Assurance

Question 1

Inventory valuation
Financial reporting
Aspe

Answer 1

Value lower of cost & NRV

NRV = estimated selling price less selling costs

Question 2

Inventory - cost

Financial reporting - ASPE

Answer 2

Includes purchase, conversion, and other costs incurred to bring to location and condition.

Trade discounts, rebates, and other similar items deducted in determining the cost of purchase

Storage, admin, and other selling costs are explicitly excluded from cost of inventories

Question 3

Internally generated intangible assets - r&d

Financial reporting - ASPE

Answer 3

Research is expensed
Development - choice to expense or capitalize if:
. Technically feasible
. Intention to complete
. Ability to use or sell
. Availability of technical, financial, or other resources to complete it.
. Ability to measure expenditures
. Probable future economic benefits generated

Question 4

Goodwill & intangible assets - Amortisation

Answer 4

Amortize over useful life
Amortisation method and useful life est. To be reviewed annually
Indefinite life = no Amortisation
Expected useful life must consider :
. Expected use of asset
. Expected useful life of related assets
. Contractual, legal, and regulatory provisions

Question 5

Investments

Financial reporting - ASPE

Answer 5

Investments subject to significant influence can be equity or cost method

Investments without significant influence:
. Not quoted in active markets- using cost method with fmv option upon first recognition
. Quoted on active market- at fair value

Question 6

Financial instruments - impairment

Financial reporting - ASPE

Answer 6

Tested for impairment at end of each reporting period
When found - reduce carrying value to highest of:
. Pv of cash flows expected from holding the asset
. Net realizable value
. Amount entity expects to realize

Impairment can be reversed if asset subsequently recovers in value - only to original cost

Question 7

Deductibility of expenses

Tax - level b

Answer 7

General rule: to be deductible the expense or outlay must be made or incurred by the taxpayer for the purpose of earning income and be expected to generate income related to the taxpayers business or property

Question 8

Common disallowed expenses

Tax level b

Answer 8

Amortisation, impairment, accounting gains/losses
Personal expenses - membership/club dues
Charitable donations - deduction for taxable income for corp.
Political contributions- limited credit
Taxes and interest/penalties
Meals and entertainment 50% unless for remote worksites
Finance and reorg expenses - 5 years
Life insurance unless mandatory per loan agreement
Unpaid amounts and unpaid remuneration- accrued salary not paid 180 days after year end is deemed not to have been paid until actually paid
Carrying charges on vacant land - capitalise to acb
Soft costs on construction (interest, legal, insurance, prop taxes) capitalise.

Question 9

Common allowable expenses

Tax level b

Answer 9

Automobile expenses - watch for personal portion

Home office expenses

Convention expenses- 2 per year.

Foreign taxes paid - deductions in excess of 15% on foreign sourced property income, since foreign tax credits limited to 15%; if no ftc can be claimed, entire amount of foreign non-business tax income tax is deductible

Inventory valuation (lower of cost or market, method must be consistent, no LIFO)

Reserves - no deduction for a reserve, contingent liability, or sinking fund in general but reserve is permitted for doubtful debts, amounts not due under instalment sales contract; any reserve deducted in current year must be taken as income in the following year.

Question 10

CCA

Tax level b

Answer 10

Claimed on all tangible property other than land, if available for use

Inducements such as leasehold improvements may be included in income or used to reduce capital costs

Half year rule all except class 12 and 52

Dispositions credited to ucc at lower of cost or proceeds. - excess of proceeds create capital gains

Terminal loss - balance remains in ucc when last asset disposed of - did not depreciate fast enough

Recapture - when last asset disposed and exceeds ucc pool. Depreciated too fast

Question 11

Reporting alternatives - specific items - cas 805
Audit and assurance
Level - a

Answer 11

Cas 805 - audit of a single financial statement and specific elements, accounts, or items of a financial statement.
.. Audit level assurance on individual financial statements, or accounts rather than whole financial statements.
.. May be practical alternative if whole financial statements are not being audited

Question 12

Retiring allowance rollover to rrsp

Taxation level b

Answer 12

Retiring allowance (severance pay) paid for recognition of long service or compensation for loss of employment includes:
.. Payments for unused sick leave credits on termination
.. Amounts received on termination including damages

With service prior to 1996 the following amounts may be directly transferred to an rrsp
.. 2,000 per year prior to 1996
.. 1,500 per year prior to 1989 provided no vested contributions or dose by employer.

