strategic business report:

governance

lease

employment benefit

share-based payments

share-based payment option 

no cash transaction

vesting 归属、赋予

vesting condition 

enquity settled share-based payment:

Dr  expenses/asset

Cr enquity

renuneration package:   measurement is difficulty

grant date: the date both parties entry into the agreement if there is no future vesting condition ,recognized  in full at grant date

vesting date: the date that vesting condition meet.  shares or share options are transfered to the counterparty

exercise date: option    may be exercised

vesting period: measurement based on the best estimate of number of enquity instrument expected to vest.

vocabulary:

cash equivalent   

equity

best estimate of 

equity instruments

subsequently

important date:

grant date

vesting date

exercise date

exercise period  

settlement    grant day     account entries

subquently booking   based on best estimation

modifications and concellation entries

critical factors:

1. account rntries   Dr asset   

                                Cr equituy

2. valuations

3. timing  grant, vesting, exercise date, exercise period 

4.vesting conditiom

guidance of transation entries

remuneration for employees:

salary   bonus   other benfit   share-based payment

market based vesting condition   payment related to share market price    factors are measured based on fail value

non-market based condition   since the conditon is not related to share market price, need to consider when calculating numbers of instruments expected to vest(cash settlement?)

After the vesting period:

Scenario 1 all options exercised

Dr Cash

Dr other components of equity

Cr share capital 

Cr share premium

scenario 2 options which vest are not exercised

any amount in other components of equity   to be tansferred to retained earings

cancellation:

Cr Cash

Dr P/L

Dr Equity

cash settled share-based payment

Dr expense/asset

Cr obligation/liability

cash settled payment

SAR(share appreciation rights)

Fair value of SAR=time Value + intrinsic value

Defined contribution plan:

employor: no obligation,fixed payment

employee: fixed benefit after retaire

account tratement: P/L

Defined benefit plan

emplyor: obligation     asset recognisation

obligation >asset deificit

asset>obligation    suplus

calculation assumption: life expectancy   final salaries

actual return on plan asset is different from the amount taken on from P/L as part of the interest components    

plan asset are recognized(measured) at fair value 

account entry:

P/L   Dr  service  cost(post+Curr)  

SFP   Cr plan Obligation   (increase)

P/L Cr gain/(loss) on settle ment

SFP Dr plan asset   (increase)

P/L   DR net interest component

SFP CR plan asset  

OCI CR remeasurent component

SFP DR plan obligation (increase)

amendment  curtailment and settlement  

calculated by comparing the defined deficit before and after the event

PASC    plan amendment, settlement and curtailment

plan surplus can not exceed the recoverable amount  of the plan(restrict)

an asset ceiling is the present value of any economic benefit availble in the form of refunds from the plan or reduction in future contribution to the plan.

key vocabulary:

identification

measurement

lease accounting:

the right-of-use asset 

liability

lessor: the entity that provide the right od use an underlying asset in exchange for consideration

leasee:   the right to use an underlying asset in exchange for consideration

sale and leaseback

lease: is a contract that convert the right of use an underlying asset for a period of time in exchange for consideration

transaction

remeasurement

lessor accounting

net investment

technicial content

IFRS 16 :

a contract contains a lease if it conveys the 'right of control the use an identification asset for a period of time in exchange for aconsideration'.

     the customer has the right  to:

• substantially all of the identification asset's economic benefits 
• direct the identification asset's use.

lease accounting:

commencement of the lease:

• establish the length of the lease
• liability 
• recgnize the right-of -use asset

length of lease term:

• non-cancellable period
• option to exted if resonablely certain
• option to terminal the term idf reasonable certain

lease liability:

PV: (discounted 

1. fixed yearly payment
2. amount expected to be paid under residual value guarantee
3. optioms to purchase that are reasonablely certain to be exercised
4. termination penalties if expected to be iccured

recognized  right -of -use asset

cost:

1. initial value of lease liability
2. payment made at or before commencement 
3. initial direct cost
4. estimated cost of asset removal or dismantling as per lease condition

inception: at the start of..

key conception: 1. convey the right to control the use

2. identified asset

3. for a period of time 

in exchange for consideration

substantially all of the identified asset's economic benefit

accoutn tratement of leasee account:

Dr  right of use asset          X           

Cr     lease liability:

each year :

interests:

