Wednesday, July 23, 2014

Presentation of dividend income and dividend payment in cash flow statement

We receive a question from our reader to ask us on how to present dividend income in cash flow statement. We would like to do a re-cap before we answer the questions.

In an indirect cash flow statement, there are 3 types of activities presented on the face of cash flow statement,

-          Operating activities

-          Investing activities

-          Financing activities

The titles of these activities explain how the cash flow statement should be presented.

Dividend income relates to income earned from the Company’s investment in subsidiary or other investment (e.g. investment in associate or investment in available-for-sale investment). As a result, dividend income should be deemed as investing activities.

What about dividend paid by the Company to the shareholders? It should be presented as financing activities. Why? Divided payment relates to the return generated by shareholders from the financing provided by the shareholders (i.e. equity – share capital). As a result, dividend payment should be presented as part of financing activities.

Please free to contact us at if you need any clarification.

Wednesday, July 16, 2014

Reasonableness test of licence fee

You audit client may be in regulated industries or providing services that are tightly regulated. In this intance, there are chances whereby the audit client is required to pay certain licence fee for the right to operate within that industry or the right to provide such service.

It is important for the auditor to review the agreement to review that allowable services to be provided by your audit client and whether if the licence has expired. This is to help to identify any non-compliance with the rules.

More often than not, your audit client is required to pay certain license fee - which could be based on certain % of revenue , specific rates for certain volume, etc.

Audit client must maintain a process to track the recording of these activities to ensure that the transactions recorded are complete. We, as auditor, also need to review the process in place to check that there is a robust process to ensure the completeness of these transactions. We also need to review the reasonableness of the license fee payable computed to test that the amount is not materially different for audit purpose.

A comparison of current year licence fee payable and prior year licence fee payable could help to identify fluctuation or absence of fluctuation that are expected.


Wednesday, July 2, 2014

Internship in Big 4, mid-tier audit firm or other acocunting firms

We received an email from an anxious intern - who has been accpeted to do her internship in one of the Big 4 accounting firms in Australia. As I understand that it is competitive to secure an internship in Big 4, the reader drop us an email to find out what to prepare and what is expected from an intern.

Extract of his or her email :

" For example, would I need to know audit assertions, control procedures, pivot tables & VLookup, or should I just refresh my accounting 101, know my debits & credits and be nice to people and ask for work?"

Being in one of the Big 4 before, I reverted to her to give him or her my personal opinion:

To me, the attitude and basic accounting knowledge plays a significant part in assessing an intern performance. I would expect the intern to demonstrate positive attitude and fundamental accounting knowledge (i.e. debit and credit of the accounting entries). That's it. I do not expect intern to know any other fancy accounting stuff.

Also, I mentioned to him or her that: she should not be afraid to ask, she should not be afraid to participate, she should not be afraid to do simple work. He or she just has to relax herself and enjoy her time during the entire internship.