Question 13

Shareholder loan

Tax level b

Answer 13

If debit - principal must be added to shareholders income ita 15(2)

No imputed interest under ita 80.4(3)

Can be deducted under ita20(1)(j) when repaid

Exception: if loan repaid before second balance sheet date then no inclusion in shareholder income, imputed interest still applies, cannot be series of loans and repayments.

Exception - loan advanced as employee rather than shareholder to acquire; residence; auto for work; or share of company as long as at the time the loan was made bona-Fide arrangements were made for repayment

Question 14

Revenue recognition- consignment sales

Financial reporting - ASPE

Core level A

Answer 14

Goods shipped but not yet billed

Could be returned if not sold or only billed for to the extent sold

Performance not complete merely for delivery. Risks and rewards not yet transferred to the buyer due to sellers continuing involvement

Revenue cannot be recognized until payment received or goods can no longer be returned.

Question 15

Asset criteria

Financial reporting - ASPE

Core level A

Answer 15

Future benefit
Control of benefit
Event that caused benefit already occurred

Question 16

Inventory

Financial reporting - ASPE
Core level A

Answer 16

Lower of cost and NRV

NRV is estimated selling price less estimated selling costs

Question 17

PPE - betterments

Financial reporting
Core level a

Answer 17

Enhances service potential (increase in output, capacity, service life, quality, or reduction of operating costs)

If above applies - capitalise to asset

If not, expense as r&m

Question 18

Non-monetary transactions

Financial reporting - ASPE
Core level a

Answer 18

Should be measure at more reliably measured monetary fair value of asset given up and the fair value of the asset received, unless the transaction lacks commercial substance or either asset is reliably measurable in which case it should be measured at the carrying value of the asset given up

Commercial substance occurs when the entities future cash flows are expected to significantly change as a result of the transaction or the value of the asset given up is significantly different from the asset acquired.

Question 19

Review engagements

Audit and assurance -

Elective level A

Answer 19

Assess plausibility within ASPE or ifrs framework

Moderate level of assurance

Negative assurance

Independence required

Typical procedures include
...obtain knowledge of business
...enquiries of client personnel
...analytical procedures 
...discussion with management re information being received and reported on

Question 20

Opening balances

Audit and assurances

Elective level A

Answer 20

Sufficient and appropriate evidence on opening balances required to issue opinion

Evidence may be obtained by reviewing the previous auditors working paper or by performing specified audit procedures if previously unaudited

If no evidence available can issue qualified opinion or denial/disclaimer of opinion due to scope limitation

Not applicable to a review as no requirement to send out a/r confirmations or attend inventory counts which are time sensitive and generally only applicable to audit level engagements.

Question 21

Employee vs contractor

Taxation

Level b

Answer 21

No single test decisive. Must consider:
..intention of parties
..control of work (hours, location, how job is done)
..ownership of tools
..chance of profit and risk of loss
..ability to subcontract work and hire assistants
..integration

Issues:
..contractors can deduct reasonable expenses
..employees can receive ei benefits - contractors opt in with restrictions
..employers required to withhold source deductions for employees - contractors remit on own
..employers may be responsible for both ee/er contributions of ei and cpp if individual incorrectly identified as a contractor

Question 22

Employer provided automobile - standby charge

Taxation level b

Answer 22

Standby charge is taxable benefit if employer provided auto is available for personal use.
..2% of the original cost per month available or
..2/3 of monthly lease payments made
Reduced by payments made by the individual to the employer
Reduced when personal km 50% for business purposes.

Question 23

Employer or died automobile, operating cost benefit

Tax level b

Answer 23

Taxable benefit is:
..$0.27/km of personal use or
..50% of standby charge (>50% business use)

Operating costs include gas, insurance, maintenance but not parking.

Question 24

Employer provided automobile- tax planning

Tax level B

Answer 24

Consider against employee buying car personally and charging per I’m allows (since standby charge is based on original cost may be more effective)

Consider employee including allowance in income and claiming business portion of actual car expenses if they exceed the allowance

Maintenance of log to justify personal vs business Kim’s

Lower standby charge to reduce the number of personal days available.

