DAY 2 - Financial Reporting and Assurance Flashcards
ASPE 3400
ARE THERE MULTIPLE ELEMENTS? Discuss measurement of each component.
1) Reasonable assurance of collectibility
2) Reliably measurable
3) Performance achieved:
a) persuasive evidence of arrangement exists
b) delivery occurred (unless bill and hold) or services rendered
c) seller’s price is fixed and determinable
Performance achieved:
a) recognize based on percentage of completion if performance based on more than one act - long term contract, multiple acts, service provided over time
b) recognize using completed contract if single act
IFRS 15
1) ID contract
2) ID performance obligations - goods or services that are distinct
Distinct if:
i) customer can benefit from the good or service either on its own or together with other resources that are readily available
ii) entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract
3) Determine transaction price
- Uncertainty? Right of return (return liability)
4) Allocate transaction price
- standalone selling prices
5) Recognize revenue as performance obligations satisfied
- control is transferred over time if:
a) Customer simultaneously receives and consumes benefits as the entity performs, or
b) entity’s performance creates an asset (WIP) that the customer controls as the asset is created or enhanced, or
c) entity’s performance does not create an asset with an alternate use for the entity and the entity as an enforceable right to payment for performance completed to date
- otherwise, control is transferred at a point in time
Consider - output vs input methods
PPE Impairment - ASPE 3063
1) Asset grouping
2) When to test for recoverability
3) Per asset group:
a) Assess whether indicators exist
b) Test for recoverability
c) Calculate impairment loss, write down
4) note the changes to future depreciation due to this write down
5) note that CANNOT reverse impairment in future if value increases
PPE Impairment - IAS 36
1) Cash Generating Unit
2) When to test for recoverability - Impairment indicators
3) Per CGU:
a) Discuss impairment indicators
b) Test for recoverability
c) Calculate impairment loss, write down
4) note the changes to future depreciation due to this write down
5) note that can reverse impairment in future if value increases
Contingencies - ASPE 3290
1) Definition of contingent liability (existing condition, uncertainty as to possible G/L, resolution based on future event)
2) Recognition criteria (2 parts)
3) When no amount within a range is better PICK THE MIN
4) Disclosures
Provisions - IAS 37
1) Definition of provision
2) Definition of liability
3) Recognition criteria of provision
4) When there is a range, pick weighted average
5) Disclosures
Note: “contingent liability” not recognized
ASPE 1000 - elements of BS
1) Definition
2) RECOGNITION CRITERIA:
a) appropriate basis of measurement, reasonable estimate can be made
b) probable that future economic benefits will be given up
Non Monetary Transactions - ASPE 3831
1) Definition (exchange with little or no monetary consideration involved)
2) Measured at the FV of the asset given up or received whichever is more reliable unless: - ANALYZE EXCEPTIONS incl commercial substance
3) Commercial substance criteria (2 in ASPE)
4) Assess what the more reliable FV amount is
Non Monetary Transactions - IFRS - no single section but within IAS 16, IFRS 15, IAS 38
1) Whether is a non monetary exchange
2) Guidance at how to measure
3) Commercial substance criteria (3 in IFRS)
4) Assess what the more reliable FV amount is`
Revenue vs Gains - consider this when it is a for profit receiving a portion that is a “contribution” -ASPE
1) Definition of gains per ASPE 1000
2) Recognition criteria in ASPE 1000
Intangible Assets - ASPE 3064
1) Definition of intangible (3) : identifiable, control (legal right), future benefits?
2) Recognition criteria (2)
3) Internally generated - research vs devt
4) Development cost capitalization criteria (6)
5) In ASPE, policy choice whether to capitalize devt costs once criteria met; in IFRS, MUST capitalize
Consider useful lives - indefinite vs definite - must be capitalized separately
Intangible Assets - IAS 38 (impairment in IAS 36)
1) Definition (3)
2) Recognition criteria (2)
3) Internally generated - research vs devt
4) Devt cost capitalization criteria (6)
5) In IFRS, MUST capitalize devt costs once criteria are met
Consider useful lives - indefinite vs definite - must be capitalized separately
Goodwill Impairment - ASPE 3064 (dealt with with CGUs in IAS 36)
1) WHEN must test goodwill for impairment
2) Assign to REPORTING UNIT
3) Prescribed order of impairment testing - When goodwill and other assets of a reporting unit are tested for impairment at the same time, the other assets are tested for impairment before goodwill.
