DAY 2 - Financial Reporting and Assurance

Question 1

ASPE 3400

Answer 1

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

Question 2

IFRS 15

Answer 2

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

Question 3

PPE Impairment - ASPE 3063

Answer 3

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

Question 4

PPE Impairment - IAS 36

Answer 4

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

Question 5

Contingencies - ASPE 3290

Answer 5

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

Question 6

Provisions - IAS 37

Answer 6

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

Question 7

ASPE 1000 - elements of BS

Answer 7

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

Question 8

Non Monetary Transactions - ASPE 3831

Answer 8

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

Question 9

Non Monetary Transactions - IFRS - no single section but within IAS 16, IFRS 15, IAS 38

Answer 9

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`

Question 10

Revenue vs Gains - consider this when it is a for profit receiving a portion that is a “contribution” -ASPE

Answer 10

1) Definition of gains per ASPE 1000

2) Recognition criteria in ASPE 1000

Question 11

Intangible Assets - ASPE 3064

Answer 11

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

Question 12

Intangible Assets - IAS 38 (impairment in IAS 36)

Answer 12

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

Question 13

Goodwill Impairment - ASPE 3064 (dealt with with CGUs in IAS 36)

Answer 13

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.

Question 14

Leases - ASPE 3065 - Perspective of Lessor

Answer 14

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

Question 15

Leases - IFRS 16

Answer 15

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)

Question 16

Disposal of Long Lived Assets and Discontinued Operations - ASPE 3475

Answer 16

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)

Question 17

Non-current assets held for sale and discontinued operations - IFRS 5

Answer 17

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

Question 18

Accounting for promotions under IFRS and ASPE

Answer 18

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

Question 19

Right of Return - IFRS 15

Answer 19

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

Question 20

Warranty - IFRS 15

Answer 20

Two types

1) Additional service provided - deferred revenue (performance obligation)
2) Warranty that goods will be/perform as intended (covered under IAS 37)

Question 21

Related Party Transactions - ASPE 3840

Answer 21

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

Question 22

RPT - IFRS

Answer 22

Always at the exchange value

There IS a section on RPT DISCLOSURES though

Question 23

Impairment of Long Lived Assets - ASPE 3063

Answer 23

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

Question 24

Impairment of Assets - IAS 36

Answer 24

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

Question 25

Asset Retirement Obligations (AROs) - ASPE 3110 - (called decommissioning liabilities in IFRS)

Answer 25

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

Question 26

Decommissioning Liabilities - IAS 37

Answer 26

1) Definition of provision 2) Definition of liabilty 3) Recognition criteria for provision

Question 27

Joint Arrangements - ASPE 3056

Answer 27

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).

Question 28

Joint Arrangements - IFRS 11 and IAS 28

Answer 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

Question 29

Contract assets vs AR

Answer 29

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 ```

Question 30

Business combinations - IFRS 3 - purchase of net assets

Answer 30

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

Question 31

Business combinations - IFRS 3 - purchase of shares

Answer 31

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

Question 32

Business Combinations - ASPE 1582

Answer 32

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

Question 33

Share Based Payments - IFRS 2 or ASPE 3870

Answer 33

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 ```

Question 34

Investment in Associates - IAS 28

Answer 34

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.

Question 35

Investment (in Associates) - ASPE 3051

Answer 35

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

Question 36

Inventories

Answer 36

Cannot use FIFO or weighted average if they are not ordinarily interchangeable

Question 37

PPE IAS 16 and ASPE 3061

Answer 37

1) PPE Definition 2) If repair/upgrade - consider if a betterment or R&M 3) Useful lives and amortization - consider componentization 4) Whether you can/should capitalize interest costs: IFRS - must capitalize if meet criteria of qualifying asset under IAS 23 ASPE - can choose to capitalize or expense interest costs

Question 38

Independence Assessment and Documentation - Assurance - if there is an assurance and an advisory/consulting engagement with the same client

Answer 38

1) Requirements - independence in fact and appearance for assurance engagements 2) Assessment: a) Self review threat - impact of non audit work on audit b) Self interest threat - size of non audit fee vs audit fee c) Familiarity threat d) Intimidation threat e) Advocacy threat - whether advocating for client 3) Documentation: a) Description of non audit engagement b) Assessment of threats identified c) Safeguards identified to reduce threats d) How safeguards reduce threats

