INTP / Auditor / PwC

AAA Standards


The impairment should be separately disclosed as a single line if the impairment is material.

IAS 2 Inventory

Inventory should be valued at the lower of cost and NRV.

IAS 12 Income Taxes

Deferred tax to be recognized in respect of temporary differences which arise between the carrying amount and tax base of assets and liabilities, including the differences from the revaluation of non-current assets.

A deferred tax asset is recognized for an unused tax loss carry-forward or unused tax credit if, and only if, it is considered probable that there will be sufficient future taxable profit against which the loss or credit carry-forward can be utilised.

The deferred tax liability relates to timing differences in respect of accelerated tax depreciation.


IAS 16 PPE requires all assets in the same class to be revalued.

Depreciation should be recalculated after revaluation.

Modernisation costs which give rise to enhanced future economic benefit should be capitalised, whereas costs which do not create future economic benefit should be expensed.

Each part of an item of property, plant and equipment with a cost which is significant in relation to the total cost of the item must be depreciated separately.

The change in accounting estimate of useful life of an asset is permitted, but the audit team should be sceptical and carefully consider whether the change is justified.

IAS 20 Government Grants

A grant is recognised as income over the period necessary to match the grant received with the related costs for which they are intended to compensate. (The remainder should be deferred and released to profit on a systematic basis.)

IAS 21 Exchange Rates

Transactions should be initially recorded using the spot rate, and monetary items such as trade payables should be retranslated at the year end using the closing rate.

IAS 23 Borrowing Costs

A qualifying asset is an asset which takes a substantial period of time to get ready for its intended use or sale. If modernisation meets the definition of a qualifying asset, then borrowing costs should be capitalized during the period.

IAS 28 Investments in Associations and Joint Ventures

An associate arises where there is significant influence over an investee.

Equity accounting requires the investment in the associate or joint venture to be recognised on one line in the statement of financial position, and the income from the associate to be disclosed on one line of the statement of profit or loss.


IAS 33 requires EPS to be calculated based on the profit or loss for the year attributable to ordinary shareholders as presented in the statement of profit or loss. PFY/Profit after tax

The denominator should be based on the weighted average number of shares which were in issue during the financial year.

A diluted EPS needs to be presented, as a comparative for the previous year.

Being listed –> Attention of investors on EPS

IAS 36 Impairment

The management should consider whether there are indicators of impairment and if necessary perform an impairment review on the licence. (There is a risk that the recoverable amount is less than the carrying value.)

When there is an indicator of potential impairment of the assets, management should have conducted an impairment review to determine the recoverable amount.
The recoverable amount is the greater of the fair value less cost to sell and the value in use of the assets.
As a cash generating unit the impairment should firstly be allocated against any goodwill relating to the cash generating unit and then be allocated against the remaining assets on a pro-rata basis.

Goodwill should be tested annually for impairment regardless of whether indicators of potential impairment exist.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

A provision should be recognised where a reliable estimate can be made in relation to a probable outflow of economic resources and an obligating event has taken place.

A contingent liability should be disclosed if there is a possible, rather than probable, outflow of economic benefit.

For a restructuring provision to be recognized, there must be a present obligation as a result of a past event, and that is only when a detailed formal plan is in place and the entity has started to implement the plan, or announced its main features to those affected.

IAS 38 Intangible Asset

Research costs must be expensed.

Development costs are capitalised only after technical and commercial feasibility of the asset for sale or use have been established, and an intention and ability to complete the development and that it will generate future economic benefits.

The cost of acquiring patents for products should be capitalised and recognised as an intangible asset.

Once recognised, patents should be amortised over the period of their duration.

An intangible asset with a finite useful life is amortised, and an intangible asset with an indefinite useful life is not.

The amortisation method should reflect the pattern of benefits and Amortisation should begin when the asset is available for use.

IAS 38 requires that goodwill is tested annually for impairment regardless of whether indicators of potential impairment exist.

IAS 40 Investment Property

An entity can use either the fair value model or the cost model to measure investment property. When the fair value model is used the gain is recognised in profit or loss.

IFRS 2 Share-based Payment

The liability in respect of the plan should be measured at fair value at the year end.

IFRS 2 Share-based Payment requires an expense and a corresponding entry to equity to be recognised over the vesting period of a share-based payment scheme, with the amount recognised based on the fair value of equity instruments granted.

IFRS 5 NCA Held for Sale and Discontinued Operations

A disposal group is a group of assets to be disposed of together as a group in a single transaction and liabilities directly associated with those assets that will be transferred in the transaction.

