Study Deck

Question 1

Defined benefit pension plan (ASPE)

Answer 1

• Pension expense = current service cost + interest on ABO + past service amortization + expected earnings on plan assets + actuarial gain / (loss)
• Accrued benefit asset / (liability) = opening – current services – interest on ABO – past service amortization + expected earnings on plan assets – benefits paid + funding + actuarial gain / (loss)
• Reference: ASPE 3461*

Question 2

Restricted Fund Method (NPO)

Answer 2

• Funds are segregated into one or more restricted funds, a capital asset fund, an endowment fund and a general fund
• Used by NPOs that have significant restricted contributions for programs or projects
• Allows users to better see financial statement elements that are restricted in their purpose and use
• Revenue is recognized in the fund to which it relates when it is received
  
  • Endowment contributions are recognized to the endowment fund
  • Unrestricted contributions are recognized to the general fund
  • Restricted contributions are recognized to the fund that they relate to.
• If there is no fund set-up, then restricted contributions are recognized in line with the deferral method.
• Reference: Accounting Standards for NPOs 4410*

Question 3

PPE - Betterments (ASPE)

Answer 3

• Capitalize betterment because enhances service potential (increase in physical output or service capacity, associated operating costs are lowered, useful life is extended, or quality of output is improved)
• Expense repair and maintenance
• Reference: ASPE 3061.14*

Question 3

Construction Contracts – Recognition (IFRS)

Answer 3

• Use percentage complete to recognize revenue and expenses when the outcome of a construction contract can be estimated reliably
• Fixed price contract – when all of the following are satisfied:
  
  • Total contract revenue can be measured reliably
  • It is probable that the economic benefits associated with the contract will flow to the entity
  • Both the contract costs to complete the contract and the percentage complete can be measured reliably
  • Contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates
• Cost plus contract – when all of the following are satisfied:
  
  • It is probable that the economic benefits associated with the contract will flow to the entity
  • The contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably

Reference: IAS 11.22 - .24

Question 4

Liability characteristics (ASPE)

Answer 4

• A duty to others requiring future settlement of assets or provisions
• Can’t avoid duty
• Event that caused the obligation has occurred
• Reference: ASPE 1000.29*

Question 4

Related Party Transactions (ASPE)

Answer 4

• One party has the ability to exercise control or influence over another
• Transactions should be recorded at the carrying amount
• Exception - transaction has commercial substance and carried out in normal course of operations (record at the exchange amount, the amount of consideration agreed to between the related parties)
• Reference: ASPE 3840.03, .08, .18*

Question 4

Construction Contracts – Multiple assets (IFRS)

Answer 4

• If contract covers a number of assets, treat as a separate construction contract when:
  
  • Separate proposals have been submitted for each asset
  • Each asset has been subject to separate negotiation
  • The costs and revenues of each asset can be identified

Reference: IAS 11.08

Question 5

Foreign translation – Temporal method (ASPE)

Answer 5

• Used for integrated foreign operations:
  
  • CDN $ unit of measure
  • Monetary items translated at rate at balance sheet date
  • Non-monetary items translated at historical rate (unless carried at market)
  • Revenues and expenses translated at rate in effect on date that they occur
  • Amortization uses rate of related asset
  • FX gains and losses are included in income

Reference: ASPE 1651.03

Question 5

Donated goods and services (NPO)

Answer 5

• Optional to record, but can only do so when:
  
  • A fair value can be reasonably estimated; and
  • When the goods and services are used in the normal course of operations and would otherwise be purchased

Reference: Accounting Standards for NPOs 4410.16

Question 6

Current Liabilities (ASPE)

Answer 6

• Current liabilities include amounts payable within one year from the B/S date or within the normal operating cycle
• Reference: ASPE 1510.08 - .10 *

Question 7

PPE – Depreciation (IFRS)

Answer 7

• Allocated on a systematic basis over an asset’s useful life
• Depreciation begins when asset is available for use
• Depreciation ceases when an asset is classified as held for sale or when it’s derecognized. Depreciation doesn’t cease when asset become idle or is retired from active use.
• Residual value and useful life should be reviewed annually – any changes are accounted for prospectively as changes in estimates
• Reference: IAS 16.43 - .62 *