4) Test each aspect/item within reporting unit for impairment performing writedowns when required.
5) Test goodwill for impairment by comparing CV of ENTIRE REPORTING UNIT to FV of reporting unit
6) Write down
7) Goodwill impairment loss never reversible even in IFRS.
Leases - ASPE 3065 - Perspective of Lessor
Capital lease if
1) Does lease transfer risk and rewards of ownership?
a) Transfer ownership at the end
b) >75% of useful life
c) > 90% of FV
AND
2) Credit risk normal
3) Can reasonably estimate unreimbursable costs
USE IMPLICIT RATE
IF CAPITAL
Either:
A) Finance Type, or
B) Sales Type - if sales type, COGS is the cost of inventory less the PV of unguaranteed residual value
Consider the definitions for each to determine which
Leases - IFRS 16
1) Assess whether a contract is or contains a lease - guidance on whether over a period of use, customer has:
a) the right to obtain substantially all of the economic benefits from use of the identified asset
b) the right to direct the use of the identified asset
2) Whether or not exemption as either:
a) Short term lease (under 12 months)
b) Low dollar value of underlying asset
3) Rule - must recognize ROU asset and lease liability
Presentation - ROU asset separate from other assets
IF LESSOR:
1) Finance or operating lease? - PV of MLP for criterion 3 still assessed using lessee’s cost (e.g. exclude UGRV)
2) If finance lease and entity is a dealer/manufacturer
- record as a sale
Dr. Lease receivable - note that this INCLUDES UGRV
Dr. COGS (COGS less PV of UGRV)
Cr. Inventory (COST of inventory)
Cr. Sales revenue (the difference between sum of lease receivable and COGS less inventory cost)
IF SALE LEASEBACK:
1) qualify as sale under IFRS 15?
2) amount of gain limited to portion attributable to seller-lessee (PV MLP/FV at present)
Disposal of Long Lived Assets and Discontinued Operations - ASPE 3475
Individual assets/disposal group
1) Disposal group?
2) HFS criteria? (6)
3) Conclude on each asset/disposal group whether it meets held for sale (HFS). Note that assets must be removed from/reclassified from PPE and reported separately
4) Conclude on how to measure HFS (lower of CV and FV less cost to sell (Dr. Impairment loss))
5) No amortization while held for sale
6) Discuss presentation of disposal group. Under ASPE, these remain classified as non-current unless they are sold between YE and the date the FS are completed. (no representation of prior year comparatives, A/L not offsetting)
Discontinued operations
1) Component criteria
2) HFS criteria
3) Measurement at lower of cost and FV less costs to sell
4) Presentation of disposal group on BS (no representation of prior year comparatives, A/L not offsetting)
5) Presentation as discontinued operations - criteria (3)
6) Conclude on discontinued ops classification
7) Conclude on presentation of discontinued ops (presentation as single line - income after tax - there is representation of comparative figures in prior year)
Non-current assets held for sale and discontinued operations - IFRS 5
Assets:
1) Disposal group?
2) Available for sale in present condition (separated out in IFRS)
3) Sale must be highly probable (5 other criteria)
4) Conclude on each asset/disposal group whether it meets held for sale (HFS). Note that assets must be removed from/reclassified from PPE and reported separately
5) Conclude on how to measure HFS assets (Lower of cost and FV less costs to sell)
6) No amortization while held for sale
7) Assets HFS will be reclassed into current assets under IFRS. Discuss presentation of disposal group
Discontinued ops
1) Component criteria (2)
2) HFS criteria (8)
3) Measurement of non-current assets
4) Presentation of disposal group (lower of C and NRV)
5) Presentation as discontinued operations criteria (3) - Consider whether meets DEFINITION of discontinued operation (component of an entity disposed of or HS + 3 criteria)
6) Conclude on discontinued ops classification
7) Conclude on presentation of discontinued operations - representation for prior year
Accounting for promotions under IFRS and ASPE
Any promotion is essentially something that reduces revenue because they are consideration payable to a customer, including:
- vouchers
- credits that can be redeemed
- refunds
- coupons
Consider the year/period they relate to and allocate the discount.
