HKICPA QP Module 5 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Control under HKFRS 10

An investor controls an investee when it has power over the relevant activities, exposure or rights to variable returns, and the ability to use its power to affect those returns.

Five-step revenue model

HKFRS 15 requires identifying the contract, identifying performance obligations, determining the transaction price, allocating it to obligations, and recognising revenue when each obligation is satisfied.

Provision recognition criteria

HKAS 37 requires a present obligation from a past event, a probable outflow of economic benefits, and a reliable estimate before a provision is recognised in the financial statements.

Contingent liability treatment

A possible obligation whose existence will be confirmed only by uncertain future events is not recognised; it is disclosed unless the outflow possibility is remote.

Lessee right-of-use asset

Under HKFRS 16 the lessee initially measures the right-of-use asset at the lease liability amount plus initial direct costs, prepayments, and estimated restoration costs.

Short-term lease exemption

A lessee may elect not to recognise a right-of-use asset for leases of twelve months or less without a purchase option, recognising payments as an expense on a straight-line basis.

Deferred tax measurement basis

HKAS 12 measures deferred tax at the rates expected to apply on reversal, using enacted or substantively enacted rates, and prohibits discounting the resulting balances.

Goodwill impairment testing

HKAS 36 requires goodwill to be tested annually for impairment at the cash-generating unit level, regardless of whether any indicator of impairment exists.

Audit materiality determination

Materiality is set using benchmarks such as profit before tax, revenue, or total assets, then adjusted downward for qualitative factors like regulatory or covenant sensitivity.

Audit risk model

Audit risk equals inherent risk multiplied by control risk multiplied by detection risk; detection risk is managed by adjusting the nature, timing, and extent of procedures.

Modified audit opinion types

HKSA 705 permits a qualified opinion, an adverse opinion, or a disclaimer of opinion; the choice depends on whether misstatement is material or pervasive.

Key audit matters reporting

HKSA 701 requires listed entity auditors to describe matters of most significance, why they were significant, and how the audit addressed them.

Going concern assessment period

HKSA 570 requires the auditor to evaluate management's going concern assessment covering at least twelve months from the date of the financial statements.

Subsequent events adjusting window

HKAS 10 requires adjustment for events providing evidence of conditions existing at the reporting date, up to the date financial statements are authorised for issue.

Related party disclosure scope

HKAS 24 requires disclosure of relationships, transactions, outstanding balances, and commitments with related parties, including key management personnel compensation in total.

Hong Kong profits tax two-tier rates

Profits tax applies at 8.25% on the first HKD 2 million of assessable profits and 16.5% thereafter for corporations; only one entity per group may elect.

Territorial source principle

Hong Kong profits tax charges only profits arising in or derived from Hong Kong; offshore profits may be non-taxable, subject to the foreign-sourced income exemption regime.

Salaries tax standard rate

Salaries tax is charged at the lower of progressive rates on net chargeable income or the standard rate of 15% on net total income.

Temporary differences classification

Taxable temporary differences give rise to deferred tax liabilities; deductible temporary differences give rise to deferred tax assets only when future taxable profit is probable.

Initial recognition exemption

HKAS 12 exempts deferred tax on temporary differences from initial recognition of an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit.

Ethics threats categories

The HKICPA Code identifies self-interest, self-review, advocacy, familiarity, and intimidation threats; safeguards must eliminate or reduce each to an acceptable level.

Independence for audit clients

Audit firm independence prohibits financial interests, loans, and close family relationships with clients, and restricts non-assurance services that create self-review threats.

Professional scepticism definition

An attitude of questioning mind, alertness to conditions indicating possible misstatement, and critical assessment of audit evidence throughout the engagement.

Engagement quality control review

An objective evaluation of significant judgements and conclusions before the report is issued, required for listed entity audits under HKSA 220 and HKSQM 1.

Cash flow hedge accounting

HKFRS 9 defers gains or losses on the effective portion in other comprehensive income until the hedged forecast transaction affects profit or loss.

Expected credit loss model

HKFRS 9 requires loss allowances measured at twelve-month or lifetime expected credit losses, with lifetime applied when credit risk has increased significantly.

Business combination acquisition method

HKFRS 3 requires identifying the acquirer, determining the acquisition date, recognising identifiable net assets at fair value, and recognising goodwill or a bargain gain.

Non-controlling interest measurement

At acquisition, NCI is measured either at fair value or at the proportionate share of the acquiree's identifiable net assets; the choice is made per transaction.

Share-based payment measurement

HKFRS 2 measures equity-settled share-based payments at grant-date fair value, recognised over the vesting period with a corresponding equity increase.

Investment property measurement choice

HKAS 40 permits a fair value model or a cost model applied to all investment property; the chosen policy must be applied consistently.

Functional currency determination

HKAS 21 identifies functional currency as the currency of the primary economic environment, considering sales pricing, costs, financing, and operating autonomy indicators.

Integrated reporting capitals

The IIRC framework identifies six capitals: financial, manufactured, intellectual, human, social and relationship, and natural, used to explain value creation over time.