Question 39

Special Reporting Options

Answer 39

CAS 800 - audit - special purpose or special purpose frameworks CAS 805 - audit - single element or FS Section 5815 - audit - compliance with agreements Section 8600 - review - compliance with agreements Section 9100 - specified procedures report CSRE 2400 - regular review and reviews of other frameworks AuG-6, Examination of a Financial Forecast or Projection Included in a Prospectus or Other Public Offering Document AND Section 7150 Auditor's Consent to the Use of a Report of the Auditor Included in an Offering Document

Question 40

Materiality Benchmarks

Answer 40

Net income before tax - 3-7% Assets - 1-3% Revs or expenses - 1-3% Equity - 3-5%

Question 41

Engagement Acceptance Issues - Audit

Answer 41

1) Ability to render audit opinion - whether there would be any significant scope limitations due to lack of prior year audit. If no audit of PY numbers, FS will state this and there will be an Other Matter paragraph 2) Opening balances if unaudited - consider ability to perform audit procedures on OPENING balances - if unable to gain assurance on opening balances, qualify opinion due to scope limitation 3) Identify any tight timelines - may not be able to render opinion in timeframe desired 4) Independence - whether auditor would be considered independent in fact and apperance - if accepting multiple (audit and non-audit) engagements - if significant issue (former partner on BOD, etc)

Question 42

Safeguards to address Independence Threats Identified

Answer 42

1) Inform audit team during planning 2) Perform unpredictable procedures 3) Have quality control reviewer 4) Use professional judgement and skepticism

Question 43

Performance materiality

Answer 43

Amount lower than materiality to allow for possible misstatements Between 60 and 80% of materiality

Question 44

Variance Analysis - Assurance

Answer 44

Interpret variance analysis and PROVIDE POSSIBLE EXPLANATIONS FOR RESULTS

Question 45

Procedures

Answer 45

Account Risk Procedure - no general ones but should be specific to each accounting issue

Question 46

Responsibility of the Auditor for the Going Concern Assumption (4) - CAS 570

Answer 46

1) Obtain sufficient appropriate evidence about management's use of the going concern assumption 2) Conclude if material uncertainty exists 3) Determine impact on audit report 4) Communicate with those charged with governance

Question 47

Explain the difference between HIGH assurance (procedures) and LOW assurance (procedures)

Answer 47

High: 1) Inquiry 2) Observation 3) Analytical procedures 4) Reperformance 5) Recalculation 6) Confirmation 7) Inspection LOW: 1) Inquiry 2) Analytical procedures

Question 48

Use of Auditor's Expert - CAS 620

Answer 48

Three steps overall: 1) Determine need for expert 2) Determine competence, capabilities, and objectivity of expert 3) Additional work to perform on auditor's expert

Question 49

Use of Auditor's Expert - CAS 620 - Step 1 - determine need for expert (4)

Answer 49

1) Determine need for expert: a) nature and complexity b) auditor's expertise c) risk of material misstatement with this account d) implications on other areas of FS (FV allocation of acquisition differential)

Question 50

Use of Auditor's Expert - CAS 620 - Step 2 - Determine competence, capabilities and objectivity of expert (4)

Answer 50

2) Competence, capabilities and objectivity of expert a) This assessment required for each engagement b) professional credentials c) experience and expertise d) objectivity of expert

Question 51

Use of Auditor's Expert - CAS 620 - Step 3 - Additional work to perform on expert's report (5)

Answer 51

3) Additional work to perform on expert's report a) Confirm competence and capabilities of expert b) Obtain understanding of expert's field of expertise c) review expert's assumptions, calculations, and supporting documentation d) perform analytical procedures and reperform calculations e) assess consistency with other values/results

Question 52

CAS 705 - Modifications to Opinion of Audit Report (3)

Answer 52

1) Explain difference between qualified and adverse 2) Assess whether misstatements are MATERIAL 3 Assess whether misstatements are PERVASIVE per CAS 705 definition