ASPE 3400 - separately identifiable
IFRS 15 - distinct goods
Right of Return - IFRS 15
Dr. AR
Cr. Sales
Cr. Refund liabliity
Dr. COGS
Dr. Goods to be returned (record at cost of inv to be returned LESS ANY COSTS/DECREASE IN VALUE)
Cr. Inventory
Warranty - IFRS 15
Two types
1) Additional service provided - deferred revenue (performance obligation)
2) Warranty that goods will be/perform as intended (covered under IAS 37)
Related Party Transactions - ASPE 3840
1) Recognize at carrying value unless:
- in the course of normal operations and
- has commercial substance
OR
- has commercial substance and
- is not in the normal course of operations, and
a) change in ownership is substantive, and
b) exchange amount is supported by independent evidence
When RPT is measured at carrying amount, any difference between the CARRYING AMOUNTS of the items exchanged goes:
1) into contributed surplus if net credit. If net debit, first against contributed surplus amount arising from previous RPT, then
2) Against RE for remainder of debit amount
RPT - IFRS
Always at the exchange value
There IS a section on RPT DISCLOSURES though
Impairment of Long Lived Assets - ASPE 3063
1) Asset group?
2) Assess for Indications for impairment if changes in circumstance indicate potential impairment. Indications - (internal/external)
3) Test for recoverability
- sum of undiscounted cash flows vs carrying value. NOTE that sum of undiscounted CFs INCLUDES planned selling price!!
4) If fail test (CV is higher than recoverable amount), write down to FV which is either the PV of discounted future CFs OR the FV to sell if known
Note that impairment cannot be reversed
Impairment of Assets - IAS 36
1) Cash Generating Unit? (CGU)
2) Assess for indications of impairment every year - Indications (internal/external)
3) Test for recoverability:
- CV vs the higher of:
a) CGU’s value in use (PV future CFs)
b) CGU’s FV less costs of disposal
4) If fail test (CV > recoverable amt), write down to the HIGHER of A or B
Impairment can be reversed for PPE
Impairment cannot be reversed for Goodwill
Some intangibles must be tested for impairment annually regardless of whether there are indications (IFRS Specific):
1) CGU’s with goodwill
2) Intangibles with indefinite lives
3) Intangibles not yet ready for use
Asset Retirement Obligations (AROs) - ASPE 3110 - (called decommissioning liabilities in IFRS)
1) Definition of ARO
2) Definition of liability
(a) they embody a duty or responsibility to others that entails settlement by future transfer or use of assets, provision of services or other yielding of economic benefits, at a specified or determinable date, on occurrence of a specified event, or on demand;
(b) the duty or responsibility obligates the entity, leaving it little or no discretion to avoid it; and
(c) the transaction or event obligating the entity has already occurred
3) ARO recognition criteria:
a) Recognize in the period it is incurred
b) When a reasonable estimate of the amount can be made
Note - accretion expense (an operating expense), not an interest expense
Decommissioning Liabilities - IAS 37
1) Definition of provision
2) Definition of liabilty
3) Recognition criteria for provision
Joint Arrangements - ASPE 3056
1) Definition of joint arrangement/joint control
2) Definition - determine type below
3) Determine accounting treatment
Types:
1) Jointly controlled assets - account for like joint operations in IFRS
2) Jointly controlled operations - account for like joint operations in IFRS
3) Jointly controlled enterprises - equity or cost method
Note: gains/losses related to contributions in exchange for ownership in joint arrangement or whatnot are only recognized to the percentage of the interest of the OTHER investor(s).