Dr financial cost    X

Cr lease liability     X

rent payment:

Dr Lease liability    X

Cr Cash                    X

depreciation:

Dr Depreciation charge     X

Cr  Accumulated depreciation      X

account tratement of leasor account:

Net Investment payment:

fixed payments

index of rate dependent variable payment at commercement date

residual value guarantees

unguranteed residual value

purchase option price

termination penalty

account tratement of leasor for operating lease

DR depreciation     X

CR Accumulated depreciation X 

DR accrual income X

CR rental income   X

Account tratement of sale and lease back:

financial lease

leasee(seller)

continue to recognize the asset

recognize a fiancial liability equal to the transfer proceeds(sell consideration)

leasor(buyer)

recognize a financial asset equal to the transfer proceeds

operation lease

leasee (seller)

Derecognize the asset 

Recognize a right -to- use asset  (BV*PV of lease liability/FV of the asset)

recognize a lease liability

P/L

leasor(buyer)

recognize the asset

financial lease tratement

operating lease tratement

ISA 1 presentation of fianancial statements:

• provide formats for classfication and presentation of fiancial statements and disclosures.
• Items of OCI must be classfied as either ites that may be reclassfied to profit or loss in future periods, or thosw which will not be reclassfied in future period

ISA 2 inventories

• defination:items in the ordinary course of business(oe associaled raw materials and work-in-progress)
• valued at lower of cost and estimated selling price less selling cost for each seperate item or product
• the cost of inventory includes all cost of getting the items or producr to current location and condition

ISA 7 statement of cash flows

• reconciles cash and cash equivalents year -on -year

          * cash equivalents are short-tern, highly liquid and readily convertible to a know amount of cash

• three standard headings

          *operating activities

          *Investing activities

          *Financing activities

• cash generated from operations can be derived using the direct method or the indirect method

          *indirect method begins with profit before tax and the adjests it for non-cash items, as well as for items that related to investing or financing activities

IAS 8 Accounting policies, changes in accounting estimates and errors

• Accounting policies should be appropriate and relevant, be cosisitentlu applied and be disclosed
• Changes in estimates are taken to statenet of profit or loss in current and future perios 
• Changes in accounting policies and the correction of prior errors require the restatement of comparative information and opening reserves

IAS 10 events after the reporting period

• definition- those events between the reporting date and date of approval of fianancial statents
• adjuseing events- those which provide additional evidence of the situation existing at the report date   e.g. insolvency of major debetor 
• non-adjusting events - those which do not provide evidence of situation at the reporting date ,but may become adjusting event if going concern basis threatened

IAS 12 Income taxes

• Deferred tax is accounted for on tenporary differnces (difference between thw carrying abount and tax base of asset and liabilities)

           if the tax base is higher   then = deferred tax asset

           if the tax base is lower then = deferred tax liabilities

• Temporary differences include: 

IAS 16 Property, Plant & equipment

valued at cost= all expenditure attributable to bringing the asset into working condition as well as directly attributable borrowing cost

subsequent expenditure is capitalisaed

revaluation：

• revalue all items in the same ckass
• gains are recorded in OCI(other comprehensive invome)
• losses are recorded in OCI untill the revaluation reserves is reduced to nil. any excess loss is recored in P/L

IAS 19 Employee benfits

• not in FR syllabus
• defined contribution scheme:

1. definition = no further obligation exists to contribute further funds to pension schem

2. recognise annual cost of pension contribution in P/L

• defined benifit scheme

1. Net interests component charged in P/L in the year---- discountted to net obligation at start yesr

2. the service component is charged to P/L in the year:

current service cost

+ past service costs recognised  in full when announced

+ gains and losses on curtailments and settlements

3. remeasurement components presented in other comperhensive income.