Increase business use by visiting clients on the way to and from work

Question 25

Employment taxable benefits. Tax level b

Answer 25

Board and lodging - unless at remote location Rent free and low rent housing Non-business trips Gifts

Question 26

Employment non-taxable benefits

Answer 26

Uniforms and special clothing required Transportation to job site Moving expenses reimbursed Rec facilities at place of work Premiums paid under private health services plan Professional membership fees for benefit of employer Loyalty points when travelling for business Points earned using personal credit card for business purposes

Question 27

Impairment of definite life intangible assets - ASPE Financial reporting level a

Answer 27

1) determine if factors indicating impairment exist 2) group asset(s) with other assets/liabilities to form group at lowest level that generates cash flow (cash generating unit) 3) determine if impairment exists by comparing nbv to recoverable amount (undiscounted cash flows ) 4) calculate impairment by comparing nbv to NRV Cannot reverse write-downs

Question 28

Accounts receivable, fr aspe

Answer 28

Considered financial instrument - right to receive cash Must be tested for impairment If impaired - write down required Amount of write-down recognized as impairment loss in net income

Question 29

PPE costs | Financial reporting ASPE

Answer 29

Consideration to acquire or construct develop or improve a PPE All costs directly attributable including installation Including labour, overhead, materials

Question 30

Capital lease criteria - lessee Financial reporting - ASPE

Answer 30

Only one needs to be met Transfer of ownership or bargain purchase price Lease term >=75% of economic life of asset PV of minimum lease payments greater than 90% of fair value of leased asset -discount rate is lower of stated rate or implicit lease rate

Question 31

Capital lease criteria - lessor Financial reporting - ASPE

Answer 31

ALL needed Credit risk is normal Unreimbursable costs are estimable And one of lease criteria (bargain purchase, 75% of life, 90% fmv)

Question 32

Types of capital lease - lessor Financial reporting - ASPE

Answer 32

Sales type Arise when a dealer uses leasing as a way to sell products Record as sale Direct financing At inception, fair value of leased property is equal to carrying value Usually arises when lessor is intermediary between manufacturers and lessee Record as lease receivable including payments to be received and residual Difference between lease receivable is unearned finance income to be recognized yearly

Question 33

Compound financial instruments Financial reporting - ASPE

Answer 33

Classified as a liability or asset in accordance with their substance on initial recognition F.I. Containing both a liability and equity element should be separated as follows: ... Equity component is measured at zero - all to liability OR .... Less easily measurable component is allocated to the residual amount after deducting from the entire proceeds of the issue the amount determined for the component that is more easily determinable The sum of the carrying amounts assigned to the components must be equal to the carrying amount as a whole ( no gain or loss on recognition)

Question 34

Capital budgeting - lease vs buy Finance level b

Answer 34

Calculate npv of each option Npv of buy - consider: ..... Cost of asset ..... PV of tax shield ..... Maintenance costs NPV of lease consider - PV of after tax payments Other factors ... Impact on covenants ... Cash flows ... Leasing may be easier to qualify for ... Purchasing may provide more flexibility ... Tax treatment of leased - esp capital lease.

Question 35

Financing; debt vs equity Finance level b

Answer 35

Debt financing options ... Loan - consider security ... Lease ... Gov't assistance Equity financing options ... Angel investors, friend or family, lower return maybe, passive ... Venture capitalists - high return, active mgmnt, exit strategy ... Private equity, later in lifecycle so lower risk. ... Public markets.

Question 36

Revenue recognition completed contract method Financial reporting - ASPE

Answer 36

Only appropriate when performance consists of the execution of a single act or when the enterprise cannot reasonably estimate the percent of progress toward completion NO equivalent g recognition under ifrs

Question 37

Revenue recognition; percentage of completion method Financial reporting - ASPE

Answer 37

Appropriate when: .... Performance consists of the execution of one act .... Revenue recognized proportionately by reference to performance of each act If number of acts is indeterminable, straight line recognition appropriate if no better method available.

Question 38

Revenue recognition - effect of uncertainties (returns) Financial reporting- ASPE

Answer 38

Rev recognition requires revenue is measurable and ultimately collectible .... If significant and unpredictable number of returns do not recognize revenue .... If amount of returns can be estimated based in experience, may be possible to provide an allowance for returns expense

Question 39

Inventory measurement- cost formulas, specific identification Financial reporting - ASPE

Answer 39

Cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be assigned by using a specific identification of their individual costs. ASPE 3031.22

Question 40

Inventory measurement - allocation of overhead Financial reporting - ASPE

Answer 40

... Allocation of fixed production overheads to the cost of conversion is based on normal capacity of the production facilities ... Actual level of production may be used if it approximates normal capacity ...unallocated overheads are recognized as an expense in the period in which they are incurred.

