MATERIALS: COST ACCOUNTING

The following questions and answers are related to specific chapters in Management and Cost Accounting . They are downloadable as pdf files.

Cost Accounting
Cost Accounting-ANSWER

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ONLINE QUIZ- COST ACCOUNTING

Below are the links to Online Resources on which you can use in studying Cost Accounting. They are based on foreign author books usually in US which are part of the "Student Companion Site".


Interactive Self Test Questions


1 Introduction to management accounting
2 An introduction to cost terms and concepts
3 Cost assignment
4 Accounting entries for a job costing system
5 Process costing
6 Joint and by-product costing
7 Income effects of alternative cost accumulation systems
8 Activity-based costing
9 Standard costing and variance analysis 1
10 Standard costing and variance analysis 2: further aspects
11 Cost management


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SLIDES: BASIC ACCOUNTING

You can download the following Power Point Presentations, based on College Accounting by Price, Haddock, Farina 12ed


Accounting: The Language of Business
Analyzing Business Transactions
Analyzing Business Transactions Using T Accounts
The General Journal and the General Ledger
Adjustments and the Worksheet
Closing Entries and the Postclosing Trial Balance

For Narrated Slides, (you can hear a voice explaining the slide)

Accounting: The Language of Business
Analyzing Business Transactions
Analyzing Business Transactions Using T Accounts
The General Journal and the General Ledger
Adjustments and the Worksheet
Closing Entries and the Postclosing Trial Balance

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ONLINE QUIZ- BASIC ACCOUNTING

Below is the link to Online Resources on which you can use in studying Basic Accounting. They are based on foreign author books usually in US. They are part of the "Student Companion Site". Some topics are not applicable to the the Philippines due to differences in standards.


COLLEGE ACCOUNTING, Price, Haddock, Farina 12 ed
Accounting: The Language of Business
Analyzing Business Transactions
Analyzing Business Transactions Using T Accounts
The General Journal and the General Ledger
Adjustments and the Worksheet
Closing Entries and the Postclosing Trial Balance


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PARTNERSHIP

Below is the link to Online Resources on which you can use for studying accounting. They are based on foreign author books usually in US. They are part of the "Student Companion Site". Some topics are not applicable  to the the Philippines due to differences in standards.


Partnership Online Quiz

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CAT TRAINING MODULES

If you are interested in taking CB Exam, here is the link...

• CB Module 1( Introduction to Accounting)
• CB Module 2 (Completing the Accounting Cycle)
• CB Module 3 Constructive Accounting-by suzy2
• CAT Module 4 Special Journals

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CPA BOARD EXAM SYLLABI

Here is a link to the CPA Licensure Examination Syllabi effective October 2006 Examination

Theory of Accounts
 

Business law 
 

Taxation
 

Management Services
 

Auditing Theory
 

Auditing Problems
 

Practical Accounting I

Practical Accounting II

CREDITS:
PRTC

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About

You are probably reading my site because we have the same interest- the Accountancy profession. I have come on an idea of making a blog on which i can share my thoughts and ideas regarding our profession. This is dedicated to my colleague, aspiring CPAs and to those individuals interested in the same field.This site contains information regarding the current trends in standards, issues, exams, reactions, knowledge about accounting and other posts related to the field. You can also share knowledge on this site if you want, just leave a message on the chatbox. You can also post comments on the article for me to respond as soon as i can.
 All materials in this site are properties of the Contributor, gathered from other websites, donated by other CPAs, faculty members and intended for sharing purpose only. If this site is violating any copyright please contact the Moderator. The materials will be removed or give credits to the designating party subject to approval.


ACCOUNTING ONLINE


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RETURN ON PICK UP LINE

Accountants seem very boring and unromantic. Guess again. Are you single? Would you like a higher Return on Pick-up Attempts Ratio? Yes? Then here it goes…

If you were an item in my consolidated accounts, I will eliminate every journal entry except you.

I'm just a deferred tax asset waiting to be recognized.