An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sales transaction rather than through continuing use.

The asset (or disposal group) must be available for immediate sale in its present condition, subject only to usual and customary sales terms, and the sale must be highly probable(Price reasonable / Management committed / Active programme / within one year).

On classification of the non-current asset (or disposal group) as held for sale, it is written down to fair value less costs to sell (if less than carrying amount).

not depreciated/amortised

normally disclosed as current assets and liabilities (not offset).

A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale and:
a) represents a separate major line of business or geographical area of operations, or
b) is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
c) is a subsidiary acquired exclusively with a view to resale.

IFRS 5 requires that the face of the income statement discloses a single figure in respect of discontinued operations.

IFRS 8 Operating Segments

IFRS 8 Operating Segments requires listed companies to disclose in a note to the financial statements the performance of the company disaggregated over its operating or geographical segments.

There is a risk that the segmental information provided is not sufficiently detailed.

There is a risk that revenues have been misallocated between segments and that the disclosure is inaccurate.

IFRS 9 Financial Instruments

Speculative investments in equity shares should be measured at fair value through profit or loss.

This is a complex accounting issue, and there are numerous audit risks arising.
There is also a risk in determining the fair value of the derivative at the year end, as this can be judgemental and requires specialist knowledge.

The loan should be initially measured at fair value, and classified according to whether it is subsequently measured at amortised cost or at fair value. As the loan is not held for trading, it should be measured at amortised cost unless Group management decides to use the fair value option.

IFRS 10 Consolidated Financial Statements

Intercompany trading

On consolidation, the intercompany receivables and payables balances should be eliminated, leaving only balances between the Group and external parties recognised at Group level. (like a single entity)

If the intercompany transaction included a profit element, then the inventory needs to be reduced in value by an adjustment for unrealised profit.

NCI change

Changes in a parent’s ownership interest in a subsidiary which does not result in the parent losing control of the subsidiary are treated as equity transactions. The gaining is recognized directly in equity and attributed to the owners of the parent.

IFRS 15 Revenue

Revenue should be recognised over time or at a point in time when control is passed. Such points will be determined by the contractual terms.
(There is a risk that the revenue from the sale of a licence should not be deferred at all.)
(Or there is a risk that the period over which the revenue is recognized could be inappropriate, resulting in over or understatement of revenue.)

The elements of the contract should be accounted for separately and the revenue from the contract should be allocated to each component.

The timing of revenue recognition should be in line with the period for meeting its performance obligations.

An entity shall recognize revenue only when it has satisfied its performance obligations.

Costs incurred to fulfill a contract are recognized as an asset if the costs enhance resources which will be used to satisfy performance obligations in the future, and the costs are expected to be recovered.


IFRS 15 which states that when the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract shall be recognised as revenue and expenses respectively by reference to the proportion of work completed at the end of the reporting period.

For proportion of work completed IFRS15 allows for a variety of methods to be used, for example, based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs, or on surveys of work performed.


ISA 450 requires that ‘the auditor shall accumulate misstatements identified during the audit, other than those that are clearly trivial’.

ISA 450 also requires that ‘The auditor shall communicate on a timely basis all misstatements accumulated during the audit with the appropriate level of management, unless prohibited by law or regulation. The auditor shall request management to correct those misstatements.’

ISA 450 requires the auditor to obtain an understanding of management’s reasons for not making the corrections, and to take that understanding into account when evaluating whether the financial statements as a whole are free from material misstatement. Discuss WHY

ISA 450 requires the auditor to communicate uncorrected misstatements to those charged with governance.

In addition the auditor is required to request a written representation from management and, where appropriate, those charged with governance with regard to whether they believe the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial statements as a whole.

ISA 520 Overall review of the financial statements

  • To perform analytical procedures to form an overall conclusion as to whether the financial statements are consistent w/ the auditor’s understanding of the entity and to reveal further previously unrecognized risk of material misstatement.
  • To carefully review the notes to the financial statements for completeness and compliance w/ the applicable financial reporting framework.
  • To consider the misstatements identified during the audit. Material misstatements should have been adjusted, otherwise the auditor should consider the impact on the audit report.

ISA 720 Other information

Other matter paragraph

At this stage, the auditor should also read the other information to be issued with the financial statements for consistency with the financial statements.

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AAA Standards
IAS 1 The impairment should be separately disclosed as a single line if the impairment is material. IAS 2 Inventory Inventory should be valued at the lower of cost …