Debrief weak topics Flashcards
What is the purpose/function of an audit committee?
- Deal with the internal/external audit process
- Ensure appropriate internal control systems established to prevent fraud.
- Evaluate external auditors’ qualifications, independence, and monitoring their performance.
- Ensures financial reporting process complies with legal/regulatory requirements.
- Monitors new accounting standards and reviews current accounting policies for appropriateness.
- Reviews organization’s risk assessment.
What is the required composition of an audit committee?
- All members must be independent (no positions in org - not required for private corps)
- Must be financially literate
- Must have at least three members.
Which assertion does this describe? “This assertion, when violated results in overstatement of the balance sheet account”
Existence
Which assertion does this describe? “Applies to recorded assets and liabilities that may belong to another party”
Rights and Obligations
Which assertion does this describe? “This assertion, when violated results in understatement of the account”
Completeness
Which assertion affects the initial and subsequent measurement of an account?
Accuracy, valuation, and allocation
Which assertion is tested by sending an accounts receivable confirmation to customers asking to confirm the amount owed to the company?
Existence
Describe the classification assertion
When balance sheet or income statement accounts have not been recorded in the correct accounts. *Specific to balance sheet and IS separately, not between sheet
Describe the presentation assertion
Have the assets, liabilities, equity (balance sheet) and revenues and expenses (income statement) been appropriately aggregated or disaggregated and have disclosures been made that are relevant and, understandable in the context of the requirements of the applicable financial reporting framework?
Which assertion and accounts are tested by inspecting shipping documents to verify the date of inventory shipments around period end?
Cutoff of sales and cost of sales.
describe the occurrence assertion
Refers to whether a recorded transaction actually took place. Commonly tested by selecting recorded transactions and tracing back to the source document.
What are the common benchmarks for materiality?
- Normalized profit before tax
- Total assets
- Total revenues
- Total expenses
- Total equity
What are the recommended materiality thresholds?
- 3-7% Normalized profit before tax
- 1-3% of revenues or expenses
- 1-3% total assets
- 3-5% Total equity
NFPs 1-3% rev or exp OR 1-3% total assets
What is the suggested threshold for performance materiality?
60-75% of overall materiality
What is the purpose of performance materiality?
To create a safety cushion that ensures unidentified misstatements, or the aggregate of immaterial mistatements do not exceed overall materiality. Higher risk, lower end of the range (meaning low$ of performance materiality), lower risk, high end of range.
what are the procedures an auditor may perform?
- Confirmation
- Inspection
- Inquiry
- Recalculation
- Observation
- Analytical procedures
- Reperformance
Which CCA classes are not eligible for the immediate expensing of $1.5mil by CCPCs?
1-6, 14.1, 17, 47, 49, 51
What is a retiring allowance?
Amount paid to employees when they stop working in recognition of service and includes amounts paid for unused sick leave credits.
When can a retiring allowance be transferred to an RPP or RRSP?
$2,000 per year for each year of service prior to 1996. Additional $1,500 for each year prior to 1989 if no vested contributions to RPP/DPSP by employer
What is an internal rate of return?
Calculates the discount rate for a project that would cause the NPV to be $0.
What is the weighted average cost of capital?
Return required by investors so they are willing to provide additional capital for investment. Tells us on average, how much any of their capital is costing the entity.
Calculated as the average of after-tax financing costs, weighted for the proportion of each type of capital
Over what period is a “Right-of-use” asset depreciated?
Lesser of lease term and useful life. If reasonable certainty that the asset will be purchased by lessee, use useful life regardless.
What is the first step in deciding how to handle a “sale and leaseback” transaction?
Must apply IFRS 15 to identify whether a sale has occurred. Specifically, whether control has been transferred from seller to the buyer. Not considered a sale if:
1) Seller/lessee has an obligation, or option to repurchase the asset, or an obligation to at the buyer’s request;
2) Seller/lessee can or must repurchase the asset at buyer’s request for an amount equal to or more than the original selling price, and is greater than expected market value
What are the ASPE criteria for a lease to be considered a capital lease/
- Reasonable assurance that ownership will transfer at the end of the lease
- Lease term is 75% or more of the expected useful life of the asset
- PV of min lease payments equal to 90% or more of the fair value of the asset
