Thursday, January 10, 2008

#34 Accounting for Fixed Asset written off

When the Company decide to write off the fixed asset, the following entries will be passed:

Dr. Accumulated Depreciation
Dr. Loss on Asset written off (if any)
Cr. Fixed Asset ( at cost)

The company would write off the fixed asset in the following circumstances:

1) The company may write off the fixed asset, if the assets are no longer in feasible use.
2) The fixed assets have been fully depreciated.

In case 1 above, the company might incurred a loss on fixed asset written down if the net book value is > nil. Whereas, when the assets have been fully depreciated ( as in case 2), no losses will be incurred upon written off.

Friday, January 4, 2008

#33 Risk-based audit 2

One of the argument for risk-based audit is: it is more cost efficient to focus on the risky area, rather than the traditional way. The traditional 'bottom-up' approach test almost all the details of the business, and almost every aspect of the businesses are covered (audited).

Whereas, the risk-based only focus on the risky area identified by the auditors.

Thursday, January 3, 2008

#32 Accounting for Rental Deposit

A rental deposit is usually required to be paid when a company rents a premise from the landlord. These rental deposits are either refundable at the end of the lease period or will be used to offset against the last few months rental payments. Rental deposits are usually not material to the financial statements. However, for companies in the property or retail industry, the rental deposits received or paid may be significant.

The rental deposit is a financial instrument (i.e. a financial asset to the lessee and a financial liability to the lessor) and should be accounted for under FRS 39. The rental deposit should be recognised at fair value on initial recognition, and the difference between the fair value and the amount paid is carried on the balance sheet as a deferred lease expense/income and recognised as lease expense/income on a straight line basis over the lease term. Interest income/expense is recognised over the lease term as the carrying value of the rental deposit is accreted to the nominal value.

#31 Weakness of Risk-based audit 1

Nowadays, the audit firms, including the Big 4 in the world adopt an top-down audit approach, so called 'Risk- based audit'. The deemed high risk areas (account) are the focus of the auditors ? Only minimal work will be done for the less-risky area.

However, the problem is auditors are the one who use the professional judgement to justify what area are risky. And, auditors might fail to identify the risky area of the business. Hence, no works were done for the risky area of the business!