Question 53

Interim Review of FS - Section 7060

Answer 53

1) Objective: to assist audit committee in discharging its duties with respect to interim FS that are to be issued under provisions of securities legislation 2) Differences between interim reviews and annual audits a) types of procedures b) cost c) time/work required d) objective e) use of report

Question 54

Use of Work of Internal Auditors - CAS 610 Requirements (3)

Answer 54

1) Objective 2) Competent 3) Systematic and disciplined approach

Question 55

Due Diligence Engagements - Purpose

Answer 55

Type of report can be a Section 9100 1) Purpose: to perform procedures to ascertain a business': a) FMV of assets b) profitability of the company c) completeness of liabilities

Question 56

Due diligence engagements

Answer 56

Steps: 1) Financial analysis - ratios and change; risks (ARP) 2) Tax - assessment for unrecorded taxes payable; ability to use and existence of loss cfwds? 3) Operational - potential for synergies? - key employees and mgmt? - whether earnings would be sustainable?/financial health? - compatibility of employees - production/distribution efficiencies and operations?

Question 57

Purchase of assets vs purchase of shares - Purchaser

Answer 57

1) redundant assets 2) Undisclosed liabilities 3) FMV asset bump up 4) goodwill deduction 5) loss carryovers

Question 58

Sale of assets vs sale of shares - Seller

Answer 58

1) LCGE 2) Redundant assets 3) Undisclosed liabilities 4) Complexity of tax

Question 59

Common OFSL risk factors

Answer 59

1) Private vs public 2) Recent financial performance 3) Increased number of users 4) changes to operations 5) complexity of transactions 6) owner manager involvement 7) competency of CFO/controller/mgmt 8) changes to accounting/other systems 9) control environment 10) existence/discovery of errors already

Question 60

FR - Income Taxes - IAS 12

Answer 60

1) must use deferred income tax method 2) Record current income tax payable/receivable 3) Record benefit related to tax loss that can be carried back to recover current taxes of a previous period as an ASSET 4) Consider whether to record tax losses to be used in future as an asset if probable they will be used (A deferred tax asset shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised) 5) DITAL = sum of temporary differences x tax rate 6) Classify DITAL as NON CURRENT

Question 61

FR - Income taxes - ASPE 3465

Answer 61

1) use taxes payable method or future income tax method 2) Record current income tax payable/receivable 3) Record benefit related to tax loss that can be carried back to recover current taxes of a previous period as an ASSET 4) Consider whether to record tax losses to be used in future as an asset if probable they will be used (A deferred tax asset shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised) 5) future income tax asset/liability = sum of temporary differences x tax rate 6) Classify future income tax asset/liability as CURRENT (for portion of temporary diffs relating to current A/L) or NON CURRENT (for portion of temp diffs relating to non current A/L)

Question 62

Common temporary differences - deferred/future income tax

Answer 62

1) warranty liability 2) leased asset/ROU asset 3) Lease obligation (SOME WILL BE CURRENT) 4) Decommissioning asset/ARO - asset 5) Decommissioning liability/ARO - liablity 6) Lawsuit accrual 7) PPE 8) Deferred devt costs 9) sevrence cost accrued 10) investment at FVTOCI or FVTPL (tax basis is ACB +/- 50% of CG or CL) while accounting basis is FV on balance sheet 11) capital loss cfwd

Question 63

Government assistance (same under ASPE and IFRS - ASPE 3800 and IAS 20)

Answer 63

1) Analyze when to recognize :when there is reasonable assurance that: (a) the entity will comply with the conditions attaching to them; and (b) the grants will be received. 2) Analyze how to record - if non-capital, defer and recognize into income as related expenses incurred. If Capital - policy choice: a) deduct from related capital asset with depn on net amount b) deferred revenue and amortize into income on same basis as related capital asset

Question 64

Non Monetary Exchanges - ASPE vs IFRS

Answer 64

IFRS - no single standard ASPE - single standard in ASPE 3831 Consider all factors in assessing whether transaction has commercial substance (there are 3)

Question 65

NFP accounting (ASNPO)

