CR Flashcards
Areas to investigate in doing tax due diligence:
CT details, HMRC correspondence, VAT group, NGNL transfers to connected parties, payroll, tax loss details, change in trade.
Things to remember in auditing inventory for fraud:
Roles and responsibilities, controls, all physical locations, obsolete items, dispatch systems, goods received,
Things to consider if deciding to accept audit/ assurance.
Are we objectively able to do it, are we competent (to avoid being sued for negligence), liability of firm (to who?), nature of assurance being given (absolute assurance?). Definitions used in unusual engagements.
If an AFS item is revalued upwards, where does the amount go?
Credit to AFS reserve.
A HTM item is impaired due to the issuer of the bonds going into administration. Where does the debit go?
To the PnL
If you sell something in a HTM category early, what happens?
The category would be “tainted” - you now can’t use it for this year and two more years.
Which category of financial asset is a bit of a dumping ground?
AFS - people often put it there to avoid tainting HTM
Where does FVTPL gain get taken to?
Finance income in PnL. Difference between b/f and c/f. Also the general interest received. All to finance income.
How do you hold the value of HTM assets?
At amortised cost, add interest, less interest received gives c/f. Doesn’t look like you revalue each year (e.g. if share market price changes)
How are AFS items re-valued?
Re-measured at each reporting date and gains/ losses taken straight to OCI. (Extra column in the amortisation table).
What are the three parts of the definition of a derivative?
Value derived from an underlying item, requires no or small initial investment, settled at a future date.
When must something be accounted for as an “embedded derivative”, a separate financial instrument?
The combined contract can’t be a FVTPL item, a separate contract with the same terms would be classed as a derivative, the characteristics and the risks of the embedded derivative are not closely related to the host contract.
If an entity acts as an agent (I.e. An internet travel agent) and passes on some of his takings, what counts as revenue?
Only the commission received counts as revenue.
How is revenue recognised for reward schemes?
Include the value of reward points in total revenue. Then divide cash received into revenue and deferred revenue proportionally.
If you know the outcome of a contract (revenue). And you know costs to date, expected costs, % completed. How do you work out cost figure for year?
Stage of completion percentage times total expected costs (i.e. Don’t just take costs to date).
If you don’t know the outcome of a contract but all costs incurred will be recoverable. What is revenue and COS this year?
Both will be the incurred costs to date, so profit is nill.
If a loss will be made on a construction contract. How do you recognise revenue and costs at a given point?
Revenue is the percentage of revenue relating to the stage of completion. Loss is the total loss. Costs is the balancing figure.
How do you work out the amount to put on the SFP for a construction contract?
Costs incurred + recognised profits - recognised losses - progress billings
How do. You work out the PnL charge for a defined benefit plan and the OCI net remeasurement gain or loss?
PnL charge is current service cost plus interest finance code (on obligation) less interest return (on plan assets). The net of gain / loss on each goes to OCI.
If given the defined benefit obligation at year beginning and year end and discount rate used, how do you work out the interest cost?
Discount rate used x obligation value at (beginning of year)
If share options are granted to directors, then the share price falls, and the fair value of option goes from 5 to 18 when the exercise price is reduced, how is the expense altered?
Look at the difference in fair value (13) for all share options granted and spread this over the remaining vesting period.
If a company sells a 1 million trade receivable with recourse for 8 million, what is the double entry?
Dr Cash, Cr Liability 8 mill. With recourse means they still have risks so treat as loan secured on receivables balance.
What are the details for reclassification for an AFS investment to loans and receivables?
New carrying value measured at fair value on reclassification. Amounts already in AFS reserve to be amortised to PnL over remaining useful life of investment.
What does IFRS 7 require qualitative and quantitave disclosure in?
Market (changes in market value of asset), credit (one party defaults) and liquidity risk (difficulty in meeting obligations).
How are financial assets measured in IFRS 9?
Either fair value or amortised cost - base don the entity’s business model for managing the assets and the contractual cashflow characteristics of the asset.
When you finance lease something to someone, it’s like you’re making a sale, how do you record the sale?
Revenue is lower of FV or PVMLP. COS is the cost to you. Remember the finance gain on this revenue figure will also affect PnL for the year.
How do you decide if a segment is reportable?
At least one of these above 10%: total sales, total RESULTs (absolute of all those in profit or all those in loss), total assets. Then see of external sales for all segments chosen are > 75% of total reportable external sales.
For an interim report, which parts must show cumulative figures? And which need the interim figures?
SCI needs interim and cumulative. SCF and SOCE need only cumulative. SFP comparatives are end of prior year.