Joint Arrangements - IFRS 11 and IAS 28
A) Definition of joint arrangement/joint control
2) Definition - determine type below
3) Determine accounting treatment
Types:
1) Joint operations
2) Joint venture
Note: gains/losses related to contributions in exchange for ownership in joint venture are only recognized tot he percentage of the interest of the other investor(s) - Note that this difference will be amortized over the life of the asset/related item
Contract assets vs AR
Contract asset is the UNBILLED portion (AR is the billed portion) of revenue to date
First: Dr. Contract asset Cr. Revenue then when bill Dr. AR Cr. Contract asset
Business combinations - IFRS 3 - purchase of net assets
1) Definition: there must be both
a) acquirer who has gained control
b) business that has been purchased
Conclude whether a business combo
Business combo - purchase of net assets:
2) Allocate the consideration paid
a) Identifiable net assets acquired are recorded at FV directly in acquirer’s books
a. 1) Question of separately identifiable assets - they are separately identifiable if:
i) separable (legal contract indicates separable)
ii) asset arises from contractual rights
b) any difference between consideration paid and the FV of the INA is recorded as goodwill
NOTE:
Net asset purchase = NO DEFERRED TAX IMPLICATIONS
3) Conclude on INA and goodwill
4) AJE
Business combinations - IFRS 3 - purchase of shares
1) Definition: there must be both
a) acquirer who has gained control
b) business that has been purchased
Conclude whether a business combo
Business combo - purchase of shares:
2) Allocate the acquisition differential to
a) INA and the related DITL/A
a. 1) Question of separately identifiable assets - they are separately identifiable if:
i) separable (legal contract indicates separable)
ii) asset arises from contractual rights
b) any difference between consideration paid and the FV of the INA is recorded as goodwill
c) consider non controlling interest if present
3) Calculate any amortization of the acquisition differential or impairment of goodwill
4) Conclude
5) AJE
Business Combinations - ASPE 1582
1) Definition: there must be both
a) acquirer who has gained control
b) business that has been purchased
Conclude whether a business combo
2) Allocate purchase price or acquisition differential as with IFRS
3) Recognition criteria
4) Conclude
5) AJE
Share Based Payments - IFRS 2 or ASPE 3870
Record compensation expense when the share based compensation is issued
Note: stock options: Dr. Comp expense Cr. Cont surplus - stock options then Dr. Cash Dr. Cont surplus stock options Cr. Common shares
For SAR: Dr. Compensation expense Cr. SAR liability (matches FV of SAR right before Settlement) Settlement: Dr. SAR liability Cr. Cash or Dr. SAR liability Cr. Compensation expense
Investment in Associates - IAS 28
1) Definition of associate and significant influence - determine if this is the case
2) Equity method definition
3) Determine whether joint arrangement
4) Consider in determining value of investment account
a) Dividends (portion according to ownership)
b) Owners share of investee’s adjusted net income after tax - adjust for unrealized/realized after tax intercompany profit and for amortization of acquisition differential
5) AJE
FOCUS ON OWNERSHIP % at:
A) Acquisition differential level - sum of total INA x ownership %
B) Allocation of acquisition differential - sum of total allocated x ownership %
C) Amortization of acquisition differential - sum of total to amortize per year x ownership %
D) investee’s income - ownership %
E) adjustment to investee’s income (unrealized after tax profits and realized after tax profixs - ownership %)
F) Dividends - ownership % or actual received.
