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