I know i seem like a boring, mundane person, but if you take me at my face value, i could be more than you bargained for.

My love for you is like land. It will never depreciate.

You're a debit, and I'm the Credit you've always been waiting for.

You should go out with me because i'm good at reconciling...balance sheet..

I'm like a hedging contract - I may hold you back sometimes, but I can give you security.

Marriage is like an investment, but the only dividend you get is love

Can I record my satisfaction entry in your general journal?

Can I satisfy your vendor liability with my bonus share?

‎"Trust me, I'm an accountant, I know how to manipulate firm assets."

Sure I expensed my time but my memories of you are an asset that will never depreciate.

My love for you is like an intangible asset with an indefinite life, you will never need to amortize it. [AASB 138 para. 107] (unless of course there are indicators of impairment, but lets just ignore para 108 for a bit).

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ACCOUNTING PICK UP LINES

Accounting terms can always be twisted to create a wickedly funny pick-up line.Post some funny lines you come up with.

Boy: Nag-aappreciate ka ba?
Girl: Bakit?
Boy: Amoy lupa ka kasi eh.

-----

Boy: preferred stock ka ba?
Girl: Bakit?
Boy: ikaw kasi ang first priority ko eh.

-----

CPA Boy Pickup: Bonds Payable ka ba?
Girl: Bakit?
CPA Boy Pickup: Ang laki kasi ng interest ko sa'yo!
-----

CPA Boy Pickup: Revenue ka ba?
Girl: Bakit?
CPA Boy Pickup: Pag wala ka, naloloss kasi ako

 -----

Boy: Inventory ka ba?
Girl: Bakit?
Boy: Because I count on you.
-----

Girl: Cash equivalent ka ba?
Boy: Bakit?
Girl: Ipapaliquidate kita within 3 months hay0p ka!!
-----

Boy: Intangible asset ka ba?
Girl: Bakit?
Boy: Hindi ko makita ang asset mo. Ala kang bo0bs. ^_^

 -----

siguro estoppel ka !
-- pa epal ka lang kasi eh ..

 -----

Boy: Ui, Deferred Asset mo ako.
Girl: Ha bakit?
Boy: Di mo lang alam, pero one day marerealize mo din ako. 

 -----

Alam mo para kang Contra Account

Ang sarap mong i amortize...

  -----

Do you have your own pick up line? hehehehe

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BS ACCOUNTING TECHNOLOGY

BS in Accounting Technology in the Philippines

The Bachelor of Science in Accounting Technology program aims to provide students with a strong foundation of knowledge and skills regarding accounting standards and techniques, in order to prepare them for careers as bookkeepers, auditors and accounting staff.

Accounting Technician is a new terminology in the Philippine marketplace but is widely used in Australiaand the United Kingdomto identify a range of accounts or bookkeeping occupations working in all industries and sectors.

An Accounting Technician carries out valuable accounting and related jobs. They work at all levels from account clerks to financial controllers.

Can Accounting Technology graduates work as accountants?

Graduates of BS in accounting technology program won't be eligible to take the CPA board exam and work as accountants. They would need to take the BS in Accountancy program to be able to do so.
The BS in Accounting Technology enables graduates to work as bookkeepers and auditors.
BS in accounting technology graduates are eligible to work abroad after taking the CAT exam.

What exam do I need to take to practice as accounting technicians in the Philippines?

A graduate of Bachelor of Science in Accounting Technology needs to take and pass the Certified Accounting Technician (CAT) Examination in order to practice as accounting technicians in the Philippines. This is offered by the Association of Chartered Certified Accountants (ACCA). 

What are the requirements for admission to the Certified Accounting Technician Examination?