Question 41

Intangible assets Financial reporting - ASPE

Answer 41

Identifiability ... Is separable or ... Arises from contractual or legal rights Control ... Right to obtain future economic benefits flowing from the underlying resource and restrict the access others have An intangible asset shall be recognized if and only if ... It us probable that the future economic benefits will flow to the entity ... The cost of the asset can be measured reliably.

Question 42

Lease inducements Financial reporting - ASPE

Answer 42

Lease inducements are an inseparable part of the lease agreement and, accordingly are accounted for as reductions of the lease expense over the term of the lease

Question 43

Business income vs property income Taxation

Answer 43

Question of fact ...business income will arise from an adventure or concern in the nature of trade determined as follows: Conduct - how long has the asset been held, safe there similar transactions? Nature of the asset, - is the asset capable of producing income? Is the asset related to the taxpayers ordinary business Intent - did the taxpayer originally purchase the asset with the intent to sell? For individual - capital gain typically taxed lower then business income For business - capital gain taxed higher then business operating under sbd

Question 44

Incremental Cash flows Finance

Answer 44

Comprise additional cash flows from new project, incorporating tax affected initial outlay, annual revenues & Expenses, and terminal value or cost associated with the project. When determining incremental cash flows from a new project, consider: * Sunk costs - initial, unrecoverable outlays * Opportunity costs - represent any potential loss of current cash flows due to accepting a new project * Cannibalization - opportunity cost where a new project takes sales away from existing project * Working Capital Changes - changes in receivables, payables, and inventory due to accepting a new project - incremental

