Debrief weak topics

Question 1

What is the purpose/function of an audit committee?

Answer 1

1. Deal with the internal/external audit process
2. Ensure appropriate internal control systems established to prevent fraud.
3. Evaluate external auditors’ qualifications, independence, and monitoring their performance.
4. Ensures financial reporting process complies with legal/regulatory requirements.
5. Monitors new accounting standards and reviews current accounting policies for appropriateness.
6. Reviews organization’s risk assessment.

Question 2

What is the required composition of an audit committee?

Answer 2

1. All members must be independent (no positions in org - not required for private corps)
2. Must be financially literate
3. Must have at least three members.

Question 3

Which assertion does this describe? “This assertion, when violated results in overstatement of the balance sheet account”

Answer 3

Existence

Question 4

Which assertion does this describe? “Applies to recorded assets and liabilities that may belong to another party”

Answer 4

Rights and Obligations

Question 5

Which assertion does this describe? “This assertion, when violated results in understatement of the account”

Answer 5

Completeness

Question 6

Which assertion affects the initial and subsequent measurement of an account?

Answer 6

Accuracy, valuation, and allocation

Question 7

Which assertion is tested by sending an accounts receivable confirmation to customers asking to confirm the amount owed to the company?

Answer 7

Existence

Question 8

Describe the classification assertion

Answer 8

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

Question 9

Describe the presentation assertion

Answer 9

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?

Question 10

Which assertion and accounts are tested by inspecting shipping documents to verify the date of inventory shipments around period end?

Answer 10

Cutoff of sales and cost of sales.

Question 11

describe the occurrence assertion

Answer 11

Refers to whether a recorded transaction actually took place. Commonly tested by selecting recorded transactions and tracing back to the source document.

Question 12

What are the common benchmarks for materiality?

Answer 12

1. Normalized profit before tax
2. Total assets
3. Total revenues
4. Total expenses
5. Total equity

Question 13

What are the recommended materiality thresholds?

Answer 13

1. 3-7% Normalized profit before tax
2. 1-3% of revenues or expenses
3. 1-3% total assets
4. 3-5% Total equity

NFPs 1-3% rev or exp OR 1-3% total assets

Question 14

What is the suggested threshold for performance materiality?

Answer 14

60-75% of overall materiality

Question 15

What is the purpose of performance materiality?

Answer 15

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.

Question 16

what are the procedures an auditor may perform?

Answer 16

1. Confirmation
2. Inspection
3. Inquiry
4. Recalculation
5. Observation
6. Analytical procedures
7. Reperformance

Question 17

Which CCA classes are not eligible for the immediate expensing of $1.5mil by CCPCs?

Answer 17

1-6, 14.1, 17, 47, 49, 51

Question 18

What is a retiring allowance?

Answer 18

Amount paid to employees when they stop working in recognition of service and includes amounts paid for unused sick leave credits.

Question 19

When can a retiring allowance be transferred to an RPP or RRSP?

Answer 19

$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

Question 20

What is an internal rate of return?

Answer 20

Calculates the discount rate for a project that would cause the NPV to be $0.

Question 21

What is the weighted average cost of capital?

Answer 21

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

Question 22

Over what period is a “Right-of-use” asset depreciated?

Answer 22

Lesser of lease term and useful life. If reasonable certainty that the asset will be purchased by lessee, use useful life regardless.

Question 23

What is the first step in deciding how to handle a “sale and leaseback” transaction?

Answer 23

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

Question 24

What are the ASPE criteria for a lease to be considered a capital lease/

Answer 24

1. Reasonable assurance that ownership will transfer at the end of the lease
2. Lease term is 75% or more of the expected useful life of the asset
3. PV of min lease payments equal to 90% or more of the fair value of the asset

Question 25

Aside from treatment as capital/operating leases, what are the other major differences in how ASPE treats leases?

Answer 25

1. Executory (non-lease component) costs are excluded from the minimum lease payments
2. Discount rate is the lower of the rate implicit in the lease (if known), and the entity’s incremental borrowing rate
3. Leased asset cannot be initially recognized at an amount higher than fair value.

Question 26

What characteristics must be present for a contract to exist?

Answer 26

1. Must be enforceable
2. Rights regarding the transfer of goods and services identified
3. Payment terms specified
4. Collection probable

Question 27

What is a key consideration in determining whether separate performance obligations exist?

Answer 27

Whether the goods or services are distinct

Question 28

What criteria must be met for goods and services to be distinct?

Answer 28

1. Customer can benefit from the goods/services on their own
2. Promise to transfer goods/services separately identified in the contract.

Question 29

What are some of the reasons why an entity may prefer to issue bonds over shares to raise obtain funds?

Answer 29

1. Shareholder control is not affected as the number of shares stays the same;
2. Interest deductible for tax purposes
3. Earnings per share tends to be higher as additional shares are not issued