SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

General Luna Road, Baguio City Philippines 2600

Telefax No.: (074) 442-3071 Website: www.ubaguio.edu E-mail Address: ub@ubaguio.edu

Auditing Problems
Review Schedule, Topics, and Exams Coverage

Review Schedule

Date Time HO# Topic (Audit of…)

Jan. 20, 2020 02 pm – 05 pm AP01 Accounting Changes and Error Correction
Jan. 27, 2020 10 am – 01 pm AP02 Cash and Cash Equivalents
02 pm – 05 pm AP03 Receivables
Feb. 03, 2020 10 am – 01 pm AP04 Inventories
02 pm – 05 pm AP05 Investments
Feb. 17, 2020 10 am – 01 pm AP06 Property, Plant, and Equipment
02 pm – 05 pm AP07 Intangible Assets
Feb. 24, 2020 10 am – 01 pm AP08 Current Liabilities and Bonds Payable
02 pm – 05 pm AP09 Income Taxes
Mar. 02, 2020 10 am – 01 pm AP10 Employee Benefits
02 pm – 05 pm AP11 Leases
Mar. 09, 2020 10 am – 01 pm AP12 Shareholders‟ Equity
02 pm – 05 pm AP13 Share-based Payments
Mar. 16, 2020 10 am – 01 pm AP14 Other Income Statement Items
02 pm – 05 pm AP15 Statement of Cash Flows
Mar. 30, 2020 08 am – 05 pm AP16 Wrap-up

Topics

AP01 – Accounting Changes and Error Correction

 Change in accounting policies
o Accounting for changes in accounting policies
o Voluntary change in accounting policy
o Future changes in accounting policies
o Change in reporting entity
o Limitations on retrospective application
 Change in accounting estimate
o Accounting for changes in accounting estimates
o Prospective application
 Errors
o Current period errors
o Prior period errors
o Correction of prior period errors
o Impracticability of retrospective restatement
o Types of errors in accounting

AP02 – Cash and Cash Equivalents

 Definition of and coverage of cash items
o Postdated checks received
o Unused credit line
o Unreleased checks drawn and postdated checks drawn
o Stale checks
 Cash equivalents
 FS presentation
 Measurement of cash
 Deposit in foreign banks

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  Compensating balance
 Bank overdraft
 Internal controls over cash – voucher system
 Accounting for cash shortage and overages
 Petty cash fund
 Bank reconciliation
o Pro forma bank reconciliation statement
o Computation of deposits in transit and outstanding checks
o Proof of cash

AP03 – Receivables
 Trade and non-trade receivables
 Financial statement presentation
 Abnormal balances in accounts
 Initial measurement
 Recognition of trade receivables
o Terms of sale contract
o Trade discounts and cash discounts
 Subsequent measurement of accounts receivable
o Accounting for bad debts
o Estimating doubtful accounts
 Percentage of credit sales (single loss-rate approach)
 Percentage of receivable (single loss-rate approach)
 Aging of receivables (provision matrix)
 T-account
 Receivables denominated in foreign currency
 Notes receivable
o Initial measurement
o Subsequent measurement
o Deferred annuities
o Pre-acquisition accrued interest
 Loans receivable
o Origination costs and fees
o “Day 1” difference
 Receivable financing
o Pledge (hypothecation)
o Assignment
o Factoring
o Discounting of notes receivables

AP04 – Inventories
 Inventories
 Recognition
 Goods in transit
 Consigned goods
 Inventory financing agreements
 Sale with unusual right of return
 Sale on trial
 Installment sale
 Bill and hold arrangement
 Lay away sale
 Financial statement presentation
 Accounting for inventories
o Perpetual inventory system
o Periodic inventory system
 Inventory errors under the periodic system
 Measurement
 Trade discounts and cash discounts
 Conversion costs

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  Deferred settlement terms
 Cost of inventories purchased in lump sum
 Cost formulas
 Net realizable value (NRV)
o Write-down of inventory
o Reversal of write-downs
 Purchase commitments
 T-account analysis
 Inventory estimation
o Gross profit method
o Retail method
o Average cost method
o FIFO cost method

AP05 – Investments
 Financial instruments
 Initial recognition
 Classification of financial assets
o Business model
 „Hold to collect‟ business model
 „Hold to collect and sell‟ business model
o Contractual cash flow characteristic
 Initial measurement
 Fair value measurement
o Requirements of fair value measurement
o Valuation techniques
o Fair value hierarchy
 Subsequent measurement
 Financial assets measured at FVPL
 Investment in equity securities measured at FVOCI
 Financial assets at amortized cost
o Bonds
o Investment in bonds measured at amortized cost
o Discount or premium
o Recognition of interest income/investment income
o Acquired interest
o Transaction costs
o Sale of bonds prior to maturity
o Purchase price of bonds
o Serial bonds
o Zero-coupon bonds
o Callable bonds
 Financial assets measured at FVOCI (mandatory)
 Puttable financial assets
o Investment in redeemable preference shares
 Regular way purchase or sale of financial assets
o Trade date accounting
o Settlement date accounting
 Reclassification
 Dividends
o Recognition of dividend revenue
o Dates relevant to the accounting for dividends
o Dividend-on and ex-dividend
o Measurement of dividends
o Dividend from pre-acquisition retained earnings
o Dividends settled at the option of holder

