Thursday, November 27, 2008

#58 Inter-company Confirmation (cont'd)

If there are balances cannot be reconciled properly, while the difference are not material / not significant to the Financial Statement. The balance can be 'dumped' into trade receivable/ trade payable a/c balance. This is because, amount due from / amount due to inter-company should be nil at Group level Financial Statement.

Un-reconciled inter-company balance can result in inter-company balance not fully eliminated. In practice, the un-reconciled would be written off or classified as trade receivable/ payable (while the difference is not material) to the Group account.

Wednesday, November 26, 2008

#57 Fixed Asset Acquisition

What are the accounting entries for fixed asset acquisition:

Dr. Fixed Asset
Cr. Cash / Creditors
( Being fixed asset purchased)

What if the fixed asset acquisition is financed via Hire Purchase, what would be the entries then:

D. Fixed Asset
Cr. Creditors

Dr. Creditors
Cr. Hire Purchase Liability

Tuesday, November 25, 2008

#56 Inter-company confirmation

Intercompany confirmation have to be sent out to respective inter-company in order to confirm the outstanding balance due from/ due to inter-company. Discrepancies have to be reconciled immediately.

Discrepancies on inter-company balance could impact the Group figure during group consolidation. To illustrate, difference on inter-company balance on respective inter-company's book could resulted in inter-company balance not fully eliminated at Group level. If the discrepancies are significant, the Group account is likely to be eliminated.

Hence, it is important to ensure that inter-company balances are reconciled properly.

#55 Unrecorded Liabilities

Generally, unrecorded liabilities could be due to:

- Timing difference
- Management's intention do delay the recognition of liabilities
- Management not aware of the liabilities

Hence, a nencessary steps need to be taken to ensure the completeness of liabilities.

Monday, November 24, 2008

#54 Credit Crunch- Implication of Impairment on Machinery

The economy is slowing down and hit heavily by the current credit crunch crisis. What would be the implication on our auditing?

Based on the prevailing research and information, manufacturing sector is likely to be affected severely. For instance, there might be cancelled sales orders. This would leave some of the machines or fixed assets of the Company become idle. Utilisation rate of the machinery is likely to drop tremendously.

The lower utilisation rate has implication on impairment of machinery, given that some of the machineries will be idle and not involved in generating cash flow to the Company. Non-cash generating unit is an indication on impairment. Because, return on asset ( i.e. machinery) is almost nil in idle condition.

Monday, November 17, 2008

#53- General Provision on Doubtful Debt

In some instances, general provision for doubtful debt is provided for accoridng to the age of the outstanding debt. However, General provision for doubtful receivable is no longer allowed subsequent to the implementation of IAS 39.

IAS 39 states that:

“A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.”

As such, impairment loss should be recognized when, subsequent to the initial recognition of the receivable, an event has happened which causes the receivable to be impaired. General provision provided according to age of the outstanding is no longer allowed. A financial asset should be impaired if, and only if, there is objective evidence of impairment.