Question 45

Control Deficiencies - approach Audit & Assurance

Answer 45

``` The most effective format to address controls weaknesses consists of a short statement of the problem (deficiency), its potential effect(s) on the financial statements or operations (implication) and suggestions to address the matter (recommendation) o Deficiency (D) – this is generally a case fact outlining something that might be deficient with the current controls o Implication (I) – here, we go beyond case facts to explain the effects of the noted deficiency either on the financial statements or on operations. To the extent possible, effects on the financial statements must be tied to assertions or at least the affected accounts must be outlined along with a discussion of how they might be affected by the deficiency o Recommendation (R) – this involves suggesting a solution to rectify the noted deficiency that is specific and practical given the case facts and circumstances. ```

Question 46

Internally Generated Intangible Assets Financial reporting - IFRS

Answer 46

* Research is defined as original and planned investigation with prospect of gaining new scientific or technical knowledge and understanding * Development is application of research or other knowledge to a plan or design for new product or process * Research costs always expensed Development costs can be capitalised if all of the following exist: 1) Technically feasible 2) Intention to complete 3) ability to use or sell 4) probable future economic benefits 5) availability of adequate technical, & other resources 6) Ability to reliably measure the expenditures attributed * Costs meeting tangible asset criteria should not be capitalized as intangible.

Question 47

Intangible Assets - Amortization Financial reporting - IFRS Reference: IAS 38.72, .88, .97, .104, .107, .109

Answer 47

* amortized over estimated useful lives * Indefinite life assets not to be amortized, but annually tested for impairment * Assets with definite lives can be reported via cost or revaluation * Amortization method and useful life should be reviewed annually * Consider: Expected use, life of related assets, contractual provisions, product life cycles, other economic factors

Question 48

Discontinued operations Financial reporting - IFRS Reference: IFRS 5.03, .31 - .33

Answer 48

* A component of an entity where its operations and cash flows can be clearly distinguished operationally and for financial reporting purposes, from the rest of the entity and it has been disposed of or classified as held for sale * Report results of discontinued operations on the statement of Comprehensive income for current and prior periods, net of tax, segregated as follows: Post-tax profit or loss of discontinued operations Post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation

Question 49

Assets held for sale Financial reporting - IFRS Reference: IFRS 5.06 - .15, .25

Answer 49

* Non-current assets (or disposal group) to be disposted of other than by sale should continue to be classified as held and used until they are disposed of * Non-current assets (or disposal group) to be sold should be classified as held for sale when ALL of the following are met: 1) Management scommits to a plan to sell 2) Steps to locate a buyer and complete the sale have started 3) It is being actively marketed at a reasonable price 4) It is available for immediate sale in its present condition 5) Sale is probable and expected to occur within the year 6) Actions required to complete the sale indicate its unlikely significant changes to the plan will be made or that the plan will be withdrawn.

Question 50

Borrowing Costs Financial Reporting - IFRS

Answer 50

* Interest and financing costs that an entity incurs in connection with the borrowing of funds * Capitalize borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset * Possible qualifying assets: * Inventories * Manufacturing plants * Intangible assets * Investment properties

Question 51

Share-Based compensation Financial reporting - IFRS Core - level C Reference: IFRS 2.10, .11

Answer 51

* For equity-settled share-based payment transactions, entity shall measure the goods or services received, and corresponding increase in equity, directly at the fair value of the goods or services received, unless that fair value cannot be estimated reliably, in which case fair value of the equity instruments granted is used. * Transactions with employees and others providing similar services require use of the fair value of the equity instruments granted measured at grant date, because typically it is not possible to estimate reliably the fair value of the services received.

Question 52

Common audit Risk factors Audit & Assurance Elective - Level A

Answer 52

* New or additional users * new personnel * Management bias * Changes to IT Sys. * Going concern * New tech * Debt covenants * legal claims * Cash flow issues * High risk industry * Control issues * Complex systems * New problems or issues * Corp. restructure * Significant growth in revenues or assests * Changes in operating environment * New Changes in products or activities * Expanded foreign ops * New accounting pronouncements

Question 53

Materiality Audit and Assurance Elective level A

Answer 53

* Amount that a user of financial information would require in order to change their opinion * Common base = 5% of Normalized net income before tax * Materiality not purely quantitative - qualitative factors as well * Consider specific materiality for specific items, accounts, etc. * Performance materiality provides a cushion in case of aggregate undetected misstatements.

Question 54

Audit approach Audit & Assurance Elective Level A

Answer 54

* If control risk assessed at maximum, no reliance may be placed on controls and substantive approach must be followed: * If control risk assessed at less than maximum, tests of controls necessary which could lower amount of substantive work to be done at year end (combined approach).

Question 55

Financial statement assertions:

Answer 55

Classes of transactions & events: * Occurrence * Completeness * Accuracy * Cut-off * Classification Account balances at period end: * Existence * Rights & Obligations * Completeness * Valuation Presentation & Disclosure * Occurrence & Rights and obligations * Completeness * Classification & Understandibility * Accuracy & Valuation

Question 56

User of an expert: Audit & Assurance Elective level A

Answer 56

* Evaluate the competence, capabilities and objectivity of the expert * Obtain an understanding of the expert's work * Evaluate the appropriateness of the expert's work as audit evidence for the relevant assertion

Question 57

Revenue Recognition Criteria (ASPE)

Answer 57

1) Performance is complete (Risks and rewards, significant acts) 2) Consideration is measurable 3) Collection reasonably assured

Question 58

Revenue Recognition - Performance Criteria (ASPE)

Answer 58

1) Persuasive evidence of an arrangement exists 2) Delivery has occurred, or services have been rendered 3) Price to the buyer is fixed or determinable - Cancellable sales arrangements - Right of return - Price protection or inventory credit arrangements - Refundable fee for service arrangements

Question 59

Revenue Recognition - Multiple Deliverables (ASPE)

Answer 59

* Evaluate all deliverables to determine whether they represent separate deliverables * If you can ID separate deliverables, assess rev recognition criteria for each deliverable separately * If two or more transactions are linked together in such a way the commercial effect can't be understood without reference to the series of transactions as a whole, then the criteria will be applied to the series of transactions as one