• Must not have any case filed or pending for moral turpitude in any court in the Philippines that involves moral turpitude
• Must have finished the Certified Accounting Technician program in the National Institute of Accounting Technicians
• Must have a copy of the Transcript of Records with Special order and date of graduation
• Must be a holder of a degree in Bachelor of Science in Accounting Technology
• Must have an original copy of community tax certificate (cedula)
• Must have a copy of the NSO authenticated birth certificate
• Must be of good moral character

What are the career opportunities for graduates of Bachelor of Science in Accounting Technology in the Philippines?

• Financial Services Manager (Commerce & Industry and Government Sectors)
• Senior Information Systems Internal Auditor
• Financial Accounting and Reporting Staff
• Senior Forensic Internal Auditor
• Financial Statement Preparers
• Management Accounting Staff
• Vice President for Finance
• Chief Information Officer
• Accounting Technician
• Senior Fraud Examiner
• Chief Financial Officer
• Tax Accounting Staff
• Internal Audit Staff
• Financial Analyst
• Budget Analyst
• Credit Analyst
• Comptroller

CAT Challenge Exam

If you have graduated from any of the accredited providers, then you will only have to take the CAT Challange Exam.

The CAT challenge exam can be take in three levels: 

Level 1 : Practical Accounting

Level 2: Cost Accounting 

Level 3: Taxation and Payroll Accounting 

 

Work Experience Required

To fully become an Accounting Technician, the National Institute of Accounting Technicians require the students who have passed the CAT Program  to acquire at least one (1) year relevant experience after passing the exams which will first be evaluated by NIAT in order to properly credit it.

Our requirement of work experience is to make sure of the quality of our Accounting Technicians on whether they understand or grasp the essence of what an Accounting Technician is capable of. And evaluating their coming from is just our way to make sure that when our graduates take on the title of CAT, they trully deserve it.

There are no limitations on the titles a student should or will possess in their pursuit of the one (1) year work experience because the variety of duties in the accounting and finace industry is very wide

What can you do after qualifying?

Many NIAT members took up key roles in accounting practices and in industry. These covered a broad range of finance roles in many types of organisations across different sectors from private industry to local and central government. Some members pursue careers in accounting management by becoming members international bodies such as Institute of Certified Bookkeepers UK (ICB), Institute of Accounting Technicians (IAT) Canada and Institute of Certified Management Accountants (ICMA) Australia.

CREDITS:

NIAT, Finduniversity.ph    

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CAT EXAM SHEDULE DATES

Topnotch announced its upcoming CAT Review and CAT Examination dates:

CAT part 1 – Certified Bookkeeper (CB)
review – Nov 24 and Dec 4
exam – Dec 11

CAT part 2 – Registered Cost Accountant (RCA)
review – Nov 24 and Dec 4
exam – Dec 11

FOR MORE INFO CONTACT

Ralph Michael Licaros, CPA, CAT, RCA, MICB
Head, Topnotch CAT Reviewers
Accredited Review Provider, NIAT Phils.
0915-9427111
rmlicaros_cat@yahoo.com

Visit their website
www.catreviewers.com

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INTRODUCTION TO ACCOUNTING

The Role of Accounting in Starting a Business

Categorize business types and organizational forms.

• Business Types

Manufacturing businesses make products from raw inputs.
Merchandising businesses sell manufactured goods to customers.
Service businesses provide service to customers or clients; they do not make or sell products.

• Organizational Forms

Sole proprietorships are owned by one individual, are relatively inexpensive to form, and are not legally separate from their owners. Thus, all profits or losses become part of the taxable income of the owner, who is also personally responsible for all of the business's debts.
Partnerships are legally similar to proprietorships, but they have two or more owners.
Corporations are separate legal entities (thus, they pay taxes) that sell shares of stock to investors (stockholders). Corporations are more costly to establish than sole proprietorships and partnerships. Stockholders in corporations cannot be held liable for more than their investment in the corporation. Private corporations sell stock to a few individuals; public corporations sell stock on the stock market.

Describe accounting and its role in business decisions.

• Accounting Defined

Accounting is an information system designed to capture and communicate a business's financial condition and performance to decision makers inside and outside the organization.

