The Level I changes from 2015 to 2016 cover five of the ten topics, though most updates are relatively minor. In fact there is only one brand new reading, which is …

Portfolio Management: Risk Management (Reading 42)

This reading is entirely descriptive, with barely a single number appearing in its pages.

Risk management is the process of defining an enterprise’s required risk levels, measuring the current risk levels, and doing whatever is needed to bring current to required levels, usually downwards.

The Risk Management Framework is described, in terms of what the Board does (risk governance), what management does (all the risky work), and how the risk management infrastructure stops management doing anything too risky. There are lots of descriptions here, all very examinable. Risk governance is explored in depth, alongside risk tolerance/appetite, risk drivers, risk budgeting, and plenty of other two word phrases beginning with the R word.

Many types of risk are defined, both financial and non-financial risks. Finally, four methods of dealing with risks are described: a firm can avoid the activities altogether, accept them, insure against them, or mitigate them with derivatives.

Financial Reporting & Analysis: Inventories and Long-lived Assets (Readings 29 & 30)

These two fairly substantial readings relating to balance sheet assets have both been rewritten, at least in part. The impact on the inventories reading is the greater, though the new stuff is not huge.

Although the majority of the updated inventory reading overlaps with the old, much deeper analysis is required on how to convert LIFO to FIFO (in practice you can only convert in this direction with any level of certainty), with both the balance sheet and income statement adjustments needed.

The reading on long-lived assets is also rather similar to 2015. However there is a new section on analysing disclosures on property, plant & equipment and depreciation: these allow an analyst to estimate a group of assets’ average age and remaining life. Pretty simple stuff with a diagram, hopefully giving you an easy exam question or two.

One other tiny addition to FRA: Reading 25 (on income statements) describes a new accounting standard on revenue recognition. Nothing to lose sleep over.

Other topics

Three other topics have had minor amendments made.

In Equity, behavioural finance (within Reading 48) has been updated, though this is little more than a tweak to the list: two definitions from the previous list of eight have gone, and one new one (herding) has joined. Know the definition, move on.

Fixed Income has had a number of minor changes, nothing particularly substantive. A little more depth on structured securities in Reading 53 (though no more LOSs), a bit of rearranging in Reading 55 (Asset-Backed Securities), some changed descriptions of the credit hierarchy of bonds in Reading 57, as well as renaming the final subsection from “municipal bonds” (which are basically American) with “non-sovereign government debt” (which is mostly American … subtle difference).

Finally Alternative Investments has a new section on infrastructure. However it is only nine paragraphs long and we summarise it on a single slide.

Overall the changes in 2016 are not substantial. All of the Quartic materials have been fully updated to reflect new content and any LOS updates, and of course as a candidate you have the full 2016 CFA curriculum.