IAS 20  Accouting for government grants

• Match revenue grant against expense to which they relate
• match capital grants with assets to which they related in one of two ways:

1. recognise the grant as deffered income and then release it to P/L over the usefull life of the asset

reduce the cost of the asset by the grant received

IAS 21 the effects of changes in foreign exchange rate:

1. functional currency is the currency of the primary economic environment where the entity operates:

• subsidiary will have same functional currency as parents  if  it has little autonomy
• determined based primary factors, such as on currency of sales and purchases
• if inconclusive considory secondary factors, such as currency of financing

rules in individual financial statements:

• using exchange rate rulling at the date of transation to record transaction in overseas currency
• montary items are re-translated as SOFP rate with gain or loss to P/L
• Non-monetary items(e.g. PPE ,inventory) are not restated

rules in group finacial statements：

• translate assets and liabilities at closing rate
• translate income, expenses and OCI at average rate
• exchange gains and loss arisen on the translation of : 

1. goodwill
2. opening net asset and profit

• the current year exchange gain/loss is recorded in OCI

IAS 23 Borrowing costs

Entities must capitalise directly attributable borrowing cost during construction of a qualifying asset.

qualifying asset:

IAS 24 Related party disclosures

• not in FS syllabus
• definition of related party

1. relationships of control or significant influence
2. entities under common control
3. directoes

• must disclose related party transactions, outstanding balances(e.g. receivables) and write-offs.

Code of corporate governnance

seperation of chairman and chief excutive officer director (CEO)

1. board leadership and company purpose
2. division of responsibilities
3. composition, succession amd evaliation
4. remuneration
5. audit, risk and internal control

objective of corporate governace

1. ensure the corporate is run  in the best intersts of all stakeholders
2. benefites of acomply with Corporate governnace(free from failure of mismanagement , more transparancy of director's decision , lower level of business risk)
3. impact on external audit(lower audit risk, and report requireent)

material is the indicator(or index)  to varify which kind of opinion should be issued

not  material       unmodified  opinion 

material but not pervasive (普遍性）    qualified   opinion      except for will be described 

material & pervasive     

adverse opinion   fianncial statement do not give at true nd fair view   

if cannot collect sufficient and appropriate evidence      disclaimer of opinion (免责）or not issue any opinion at all

the financial statement is prepared , in all material respects, in accordance with the applicable fiancial reporting framework

1. accouting policies used 
2. accounting estimates made
3. terminology used
4. overal presentation and disclosure

mandatory  法定的

Voluntary   自愿的

pervasive:

affects a lot of balance

represents asubstantial propotion of the account

is fundamental to the users

unmodified opinion     FS give at ture and fair view

approachees to obtain evidence:

inspection

observation

external confirmation

recalculation

re performation

analytical procedures

enquiries

charateristics of the evidence

1. quality & quantity

2. relevant & reliable

substantive procedures and obtain

sample analytical procedure as substantive procedures

review of accounting estimates

test control

SFP  statement of financial position 

SPL statemnt of performance laition 

quality of audit evidence:

reliable=useful

sufficent =enough

reliable=trustworth

produced by suditor>3nd party>client produced      

format: original copies>copy of email >oral

completement 

occurance  transaction happened 

accuracy, valuable and allocation 

classification

right and obligation

existance 

cut-off   in period

analytical procedures  using movements and ratios to identify unexpected relationship and errors in the financial statemtn 

tolerate  容许的

stratification  战略性的

haphazard  随意的，偶然的

benifit of planning:

planning up front we can work out which are the most important area as and devote ore of our time and budget to make sure we get these right.

combine with risk analysis to sort out issues

pick up team with the right skills and experiences 

get external people to be booked and make sure they are goingto be available

senior members can organize his supervise to the team-on track, and reviewing 

efficient and effective

planning：

objective

scope 

in accordance with  ISAs standard and pricinple framework

ipurpose ,strategy, plan  , intrim and final audit

quality control:

leadership 

human resources

director, surpervsion, and review

planning procedure：

core    audit strategy

1.   part one  characteristics of the engagement

should include the following infomations

financial report framework; industry reporting；knowledge of the business, internal audit; use of ATTs; avaible of clients staff

2. part two Nature , timing and extent of resources

slection of audit team and overal budget

3. part three  siginificiant factors, preliminary engagement activities 

materiality,  risk assessment, internal controls, need for scepticism, changes in laws and regulations, significant development

4 part four  reporting objectives, timeing, and communication

timetable for reporting, communication with clients ,team and third parties

audit plan  more detail in each area and quantity :

what, who, how much, when 

interim audit: conduct before end of the Fical year, 

objective of audit  to detect material misstatement or material non-complains, to make sure the financial report give a true and fair view.