Investment (in Associates) - ASPE 3051
1) Definition of significant influence - determine if this is the case
2) option - equity or cost method. Must use equity method or FV if shares traded on open market
3) Equity method definition if using it
3) Determine whether joint arrangement
4) Consider in determining value of investment account
a) Dividends (portion according to ownership)
b) Owners share of investee’s adjusted net income after tax - adjust for unrealized/realized after tax intercompany profit and for amortization of acquisition differential
5) AJE
Inventories
Cannot use FIFO or weighted average if they are not ordinarily interchangeable
PPE IAS 16 and ASPE 3061
1) PPE Definition
2) If repair/upgrade - consider if a betterment or R&M
3) Useful lives and amortization - consider componentization
4) Whether you can/should capitalize interest costs:
IFRS - must capitalize if meet criteria of qualifying asset under IAS 23
ASPE - can choose to capitalize or expense interest costs
Independence Assessment and Documentation - Assurance - if there is an assurance and an advisory/consulting engagement with the same client
1) Requirements - independence in fact and appearance for assurance engagements
2) Assessment:
a) Self review threat - impact of non audit work on audit
b) Self interest threat - size of non audit fee vs audit fee
c) Familiarity threat
d) Intimidation threat
e) Advocacy threat - whether advocating for client
3) Documentation:
a) Description of non audit engagement
b) Assessment of threats identified
c) Safeguards identified to reduce threats
d) How safeguards reduce threats
Special Reporting Options
CAS 800 - audit - special purpose or special purpose frameworks
CAS 805 - audit - single element or FS
Section 5815 - audit - compliance with agreements
Section 8600 - review - compliance with agreements
Section 9100 - specified procedures report
CSRE 2400 - regular review and reviews of other frameworks
AuG-6, Examination of a Financial Forecast or Projection Included in a Prospectus or Other Public Offering Document
AND
Section 7150 Auditor’s Consent to the Use of a Report of the Auditor Included in an Offering Document
Materiality Benchmarks
Net income before tax - 3-7%
Assets - 1-3%
Revs or expenses - 1-3%
Equity - 3-5%
Engagement Acceptance Issues - Audit
1) Ability to render audit opinion
- whether there would be any significant scope limitations due to lack of prior year audit. If no audit of PY numbers, FS will state this and there will be an Other Matter paragraph
2) Opening balances if unaudited
- consider ability to perform audit procedures on OPENING balances
- if unable to gain assurance on opening balances, qualify opinion due to scope limitation
3) Identify any tight timelines - may not be able to render opinion in timeframe desired
4) Independence - whether auditor would be considered independent in fact and apperance
- if accepting multiple (audit and non-audit) engagements
- if significant issue (former partner on BOD, etc)
Safeguards to address Independence Threats Identified
1) Inform audit team during planning
2) Perform unpredictable procedures
3) Have quality control reviewer
4) Use professional judgement and skepticism
Performance materiality
Amount lower than materiality to allow for possible misstatements
Between 60 and 80% of materiality
Variance Analysis - Assurance
Interpret variance analysis and PROVIDE POSSIBLE EXPLANATIONS FOR RESULTS
Procedures
Account
Risk
Procedure - no general ones but should be specific to each accounting issue
Responsibility of the Auditor for the Going Concern Assumption (4) - CAS 570
1) Obtain sufficient appropriate evidence about management’s use of the going concern assumption
2) Conclude if material uncertainty exists
3) Determine impact on audit report
4) Communicate with those charged with governance
Explain the difference between HIGH assurance (procedures) and LOW assurance (procedures)
High:
1) Inquiry
2) Observation
3) Analytical procedures
4) Reperformance
5) Recalculation
6) Confirmation
7) Inspection
LOW:
1) Inquiry
2) Analytical procedures
Use of Auditor’s Expert - CAS 620
Three steps overall:
1) Determine need for expert
2) Determine competence, capabilities, and objectivity of expert
3) Additional work to perform on auditor’s expert
Use of Auditor’s Expert - CAS 620 - Step 1 - determine need for expert (4)
1) Determine need for expert:
a) nature and complexity
b) auditor’s expertise
c) risk of material misstatement with this account
d) implications on other areas of FS (FV allocation of acquisition differential)
