CPA Core 1 Technicals Exam With 100% Correct Solutions
What is IFRS criteria 5 for revenue recognition, significant elements of each - ANSWER
1. Identify the contract-must have commercial substance, meaning future CF vary
because of the contract
2. Performance obligations-identify if distinct goods or services
3. determine transaction price-variable consideration, right of return, significant
financing components, non-cash, and consideration payable to customer
4. Allocate transaction price - can do so proportionally or per obligation
5. Recognize Revenue - 1 time or over time.
What are revenue recognition criteria for ASPE - ANSWER 1. Performance is achieved -
when significant risks and rewards of ownership are transferred
2. collection is reasonably assured
3. consideration is reliably measurable
For ASPE what determines if performance is achieved. 3 criteria - ANSWER 1.
Persuasive evidence of an arrangement exists
2. Delivery of goods (f.o.b delivery or shipping)
3. Price is fixed or determinable
What is an audit plan vs audit strategy? What is RAMP? - ANSWER Audit strategy: Sets
scope, timing and direction of audit and directs development of audit plan
Audit plan: has description of nature, timing and extent of risk assessment procedures,
includes test of controls and substantive procedures. RAMP = risk, approach,
materiality, and procedure
What types of risk are there? 3 of them, what is the audit risk equation? What is RMM
and its equation? - ANSWER 1. Inherent risk: risk that exists independent of controls.
essentially risks business can't control.
,2. control risk: risks business can control via control procedures
3. Detection risk: the risk that auditors can detect risk. is affected by how indpeth
auditor goes into procedures.
Audit risk = IR * CR * DR
with IR * CR being risk of material misstatement
What is OFSL and Assertion levels? give examples of each for both Inherent and control
risks - ANSWER OFSL = overall financials statement level are risks that affect the whole
company instead of individual accounts. Think macro risks.
Assertion: risk at the account level
OFSL inherent
- aggressive market competition
- client never been audited before
- purchase or sale
- significantly regulated industry
- depression
- bonuses contingent on FS results
OFSL risk
- inventory values
- any estimates
- complex transactions
OFSL control
- No organization controls over internal controls
- lousy software or general ledger system
- no separation of duties at organization level
- no internal audit department
- mgmt attitude couldnt care less about controls
,- lack of system documentation
OFSL assertion
- Jounral entry controls
- controls for specific FS area
combined vs substantive approach Combined Approach: approach used when auditor
has determined when a business's controls can be relied on; the approach has both a
test of controls and substantive procedures for that account balance or class of
transactions.
Substantive Approach: approach when you, as auditor, can't rely on internal controls of
the company; only substantive procedures are used.
8 steps to calculate materiality 1. Identify Financial statement users
2. Identify objectives of said users
3. Determine base of materiality
4. Identifying materiality threshold-select a percentage and what account to base it off
of.
5. Calculate overall materiality-normalize the account you are using as a base; that is,
take out unusual non-repeating transactions
6. Calculate performance materiality (it is a percentage of regular materiality)
7. Calculate specific materiality
8. Calculate specific performance materiality
ASPE - 2 methods to identify revenue overtime, brief description of each. Where is it in
handbook? - ANSWER % of completion: in essence, this is the recognition of revenue
that is directly related to how much of the project has been completed. It can be based
on costs vs total budgeted costs, or no of acts completed in project. Or it can be straight
line.
Completed contract: when you cannot estimate it, then you will recognize revenue when
performance is complete at the very end.
Location: ASPE 3400
, What is a consignment arrangement, how does consignor account for it? how does
consignee account for it? - ANSWER When seller (consignor), gives revenue to
consignee to sell their product on their behalf.
Consignor: keeps Inventory on their books, recognizes rev when consignee sells it and
pays a commission fee.
Consignee: does not have inventory, recognizes commission revenue, Remember this is
considered an agent and principal issue for ASPE
what are right of return? Rebate? and volume discounts? How to account for these? -
ANSWER Right of return: customer has rights to return goods.
Rebate: Reduction in sales price after customer has paid
Volume Discount: discount when customer buys in bulk.
Generally only recognize revenue when you have a good estimate, if not defer it until
contract is up or performance is achieved.
What is a bill and hold arrangement, what are its criteria, and how to account for it? -
ANSWER When customer asks you to hold something for them.