Question 60

Government assistance (ASPE)

Answer 60

1) Assistance for non-capital items - Include in net income for period when incurred - When Gov't assistance relate to expenses of future accounting periods, appropriate amounts shall be deferred and amortized to income as related expenses are incurred 2) Assistance for capital items - reduce cost of capital item with any depreciation computed on the net amount; or - Defer and amortize on basis of depreciation 3) Provided there is reasonable assurance that the enterprise has complied and will continue to comply with the conditions for receipt of the gov't assistance, the accrual basis of accounting is appropriate.

Question 61

Discontinued operations (ASPE)

Answer 61

* A discontinued operation is a component of an entity where its operations and cash flows can be clearly distinguished from the rest of the entity and it has been disposed of or classified as held for sale * Report results of discontinued operations on I/S for current and prior periods, net of tax.

Question 62

Assets held for sale (ASPE)

Answer 62

* Long lived assets to be disposed of other than by sale should continue to be classified as held for use until they are disposed of * Long lived assets to be sold should be classified as held for sale when all of the following are met: - Management commits to a plan to sell - It's available for immediate sale in its present condition - Steps to locate a buyer and complete the sale have started - Sale is probable and expected to occur within a year - It's being actively marketed at a reasonable price - Actions required to complete the sale indicate it's unlikely significant changes to the plan will be made or that the plan will be withdrawn. * Asset held for sale should be measured at lower of carrying amount or fair value less cost to sell, and should not be amortized

Question 63

Accounting changes - Change in estimate (ASPE)

Answer 63

* Use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine reliability * Estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information * By its nature, the revision of an estimate does not relate to prior periods and therefore is not the correction of an error * The change in an accounting estimate is recognised PROSPECTIVELY by including it in net income in: - The period fof the change, if the change affects that period only; or - The period of the change and future periods, if the change affects both.

Question 64

Net present value (NPV) vs Internal Rate of Return (IRR) (FINANCE)

Answer 64

* NPV rule states that you invest in any project which has a positive NPV when cash flows are discounted at the opportunity cost of capital * The IRR rule states that you invest in any project offering a rate of return which exceeds the opportunity cost of capital * A projects rate of return is calculated as the discount rate at which the NPV of the project would be zero * Therefore the NPV and IRR rules should give the same accept/reject answer about a project in most circumstances * A projects cash flow should include incremental elements only, but no financing elements since discounting of the cash flows already addresses financing.

Question 65

Discounted vs. Undiscounted Cash flows (Finance)

Answer 65

* Incremental cash flows (excluding financing elements) should be discounted to recognise the time value of money for the purposes of making a decision regarding accepting or rejecting a project * Incremental cash flows (including financing elements) should be analyzed year over year, without discounting, to determine if a certain cash position would be met by a certain time.

Question 66

Payback period (Finance)

Answer 66

* Payback period is the time in which the initial cash outflow of an investment is expected to be recovered from the cash inflows generated by the investment * In general, investments with lower payback period are preferred * To determine, calculate the cumulative net cash flow for each period and hten use the following formula for payback period: - Payback period = 1+B/C, where - A is the last period with a negative cumulative cash flow; - B is the absolute value of cumulative cash flow at the end of the period A; and - C is the total cash flow during the period after A.

Question 67

Reporting Alternatives - compliance with agreement (Assurance)

Answer 67

* Section 5815 Special report - Audit reports on compliance with agreements, statutes and regulations - A report stating compliance with the terms of the agreement, through procedures such as inspection, observation, inquiry, confirmation, recalc, reperformance, and analytical procedures - High level of assurance and therefore most costly * Section 8600 report - Reviews of compliance with agreements, statutes and regulations - A report stating compliance with the terms of the agreement, through procedures such as inquiry discussion, & analysis - Moderate level of assurance therefore less costly alternative * Section 9100 report - results of applying specified auditing procedures - A report providing the factual results of the specific procedures that can be chosen to performed - No assurance provided but most flexible alternative

Question 68

Methods of collecting audit evidence (ASSURANCE)

Answer 68

1) Inspection - thorough examination of an item 2) Observation - use of the senses to assess certain activities 3) Inquiry - obtain written or oral confirmation from the client 4) Confirmation - from 3rd party 5) Recalculation - recheck the computations completed by client 6) Reperformance - redo other non-math procedures such as internal controls 7) Analytical procedures - use comparisons & Relationships to determine reasonability

Question 69

Related Party Transactions (ASPE)

Answer 69

* For transactions carried out in the normal course of operations: - Monetary RPT, or non-monetary RPT with commercial substance should be recorded at their exchange amount, unless - It is a non-monetary RPT that is an exchange of a product/property to be resold in the same line of business. -> carrying amount adjusted for additional consideration * For transactions NOT in the normal course of business: - Monetary RPT, or non-monetary RPT with commercial substance -> Exchange amount IF: - Change in ownership interest is substantive, and - Exchange amount is supported by independent evidence * When the RPT has been measured at carrying amount, any difference between the carrying amounts of items exchanged, together with any related tax amounts, shall be booked to equity

Question 70

Financial Ratio Analysis

Answer 70

* Liquidity ratios measure the availability of cash to pay ST Debts - Current, quick, working capital Asset turnover ratios measure efficiency in utilising assets - A/R turnover, Inventory turnover * Profitability ratios measure how well assets are used and expenses are controlled to generate a return. - Gross profit margin, net profit * Debt Service ratios measure ability to repay term debt - Debt/Equity; times interest earned Ratios general not useful unless comparable with prior performance or another organisation or industry benchmarks. Cannot compare against other industries

Question 71

Lease Accounting - Land & Building (ASPE)

Answer 71

Must determine whether the terms allow ownership to pass or provide bargain purchase option - If yes - lease will capitalize the land separately from building based upon fair values - If no, is the FV of the land at the inception of the lease significant in relation to the total FV of the leased property? - If yes, the land & Buildings to be considered separately and lease payments allocated in proportion to fair values - If no, land and building considered a single economic unit and economic life of building is considered economic life of unit.

