Intangible Assets, Cash, and Inventory

Posted on Nov 3, 2024 in Economy

Item 7: Intangible Assets, Cash, and Financial Instruments

Intangible Assets

Registration

1. Development expenditure included in the relevant register increases property values.
2. Development costs are assumed to have a useful life of 5 years.
3. Industrial property can have an indefinite useful life.
4. Goodwill recognition requires payment during a business combination.
5. Recognized goodwill impairments are irreversible.
6. Goodwill should be allocated to cash-generating units upon recognition.
7. A defined capitalization policy is crucial for internal control.
8. Auditors should verify that the depreciation policy reflects a reasonable and consistently applied method.
9. If a company has significant industrial property, the auditor should verify its registration.
10. Goodwill verification after a business combination is an analytical procedure.
11. In a first-time audit, all intangible asset transactions since inception should be analyzed.
12. In subsequent audits, only recurring transactions during the year need review.

Cash and Cash Equivalents

1. Occasional overdrafts can be considered cash if they’re part of cash management.
2. A firm is presumed associated when it owns over 20% of another’s share capital.
3. Loans and receivables not held for trading are subsequently measured at amortized cost.
4. Impairment of held-to-maturity assets can be determined using market price or value instead of the present value of future cash flows.
5. Financial assets held for trading are subsequently measured at fair value.
6. Hybrid assets are categorized as other financial assets at fair value.
7. Financial assets related to group companies, jointly controlled entities, and associates are initially measured at fair value plus transaction costs.
8. When contributing a business as in-kind consideration to a group company, the equity instruments received are recorded at the book value of the contributed assets.
9. Unless there’s strong evidence, impairment of investments in equity instruments of group companies or associates is recognized by adjusting the net assets for unrealized gains.
10. Available-for-sale equity instruments without a readily available fair value are measured at cost less impairment.
11. Under PGC SME, investments in equity instruments of group companies or associates are classified as financial assets at cost.
12. Held-for-trading assets cannot be reclassified unless they are investments in group companies or associates.
13. Segregation of duties (custody, authorization, and recording) is important for treasury internal control.
14. The primary audit evidence for cash is the cash count.
15. Recurring audits only need to analyze financial investment transactions during the audit year.

Item 8: Inventory

Inventory Management

1. Inventory can be tangible or intangible.
2. The purchase price includes all costs until the inventory is ready for sale.
3. Discounts and rebates are deducted from the purchase price.
4. Short-term (less than one year) debit interest without a contractual rate can be included in the purchase price if the effect of not discounting is immaterial.
5. Raw material and consumable material costs are part of the production cost.
6. Financing costs for inventory requiring over a year to sell are part of the purchase price or production cost.
7. If the selling price of finished goods exceeds their cost, there’s no need for inventory valuation adjustments for raw materials.
8. Reversible inventory valuation adjustments are reversed when the underlying causes disappear.
9. Irreversible valuation adjustments are recognized through the final inventory valuation and charged to income.
10. FIFO is an acceptable inventory valuation method if deemed appropriate by the company.
11. Segregation of duties (acquisition, receipt, custody, accounting) is crucial for inventory internal control.
12. Inventory release orders should be authorized, signed, and pre-numbered for adequate internal control.
13. Investigating inventory count discrepancies is important for good internal control.
14. The primary audit evidence for inventory is the physical inventory count.
15. If inventory is held at third-party facilities, confirmations should be obtained.
16. Inventory cutoff procedures are designed to ensure the correct application of the accrual principle.