Question 8

Capital leases [Lessor] (ASPE)

Answer 8

• Capital lease if the following exist:
• Any one of the following criteria are met:
  • Transfer of ownership or bargain purchase option
  • Lease term at least 75% of economic life of asset
  • PV of minimum lease payments at least 90% of FV of leased asset (Discount rate = lower of lessee’s incremental borrowing rate and implicit rate)

Reference: ASPE 3065

Question 8

Construction Contracts – Group of contracts (IFRS)

Answer 8

• Group of contracts, whether with a single customer or several, will be treated as a single construction contract when:
  
  • The group of contracts is negotiated as a single package
  • The contracts are so closely interrelated that they are in effect part of a single project with an overall profit margin
  • The contracts are performed concurrently at the same time or in a continuous sequence

Reference: IAS 11.09

Question 9

Future income taxes (ASPE)

Answer 9

• Future income tax assets arise when an expense is recognized first for accounting and deducted later for tax
• Future income tax liabilities arise when an expense is deducted first for tax and recognized later for accounting or when revenue is recognized first for accounting and included in taxable income later
• Reference: ASPE 3465.02*

Question 9

Tangible Capital Assets (NPO)

Answer 9

• If contributed, record at fair value as of contribution date
• If average of annual revenues for current and preceding year is less than $500,000: entity can choose to:
  • Capitalize and amortize capital assets
  • Capitalize capital assets but do not record amortization
  • Expense capital asset purchases in the year occurred

Reference: Accounting Standards for NPOs 4431.03

Question 10

Asset Retirement Obligations (ASPE)

Answer 10

• Legal obligation associated with the retirement of a tangible long-lived asset
• Recognize liability in the period in which it is incurred
• Measurement is based on best estimate of the expenditure required to settle the present obligation at the balance sheet date
• Cost is capitalized to the carrying value of the related asset and then amortized to income systematically
• In subsequent periods, the liability would be adjusted for the passage of time (accretion expense) and any changes in the amount or timing of the future cash flows needed to settle the obligation.
• Reference: ASPE 3110*

Question 11

Common audit risk factors (Assurance)

Answer 11

• New or additional users
• Management bias
• Going concern
• Debt covenants
• Cash flow issues
• Control issues
• New problems or issues
• Significant growth in revenues or assets
• Legal claims
• High risk industry
• Complex systems
• Changes in operating environment
• New personnel
• Changes to information systems
• New technologies
• Changes in products or activities
• Corporate restructuring
• Expanded foreign operations
• New accounting pronouncements

Reference: CAS 315, Appendix 2

Question 12

PPE - Depreciation methods (IFRS)

Answer 12

• Use method which reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity
• Review method annually, any changes are accounted for prospectively as changes in estimates
• Most common methods:
  
  • Straight-line method (smoothens income)
  • Productive output (good matching)
  • Declining balance (smoothes total expense when considering depreciation and R&M; based on assumption that newer assets produce more benefits up front)

*Reference: IAS 16.43 - .62 *

Question 13

Foreign Translation of Foreign Operations (ASPE)

Answer 13

• Integrated foreign operation – foreign operation that is financially or operationally interdependent with the reporting enterprise (whereby the exposure to foreign exchange rate changes is similar to what the reporting enterprise would have experienced)
• Self-sustaining Foreign Operations – foreign operation that is financially or operationally independent of the reporting enterprise (whereby the exposure to foreign exchange rate changes is limited to the net foreign investment)
• Reference: ASPE 1651.03*

Question 13

Impairment of Assets (IFRS)

Answer 13

• Assess whether there is any indication that an asset may be impaired. Regardless of whether there is any indication of impairment, must test the following impairment annually:
  
  • Intangible asset with a indefinite useful life or an intangible asset not yet available for use
  • Goodwill acquired in a business combination
• Determine if asset is part of a cash generating unit. If so, test cash generating unit for impairment.
• Determine recoverable amount = higher of fair value less costs to sell and value in use
  
  • Value in use = discounted future cash flows from continuing use of the asset
• If recoverable amount subsequently increases, can reverse impairment loss to the extent previously recorded (except goodwill, which can never be reversed)
• Reference: IAS 36.09, .10, .12, .18*