Answer 65

1) Determine which method to use to account for contributions: a) Restricted fund method b) deferral method 2) Discuss type of contribution being made: a) Restricted contribution - externally imposed stipulations b) Unrestricted contribution - no stipulations c) Endowment Contribution - principal must be maintained and interest can be used

Question 66

Restricted Fund Method - NPO

Answer 66

Restricted fund method 1) restricted contributions to restricted funds = revenue in that fund when received 2) restricted contributions that are not related to a specific restricted fund are recognized in general fund using deferral method 3) Endowment contributions are recognized as revenue in endowment fund when received

Question 67

Deferral Method - NPO

Answer 67

Restricted fund method 1) restricted contributions are recorded as deferred revenue and recognized as stipulations met 2) Endowment contributions are recognized as increases to NET ASSETS

Question 68

ASPE 3856

Answer 68

1) Definition - financial instrument, financial asset, financial liability 2) When to recognize 3) classification 4) Transaction costs? 5) Future measurement 6) Assess for indicators of impairment at the end of each reporting period. 7) Test for impairment - CV compared to highest of: a) value that would be realized if sold b) value that would be realized if held c) value that would be realized if right to collateral was exercised 8) derecognition

Question 69

IFRS 9

Answer 69

1) Financial instrument, asset, liability - as defined in IAS 32 2) When to recognize - party to contractual provisions? 3) Classification 4) Transaction costs 5) Future measurement 6) Impairment - lifetime expected credit losses 7) Measurement of expected credit losses 8) Derecognition (no recylcing if FVTOCI and equity instrument; recycling if FVTOCI and debt instrument)

Question 70

Warranty vs Loyalty Programs- ASPE

Answer 70

Warranty - Treat as contingent loss under ASPE 3290 Loyalty program - Treat as liability - check that it meets the liability criteria

Question 71

Loyalty programs - IFRS and ASPE

Answer 71

Loyalty program - Treat as liability - check that it meets the liability criteria NOTE: NOT a provision under IAS 37 because there is no uncertainty

Question 72

STEPS

Answer 72

1) Issue 2) Analysis 3) CONCLUSION EVEN FOR TAX, FINANCE, PM, MGMT ACCOUNTING, ETC

Question 73

Goodwill ON balance sheet?

Answer 73

This is PURCHASED goodwill (from purchase of net assets) and SO must evaluate to determine whether goodwill is impaired. (Note that in purchase of shares you can still have goodwill impairment but goodwill will not be shown on the parent's FS, only the consolidated entity's FS)

Question 74

Review Engagement Planning Memo:

Answer 74

1) Engagement issues (first year of operations - no PY info to compare, first year review - opening balances, independence, etc) 2) OFSL risk/Significant areas of the business that the review should focus on 3) Approach - will be inquiry and analytical procedures as it is a review 4) Materiality - users and needs, benchmark, amount, PM 5) Procedures - even in short day 3 case suggest MANY procedures - inquire, verify, calculate

Question 75

Financial Ratios to Do if Prompted for Ratios

Answer 75

1) D/E 2) Current ratio 3) Any ratios tied to covenants 4) AR turnover 5) Inventory turnover 6) Gross Margin Compare to PY and to industry averages

Question 76

If CY materiality is less than PY materiality...

Answer 76

Will have to do additional testing on opening balances

Question 77

Impact of errors on audit opinion

Answer 77

1) Discuss types of opinions 2) Discuss that clean audit opinion is necessary for IPO 3) Compare aggregate misstatement to materiality 4) Discuss impact on materiality if errors are corrected 5) Describe impact of errors on audit report

Question 78

Error discovered after audit opinion issued

Answer 78

1) If error is material, could have impacted audit opinion 2) Discuss matter with management and the BOD 3) request FS be amended (note detailing reason for amendment included) 4) audit the amendment and related note 5) Review steps mgmt has taken to ensure anyone who received the PY FS is aware of the situation 6) Either amend the audit report or issue new audit report - either case requires an emphasis of matter paragraph to refer to the FS note discussing the reason for the amendment

Question 79

IPO Considerations (3 general, then 6 detailed)