Use of Auditor’s Expert - CAS 620 - Step 2 - Determine competence, capabilities and objectivity of expert (4)
2) Competence, capabilities and objectivity of expert
a) This assessment required for each engagement
b) professional credentials
c) experience and expertise
d) objectivity of expert
Use of Auditor’s Expert - CAS 620 - Step 3 - Additional work to perform on expert’s report (5)
3) Additional work to perform on expert’s report
a) Confirm competence and capabilities of expert
b) Obtain understanding of expert’s field of expertise
c) review expert’s assumptions, calculations, and supporting documentation
d) perform analytical procedures and reperform calculations
e) assess consistency with other values/results
CAS 705 - Modifications to Opinion of Audit Report (3)
1) Explain difference between qualified and adverse
2) Assess whether misstatements are MATERIAL
3 Assess whether misstatements are PERVASIVE per CAS 705 definition
Interim Review of FS - Section 7060
1) Objective: to assist audit committee in discharging its duties with respect to interim FS that are to be issued under provisions of securities legislation
2) Differences between interim reviews and annual audits
a) types of procedures
b) cost
c) time/work required
d) objective
e) use of report
Use of Work of Internal Auditors - CAS 610 Requirements (3)
1) Objective
2) Competent
3) Systematic and disciplined approach
Due Diligence Engagements - Purpose
Type of report can be a Section 9100
1) Purpose: to perform procedures to ascertain a business’:
a) FMV of assets
b) profitability of the company
c) completeness of liabilities
Due diligence engagements
Steps:
1) Financial analysis - ratios and change; risks (ARP)
2) Tax - assessment for unrecorded taxes payable; ability to use and existence of loss cfwds?
3) Operational
- potential for synergies?
- key employees and mgmt?
- whether earnings would be sustainable?/financial health?
- compatibility of employees
- production/distribution efficiencies and operations?
Purchase of assets vs purchase of shares - Purchaser
1) redundant assets
2) Undisclosed liabilities
3) FMV asset bump up
4) goodwill deduction
5) loss carryovers
Sale of assets vs sale of shares - Seller
1) LCGE
2) Redundant assets
3) Undisclosed liabilities
4) Complexity of tax
Common OFSL risk factors
1) Private vs public
2) Recent financial performance
3) Increased number of users
4) changes to operations
5) complexity of transactions
6) owner manager involvement
7) competency of CFO/controller/mgmt
8) changes to accounting/other systems
9) control environment
10) existence/discovery of errors already
FR - Income Taxes - IAS 12
1) must use deferred income tax method
2) Record current income tax payable/receivable
3) Record benefit related to tax loss that can be carried back to recover current taxes of a previous period as an ASSET
4) Consider whether to record tax losses to be used in future as an asset if probable they will be used
(A deferred tax asset shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised)
5) DITAL = sum of temporary differences x tax rate
6) Classify DITAL as NON CURRENT
FR - Income taxes - ASPE 3465
1) use taxes payable method or future income tax method
2) Record current income tax payable/receivable
3) Record benefit related to tax loss that can be carried back to recover current taxes of a previous period as an ASSET
4) Consider whether to record tax losses to be used in future as an asset if probable they will be used
(A deferred tax asset shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised)
5) future income tax asset/liability = sum of temporary differences x tax rate
6) Classify future income tax asset/liability as CURRENT (for portion of temporary diffs relating to current A/L) or NON CURRENT (for portion of temp diffs relating to non current A/L)
Common temporary differences - deferred/future income tax
1) warranty liability
2) leased asset/ROU asset
3) Lease obligation (SOME WILL BE CURRENT)
4) Decommissioning asset/ARO - asset
5) Decommissioning liability/ARO - liablity
6) Lawsuit accrual
7) PPE
8) Deferred devt costs
9) sevrence cost accrued
10) investment at FVTOCI or FVTPL (tax basis is ACB +/- 50% of CG or CL) while accounting basis is FV on balance sheet
11) capital loss cfwd
Government assistance (same under ASPE and IFRS - ASPE 3800 and IAS 20)
1) Analyze when to recognize :when there is reasonable assurance that:
(a) the entity will comply with the conditions attaching to them; and
(b) the grants will be received.