• Accounting Professionals

Private accountants are employed by a single business or nonprofit organization. Many pursue the Certified Management Accountant certification.
Public accountants charge fees for services to a variety of businesses and nonprofit organizations. Staff members of CPA firms become licensed certified public accountants.

Identify users of financial information.

• Users of Financial Information

Internal users (primarily managers, sole proprietors, and partners) are those inside the organization who make business decisions affecting the organization's operating, investing, and financing activities.

• Management accounting is the area of accounting that produces financial information for internal users.

External users (primarily bankers, suppliers, governments, and stockholders in corporations) are not directly involved in running the business.

• Financial accounting is the area of accounting that produces financial information for external users.

Describe the fundamental accounting equation and elements of financial statements.

• The Accounting Equation

The fundamental accounting equation is Assets = Liabilities + Owner's Equity.

The five financial statement elements are:

• Assets are measurable economic resources that the business owns and are likely to provide future benefits.
• According to the historical cost principle, assets are initially measured at the total cost to acquire them.
• Liabilities are measurable and probable obligations that require the business to pay cash or deliver goods or services to others in the future.
• Owner's equity is the difference between the assets the business owns and the liabilities it owes.
• Revenues are the amounts that the business earned in delivering goods and services to customers.
• Expenses are the amounts of resources an entity used to earn revenues during a period.

Explain the structure of basic financial statements.

• Financial Statements

Income statement

• Its purpose is to report the performance of a business over a period of time.
• The income statement equation is Revenues – Expenses = Net Income (or Net Loss).

Statement of owner's equity

• Its purpose is to report the changes in owner's equity for a period of time and link the income statement to the balance sheet.
• The owner's equity equation is Beginning Owner's Equity + Additional Investments + Net Income (or – Net Loss) – Withdrawals = Ending Owner's Equity.

Balance sheet

• Its purpose is to report the amount of a business's assets, liabilities, and owner's equity at a particular point in time.
• The balance sheet equation is Assets = Liabilities + Owner's Equity

Statement of cash flows

• The purpose is to report the cash inflows and outflows for operating, investing, and financing activities during a period of time.
• The cash flow equation is ± Cash from Operating Activities ± Cash from Investing Activities ± Cash from Financing Activities = Change in cash during the period.
• Operating activities—those activities directly related to earning profits.
• Investing activities—buying and selling productive resources primarily with long lives.
• Financing activities—borrowing and repaying bank loans, receiving additional investments from owners, and withdrawing profits from the business by owners.
• According to the monetary unit assumption, financial information is reported in the standard monetary unit of the country in which the business operates.

Notes to the financial statements explain how amounts were measured and provide additional information that may affect users' decisions.

Understand the importance of ethical decisions in financial reporting and business.

• Generally Accepted Accounting Principles

The Financial Accounting Standards Board (FASB) sets the rules of accounting, which are the main source of generally accepted accounting principles (GAAP).
Financially useful information should be reliable, relevant, comparable, and consistent.
The Public Company Accounting Oversight Board (PCAOB) sets the rules for independent auditors.

• Ethical Conduct

Ethics in business and accounting refers to the standards of conduct used to judge right from wrong, honest from dishonest, and fair from unfair. Ethical dilemmas harm employees, the business's reputation, the corporation's stock price, lenders, and the public in general.
Companies need a strong system of internal controls to ensure the accuracy of their accounting records and to protect their assets from loss. An audit by independent auditors provides additional credibility regarding the strength of the companies' internal controls and the quality of their financial information.
Independent auditors (CPAs) must adhere to an ethics code, the Code of Professional Conduct, when providing services to clients.

Establishing a Business and the Balance Sheet

Identify what constitutes a business transaction and recognize common balance sheet account titles used in business.

• Nature of Business Transactions

Transactions include:
External exchanges—measurable exchanges of assets and services from one company for other assets or promises to pay from another company, and
Internal events—those that are not exchanges between the business and others, but which have a direct and measurable effect on the entity, including use of supplies and use of a building over many years.