the purpose of documentation:

working papers

to record all works done

all pratice was reviewed by supervisor or more senior staff to the preparer

to allow the audit partner to issure an appropriate opinion

to be our defence in a negligence case that the audit was carried out correctly and completely

Audit risk: means that there is a chance that we will give the wrong audit opinopn

Misstatement: in summary it is:

1. a number which is incorrect
2. an acoounting treatment not in line with the relevant accounting standard
3. a missing and necessry disclosure
4. an inadquate disclosure

three elements of audit risk:

inherent risk*control risk * detection risk

inherent risk relates to alients specific factors, except those relating to internal controls. such as  the risk of inventory or receivables are overvaluded , or profit is misstated to achieve a bonus

control risk: clients internal control is weak

detection risk: not familiar with the clients and its business environment may increase the risk of detection 

attitude of professional scepticism

excercise professional judgement

components of audit risk 

comnce[ts of materiality and performance materiality

materiality： an item is materility if its omission or misstatement could reasonable be expected to affect the economic decision of users.

omission : a number is left out or missing

misstatement: wrong record or wrong

number

materiality level:  guidelines of materiality:

0.5-1% of turnover

1-2%  of total assets

5-10% of profit

performance materiality: an amount, less than materiality, to  reduce the probability that aggregate of uncorrect misstatements, exceed materiality as a whole.

planning: nature

                purpose

                analytical procedures

Key ratios:

Repercussion of audit risk:

we can be sured for negligence

cash  penalties

loss of reputation 

risk assessment :

1. identify the area where errors may exist
2. plan audit procesures
3. perform a more efficient and effective audit
4. reduce the chance of give the wrong audit opinion
5. reduce the risk of being sued , paying penalty(damages) or lossing reputation.

technical of perform risk assessment:

1. makeing enquiries of knowledgable people
2. conducting analysitical procedures on the financial statement numbers
3. observing things at the clients
4. inspecting documents

response of risk assessment:

1. assigning risky area to more experienced team
2. increase level of supervision over the audit team
3. introducing  unpredictability into testing 
4. detailed , sustantive test 
5. professional scepticisim 

understand the entity:

1. its environment (industry condition, laws and regulation, competition,...)
2. the entity(operations, ownership and fiance, objectives and stratages, incentive and pressure)
3. the applicablefiancial report framework (revenue recognition, unusual or complex transactions, areas of lack of authourity guidance)
4.  internal control( control environment, control activities, internal audit functions, how it use its interal control suystem)

ways to understand the clients:

observation and discuss: website/brochures, all analytical procedures: enquire, conduct analytical of statement numner, observation inspection document)

auditors experience and knowledge, industry reserceh professional scepticism

Analyticalprocedure： is the technical approach to test the financial statement numbers by ways of caluculate or analysis : which include: compare similar pieces of information ; compare the same number across periods, compare the number with budget, compare to non financial information 

identify the most likely misstatement area and plan more work on this area.

ethics and acceptance:

1. rules and regulations

2. ethical codes: codes of ethics  

principle of all aufitor must comply with 

threat and safeguards

cionfidential

independance is freedom from situations and relationships where objectivity would be perceived to be impaired by a reasonable and informed third party

five fundamental principles 

integrity: be straightword and honest

threats:

Objectivity: No bias or conflict of interests

threats:

Professiona conpetence and due care : attain and maintain professional knowledge

threats:

Confidentiality: No disclosure of business information, no use of information to  your advantage

threats:

Professional behaviour: comply with relevant laws and regulations, Do not bring the profession into disrepute

threats and safeguards:

self interest  putting your intere ahead of what is right

safeguards:  remocing the situation that caused the threats

self review: Not showing objectivity when reviewing own work ,not highlight your own errors

safeguards: using a seperate teams for each service and a review work by an independent partner

Advocacy: Acting for or against a position rather than being impartial

intimidation: Allowing phsical or other pressure to influence your actions

threats:

self interests: pitting your own interest ahead of what is right 

self review  Not showing objectiveity when reviewing own worl  , not highlighr your owmn errow

advocate  acting for or against a position rather than beijng impartial 

familliarity: Allowing personal or business relationships to influence your judgement

safeguards: remove the person in relationship away from the team

intimidation: allowing physical or other pressure to influence your actions

safeguards: to mitigate the threat we need to cosider the composition of the team