Criteria: -control changed hands from seller to buyer
-reason for arrangement is substantive
-product is identified separately by seller
-product ready to be delivered to buyer
- seller cannot use product for anything else
Accounting: If above criteria met, then Revenue recognition otherwise, if not met, then
defer until delivery
IFRS - what determines impairment, how do you find recoverable amount? - ANSWER If
recoverable amount is less than carrying value. The recoverable amount is the higher of
FMV - disposal OR value in use (PV of future cashflows)
FOR IFRS when can you reverse impairment? - ANSWER There have been an increase in
What is IFRS criteria 5 for revenue recognition, significant elements of each - ANSWER
1. Identify the contract-must have commercial substance, meaning future CF vary
because of the contract
2. Performance obligations-identify if distinct goods or services
3. determine transaction price-variable consideration, right of return, significant
financing components, non-cash, and consideration payable to customer
4. Allocate transaction price - can do so proportionally or per obligation
5. Recognize Revenue - 1 time or over time.
What are revenue recognition criteria for ASPE - ANSWER 1. Performance is achieved -
when significant risks and rewards of ownership are transferred
2. collection is reasonably assured
3. consideration is reliably measurable
For ASPE what determines if performance is achieved. 3 criteria - ANSWER 1.
Persuasive evidence of an arrangement exists
2. Delivery of goods (f.o.b delivery or shipping)
3. Price is fixed or determinable
What is an audit plan vs audit strategy? What is RAMP? - ANSWER Audit strategy: Sets
scope, timing and direction of audit and directs development of audit plan
Audit plan: has description of nature, timing and extent of risk assessment procedures,
includes test of controls and substantive procedures. RAMP = risk, approach,
materiality, and procedure
What types of risk are there? 3 of them, what is the audit risk equation? What is RMM
and its equation? - ANSWER 1. Inherent risk: risk that exists independent of controls.
essentially risks business can't control.
,2. control risk: risks business can control via control procedures
3. Detection risk: the risk that auditors can detect risk. is affected by how indpeth
auditor goes into procedures.
Audit risk = IR * CR * DR
with IR * CR being risk of material misstatement
What is OFSL and Assertion levels? give examples of each for both Inherent and control
risks - ANSWER OFSL = overall financials statement level are risks that affect the whole
company instead of individual accounts. Think macro risks.
Assertion: risk at the account level
OFSL inherent
- aggressive market competition
- client never been audited before
- purchase or sale
- significantly regulated industry
- depression
- bonuses contingent on FS results
OFSL risk
- inventory values
- any estimates
- complex transactions
OFSL control
- No organization controls over internal controls
- lousy software or general ledger system
- no separation of duties at organization level
- no internal audit department
- mgmt attitude couldnt care less about controls
,- lack of system documentation
OFSL assertion
- Jounral entry controls
- controls for specific FS area
combined vs substantive approach Combined Approach: approach used when auditor
has determined when a business's controls can be relied on; the approach has both a
test of controls and substantive procedures for that account balance or class of
transactions.
Substantive Approach: approach when you, as auditor, can't rely on internal controls of
the company; only substantive procedures are used.
8 steps to calculate materiality 1. Identify Financial statement users
2. Identify objectives of said users
3. Determine base of materiality
4. Identifying materiality threshold-select a percentage and what account to base it off
of.
5. Calculate overall materiality-normalize the account you are using as a base; that is,
take out unusual non-repeating transactions
6. Calculate performance materiality (it is a percentage of regular materiality)
7. Calculate specific materiality
8. Calculate specific performance materiality
ASPE - 2 methods to identify revenue overtime, brief description of each. Where is it in
handbook? - ANSWER % of completion: in essence, this is the recognition of revenue
that is directly related to how much of the project has been completed. It can be based
on costs vs total budgeted costs, or no of acts completed in project. Or it can be straight
line.
Completed contract: when you cannot estimate it, then you will recognize revenue when
performance is complete at the very end.
Location: ASPE 3400
, What is a consignment arrangement, how does consignor account for it? how does
consignee account for it? - ANSWER When seller (consignor), gives revenue to
consignee to sell their product on their behalf.
Consignor: keeps Inventory on their books, recognizes rev when consignee sells it and
pays a commission fee.
Consignee: does not have inventory, recognizes commission revenue, Remember this is
considered an agent and principal issue for ASPE
what are right of return? Rebate? and volume discounts? How to account for these? -
ANSWER Right of return: customer has rights to return goods.
Rebate: Reduction in sales price after customer has paid
Volume Discount: discount when customer buys in bulk.
Generally only recognize revenue when you have a good estimate, if not defer it until
contract is up or performance is achieved.
What is a bill and hold arrangement, what are its criteria, and how to account for it? -
ANSWER When customer asks you to hold something for them.
Criteria: -control changed hands from seller to buyer
-reason for arrangement is substantive
-product is identified separately by seller
-product ready to be delivered to buyer
- seller cannot use product for anything else
Accounting: If above criteria met, then Revenue recognition otherwise, if not met, then
defer until delivery
IFRS - what determines impairment, how do you find recoverable amount? - ANSWER If
recoverable amount is less than carrying value. The recoverable amount is the higher of
FMV - disposal OR value in use (PV of future cashflows)
FOR IFRS when can you reverse impairment? - ANSWER There have been an increase in
