Requirements for scope of knowledge and skills

General Description of Requirements

This scope of knowledge and skills required for AI PAS certification are prepared for a candidate to be able to assess the level of his/her readiness for the exam. The list includes skills required for:
	efficient processing of financial and economic information;
	development of appropriate methods for investment project analysis;
	preparation of a quality opinion and development of efficient business plan for an investment project..
Almost all provisions hereof are set forth in a form of suggestions starting with verbs ‘to know’, ‘to understand’ and ‘to be able to’. The verbs mean as follows:
	‘To Know’ means to know definitions, terms and formulas related to a certain notion.
	‘To Understand’ means to ‘know’ such notion and to be able to interpret and explain all approaches used in such notion, to understand when and which of the approaches should be applied.
	‘To Be Able To’ means to ‘understand’ covered notions and to be able to put such notions to use. In particular, to be able to carry out necessary estimations and interpret their results if required data are available.

Scope of Knowledge and Skills

Here is a full list of knowledge and skills that a candidate for AI PAS Certificate must have.

Financial Statements and Taxes

1.1. Cash Flow Statement (CFS) 1.1.1. To know the CFS structure. To understand the meaning of the three CFS sections, i.e. operating, investment and financial ones. 1.1.2. To know the difference between the direct and indirect CFS. To understand advantages and disadvantages of each statement variant. 1.1.3. To be able to prepare the CFS of an investment project using the direct approach. 1.2. Profit & Loss Statement (P&L) 1.2.1. To know the standard P&L structure. To understand the difference between P&L items and similar items of direct CFS. 1.2.2. To know how and to be able to calculate EBIT, EBITDA, NOPLAT. 1.3. Balance Sheet 1.3.1. To know the standard balance sheet structure. To understand the principle of balancing assets and liabilities. To know how the basic balance sheet items are formed. 1.3.2. To be able to assess financial position of the company, financing sources of its assets based on balance sheet data. 1.3.3. To be able to analyze the quality of management of current assets and current liabilities of the company. To be able to allocate the most important indicators for companies of different types and to compare companies between each other. 1.3.4. To know how indicators of different items of the balance sheet, P&L, CFS are connected with each other. To be able to prepare the balance sheet as of the end of the year based on the data of the balance sheet as of the beginning of the year as well as data of P&L and CFS. 1.4. Taxes 1.4.1. Value-Added Tax. To know the tax base, rates, frequency of payments, the principle of reflection in the P&L statement and CFS. To know the principle of accounting and payment of VAT upon acquisition of PP&E. To be able to account for VAT upon import or export of goods or equipment. 1.4.2. Income Tax. To know the tax base, rates, frequency of payments. To be able to account for previous losses upon calculation of the tax. 1.4.3. Property Tax. To know the tax base, rates, frequency of payments. 1.4.4. Unified Social Tax. To know the tax base, rates, frequency of payments. 1.4.5. To know that there are other taxes and other accounting principles and to understand when they arise. MET, tax on imputed income, excise taxes, customs duties, simplified accounting system. 1.5. Financial Results 1.5.1. To be able to calculate profitability indicators for operating activity of the company, i.e. return on sales, operating leverage. To understand advantages of application of different profit notions upon calculation of such indicators as net profit, pre-tax profit, EBIT, EBITDA. 1.5.2. To be able to calculate turnover indicators both in days and in number of turnovers per year. To understand influence of turnover indicators on an investment project and on operating activity of the company. 1.5.3. To be able to calculate return on assets and capital indicators. In particular, to know ROA, ROE, ROIC. To understand the meaning of such indicators and their relation to efficiency of investment projects. 1.5.4. To be able to calculate liquidity indicators and to understand their meaning and relation to financial stability of the company. To know CR, QR, TIE, total DCR. 1.5.5. To be able to calculate financial stability indicators, to know approximate equity to borrowed funds ratio that may be considered normal for investment projects.

