CPAEAM cheat sheet

Conceptual framework: relevance and faithful representation are fundamental qualitative characteristics; comparability, verifiability, timeliness, and understandability are enhancing.

Revenue recognition (five steps): identify contract, identify performance obligations, determine transaction price, allocate price to obligations, recognize revenue when each obligation is satisfied.

Inventory cost formulas under PAS 2: FIFO and weighted average are permitted; LIFO is prohibited; inventory is measured at the lower of cost and net realizable value.

Depreciation methods: straight-line = (cost − residual)/useful life; double-declining = 2 × straight-line rate × carrying amount; units-of-production allocates by usage.

Impairment (PAS 36): an asset is impaired when carrying amount exceeds recoverable amount, which is the higher of fair value less costs of disposal and value in use.

Financial statement elements: assets, liabilities, equity, income, and expenses; an item is recognized if it meets the definition and provides relevant, faithfully represented information.

Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less and no significant risk of value change.

Statement of cash flows: operating, investing, and financing activities; interest and dividends received may be operating or investing, interest paid may be operating or financing, dividends paid may be financing or operating.

Consolidation requires control: power over the investee, exposure to variable returns, and ability to use power to affect returns; ownership above 50% generally indicates control.

Goodwill = consideration transferred + noncontrolling interest + previously held interest − fair value of identifiable net assets acquired; goodwill is not amortized but tested annually for impairment.

Noncontrolling interest is presented within equity, separately from parent owners' equity; profit or loss and OCI are attributed to parent and NCI.

Intercompany transactions are eliminated in full: sales, receivables/payables, interest, and unrealized profit in ending inventory or depreciable assets.

Under the equity method, investment is initially at cost, increased by share of profit and decreased by dividends; share of losses is limited to the investment's carrying amount plus other commitments.

Bargain purchase gain arises when the fair value of net assets acquired exceeds the aggregate of consideration, NCI, and previously held interest; the gain is recognized in profit or loss.

Foreign currency translation: assets and liabilities at closing rate, income and expenses at average rate, and exchange differences in OCI; the translation reserve is recycled on disposal.

Joint arrangements are classified as joint operations (rights to assets and obligations for liabilities) or joint ventures (rights to net assets, accounted for using the equity method).

Reasonable assurance is a high but not absolute level of assurance; inherent limitations of an audit include sampling risk, estimation uncertainty, and the nature of evidence.

Audit risk model: audit risk = inherent risk × control risk × detection risk; detection risk is the auditor's responsibility and is inversely related to the assessed risks of material misstatement.

Professional skepticism is an attitude of questioning mind and critical assessment of evidence, including contradictory information and reliability of documents.

Independence in mind and appearance is required; threats include self-interest, self-review, advocacy, familiarity, and intimidation, which must be evaluated and addressed.

Materiality is the amount of misstatement that could influence economic decisions of users; performance materiality is set lower to reduce the probability that aggregate uncorrected misstatements exceed materiality.

The auditor's report expresses an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.

Engagement quality control review is required for audits of listed entities and other engagements where required; the reviewer evaluates significant judgments and the auditor's report.

Documentation must be sufficient to enable an experienced auditor with no previous connection to the engagement to understand the work performed, evidence obtained, and conclusions reached.

Risk assessment procedures include inquiries of management, analytical procedures, and observation and inspection; they do not by themselves provide sufficient appropriate audit evidence.

Tests of controls evaluate operating effectiveness; substantive procedures include tests of details and substantive analytical procedures and are required for each material class of transactions, account balance, and disclosure.

External confirmation is most appropriate for bank balances, receivables, and terms of contracts; if no response, perform alternative procedures such as subsequent cash receipts testing.

Audit sampling: sampling risk is the risk that the auditor's conclusion based on a sample differs from a conclusion based on the entire population; non-sampling risk arises from human error or inappropriate procedures.

Going concern: if material uncertainty exists, the auditor includes an emphasis of matter or other matter paragraph; if the going concern basis is inappropriate, the opinion is adverse.

Subsequent events: the auditor performs procedures up to the date of the auditor's report; facts discovered after that date may require revision or additional procedures depending on whether the financial statements have been issued.

Written representations are required from management and, where appropriate, those charged with governance, covering responsibilities for the financial statements and completeness of information provided.

Quality management at the firm level addresses leadership, ethical requirements, acceptance and continuance, human resources, engagement performance, and monitoring.

Individual income tax on compensation income uses progressive rates on net taxable income after mandatory contributions and the personal and additional exemptions allowed under the law.

Self-employed and professionals may use the graduated income tax table or the 8% flat tax on gross sales/receipts exceeding the VAT threshold, subject to the annual registration option.

Value-added tax: 12% on sale of goods, properties, and services; input VAT on purchases is creditable against output VAT; excess input VAT may be carried over or refunded under specified conditions.

Zero-rated sales include export sales and foreign currency denominated sales; exempt sales include those specifically enumerated by law, such as certain agricultural products and educational services.

Documentary stamp tax is an excise tax on documents, instruments, loans, and transactions; rates vary by instrument, and the tax is generally based on the face value or consideration.

Withholding tax: expanded withholding tax applies to certain income payments; final withholding tax is a full tax on the income of the payee; creditable withholding tax is deducted from the payee's income tax due.

Estate tax is imposed on the net estate of a decedent, computed as gross estate less allowable deductions, with a standard deduction and a share of the surviving spouse.

Tax remedies: assessment may be protested within 30 days; a request for reconsideration or reinvestigation is filed with the Commissioner; appeal to the Court of Tax Appeals within 30 days from denial or lapse.

Contract formation requires consent, object, and cause; consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.

Obligations arise from law, contracts, quasi-contracts, acts or omissions punished by law, and quasi-delicts; a person obliged to give something is also obliged to take care of it with proper diligence.

Partnership: a partnership has a separate juridical personality; a partnership by estoppel may arise when a person represents himself as a partner to third parties.

Corporation: a corporation is a juridical entity with separate personality; it has the right of succession and powers expressly granted, implied, and incidental to its existence.

Negotiable instruments: a holder in due course takes the instrument free from personal defenses; a holder through a holder in due course may acquire the same rights under the shelter principle.

Insurance: insurable interest must exist at the time of the loss for property insurance and at the time of policy issuance for life insurance; concealment and misrepresentation may avoid the policy.

Sales: the seller is bound to deliver the thing sold; the buyer is bound to pay the price; warranties against eviction and hidden defects are implied by law.

Agency: an agent acts on behalf of a principal; acts within the scope of authority bind the principal; an agent is not personally liable if acting within authority and disclosing the principal.

Cost-volume-profit: contribution margin = sales − variable costs; break-even units = fixed costs / contribution margin per unit; break-even sales = fixed costs / contribution margin ratio.

Margin of safety = actual or budgeted sales − break-even sales; it measures the dollar amount by which sales can decline before a loss occurs.

Relevant costs are future costs that differ among alternatives; sunk costs and allocated common fixed costs are irrelevant to decision-making.

Capital budgeting: net present value = present value of cash inflows − initial investment; accept projects with positive NPV; internal rate of return is the discount rate that makes NPV zero.

Standard costing: price variance = (actual price − standard price) × actual quantity; quantity variance = (actual quantity − standard quantity) × standard price.

Balanced scorecard perspectives: financial, customer, internal business processes, and learning and growth; each perspective includes objectives, measures, targets, and initiatives.

Responsibility accounting: cost centers are evaluated on costs, profit centers on profit, and investment centers on return on investment or residual income.

Activity-based costing assigns overhead to products based on activities that consume resources; cost drivers are the measures of activity usage.