Question 14

Discontinued operation (ASPE)

Answer 14

• A component of an entity where its operations and cash flows can be clearly distinguished from the rest of the entity and it has been disposed of or classified as held for sale
• Disclose if:
  
  • Operations and cash flows of the component have been or will be eliminated from the ongoing operations as a result of the transaction
  • The entity will not have any significant continuing involvement in the operations of the component after the transaction
• Report results of discontinued operations on I/S for current and prior periods, net of tax
• Reference: ASPE 3475.27, .30*

Question 16

** Revenue recognition –Gross vs. Net (ASPE)**

Answer 16

• No impact on net income
• When acting as principle in a transaction, revenues should be reported at gross
• When acting as agent in a transaction, revenues should be reported at net
• Reference: ASPE 3400.23 - .24*

Question 17

Internally generated intangible assets (ASPE)

Answer 17

• Research costs are expensed
• Accounting policy choice to capitalize or expense development costs
• Development costs can be capitalized if all of the following exist:
  
  • Technically feasible
  • Intention to complete it
  • Ability to use or sell it
  • Availability of adequate technical, financial and other resources
  • Ability to reliably measure the expenditures attributed
  • Probable future economic benefits will be generated

Reference: ASPE 3064.37, .40, .41

Question 17

Foreign Currency Translation (ASPE)

Answer 17

* Translate monetary items at current (balance sheet) rate

• Translate non-monetary items at historic rate
• Translate transactions using the rate at the time of transaction (annual average rate acceptable)
• FX gains and losses to be included in net income
• Reference: ASPE 1651*

Question 18

Going Concern (Assurance)

Answer 18

• Risk assessment procedures:
  
  • Consider whether there are events or conditions which may cast doubt on going concern
  • Determine if management has already performed a preliminary assessment of going concern
• Audit procedures:
  
  • Evaluate management’s assessment of going concern
  • Inquire of management as to any subsequent events which may cast doubt on going concern
• If doubts exist:
  
  • Request management make an assessment, if not already performed
  • Evaluate management’s plans for future actions
  • Assess any cash flow forecasts
  • Consider additional information since the assumption was made
  • Request written representation from management
  • Consider whether FS disclosure is appropriate or whether a qualified or adverse opinion is required
  • Prepare communication for those charged with governance

Reference: CAS 570

Question 19

Deferral Method (NPO)

Answer 19

• Restricted contributions are deferred and recognized to income when related expenses are incurred
• Unrestricted contributions are recognized when they are received
• Endowment contributions are recognized as direct increases to net assets
• Contributed land is recognized as a direct increase to net assets
• Contributed capital assets are deferred and amortized into income over the useful life of the related asset
• Reference: Accounting Standards for NPOs 4410*

Question 20

Construction Contracts – Contract revenue (IFRS)

Answer 20

• Initial amount of revenue agreed in the contract
• Variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and are capable of being reliably measured
• Reference: IAS 11.11*

Question 21

Construction Contracts – Additional asset (IFRS)

Answer 21

• Contract provides for construction of an additional asset at the option of the customer – treat as a separate construction contract when:
  
  • Asset differs significantly in design, technology or function
  • Price of the asset is negotiated without regard to the original contract price

Reference: IAS 11.10

Question 22

Revenue recognition – Returns (ASPE)

Answer 22

• If significant and unpredictable amounts of goods being returned, do not recognize revenue
• Reference: ASPE 3400.21*

Question 24

Government Assistance (ASPE)

Answer 24

• Assistance for non-capital items:
  
  • Include in net income for period when incurred
• Assistance for capital items:
  
  • Reduce cost of capital item; or
  • Defer and amortize on the same basis of depreciation

Reference: ASPE 3800

Question 26

Investments (ASPE)

Answer 26

• Investments subject to significant influence can be accounted for using the equity or cost method
• Investments without significant influence:
  • Not quoted on an active market - accounted for using cost method (can be designated at FV upon first recognition)
  • Quoted on active market – accounted for at FV

Reference: ASPE 3051 and 3856.11 - .15 

Question 27

Assets held for sale (ASPE)

Answer 27

• Long-lived assets to be disposed of other than by sale should continue to be classified as held and used until it is disposed of
• Long-lived assets to be sold should be classified as held for sale when all of the following are met:
  