• Balance Sheet Accounts

Typical balance sheet account titles include the following:
Assets: Cash, Accounts Receivable, Inventories, Supplies, Buildings, and Equipment.
Liabilities: Accounts Payable and Notes Payable.
Owner's Equity: "Owner's Name," Capital.

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JOKES

ACCOUNTING JOKES

There once was a business owner who was interviewing people for a division manager position. He decided to select the individual that could answer the question "how much is 2+2?" 

The engineer pulled out his slide rule and shuffled it back and forth, and finally announced, "It lies between 3.98 and 4.02".
The mathematician said, "In two hours I can demonstrate it equals 4 with the following short proof."
The physicist declared, "It's in the magnitude of 1x10¹."
The logician paused for a long while and then said, "This problem is solvable."
The social worker said, "I don't know the answer, but I a glad that we discussed this important question.
The attorney stated, "In the case of Svenson vs. the State, 2+2 was declared to be 4."
The trader asked, "Are you buying or selling?"
The accountant looked at the business owner, then got out of his chair, went to see if anyone was listening at the door and pulled the drapes. Then he returned to the business owner, leaned across the desk and said in a low voice, "What would you like it to be?"


 A 54-year-old accountant leaves a letter for his wife one evening which read: "Dear Wife, I am 54 years old, and by the time you get this letter I will be at the Grand Hotel with my beautiful and sexy eighteen year old secretary."
When he arrived at the hotel, there was a letter waiting for him that read as follows: "Dear Husband, I too am 54 years old, and by the time you receive this letter I will be at the Savoy Hotel with my eighteen year old toy boy. Because you are an accountant, you will surely appreciate that l8 goes into 54 many more times than 54 goes into 18."

A job interview is in progress, a bright and experienced accountant is interviewing for a position of a CFO. He is being interviewed by the members of board of directors and a CEO. During the interview the CEO suddenly asks: "Tell me, what is seven multiplied by three?" The accountant thinks fast and tells "22." Once the interview is over the accountant goes out, takes out the calculator and finds the answer - 21, disappointed, he goes home. Next morning he gets a call from the CEO, "Hey, you got a job." The accountant is pleasantly surprised. He cannot but ask, "Thank you very much for the job but what about seven multiplied by three?" The CEO tells him - "of all the candidates we interviewed, you came the closest."

  

 On a sunny afternoon three accountants are standing near a tall pole and wondering about the height of the pole. First accountant, a CPA says, I do not think there is any authoritative guidance on how measure the height of a pole, that is not the job of accountants. Second accountant, a professor at a state university says, well, if we take a survey of similar locations and asked people about the height of poles, then we may be able to deduce height of this pole, it will be a good enough estimate. The third accountant is a professor at an Ivy league university. He confidently claims, if we measure the shadow of the pole under different conditions, then I can run a multivariate regression model and can give a very good estimate of the height. As this conservation is going on, an engineer is passing by, he stops and asks about their discussion. Accountants tell him, you probably can not understand this complex problem. The engineer persists and hears about the problem. He smiles, lifts the pole from the base, measures it, and says, "twelve feet and three inches," and walks off. Accountants look at him, laugh contemptuously and say in unison - "hell, we wanted to know the height of the pole and he tells us the length." 


A very successful partner is a big six firm had a peculiar habit. He will go to his desk open a locked drawer, look inside, lock the drawer again, and start his work. His subordinates knew that he hid the secret of his success in the drawer, they waited for the opportunity. One day when the partner had gone out of the city, the juniors decided to make a break. They broke into the drawer, breathlessly, and looked inside. There was one small piece of paper inside - it said - "left is debit and right is credit." 