Question 72

Subsequent events (ASPE)

Answer 72

In general there are two types: - Those that provide further evidence of conditions existing at FS date; and - Those that are indicative of conditions that arose subsequent to FS statement date * FS should be adjusted when events occurring between th date of the FS and the report date provide additional evidence of existing conditions * Disclosure shall be made of the events subsequent to FS date but prior to report date that cause significant changes to assets or liabilities in the subsequent period; or will (or may) have a significant effect on future ops

Question 73

Contingencies (ASPE)

Answer 73

* existing Condition involving uncertainty as to possible gain or loss * Uncertainty will result in a range or probabilities; - Likely; unlikely; not determinable * Contingent losses - MUST be accrued if the future event is LIKELY and a reasonable estimate can be made - DISCLOSED if the future event is LIKELY but a reasonable estimate cannot be made - DISCLOSED if the future event is not determinable * Contingent gains - must NOT be accrued - Disclosed if likely to occur

Question 74

Revenue Recognition (IFRS)

Answer 74

All conditions are fulfilled * Entity has transferred risks and rewards of ownership * No managerial involvement, to the degree usually associated with ownership nor effective control over goods sold; * Amount of revenue can be measured reliably * Probable that economic benefits will flow to the entity; and * costs incurred or to be incurred in respect of the transaction can be measured reliably

Question 75

Accounting Policies, changes, errors (IFRS)

Answer 75

Only change a policy if: * Standard/interpretation requires it, or * Chanes will provide more relevant and reliable information to users Apply changes to policy RETROSPECTIVELY unless it is impractical (restate opening balances) Changes to estimates are not errors and should be applied PROSPECTIVELY Corrections to errors should be applied RETROSPECTIVELY unless impractical

Question 76

PP&E (IFRS)

Answer 76

Initial recognition if: * Future economic benefits will flow to the entity * Cost can be reliably measured Initial measure-recorded at COST Subsequent measurement * Carried at cost less A/A and impairment OR * Carried at revalued amount, i.e. FV, less subsequent depreciation if FV can be reliably measured - An increase in value is credited to OCI unless it is a reversal of a revaluation decrease previously recognised as an expense Significant components are required to be depreciated over their estimated useful life.

Question 77

Agriculture (IFRS)

Answer 77

Standard intended to the following which relates to agricultural activity: * Biological assets; agricultural produce at point of harvest; gov't grants related to biological assets Initial recognition if: * Entity controls the asset as a result of a past event * Future economic benefits will flow to the entity * Cost of asset can be reliably measured Initial measurement at: * FV less estimated point of sale costs * Cost, if no reliable measurement of FV is available Subsequent measurement * FV, less estimated POS costs * Cost, less accumulated depreciation if no reliable measurement of FV is available.

Question 78

Revenue Recognition - Identification of the transaction | IFRS

Answer 78

Apply rec. criteria to separately identifiable components to reflect substance of transaction * E.G. products sold with an identifiable amount for subsequent services. In such case a service revenue should be deferred and recognised over the service period. Conversely, the rec criteria are applied to two or more transactions together when they are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole * E.G. an entity may sell goods and, at the same time, enter into a separate agreement to repurchase the goods at a later date, thus negating the substantive effect of the transaction; in such a case, the two transactions are dealt with together.

Question 79

Provisions, Contingent Liabilities, Contingent assets (IFRS)

Answer 79

Provisions - a liability of uncertain timing or amount. May be recognised when: - An entity has a present legal or constructive obligation as a result of a past event - Probable that an outflow or economic benefit will be required to settle obligation - Reliable estimate of amount can be made Contingent losses - NOT recognized: - Possible obligation from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the entity - Present obligation that arises from past events that is not recognised because not probable or the amount cannot be measured reliably Contingent gain -> NOT recognised: - Possible asset that arises from past events and existence to be confirmed by a future event not wholly within the control of the entity

Question 80

Tax Implications of going public:

Answer 80

* Company status change from CCPC to pubco * Deemed year end on date of change in status * Possible acquisition of control * Tax balances that are eliminated - CDA, RDTOH * SBD lost - only available to CCPC * Any undistributed SB earnings in the low rate pool must be paid out first as other than eligible dividends * SRED public companies qualifies for lower rate of ITC and not refundable * Public company shares do not qualify for Capital Gains exemption.

Question 81

Using the work of internal auditors

Answer 81

* External auditor shall be examine the following when determine reliability of internal audit work: - Extent of independence and objectivity of internal auditors - Level of competence of internal audit - Whether a systematic and disciplined approach, including quality control, was taken In determining the nature and extent of work that may be assigned to internal auditors the external auditor should consider: - Amount of judgment involved in execution of internal audit procedures and evaluating audit evidence - Assessed risk of material misstatement - Existence of threats to objectivity and competence of internal auditor.

Question 82

Reporting Alternatives - Specific items | ASSURANCE

Answer 82

CAS 805 = audit of a single financial statement and specific elements, accounts or items of a financial statement * A report providing audit level assurance on individual financial statements or accounts, rather than financial statements on the whole Auditor must * Comply with all CAS relevant to the audit * Determine the acceptable financial reporting framework to be applied and document the agreed terms of the audit engagement, including the expected form of any reports to be issued CAS's written in the context of an audit of FS are to be adapted as necessary when applied to audits of other historic financial information When forming an opinion and reporting on a single FS or specific element the auditor shall apply the requirements of CAS 700, adapted as necessary.

Question 83

General Assurance Standards (Assurance)

Answer 83

Standards for assurance engagements OTHER THAN audits: * Practitioner should have a reasonable basis for believing engagement can be completed in accordance with the standards in this section (5025) * Should seek managements acknowledgement of responsibility for subject matter as it relates to the objective of the engagement * Engagement performed with due care and objective state of mind * Adequate proficiency in such engagements required * Practitioner should have adequate knowledge of subject matter * Practitioner should develop or identify criteria that are suitable for evaluating the subject matter

Question 84

Audit Objectives - Transactions (INCOME STATEMENT) - COACC

Answer 84

