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Core 1 > Unit 2 > Flashcards

Unit 2 Flashcards

1
Q

Ethics and Financial Reporting

A

Chapt 7

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2
Q

How to address ethical issue questions

A

A. Asssess the situation
- Identify the ethical issue
- Plan work on the ethical issue and any other issue
- Identify alternatives
B. Analyze ethical issue
- Assess ethical criteria
- Analyze impact on stakeholders
- Provide remedies for underlying causes
- Weigh pros & cons of viable alternatives
C. Conclude and advise

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3
Q

Cash and Cash Equivalent

A

Chapt 26
IAs 7

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4
Q

What is the difference btw IFRS & ASPE

A

Under IFRS, redeemable preferred shares with a maturity less than 90 days from the date of acquisition are classified as cash equivalent. But not so under ASPE

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5
Q

Trade Receivables

A

Chapt 22
IFRS 9
ASPE 3856

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6
Q

What are trade receivables

A

They are short-term and unsecured financial instruments. They are usually classified as Amortized costs if these 2 criteria are met
- The financial asset is held in a business model whose objective is to collect contractual cashflows
- The contractual terms of the FA give rise to specific dates of cashflow which are solely payment of principal and interest

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7
Q

Initial recognition and measurement

A

Initial recognition
When terms of payment are for 1yr and below - FV (transaction price)
Above 1 yr - future CF are discounted at the effective interest rate based on customer’s credit risk

Payment discount
1 Gross Method
Adjustments made when the discount is taken
2. Net Method
Adjustment to AR on sale

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8
Q

AR is initially recognized at its transaction price less loss allowance for expected credit losses. What is the guidance on recording expected credit losses.

A

A. A range of possible outcomes should be evaluated which result in an unbiased and probability weighted amount.
B. Time value of money is reflected
C. Reasonable and supportable information should be used to determine credit losses

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9
Q

Notes Receivable

A

Chapt 23
IFRS 9. IFRS , ASPE 3856

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10
Q

Initial measurement

A
  • FV + Transaction cost
  • FV = PV of the future cashflows discounted using the market interest rate (imputed interest rate) of similar asset
  • Discount rate from borrower’s perspective is the more clearly determinable of:

a. Rate implied when the cash price of the sale is known OR
b. The borrower’s incremental borrowing rate IBR

  • When the imputed interest rate = market interest rate;
    Fair value is then = Face value
  • When the imputed interest rate is NOT = market interest rate OR it is non-interest bearing;
    Record Note at PV + transaction cost
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11
Q

Subsequent measurement

A

Measured at amortized cost. That is,

  • Amount it was originally measured Plus
  • interest calculated to date using effective interest rate deduct
  • payment received on obligation
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12
Q

Difference between IFRS and ASPE

A

IFRS
Interest revenue is calculated using the effective interest rate method

ASPE
An option between effective interest rate and the straight-line method

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13
Q

Passive investment in Financial assets

A

Chapt 28
IFRS 9
ASPE 3856

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14
Q

What are passive investments

A

They are investments made for the purpose of earning a ROI until cash is needed at a future date

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15
Q

What are the categories of Passive investment

A

They fall under 3 categories of financial assets :
FVPL- Fair value through profit or loss
FVOCI- Fair value through other comprehensive income
Amortized cost

The primary considerations for classification of FAs are :
- The entity’s business model for managing such assets and
- The contractual cashflow characteristic of the asset

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16
Q

Measurement of FI at FVPL

A
  1. Assets not classified as amortized cost or FVOCI
  2. Assets held for trade
    * Acquired principally to resell in the future
    * On initial recognition, it is part of a portfolio of identified FI that are managed together
    * it is a derivative
  3. Assets, on initial recognition are designated as FVPL
17
Q

Measurement of FI at amortized cost

A

Investment in debt securities is measured at amortized cost if :
1. The objective of the biz model is to collect contractual cash flows.
2. The contractual terms of the FA must give rise on specified dates to cash flows that are solely for the payment of principal or interest outstanding.