Investment Project Budget

2.1. Investment Project Budget Structure 2.1.1. To be able to choose the right estimation increment for an investment project budget with consideration for all factors influencing accuracy and quality of estimate representation. 2.1.2. To understand risks of excessive details in estimates. To be able to find the balance between necessity of details and advantages of quality forecasting of values of each profit and cost item. 2.1.3. To be able to make adjustments for inflation in investment project estimates. To understand potential affect of inflation and currency fluctuations on investment project performance. To understand differences between investment project analysis using flat prices and inflated prices, to be able to apply both approaches. 2.1.4. To know typical profit and cost elements of an investment project (proceeds, operating costs, capital goods investment and working capital). 2.1.5. To be able to develop a budget for projects of an operating enterprise, i.e. outsourcing, upgrade and expansion of production, new areas of activities. 2.2. Operation Costs of the Project 2.2.1. To understand how costs are divided into variable and fixed ones. To be able to describe an investment project cost model according to such division. 2.2.2. To be able to substantiate the forecast value of operating costs of a project using available data. To understand the level of accuracy of forecasts under different circumstances. 2.2.3. To be able to use the prime cost of products according to the financial or managerial accounting data. To know the ‘only costs resulted from the project should be accounted for’ principle and to be able to apply it. To be able to separate conventionally fixed and conventionally variable costs from the prime cost structure. 2.2.4. To be able to adjust a project for company-scale changes (changes in profits or expenses of other departments). 2.3. Initial Investments and Working Capital 2.3.1. To know the standard structure of initial project investments. 2.3.2. To be able to account for previous investments, construction in progress. To know how they influence cash flows, balance sheet and efficiency indicators. To be able to apply such knowledge in various projects. 2.3.3. To understand importance of accounting for the working capital in investments. To understand the difference of reflection of CFS of a project using direct and indirect approach and connection of such approaches with the project working capital analysis. 2.3.4. To be able to differentiate between projects with short ROR term and long ROR term projects. To understand the difference between such projects. 2.3.5. To be able to calculate the working capital for projects with short production cycle subject to given production and sales forecasts and given ROR terms. 2.4. Sources of Financing 2.4.1. To know the basic forms of investment project funding, i.e. common shares, loans, bonds, leasing. 2.4.2. Equity capital: to know how capital receipts are reflected in financial statements (P&L, CFS, balance sheet) and how dividend distribution is reflected in financial statements. 2.4.3. To know disadvantages of reflection of dividend in a project budget and to be able to analyze incomes of shareholders without dividend payments. 2.4.4. To understand the difference between strategic and portfolio investors, their requirements for a project. 2.4.5. To know how a loan is reflected in financial statements and how it influences tax payments. To know how interest on investment loan charged during construction and installation is accounted for. 2.4.6. To be able to account for interest on loan using flat prices. 2.4.7. To know typical construction financing models including the one with debt refinancing upon commissioning of facilities or with a variable loan rate. 2.4.8. To know standard loan requirements of a lending bank. 2.4.9. To know the fundamentals of legal leasing procedure. To understand differences between leasing and loan in terms of tax payments. 2.4.10. To know basic features of a bond loan.

Assessment of Efficiency of Investment

3.1. Net Cash Flow 3.1.1. To know what net cash flow (NCF) of a project is. To be able to allocate the net cash flow if CFS is available. 3.1.2. To understand the way NCF differs for different project participants, i.e. shareholder, bank, company’s management. To understand the way to approach net cash flow analysis in complicated situations (for example, upon assessment of a project for one of two banks that are lenders of the project). 3.2. Discount Rate 3.2.1. To know what a discount rate is. To understand its meaning. 3.2.2. To understand based on what a discount rate can be selected. To be able to calculate it if information on the cost capital is available. 3.2.3. To be able to make adjustments for project risks when selecting a discount rate. 3.2.4. To be able to select a discount rate both for calculation at inflated prices and for calculation at fixed prices. To know the ‘nominal’ and ‘real’ rate notions. 3.3. Performance Indicators 3.3.1. To know and understand NPV, PBP, IRR. To be able to calculate such rates if CFS of the project is available. 3.3.2. To be able to quickly assess approximate value of PBP and NPV of a project based on the net cash flow. 3.3.3. To understand what factors influence the value of NPV and to be able to fluctuate calculate parameters within acceptable limits in order to get a positive value of NPV. To understand the limits of an acceptable change in parameters. To understand what a positive, or a negative value of NPV means in terms of a project. 3.3.4. To understand how PBP can be interpreted and to be able to apply it if the project has more than one payback points. 3.3.5. To know challenges of IRR calculation, to understand its application limits and to know when IRR should not be calculated. 3.3.6. To be able to adopt decisions on project performance or to choose the best project from several alternatives based on NPV and IRR. 3.4. Terminal or Continuing Value 3.4.1. To know that NPV and IRR only cover advantages of a project which are expressed in cash flows within a forecast interval. To understand what advantages can also be covered by the project analysis. 3.4.2. To know project terminal value calculation methods. To be able to account for terminal value based on net assets. To understand restrictions of such approach when estimating a project for a bank. 3.4.3. To know the ‘continuing value’ notion. To understand and to be able to apply the Gordon model. To be able to apply terminal value for assessment of efficiency and to understand restriction of the approach.