``` Completeness Occurrence Accuracy Cut-off Classification ```

Question 85

Audit Assertions Balance sheet - RECV

Answer 85

Rights & Obligations Existence Completeness Valuation & Allocation

Question 86

Types of audit evidence:

Answer 86

``` Inspection Re-performance Recalculation Analysis Confirmation Enquiry Observation ```

Question 87

Control Activities - SAID SO (Principals of internal control)

Answer 87

``` Segregation of duties Authorisation Independent verification Safeguarding of assets Other ```

Question 88

Procedures for - Completeness : Income Statement & Balance sheet

Answer 88

Risk: Expenses or liabilities are not complete. - Normal bias means that revenues and assets are more likely to be overstated. Income statement - * Agree bank statement amounts to journal entries * Trace sales invoices to GL to ensure recording Balance sheet - Liability procedures * Loans - confirmation to bank * Balance sheet - inventory * Floor to sheet inventory count

Question 89

Procedures for - Classification

Answer 89

Review source documents to ensure item is allocated to appropriate account.

Question 90

Procedures for - Existence (BS)

Answer 90

Bias for assets is to falsify - recorded assets don't exist A/R - send out confirmations (confirmation) to test the existence of A/R balance Inventory - sheet to floor

Question 91

Procedures for - Rights & Obligations (BS)

Answer 91

Inspecting source documents to verify ownership

Question 92

Procedures for - Valuation (BS)

Answer 92

Examine subsequent receipts for A/R for collectibility Inquire with MGMNT RE collectability Value in use vs market value for pP&E

Question 93

Procedures for - Occurrence (IS)

Answer 93

Trace expenses from general ledger to supporting documentation (reperformance)

Question 94

Procedures for - Accuracy (IS)

Answer 94

Recalculate interest expense

Question 95

Procedures for - Cut-off

Answer 95

Subsequent receipt & disbursement testing Inspect shipping documents to verify date of shipments around year end