  • Management commits to a plan to sell
  • It’s available for immediate sale in its present condition
  • Steps to locate a buyer and complete the sale have started
  • The sale is probable and expected to occur within a year
  • It’s being actively marketed at a reasonable price
  • Actions required to complete the sale indicate it’s unlikely significant changes to the plan will be made or that the plan will be withdrawn
• Asset held for sale should be measured at lower of carrying amount or fair value less cost to sell, and should not be amortized
• Reference: ASPE 3475.04, .08, .13*

Question 29

Goodwill and Intangible Assets – Amortization (ASPE)

Answer 29

• Intangibles are to be amortized over their estimated useful lives unless they are considered to have an indefinite life
• Assets with indefinite lives are not to be amortized until the life is no longer considered indefinite (however it must still be tested for impairment)
• Amortization method and useful life should be reviewed annually
• Consider expected use, life of related assets, contractual provisions and other economic factors
• Reference: ASPE 3064*

Question 30

PPE – Subsequent measurement (IFRS)

Answer 30

• After initial recognition, PP&E can be accounted for using cost or revaluation model
• Cost model – carried at cost less accumulated amortization and accumulated impairment losses
• Reference: IAS 16*

Question 32

Revenue recognition - Multiple deliverables (ASPE)

Answer 32

• Evalute all deliverables to determine whether they represent separate deliverables
• If you can identify separate deliverables, revenue recognition criteria should be assessed for each deliverable separately
• If two or more transactions are linked together in such a way the commercial effect can’t be understood without reference to the series of transactions as a whole, then the recognition criteria will be applied to the series of transactions as one
• Reference: ASPE 3400.11*

Question 34

Capital lease [Lessee] (ASPE)

Answer 34

• Transfer of ownership or bargain purchase option
• Lease term at least 75% of economic life of asset
• PV of minimum lease payments at least 90% of FV of leased asset (Discount rate = lower of lessee’s incremental borrowing rate and implicit rate)
• Reference: ASPE 3065.06*

Question 36

Asset criteria (ASPE)

Answer 36

• Future benefit
• Entity can control the benefit
• Event that caused benefit already occurred
• Reference: ASPE 1000.25*

Question 38

Inventory valuation (ASPE)

Answer 38

• Valued at lower of cost and net realizable value (NRV)
• NRV is the estimated selling price in the ordinary course of business less estimated selling costs
• Reference: ASPE 3031.07, .10*

Question 39

Construction Contracts – Contract costs (IFRS)

Answer 39

• Costs that relate directly to the specific contract
• Costs that are attributable to contract activity in general and can be allocated to the contract
• Such other costs as are specifically chargeable to the customer under the terms of the contract
• Reference: IAS 11.16*

Question 40

Subsidiaries (ASPE)

Answer 40

• If subsidiary is controlled:
  
  • Can use consolidation, equity or cost method
  • Can’t use cost method if subsidiary quoted on active market

Reference: ASPE 1590.15 - .16

Question 41

Impairment of long-lived assets (ASPE)

Answer 41

1. Determine if factors indicating impairment exist
2. Group asset with other assets/liabilities to form group at the lowest level that generates cash flow (i.e.: cash generating unit)
3. Calculate impairment by comparing net book value to net realizable value (i.e.: fair value less costs to sell or future cash flows)
   * Cannot reverse write downs
   * Reference: ASPE 3063.09, .12, .18*

Question 42

Hedging (ASPE)

Answer 42

• Hedge accounting is a method of recognizing the gains, losses, revenues and expenses associated with the items in a hedging relationship so they are recognized in net income in the same period when they would otherwise be recognized in different periods.
• Hedge accounting is optional, can only be used when the following are met:
  • At the inception of the hedging relationship, the company:
    
    • Designates hedge accounting will apply
    • Formally documents the hedging relationship
  • At inception and throughout the term, the company has reasonable assurance that the critical terms are the same
  • When the hedged item is an anticipated transaction, it’s probable the anticipated transaction will occur at the time and amount designated

Reference: ASPE 3856

Question 43

Foreign translation – Current rate method (ASPE)

Answer 43

• Used for self-sustaining foreign operations:
  