A Martian lands to plunder, pillage, and burn. The Martian goes up to the owner of the first house he sees and says "I'm a Martian just arrived from the other side of the solar system. We're here to destroy your civilization, pillage, and burn. What do you think of that?' The owner replies "I cannot express an opinion based on a hearsay evidence, I am a Chartered Accountant"


An auditor is hard at work, auditing an airline. The auditor cannot understand an excess fuel consumption on a Detroit to Erie route, for flight no. 420. The auditor calls the pilot and demands an explanation. The pilot replies "It was a late night, snow storm was raging, and I lost my bearings." The auditor demands a statement, "for what?" the pilot asks. The auditor tells him "for lost bearings."


The auditors have taken an inventory of thermometers held in a warehouse, in summer. The thermometers will be exported out of the country in January, and are kept under lock and key. In December, auditors ask management to redo the inventory count. The management is surprised "Why? Nothing has changed." Auditors tell them "The inventory is overstated, in summer there is more mercury in the thermometers."
There was an expert accountant who was well versed in the game theory. He once hears that his intelligent niece, who is five years old, always takes a nickel, when a choice between a nickel and a dime is offered. He explains to his niece "You must understand, dime is twice as valuable as a nickel, so always choose a dime." The niece tells "Uncle, but then people will not offer me any money."


Man walking along a road in the countryside comes across a shepherd and a huge flock of sheep. Tells the shepherd, "I will bet you $100 against one of your sheep that I can tell you the exact number in this flock." The shepherd thinks it over, it’s a big flock so he takes the bet. "973" says the man. The shepherd is astonished, because that is exactly right. Says "OK, I am a man of my word, take an animal." Man picks one up and begins to walk away. "Wait," cries the shepherd, "Let me have a chance to get even. Double or nothing that I can guess your exact occupation." Man says sure. "You are an accountant with a Big Six firm," says the shepherd. "Amazing!" responds the man, "You are exactly right! But tell me, how did you deduce that? "Well," says the shepherd, "put down my dog and I will tell you."


An Indian Accountant's Theory of Reincarnation - if you are a good accountant, virtuous accountant, then you are reborn as an engineer. But if you are evil, wicked accountant, you are reborn as a psychologist.
One day in microeconomics, the professor was writing up the typical "underlying assumptions" in preparation to explain a new model. I turned to my friend and asked, "What would Economics be without assumptions?" He thought for a moment, then replied, "Accounting."
A science graduate asks, "Why does it work?" An engineering graduate asks, "How does it work?" An accounting graduate asks, "How much it costs?" A humanity graduate asks, "Do you want fries with that, Sir?"


A man lands on a hot air balloon in the middle of the desert, not knowing his whereabouts he looks around. Along walks another guy so the balloon man asks "Excuse me, can you tell me where I am?" "Sure" says the other one "longitude 23'45", latitude 34'12". "Oh," says the balloon man, "you must be accountant" "As a matter of fact, I am, how did you know?" "Well, you just gave me a very precise piece of worthless information." " I see" says the accountant "and you must be a consultant." "You are right, how did you know?" "As long as you're up in the air, you seem to know where you're going, but as soon as you get down to earth, you're lost."
While waiting to board a plane in a small airport, a ticket agent said on the paging system: "Would the accountant who dropped his pants please return to the ticket counter."  After a slight pause, the same voice added, "The pants were on a hanger!"


An auditor is having a hard time sleeping and goes to see his doctor.  "Doctor, I just can't get sleep at night."
"Have you tried counting sheep?"
"That's the problem - I make a mistake and then spend many hours trying to find it."


Three accountants were in the urinal performing their morning constitutional.  The first finishes and walks over to the sink to wash his hands.  He then proceeds to dry his hands carefully.  He uses paper towel after paper towel and ensures that every single spot of water on his hands is dried.   Turning to other two accountants, he says - "Chartered Accountants are trained to be extremely thorough."
The second finishes his task at the urinal and he proceeds to wash his hands.  He uses a single paper and makes sure that he dries every drop of water from his hands using every available portion of the paper towel.  He turns and says - "Certified Accountants are not only trained be extremely thorough but also trained to be extremely efficient."
The third accountant finishes and walks straight for the door.  "Management Accountants learn not to piss on their hands."