2) Analyze how to record - if non-capital, defer and recognize into income as related expenses incurred. If Capital - policy choice:
a) deduct from related capital asset with depn on net amount
b) deferred revenue and amortize into income on same basis as related capital asset
Non Monetary Exchanges - ASPE vs IFRS
IFRS - no single standard
ASPE - single standard in ASPE 3831
Consider all factors in assessing whether transaction has commercial substance (there are 3)
NFP accounting (ASNPO)
1) Determine which method to use to account for contributions:
a) Restricted fund method
b) deferral method
2) Discuss type of contribution being made:
a) Restricted contribution - externally imposed stipulations
b) Unrestricted contribution - no stipulations
c) Endowment Contribution - principal must be maintained and interest can be used
Restricted Fund Method - NPO
Restricted fund method
1) restricted contributions to restricted funds = revenue in that fund when received
2) restricted contributions that are not related to a specific restricted fund are recognized in general fund using deferral method
3) Endowment contributions are recognized as revenue in endowment fund when received
Deferral Method - NPO
Restricted fund method
1) restricted contributions are recorded as deferred revenue and recognized as stipulations met
2) Endowment contributions are recognized as increases to NET ASSETS
ASPE 3856
1) Definition - financial instrument, financial asset, financial liability
2) When to recognize
3) classification
4) Transaction costs?
5) Future measurement
6) Assess for indicators of impairment at the end of each reporting period.
7) Test for impairment - CV compared to highest of:
a) value that would be realized if sold
b) value that would be realized if held
c) value that would be realized if right to collateral was exercised
8) derecognition
IFRS 9
1) Financial instrument, asset, liability - as defined in IAS 32
2) When to recognize - party to contractual provisions?
3) Classification
4) Transaction costs
5) Future measurement
6) Impairment - lifetime expected credit losses
7) Measurement of expected credit losses
8) Derecognition (no recylcing if FVTOCI and equity instrument; recycling if FVTOCI and debt instrument)
Warranty vs Loyalty Programs- ASPE
Warranty - Treat as contingent loss under ASPE 3290
Loyalty program - Treat as liability - check that it meets the liability criteria
Loyalty programs - IFRS and ASPE
Loyalty program - Treat as liability - check that it meets the liability criteria
NOTE: NOT a provision under IAS 37 because there is no uncertainty
STEPS
1) Issue
2) Analysis
3) CONCLUSION
EVEN FOR TAX, FINANCE, PM, MGMT ACCOUNTING, ETC
Goodwill ON balance sheet?
This is PURCHASED goodwill (from purchase of net assets) and SO must evaluate to determine whether goodwill is impaired. (Note that in purchase of shares you can still have goodwill impairment but goodwill will not be shown on the parent’s FS, only the consolidated entity’s FS)
Review Engagement Planning Memo:
1) Engagement issues (first year of operations - no PY info to compare, first year review - opening balances, independence, etc)
2) OFSL risk/Significant areas of the business that the review should focus on
3) Approach - will be inquiry and analytical procedures as it is a review
4) Materiality - users and needs, benchmark, amount, PM
5) Procedures - even in short day 3 case suggest MANY procedures - inquire, verify, calculate
Financial Ratios to Do if Prompted for Ratios
1) D/E
2) Current ratio
3) Any ratios tied to covenants
4) AR turnover
5) Inventory turnover
6) Gross Margin
Compare to PY and to industry averages
If CY materiality is less than PY materiality…
Will have to do additional testing on opening balances
Impact of errors on audit opinion
1) Discuss types of opinions
2) Discuss that clean audit opinion is necessary for IPO
3) Compare aggregate misstatement to materiality
4) Discuss impact on materiality if errors are corrected
5) Describe impact of errors on audit report
Error discovered after audit opinion issued
1) If error is material, could have impacted audit opinion
2) Discuss matter with management and the BOD
3) request FS be amended (note detailing reason for amendment included)
4) audit the amendment and related note
5) Review steps mgmt has taken to ensure anyone who received the PY FS is aware of the situation
6) Either amend the audit report or issue new audit report - either case requires an emphasis of matter paragraph to refer to the FS note discussing the reason for the amendment
