four Cs (Capacity, Collateral, Covenants, and Character) of traditional credit analysis;

i. Removed Calculate the return impact of spread changes -



17 Study Session 17: Derivatives


17.2 LOS Change NO CHANGE FROM 2015


18 Study Session 18: Alternative Investments


18.2 LOS Change 18.2.1 Reading 61: Introduction to Alternative Investments LOS Change type 2015 Syllabus 2016 Syllabus

d. Partial

Change: Addition

Describe hedge funds, private equity, real estate, commodities, and other alternative investments, including, as applicable, strategies, sub-categories, potential benefits and risks, fee structures, and due diligence;

Describe hedge funds, private equity, real estate, commodities, infrastructure, and other alternative investments, including, as applicable, strategies, sub-categories, potential benefits and risks, fee structures, and due diligence;

f. Partial

Change: Addition

Describe issues in valuing, and calculating returns on, hedge funds, private equity, real estate, and commodities

Describe issues in valuing, and calculating returns on, hedge funds, private equity, real estate, and commodities, and infrastructure

18.3 Exam Weighting Change


NO CHANGE FROM 2015

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Apptuto CFA L1 LOS Changes 2016