Accountant's Life:
He was a very cautious man, who never romped or played.
He never smoked, he never drank, nor even kissed a maid.
And when up and passed and away, insurance was denied.
For since he hadn't ever lived, they claimed he never died.  


A partner is discussing ethics policy with the staff accountant.  He says "We take ethics very seriously around here.  Remember, we are professionals not businessmen."  The young staff accountant is impressed.   The partner elaborates "Yesterday I received a check from a client.  It paid $5,000 more than our bill.  Immediately an ethical question arose, shall I tell it to other partners?"


An auditor is hard at work auditing a manufacturing plant.  He spots one worker at the end of the shift, that worker is always carrying a wheelbarrow covered with an opaque cloth.  The auditor is certain something is fishy.   He asks the security to check the wheelbarrow.  Many surprise checks, security finds nothing.  On the last day of the audit the auditor goes to the worker and asks, "Alright, I give up.  I know you are taking something.  I cannot prove it .   I do not want to pursue it.  I just want to know.  What are you stealing?"  The worker replies, "Wheelbarrows."


A Tax Official has come to a rural synagogue for an inspection. The rabbi is accompanying him. "So rabbi, tell me, please, after you have distributed all your unleavened bread, what do you do with the crumbs?"
"Why, we gather them carefully and send them to the city and then they make bread of them again and send it to us."
"Ah. So what about candles after they are burnt? What do you do with the ends?"
"We send them to the city as well, and they make new candles from them and send them to us."
"And what about circumcision? What do you do with those leftover pieces?"
The rabbi, wearily, replies, "We send them to the city as well."
"To the city!? And what do they send to you?"
"Today they have sent you to us."

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PHILIPPINE STANDARDS ON AUDITING UPDATES

IAASB CLARITY PROJECT

In March 2009, International Auditing & Assurance Standards Board completed its comprehensive review on all of its ISAs and International Standards on Quality Control (ISQCs). The improvements go beyond the enhancement of the understandability of the ISAs through the application of the new clarity conventions; they also include changes to requirements under certain auditing standards.

All clarified ISAs contain certain improvements arising from the Clarity Project, including:

1. Identify the auditor’s overall objectives
2. Clarify the obligations imposed on auditors
3. Improving the overall readability and understandability of the standards

For more information about the IAASB Clarity Project,go to Clarity of IAASB Standards - Completed

PSA 320 & PSA 450 (Revised and Redrafted) – MATERIALITY IN PLANNING AND PERFORMING AN AUDIT and  EVALUATION OF MISSTATEMENTS IDENTIFIED DURING THE AUDIT

Materiality in Planning and Performing an Audit

The revised PSA 320 includes a requirement for the auditor to determine the following:

•  Materiality level for the financial statement as a whole.
•  Materiality level(s) for one or more particular classes of transactions, account balances or disclosures (if required by considering the specific circumstances of the entity).
• Performance materiality for the purposes of assessing the rsik of material misstatement and determining the nature, timing, and extent of further audit procedures

Evaluation of Misstatements Identified during the Audit

• This was previously covered by PSA 320
• Requires the auditor to accumulate misstatements identified during the audit, other than those clearly trivial
• Requires the auditor to consider the effect of uncorrected misstatements related to prior periods on the current year’s financial statements

PSA 560 (Redrafted) – SUBSEQUENT EVENTS

• Expanded definition  of subsequent events
• Redrafted to clarify the auditor’s responsibilities for subsequent events that occur

1. After the balance sheet date but before the date of the report;
2. After the date of the report but before FS are issued; and
3. After the FS are issued

• The use of dual-dating was illustrated

PSA 580 (Revised and Redrafted)– WRITTEN REPRESENTATION

• The standard is revised to address concern that the auditor may be over-relying on written representations
• The revised PSA 580 requires an auditor to obtain a representation letter from the management

PSA 600 (Revised and Redrafted) – SPECIAL CONSIDERATIONS-AUDITS OF GROUP FINANCIAL STATEMENTS (INCLUDING THE WORK OF COMPONENT AUDITORS)

• — —  PSA 600 apply to group audits and deals with special consideration that apply to group audits, in particular those that involve component auditor.
• —  The group engagement partner is responsible for the direction, supervision, and performance of the group audit engagement.
• —  The auditor’s report on the group financial statements shall not refer to a component auditor.