Examples of assets accounted for at amortized cost include
- AR balances
- Bank deposits
- Redeemable preference shares
- Bonds the company intends to hold till they mature

18
Q

Measurement of FI at FVOCI

A

FAs are measured at FVOCI if the entity’s biz model is to sell investments prior to its maturity to realize profit. Difference with Amortized cost is that there must be intention to sell with FVOCI. Dividend income from FVOCI FI is recorded through P/L
They include :
- Equity investment designated as FVOCI
- Debt instruments that are solely for payment of principal & interest

19
Q

Snapshot

A
  1. Inititial Measurement - All - FV
  2. Transaction cost
    FVPL - Expense
    FVOCI $ Amortised cost - Add to carrying value
  3. Subsequent measurement
    FVPL & FVOCI - FV
    Amortized cost - Amortised cost @ effective int rate method
20
Q

Government Grants

A

Chapt 33
IAS 20
ASPE 3800

21
Q

Recognition criteria

A

When there is reasonable assurance that :
- The company will adhere to the conditions of the grant
- The grant will be received
If 1st condition is met but not the 2nd yet, it is recognized as
Deferred Grant Receivable
If condition 2 is met but not 1yet, it is recognized as Deferred liability

22
Q

Initial and Subsequent measurement

A

Initial
FV = Cash received or receivable
Subsequently
At historical cost - Original grant amt- amt recognized in SCI

23
Q

How are grants related to income presented

A

Gross method - separately as ‘other income’
Net Method - Deducted from related expense

24
Q

Related Party Transactions

A

Chapter 65
IAS: 24, Related Party Disclosure
ASPE: HB 3840, Related Party Transaction

25
Q

What is a Related Party Transaction according to ASPE 3840

A

An RPT occurs when economic resources are transferred between parties subject to significant influence, common control or joint control .
OR
Provision of services by a party to a related party regardless of whether consideration is transferred.

26
Q

What are the 2 possible amounts to measure an RPT

A

Carrying amount - the amount by which it was recorded by the transferor (NBV)
Exchange amount - Amount of consideration paid or received

27
Q

How are RPTs measured at carrying amounts treated
(by the buyer)

A

The difference between the carrying amounts of the items exchanged is included as a charge to equity

Gains —— Contribution Surplus
Losses —- Existing Contr Surplus. Balance – Retained Earnings

28
Q

How are RPTs measured at exchange amounts treated

A

Gain / Loss —- Income for the period

  • Asset cannot be recorded more than the FSV
  • A value significantly below NBV is an indication of impairment
29
Q

What are the steps in measuring an RPT?

A
  1. Did an RPT occur
  2. Was it in the normal course of operations YES 5
  3. Is change in ownership interest substantive NO Car Amt
  4. Is amt supported by independent evidence NO Car Amt
  5. Is transaction monetary or non-monetary - Monetary Exch Amt
    a. Is it exch of items held in the normal course of ops YES Car Amt
    b. Does the item have commercial substance
    NO - Carrying amount
    YES - Exchange amount
30
Q

Differences between IFRS and ASPE

A

Measurement - IFRS records at the exchange amount
Disclosure - IFRS has more requirements including :
. Nature of all related party relationships regardless.
. Name of entity’s parent coy and ultimate controlling power
. Key mgmt compensation in total and for various categories

31
Q

What is considered a change in ownership interest in an asset

A

It is seen from the unrelated party’s (in coy receiving benefit) point of view. that is, if their interest is above 20%, then, any transaction done by company A with coy B it is considered significant change in interest

32
Q

Execution - Substantive Approach

A

Chapt 16
CAS 330
CAS 315
CAS 520

33
Q

What are the types of audit procedures

A
  1. Test of controls
  2. Substantive testing
    • Substantive Analytical Procedures
    • Test of details
34
Q

Evidence Gathering Techniques

A

C - Confirmation
I - Inspection
I - Inquiry
R - Recalculation
O - Observation
A - Analytical procedures
R - Reperformance

Test of controls - IIROR
Test of details - CIIROR
SAP - Analytical procedure and inquiry

35
Q

What are the steps for SAP

A
  • Develop an independent expectation
  • Define significant diff/ threshold for the expectation
  • Calculate difference actual with expectation
  • Investigate significant differences and conclude
36
Q

What are the Sub analytical procedures

A
  • Horizotal/ trend analysis
  • vertical
  • Ratio
  • Reasonableness tests
  • Large/unusual item review
37
Q
A

Core 1 (5 decks)

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