IPO Considerations (3 general, then 6 detailed)
General (3)
1) Must have unqualified audit opinion
2) All errors detected in audit must be corrected
3) Auditor must review offering document to ensure there are no misrepresentations
Detailed (9) - specific engagement details
1) Audit firm of public company is subject to Canadian Public Accountability Board (CPAB) - subject to practice inspections and requirements
2) Subject to independence rules of auditors of public companies including
a) no member of firm can have family in accounting or oversight role at the company
b) no previous member of the firm can serve as an officer or director of a company
c) no supplemental services can be provided
d) partner and quality control reviewer rotation must occur every five years
e) cannot prepare JEs for company - proposed JEs must be reviewed and entered by mgmt
3) Separate engagement to consent to the use o thee audit report in an offering document - Section 7150
Key items:
a) Auditor makes no representations regarding question of legal interpretation
b) we will not be performing an audit/review of offering doc as a whole - no assurance provided regarding offering document as a whole
4) Procedures:
a) Read prospectus, minutes, legal response letters
b) Perform review procedures to assess plausibility of unaudited FS
c) Pro formas - procedures per Section 7150
d) Verify FS reported on by auditor have adequately been reproduced in the prospectus
5) Auditor’s consent in relation to offering document - expresses consent to being named in the filings. States that we have read the prospectus and have no reason to believe that there are misrepresentations in the information that has been derived from the audited financial statements.
6) If IPO investors are making their decision based on FS that are prior to major sale or event, subsequent event note must be included on YE or interim statements. Subsequent event must also be noted in the comfort letter
DAY 2 AO ID
1) If there are debt covenants - CALCULATE THEM as it is KEY to assurance
2) If there is potential conflict of interest situation or ethical issue - ANALYZE IT SEPARATELY
3) If when looking at issues they seem like issues but they are not related to other parts (e.g. would have to discuss on own and do not have enough info to analyze or make recommendation) these are NOT AOs. Only include/discuss if all else is done first
4) Analyze and discuss going concern issue from assurance POV
Quants
Always conclude on quants in word - bring them in from excel
Steps of analysis
IGARU Issue Guidance Analysis Recommendation User Implications
Always conclude on overall recommendation (even for tax, finance, strategy, PM etc AOs)
Audit of Acquisition - even investment with only significant influence - procedures
1) Audit procedures for each element of the purchase price
- each of the identifiable net assets
2) auditor’s use of an expert
3) Auditor’s use of management’s expert’s work
4) valuation of investment at year end and investment income
- recalculate pick up amount
- confirm amount of dividends received
- confirm ownership percentage
Keep in mind - calculations and AJEs
- Impact of part year on amortization/depreciation
- Requirements to adjust amortization/depreciation if costs capitalized were incorrect
LEASES PV OF MLP
and
LESSORS - payment for lease at start of year
DO NOT INCLUDE THE FUTURE VALUE unless there is a BPO or GRV!!! If you are the lesse!!!!
Lessors:
Dr. Cash
Cr. Deferred lease income
Leases - IFRS vs ASPE
1) ASPE - must exclude executory costs, IFRS can elect to include them in MLP
2) ASPE must use lower of rate implicit in the lease and the incremental borrowing rate; IFRS use rate implicit unless not known
3) ASPE - LESSEE - PV of MLP cannot exceed PV of leased asset. Not a rule for lessor value or for IFRS.
Revenue Recognition - Promos:
- 75% of this year’s membership fee will be refunded next year if xyz occurs
- expected to result in 20% receiving refunds
Would record 75% of membership fee as revenue over the year, and remainder would sit in deferred revenue
Dr. Cash
Cr. Revenue (75%)
Cr. Deferred revenue (25%)
At the end of the refund period, deferred revenue would either be repaid or recognized as earned.
Alternative:
Dr. Cash
Cr. Revenue (100% less deferred)
Cr. Deferred revenue (25% x 20%)
Types of sampling in Audit - two general
1) Statistical - random sampling, MUS, etc. Can project error across sampled Popn
2) Non statistical- e.g. judgemental
Note: test 100% of material items