PSA 700 (Redrafted) – THE INDEPENDENT AUDITOR'S REPORT ON A COMPLETE SET OF GENERAL PURPOSE FINANCIAL STATEMENTS

Forming an Opinion and Reporting on Financial Statements

• Emphasizes the Independence of the Auditor in the title of the audit report
• Emphasizes the use of appropriate headings within the report
• Revised the wording of the Management’s Responsibility for the Financial Statements
• Prefers the use of the term unmodified over unqualified

PSA 705 (Revised and Redrafted) - Modifications to the Opinion in the Independent Auditor's Report

• PSA 705 deals with the auditor’s responsibility to issue an appropriate report in circumstances when a modification to the auditor’s opinion is necessary.
• The modification to the opinion in the independent auditor’s report was previously under PSA 701.
• Prohibition on issuing a piecemeal opinion
• Provided a detailed guidelines when modifying an opinion

PSA 706 (Revised and Redrafted) -EMPHASIS OF MATTER PARAGRAPHS AND OTHER MATTER PARAGRAPHS IN THE INDEPENDENT AUDITOR'S REPORT

—  PSA 706 deals with additional communication in the auditor’s report when the auditor considers it necessary to draw user’s attention to:

• Matter  or matters presented or disclosed in the financial statements
• Any matter or matters other than those presented or disclosed in the financial statements that are of such importance that they are fundamentals to users’ understanding of the auditor’s responsibility

—  “Emphasis of Matter” was previously dealt with by PSA 701

—  Introduces the use of “Other Matter” paragraph

PSA 706 requires the auditor’s report to include an emphasis of matter paragraph under the following circumstances:

• Early application of new accounting standard
• A major catastrophe with significant effect on the entity’s financial position
• Going concern uncertainty and other uncertainties relating to exceptional litigation or regulatory action (PSA 570)
• Financial statements prepared using Special Purpose Financial Reporting Frameworks (PSA 800)

—  PSA 706 requires the auditor’s report to include an other matter paragraph under the following:

• Reporting on comparatives (PSA 710)
• Material inconsistency  exists between other information and the audited financial statements (PSA720)
• Restriction on distribution or use of the auditor’s report (PSA 800, 805 and 810)
• Reporting on financial statements prepared using more than one financial reporting  frameworks

PSA 710 (Redrafted)–COMPARATIVE INFORMATION-CORRESPONDING FIGURES AND COMPARATIVE FINANCIAL STATEMENTS

• Clarifies the audit0r’s responsibility when reporting on comparatives when the prior year’s financial statements were
  • Audited by a continuing auditor
  • Audited by a predecessor  auditor
  • Not audited
• Requires the use of “Other Matter” paragraph

PSA 720 (Redrafted) –THE AUDITOR'S RESPONSIBILITIES RELATING TO OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS

• Clarifies the audit0r’s responsibility when reporting on financial statements included in a document that contains other information
• Requires the use of “Other Matter” paragraph when there is a material inconsistency between the financial statements audited and the other information

Special Purpose Financial Statements

• PSA 800 (old) applies to special purpose audit engagements
• PSA 800 was redrafted to include only audit of financial statements prepared using special purpose financial frameworks
• PSA 805 deals with audit of single FS or specific elements of a financial statement
• PSA 810 deals with the auditor’s report on summary FS

CREDITS:
Jekell Salosagcol
ACCOUNTING TEACHERS CONFERENCE
Naga, 2011

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