AP06 – Property, Plant, and Equipment

 Recognition
 Initial measurement

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  Incidental operations
 Self-constructed assets
 Classes of PPE
o Land (Property)
o Building (Plant)
o Equipment
o Lump-sum purchase of items of PPE
o Demolition costs
 Acquisition through exchange
 Acquisition through trade-in
 Acquisition through issuance of own equity instrument
 Acquisition through issuance of bonds payable
 Acquisition by donation
 Subsequent measurement
 Cost model
o Kinds of depreciation
o Recognition of depreciation
o Depreciation methods
 Straight line method
 Sum-of-the-years‟ digits (SYD)
 Double declining balance method
 Units of production method (Activity or Variable-charge
method)
 Group depreciation
 Capitalization policy
 Leasehold improvements
 Changes in depreciation method, useful life, and residual value
 Idle, temporarily taken out of use, and abandoned properties
 Fully depreciated assets
 Costs subsequent to initial recognition
 Major types of subsequent expenditures
o Additions
o Improvements
o Replacements of major parts
o Major inspections
o Rearrangement and reinstallation
o Repair and maintenance
 Revaluation model
o Basis for revaluation
 Highest and best use
 Fair value hierarchy
 Valuation techniques
o Accounting for revaluations of PPE
o Methods of recording revaluation
o Frequency of revaluation
o Revaluation applied to all assets in a class
o Subsequent accounting for revaluation surplus
o Reversal of revaluation
 Derecognition

AP07 – Intangible Assets

 Intangible asset
 Assets with both intangible and tangible elements
 FS presentation
 Recognition
 Initial measurement
o Separate acquisition
o Acquisition as part of business combination
o Acquisition by way of government grant
o Exchanges of assets

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 o Internally generated intangible assets
o Research and development (R&D) expense
o Items not recognized as intangible assets
o Cost of an internally generated intangible asset
o Subsequent expenditures
 Subsequent measurement
o Useful life
o Amortization
o Residual value
 Derecognition
 Major categories of intangible assets
o Trademark or trade name
o Masthead
o Internet domain name (website)
o Noncompetition agreement
o Customer list
o Copyright
o Franchise
o Patent
o Computer software
 Organizational costs
 Acquisition of intangible assets in lump sum

AP08 – Current Liabilities and Bonds Payable

 Liability
 Financial and non-financial liabilities
o Presentation of financial instruments
 Recognition of financial liabilities
 Classification of financial liabilities
 Measurement of financial liabilities
 Measurement of non-financial liabilities
 FS presentation
 Current liabilities
 Trade and non-trade payables
 Refinancing agreement
 Liabilities payable on demand
 Trade accounts payable
 Unearned income
 Liability for deposits received
o Deposit for future subscription of shares of stocks
 Accrued expenses
 Dividends payable
 Liability for remittable collections
 Notes payable
o Initial measurement
o Subsequent measurement
 Loans payable
o Origination fees
o Cost of bank loan
o Secured loans
o Fixed and variable interest loans
o Credit lines
o Commercial paper
 Bonds payable
o Types of bonds
 Accounting for bonds
o Bond premium and discount
 Unamortized balance of discount or premium
o Accounting for transaction costs
o Issuance of bonds between interest payment dates

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 o Issue price of bonds
o Bond refunding
o Retirement of bonds prior to maturity
o Serial bonds
o Zero-coupon bonds
o Callable bonds
 Puttable instrument
 Compunt financial instruments
o Convertible bonds
o Bonds with share warrants
 Reclassification
 Derecognition of financial liability
o Transfer of noncash assets (asset swap)
o Transfer of equity securities (equity swap)
o Modification of terms
 Troubled-debt restructuring
o Waiver or cancellation by the creditor

AP09 – Income Taxes

 Accounting profit and taxable profit
 Permanent differences
 Temporary differences
o Taxable temporary differences
o Deductible temporary differences
 The asset-liability method
 Tax base
o Tax base of assets
o Tax base of liabilities
 Income tax expense and current tax expense
 Accounting for current taxes
 Formulas
 Recognition of deferred taxes
 Limitation on the recognition of DTA
 Measurement
o Different tax rates apply to different levels of taxable income
o Different tax rates apply to different transactions or events
 Presentation in the statement of financial position
 Presentation in statement of comprehensive income
 Interperiod and intraperiod tax allocation