If a CGU is impaired, how do you put the impairment into the assets value?
Split proportionally to NCA of CGU as these aren’t currently held at recoverable amount. (CA are I think). Also impair goodwill for the impaired subsidiary for relevant percentage. Impairment expense is then all of it as a total.
Which of these is not a control activity: Sequence checking, segregation of duties, Information procession, Authorisation.
Sequence checking, it is a type of application control, not control activity.
As per ISA ?, what are the elements of internal control?
ISA 315: Control environment, Entity’s risk assessment process, Information systems, control activities, monitoring of controls.
ISA ?, says that group should communicate what requirements to the component audit team?
ISA 600, Work to be performed, form and content of communications, confirmation of cooperation, relevant ethical requirements, materiality, relevant significant risks of misstatement, list of related parties.
How do you work out diluted earnings per share?
This is supposed to include contingent events if the will dilute the EPS.
In one question we had to work out the normal EPS. Then the incremental by calculating the interest and then tax effect on profit over the related total number of possible extra shares. Then combining into one total fraction of all bits.
How do you calculate the return on capital employed as a percentage?
PBIT / Total equity + Net Debt less Investments… It looks like net debt is your borrowings less cash.
How do you calculate Gearing (specifically which parts of Equity get included?).
Net debt includes subtracting the cash in hand. All of equity is included (retained earnings and all) SMCH23ST1
List some possible regulations a company would have to follow
Health and safety, accounting, taxation, legal
What are the three types of financial risk?
Economic, translation, transaction, also gearing risk
How do you work out EPS if there’s been a rights issue?
Multiple the pre-rights issue number of shares by the adjustment fraction: post issue value/ TERP
How do you account for a dismantling cost of an asset?
Dr Asset Cr Liabilty with present value of dismantling cost. Then depreciate asset on new total value and amortise out the liability.
If annual cash interest payments are paid in advance how do you measure the interest in the PnL?
Do the percentage on the b/f value less cash paid out.
When should you recognise a provision?
When there is a present obligation for a past event.
How much of the gain or loss on a cash flow hedge should be recognised in PnL?
The ineffective portion, . Lower of cumulative gain or loss on hedging instrument and cumulative change in fair value of hedged item goes to OCI. Remaining change in FV of hedged item goes to PnL
Do employee share purchase plans count as share based payments under IFRS 2?
No, it doesn’t apply to transactions with employees in their capacity as shareholders.
How do you deal with the NCI where the acquisition included some normal shares and some preference?
Work out fair value of net assets. NCI is: NCI percentage of FV of (net assets less all preference shares) PLUS NCI preference percentage of preference share total
What does IAS 12.7 say the tax base is of interest receivables and trade receivables?
Interest receivables is nill, trade receivables tax base is carrying amount
How should the discount rate be calculated for derived benefit obligations?
With reference to high quality corporate bonds of similar currency and maturity. If no market exists refer to government debt. If none of these exist extrapolate yield curves.
According to IAS 19 what should the discount rates not reflect for derived benefit obligations?
Investment risk, actuarial risk, specific risk not relating to entry’s business.
Are provisions allowable for taxation?
Specific ones yes, not general.
How do you value assets held for sale?
Lower of carrying amount and fair value less costs to sale for the whole asset group.
If an asset moves from AFS to normal asset how would you value it?
Look at the higher of Value in use and fair value less costs to sale. The current value will then be the lower of this answer and the carrying amount had it been continually depreciated.
Should transaction costs incurred in renegotiating a loan be charged to PnL when payable? IAS …?
Yes to PnL if the revision is treated as the extinguishment of the loan, but if it is a modification then it can be amortised over the remaining life. IAS 39
When should revised terms of a loan imply that a loan is derecognised and a new financial liability recognised?
If the present value of the cash flows under the new terms is 10% or more different from the present value of the original then it should be recognised as a new loan. Discounted at the effective interest rate and transaction costs included.
Where does the remeasurement component on account of the actuarial valuations get charge to for a defined benefit pension scheme?
Taken to OCI. The service cost and net interest charges go to the PnL.
What are two advantages of defined contribution pension schemes over defined benefit schemes?
Defined contribution schemes are easier to account for. (Dr staff costs, Cr cash). They are also easier too administer and manage. Risk resulting from variable returns is borne by the employee, not by the employer.
How can you work out your deferred tax asset?
Usable tax asset on likely future profits. Do tax rate on carry forward-able tax losses.
If deferred cash is contingent consideration on purchasing a subsidiary, how should it be included in good will?
Discount it by the discount factor and multiply it by the likelihood of it been given.