Risk Analysis

4.1. Risk Types and Analysis Approaches 4.1.1. To be able to determine the main investment project risks, to differentiate between measurable and non-measurable risks. 4.1.2. To know the basic risk types for the most popular investment projects, i.e. residential construction, commercial real estate, industrial construction (including those that are export-oriented). 4.1.3. To know the basic investor risk mitigating methods, i.e. insurance, distribution of financing by tranches, establishment of money reserves. 4.2. Risk Simulation 4.2.1. To be able to draw project sensitivity diagrams. To understand their content and to be able to apply them when adopting decisions on attractiveness of a project. 4.2.2. To be able to prepare project scenarios substantiating each scenario. To be able to apply scenarios when assessing risks. 4.2.3. To understand the issue of possible dual risk accounting when reflecting a risk in the discount rate and when analyzing sensitivity. 4.2.4. To know the definition of ‘breakeven point’. To understand the relation between a breakeven point and sensitivity analysis diagrams. 4.2.5. To understand threats and issues associated with application of a complicated mathematical tool when analyzing risks.

Procedural and Institutional Aspects of Investment Project

5.1. Project Life Cycle and Investment Attraction Cycle 5.1.1. To know the basic investment project development stages. 5.1.2. To understand the tasks an expert has to complete during pre-feasibility study stage. 5.1.3. To know the basic components covered by the project feasibility study and due diligence assessment. 5.1.4. To understand the differences between project simulation tasks at feasibility study stage, investment stage and operating stage. 5.2. Legal Requirements for a Project 5.2.1. To understand what project features can be influenced by insufficient negotiation of legal issues. To be able to reflect it in a project analysis. 5.2.2. To know the basic requirements set for industrial and construction investment projects in terms of the list of permits and consents. 5.2.3. To know the list of the basic activity types that require special licenses and certificates. 5.2.4. To know the general principles underlying the laws concerning industrial intellectual property (trademarks, patents) and copyright. 5.2.5. To understand the basic principles of legal formalization of a loan, i.e. required documents, restrictions imposed on an owner. 5.2.6. To know the fundamentals of the laws On Joint-Stock Companies and One Limited Liability Company. 5.3. Organizational Issues of a Project 5.3.1. To understand the necessity of negotiation of project staffing issues. To be able to form a company’s scheduled organizational structure. To know the principles of analysis of availability of staff with required characteristics. 5.3.2. To be able to prepare a project schedule. To know the following terms: Gantt chart, PERT chart, milestones, resources. To be able to draw simple schedules using MS Project software. 5.3.3. To understand the investment project process monitoring principles.

Business plan

6.1. Business plan Structure 6.1.1. To know the standard business plan structure. To understand the role of each section. 6.1.2. To know the ‘feasibility study’, ‘investment offer’, ‘investment memorandum’ terms. To know the most popular interpretation of such terms and to understand that there can be other interpretations. 6.2. Content of Sections 6.2.1. To be able to prepare the most appropriate project summary. 6.2.2. To know recommended content of the On Company section. 6.2.3. To be able to impartially reflect the market in a business plan. To understand the importance of objective evidences of planned sales. 6.2.4. To be able to reflect marketing, investment and operating activities of the company in a business plan. 6.2.5. To be able to prepare and analyze a new product launching concept, to match the efforts and costs with expected results. 6.2.6. To understand the principles of reflection of a financial plan in a project business plan. To know the list of data recommended to be reflected in the section. 6.2.7. To understand the role of the section in project risk analysis. To be able to determine when such section should become an independent chapter of a business plan and when risk analysis should be included in all sections. 6.3. Layout Requirements 6.3.1. To know the basic principles of preparation of an efficient documents in terms of its layout and makeup. 6.3.2. To understand the importance of inclusion of measurement units and other parameters in schedules. 6.3.3. To be able to prepare a high-quality brief project presentation.

Recommended Reading

In order to prepare for an AI PAS exam we recommend the following reading:

1. Koltsova I.V., Riabykh D. A., The Practice of Financial Diagnosis and Projects Evaluation, Moscow: Williams Publishing House, 2007. 2. Vilenskiy P.L., Livshits V.N., Smolyak S.A. Evaluating Investment Projects Efficiency, Moscow: Delo, 2004. 3. Behrens W., Havranek P.M., Manual for the Preparation of Industrial Feasibility Studies , Vienna: UNIDO, 1995¹ 4. Richard A. Brealey, Stewart C. Mayers , Principles of Corporate Finance, Moscow: Olimp Business, 2004 5. E.R. Yescombe. Principles of Project Finance, Moscow: Vershina Publishing House, 2008. 6. ax Code of the Russian Federation² 7. Law On Joint-Stock Companies 8. Law On Limited Liability Companies

¹ The so-called «UNIDO methods», Manual for the Preparation of Industrial Feasibility Studies. ² We understand that there are summaries of such laws and that real life does not necessarily comply with their provisions. Nonetheless, we do recommend reading the source document because it is important for understanding of many project issues.