AP10 – Employee Benefits

 Employee benefits
 Recognition
 Short-term employee benefits
o Short-term paid absences
o Profit-sharing and bonus plans
 Post-employment benefits
o Defined contribution plans
o Defined benefit plans
 Hybrid plans
 Accounting for defined contribution plan
 Accounting for defined benefit plan
 Present value of the defined benefit obligation T-account
 Fair value of plan assets T-account
 Determining the ultimate cost of a defined benefit
o Actuarial valuation method – Projected Unit Credit Method
o Attributing benefit to periods of service
 Additional illustrations of concepts
o Reimbursements

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 o Overfunding/underfunding
o Offsetting
o Other long-term employee benefits
o Termination benefits

AP11 – Leases
 Lease
 Identifying a lease
o Identified asset
 Substantive substitution rights
o Right to obtain economic benefits from use
o Right to direct the use
 Protective rights
 Lease term
 Accounting for leases by lessee
o Recognition
o Initial measurement of Lease liability
 Discount rate
o Initial measurement of Right-of-use asset
o Subsequent measurement of Lease liability
o Subsequent measurement of Right-of-use asset
o Recognition exemptions
 Separating the components of a contract
o Lease of multiple assets
o Non-lease elements
o Practical expedient
 In-substance fixed lease payments
 Lease incentives
 Variable lease payments
 Residual value guarantee
 Purchase option
 Initial direct costs
 Lease payments made to lessor at or before commencement date
o Security deposits
 Reassessment of lease liability
 Lease modifications
 Leasehold improvements
 Accounting for leases by lessor
 Indicators of a finance lease
 Inception and commencement of lease
 Fiancé lease
o Initial measurement
o Lease payments
o Discount rate
o Subsequent measurement
o Initial direct costs
o Classification of finance lease by lessor
o Residual value
o Lease modifications
 Operating lease
o Lease modifications
o Lease of land and building
o Subleases
o Presentation
 Sale and leaseback transactions

AP12 – Shareholders’ Equity

 Corporation
 Shareholders‟ equity
 Accounting for share capital

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  Classes of share capital
 Share premium
 Par value and no-par value shares
 Legal capital
 Share issuance costs
 Shares issued at a discount
 Treasury shares
 Retirement of shares
 Delinquent subscriptions
 Sale of different classes of share capital
 Equity instrument VS Financial liability
 Redeemable and callable preference shares
 Origination of other equity instruments
o Stock rights
o Convertible bonds and convertible preference shares
o Bonds with detachable warrants
o Preference shares with detachable warrants
 Donated capital
 Assessments on shareholders
 Retained earnings
 Dividends
 Dates relevant to the accounting for dividends
 Recognition of liability for dividends
 Accounting for cash dividends
 Accounting for property dividends
o Choice between property and cash dividends
 Accounting for share dividends
o Treasury shares declared as dividends
o Fractional shares
o Share dividends of different class
o Choice between share and cash dividends
 Preference shares
 Dividends recognized as expense
 Liquidating dividends
 Disclosure of dividends
 Other components of equity
 Recapitalization
 Share split
 Quasi-reorganization

AP13 – Share-based Payments

 Share-based payment transactions
 Recognition
 Equity-settled share-based payment transactions
 Share-based compensation plans
 Employee share option plans
 Vesting condition
 Modifications, cancellations, and early settlements
o Modification of terms and conditions
o Cancellation and early settlement
 Intrinsic value method
 Employee Stock Ownership Plans (ESOPs)
 Cash-settled share-based payment transactions
o Employee Share Appreciation Rights (SARs)
 Choice between equity-settled and cash-settled
o Counterparty has the right of choice
o Entity has the right of choice

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AP14 – Other Income Statement Items
 Statement of profit or loss and other comprehensive income
 Profit or loss
o Extraordinary items
o Presentation of expenses
 Other comprehensive income
o Reclassification adjustments
o Presentation of OCI
 Total Comprehensive Income
 Other IS Items

AP15 – Statement of Cash Flows

 Classification of cash flows
o Operating activities
 Special items included in operating activities
o Investing activities
o Financing activities
o Cash flows excluded from the activities sections
 Interests and dividends
 Presentation
o Operating activities
 Direct method
 Indirect method
o Investing and financing activities
o Non-cash transactions

Exams Coverage

Topics Number of Items in Exams

1st Grading 1st Grading Finals
Accounting Changes and Error Correction 10 3
Cash and Cash Equivalents 10 3
Receivables 10 3
Inventories 10 3
Investments 10 3
Total Number of Items in Exams 50
Midterms Midterms
Property, Plant, and Equipment 5 3
Intangible Assets 5 3
Current Liabilities and Bonds Payable 5 3
Income Taxes 5 3
Employee Benefits 5 3
Leases 5 3
Shareholders‟ Equity 5 3
Share-based Payments 5 3
Other Income Statement Items 5 3
Statement of Cash Flows 5 3
*Other random items of topics discussed - 5
Total Number of Items in Exams 50 50

Prepared by:

Franklin Jan L. Wayang, CPA

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