Presentation of Asset Held For Sale - something interesting to note

Today, the founders of accounting and auditing blog learn something "new" today. We were reading through annual report of a listed entity, who had recorded asset held for sale as at year-end.

As you maybe aware,

" .....An entity shall present a non-current asset classified as held for sale and the assets of a disposal group classified as held for sale separately from other assets in the statement of financial position. The liabilities of a disposal group classified as held for sale shall be presented separately from other liabilities in the statement of financial position. Those assets and liabilities shall not be offset and presented as a single amount. "

Just to emphasize that asset held for sale should be presented as gross asset and gross liabilities with no offset. To illustrate, if a Group has decided to dispose an entity and management has assessed it meets the criteria of asset held for sale - its asset and liabilities should be presented at gross on asset and liabilities seprately.

The other new element we learned about today is regarding the following

" An entity shall present separately any cumulative income or expense recognised in other comprehensive income relating to a non-current asset (or disposal group) classified as held for sale. "

In this juncture, items gone through other comprehensive income should be presented as reserve of disposal group. For instance, asset revaluation reserve of disposal group should be presented on the balance sheet.

This is not new but not many readers are aware of this - hence, we would like to share this you.

Please feel free contact us if you need any clarification - myauditing@gmail.com

Accrual not recorded

More often than not, there are certain accrual for expenditure need to be made by the Company - for instance, accrual maybe made for services received before year-end, but suppliers' invoices not received. Hence, accrual need to be accordingly. There could also be instances where accrual be made for potential expenditure relating to the current financial year.

Often, our consideration as auditor is about the completeness of accrual - it is important to educate management of audit client that to set up a process in place to identify and review the reasonableness of accruals.

As the reviewer of audit file, it is also important to think from the big picture perspective on the completeness of accrual items before going into details (i.e. assessing and evaluating the basis) - an oversight of the accrual is important to identify missing accrual item, if any.

A good understanding of business and development during the year can also help to identify potential accrual not recorded.

 

Singapore Straits Times article - Tax Cheats

Singapore Straits Times reported a news today relating to tax cheats in Singapore where certain individuals are targeting at government scheme or incentives roll out by Singapore government. It is reported that some of the individual used fictitious invoices to claim productivity and innovation credit scheme ("PIC")

There are certain cash payout or enhanced deduction if the Company invested in specific items ( for example, IT and automation equipment approved by IRAS). It is reported that some individuals have fictitiously claimed the PIC benefit with fictitious invoices - i.e. they may not have purchased the items specified by IRAS, but had proceed to claim benefit.

Some individuals had been charged because of the matters above. This matter have the following implication to us, as the auditor:

- while reviewing the PIC claims, we should also maintain professinal skepticism if the PIC claims is supported by appropriate purchases of specific equipments;
- to consider the sighting of equipments if material;
- to assess if the items the Company is claiming qualify under PIC scheme - as only specific items are eligible for PIC
- to review if the Company has developed a process to monitor this PIC scheme

Given that there could be incentives for individual to claim deductions - it is important for the auditor to maitain skepticism in this area of work.

Managerial Accounting : Budgeting - its implication to auditor

We would like to discuss some managerial accounting matters that are related to our audit. The first matter we want to discuss relates to the budgeting process of your audit client. Some blog readers may wonder, given that budgeting is likely to be related to management accounting, hence, not really related to financial accounting. Hence, as auditor, we should not be overly concerned about the budgeting process of the audit client. The truth is, budgeting process is part of the internal controls and assessments carried out / ought to be carried out by management of audit client - this has a significant impact on the extent of our audit and key areas of audit focus.

A comprehensive budgeting process allows management to understand the financial results of the company, identify significant developments not expected, identify key risk areas and identify unusual transactions recorded but not identified. Comparing the actual results against budgeted results and developing understanding on the variance, management is able to make better decision in its resource allocation.

An audit client with no budgeting process in place indicate a relatively higher risk profile of the audit client - as your audit client may not be able to gain the complete picture of the financial affairs of the Company. At this juncture, auditor may have to extend the testing of entity-level controls to review for absence of mitigating controls. Also, a higher level of professional skepticism need to be exercised during the course of our audit to detect any unusual transactions, for which a budgeting process may assist to discover.

The extent of our audit testing may be reduced, if the audit client's entity level controls, including: budgeting process is working effectively. This is because, if the client's process is able to identify risks / unusual transactions - we would be able to rely on the client's process on certain areas.

Please feel free to contact us if you need service on how to develop a comprehensive budget. Please drop us a note at myauditing@gmail.com