  • Foreign $ unit of measure
  • Assets and liabilities translated at rate at balance sheet date
  • Revenues and expenses (including amortization) translated at rate in effect on date that they occur
  • Exchange gains and losses are included in equity (no income effect)

Reference: ASPE 1651.03

Question 44

**Indicators of impairment **

Answer 44

• Significant decrease in its market price
• Significant adverse changes in the technological, market or economic environment
• Evidence of obsolescence or physical damage of an asset
• Adverse change in the way an asset is being used
• Evidence that the economic performance of an asset is worse than expected
• Cash flow issues

Question 45

Construction Contracts – Measurement (IFRS)

Answer 45

• Revenue recognized based on proportion of costs to date divided by estimated total costs (actual costs to date + estimated costs to complete). Other methods to determine percentage complete could be used, such as surveys of work performed or completion of a physical proportion of the contract work.
• Progress billings are deferred
• When the outcome cannot be estimated reliably:
  
  • Recognize revenue only to the extent of contract costs incurred that it is probable will be recoverable
  • Recognize contract costs as an expense in the period in which they are incurred
  • If situation changes and estimates can be made, use percentage complete method on a prospective basis
• When it’s probable that the total contract costs will exceed total contract revenue, recognize the expected loss as an expense immediately.
• Completed contract method not acceptable
• Reference: IAS 11.25 - .35*

Question 46

Revenue recognition – Services and long-term contracts (ASPE)

Answer 46

• Performance determined using either the percentage of completion method or the completed contract method, whichever relates the revenue to the work accomplished
• Percentage of completion
  
  • Revenue recognized as work progresses (based on sales value, associated costs, extent of progress or number of acts)
  • Must be able to estimate with reasonable assurance
  • Costs must be recorded
• Completed contract
  
  • Revenue not recognized until contract complete
  • Only appropriate if substantial completion depends on specific event or can’t reasonably estimate extent of completion

Reference: ASPE 3400.06, .16 - .18

Question 47

Borrowing Costs (IFRS)

Answer 47

• Interest and other costs that an entity incurs in connection with the borrowing of funds
• Capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset
• Possible qualifying assets:
  
  • Inventories
  • Manufacturing plants
  • Intangible assets
  • Investment properties

Reference: IAS 23.05, .07, .08

Question 48

Investment Property (IFRS)

Answer 48

• Land or building (or both) held to earn rentals and/or capital appreciation rather than for use in the production or supply of goods or services.
• Recognize if probable that future economic benefits will flow to entity and cost can be reliably measured
• Record at cost plus directly attributable expenses
• Reference: IAS 40*

Question 49

PPE – Revaluation model (IFRS)

Answer 49

• Revaluation model – for PP&E whose fair value can be reliably measured, carried at fair value at the date of revaluation less any subsequent accumulated depreciation and accumulated impairment losses
  
  • Should be done with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at year end. Frequency depends on volatility of changes in fair value.
  • All items in the same class are revalued at the same time
  • Surplus or deficit arising on revaluation should be recognized as follows:
• Surplus – credit to OCI unless surplus reverses a previous deficit, in which case charge the surplus to net income to the extent of any previous deficit
• Deficit – credit to profit/loss, unless the deficit reverses a previous surplus, in which case a charge is made to OCI to use up any previous surplus
• Reference: IAS 16*

Question 50

Revenue recognition - Performance criteria (ASPE)

Answer 50

• Persuasive evidence of an arrangement exists
• Delivery has occurred or services rendered
• Price to the buyer is fixed or determinable
• Reference: ASPE 3400.07*

Question 51

Revenue recognition criteria (ASPE)

Answer 51

• Performance is complete (risks and rewards transferred, significant acts performed)
• Consideration is measurable
• Collection reasonably assured
• Reference: ASPE 3400.04 - .05*

Question 52

Financial Instruments – Impairment (ASPE)

Answer 52

• Financial instruments tested for impairment at the end of each reporting period. Where impairment exists, reduce the carrying value to the highest of:
  
  • PV of cash flows expected from holding the asset
  • Net realizable value
  • Amount entity expects to realize
• Impairment can be reversed if asset subsequently recovers in value
• Reference: ASPE 3856.16 - .19*