Answer 79

General (3) 1) Must have unqualified audit opinion 2) All errors detected in audit must be corrected 3) Auditor must review offering document to ensure there are no misrepresentations Detailed (9) - specific engagement details 1) Audit firm of public company is subject to Canadian Public Accountability Board (CPAB) - subject to practice inspections and requirements 2) Subject to independence rules of auditors of public companies including a) no member of firm can have family in accounting or oversight role at the company b) no previous member of the firm can serve as an officer or director of a company c) no supplemental services can be provided d) partner and quality control reviewer rotation must occur every five years e) cannot prepare JEs for company - proposed JEs must be reviewed and entered by mgmt 3) Separate engagement to consent to the use o thee audit report in an offering document - Section 7150 Key items: a) Auditor makes no representations regarding question of legal interpretation b) we will not be performing an audit/review of offering doc as a whole - no assurance provided regarding offering document as a whole 4) Procedures: a) Read prospectus, minutes, legal response letters b) Perform review procedures to assess plausibility of unaudited FS c) Pro formas - procedures per Section 7150 d) Verify FS reported on by auditor have adequately been reproduced in the prospectus 5) Auditor's consent in relation to offering document - expresses consent to being named in the filings. States that we have read the prospectus and have no reason to believe that there are misrepresentations in the information that has been derived from the audited financial statements. 6) If IPO investors are making their decision based on FS that are prior to major sale or event, subsequent event note must be included on YE or interim statements. Subsequent event must also be noted in the comfort letter

Question 80

DAY 2 AO ID

Answer 80

1) If there are debt covenants - CALCULATE THEM as it is KEY to assurance 2) If there is potential conflict of interest situation or ethical issue - ANALYZE IT SEPARATELY 3) If when looking at issues they seem like issues but they are not related to other parts (e.g. would have to discuss on own and do not have enough info to analyze or make recommendation) these are NOT AOs. Only include/discuss if all else is done first 4) Analyze and discuss going concern issue from assurance POV

Question 81

Quants

Answer 81

Always conclude on quants in word - bring them in from excel

Question 82

Steps of analysis

Answer 82

``` IGARU Issue Guidance Analysis Recommendation User Implications ``` Always conclude on overall recommendation (even for tax, finance, strategy, PM etc AOs)

Question 83

Audit of Acquisition - even investment with only significant influence - procedures

Answer 83

1) Audit procedures for each element of the purchase price - each of the identifiable net assets 2) auditor's use of an expert 3) Auditor's use of management's expert's work 4) valuation of investment at year end and investment income - recalculate pick up amount - confirm amount of dividends received - confirm ownership percentage

Question 84

Keep in mind - calculations and AJEs

Answer 84

- Impact of part year on amortization/depreciation | - Requirements to adjust amortization/depreciation if costs capitalized were incorrect

Question 85

LEASES PV OF MLP and LESSORS - payment for lease at start of year

Answer 85

DO NOT INCLUDE THE FUTURE VALUE unless there is a BPO or GRV!!! If you are the lesse!!!! Lessors: Dr. Cash Cr. Deferred lease income

Question 86

Leases - IFRS vs ASPE

Answer 86

1) ASPE - must exclude executory costs, IFRS can elect to include them in MLP 2) ASPE must use lower of rate implicit in the lease and the incremental borrowing rate; IFRS use rate implicit unless not known 3) ASPE - LESSEE - PV of MLP cannot exceed PV of leased asset. Not a rule for lessor value or for IFRS.

Question 87

Revenue Recognition - Promos: - 75% of this year's membership fee will be refunded next year if xyz occurs - expected to result in 20% receiving refunds

Answer 87

Would record 75% of membership fee as revenue over the year, and remainder would sit in deferred revenue Dr. Cash Cr. Revenue (75%) Cr. Deferred revenue (25%) At the end of the refund period, deferred revenue would either be repaid or recognized as earned. Alternative: Dr. Cash Cr. Revenue (100% less deferred) Cr. Deferred revenue (25% x 20%)

Question 88

Types of sampling in Audit - two general

Answer 88

1) Statistical - random sampling, MUS, etc. Can project error across sampled Popn 2) Non statistical- e.g. judgemental Note: test 100% of material items