Monday, June 14, 2021

AUDITING PROBLEM - NON-ROUTINARY

FINANCING CYCLE: TRANSACTION CYCLES
AUDIT OF
STOCKHOLDERS’
EQUITY

RISK ASSESSMENT & OTHER

PROCEDURE SUBSTANTIVE TESTING
- main audit procedure done in audit CYCLE: FINANCING
planning.

- overstatement risk

SHE: FS PRESENTATION

UNDER PAS1, Presentation of Financial

Statements
- “Minimum line items on the face of the
SFP”

1. Issued Capital

2. Reserves

3. Non - Controlling Interest presented in

Equity (Only when applicable: for
CONSOLIDATED FS)

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ACCORDING TO SOURCE OF CONTRIBUTED CAPITAL

CAPITAL:
Subscribed: Subscription Receivable
1). CONTRIBUTED CAPITAL Current: Ignored
• PAID IN CAPITAL Non-Current: Deducted from Contributed
• - total Par/Stated Value of Shares Capital
(ISSUED, SUBSCRIBED, SHARED
DIVIDENDS DECLARED)
• APIC - contributed capital other than par/
stated value

~ excess over par/stated

~ treasury shares transactions

(reissue, retirement)

~ share warrants and share options

outstanding
SHARE ISSUANCE
~ others (donated capital, bond
conversion, etc.)
MODE OF ISSUANCE:
1. For Cash

2). ACCUMULATED COMPREHENSIVE

INCOME 2. For Non-Cash Consideration (PFRS 2,
• Accumulated Pro ts/Retained Earnings Share-based payments)

1. Unappropriated 3. On a subscriptions basis

2. Appropriated 4. In Payment of an existing liability/

I. Legal obligation

II. Contractual
III. Voluntary
• Accumulated Other Comprehensive 1). FOR CASH
Income (Losses)
1. Unrealised holding gain/loss - FA at Entry:

FMV
2. Revaluation Surplus - PPE/Intangible Cash,net xx

3. Remeasurement gain/loss - Plan Asset OS(par/stated) xx

and Accumulated Bene t Obligation Share Premium,net xx

4. Hedging gain or losses

5. Translation gain or losses Transaction Cost
- General Rule: deduction from resulting
APIC/Share Premium

- Exception: if chargeable to
ORGANISATION EXPENSE.

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2 OR MORE SECURITIES ISSUED AS A If Fully Collected: Shares are eventually
LUMP-SUM issued
Subscribed OS (Par) xx

I. PRORATA APPROACH Ordinary Shares xx

- when issuing similar natured securities

- Ex: OS (EQUITY) and PS (EQUITY): Bonds

(DEBT) and Notes Payable (DEBT)

II. RESIDUAL APPROACH

- when issuing Debt and Equity together

- Debt (at FMV); Equity (at RESIDUAL)

- Ex: Bonds Payable (debt) and OS (Equity)

Problem #2:

A).

2). NON-CASH
ON A SUBSCRIPTION BASIS CONSIDERATION (PFRS 2)

UPON SUBSCRIPTION: Measurement at FMV

Subscription Receivable xx

Subscribed OS xx

Share Premium xx
GENERAL RULE:

UPON COLLECTION FMV of Consideration Received = FMV of

Cash xx
equity security issued + Cash Paid -
Subscription Receivable xx
Cash Received

EXCEPTION: Where consideration

received are SERVICES FROM

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EMPLOYEES. Value the transaction at SHARES ARE EVENTUALLY ISSUED
FMV at equity securities issued.

Subscribed OS (Par) xx

Ordinary Shares xx

3). SUBSCRIPTION BASIS

4). IN PAYMENT OF AN
UPON SUBSCRIPTION:
Subscription Receivable xx

EXISTING LIABILITY
Subscribed OS xx

Share Premium xx
1. Under normal credit terms

- no gain/loss shall be recognised.

UPON COLLECTION ENTRY:

Cash xx

Notes/Bonds Payable xx

Subscription Receivable xx

Ordinary Shares (Par) xx

Share Premium xx

Ex: Convertible Bonds

If Fully Collected: Shares are eventually - It’s as if paying at maturity date.

issued
2. Under debt-restructuring arrangement
Subscribed OS (Par) xx

Ordinary Shares xx
(Equity Swap)

- concessions being entered into by the

UPON DEFAULT: SHARES ARE creditor/abnormal credit term

AUCTIONED THROUGH A BIDDING UPON - Gain/loss shall be recognised.

PAYMENT OF AUCTION RELATED

ENTRY:
EXPENSES.
Notes/Bonds Payable xx

Expense/Advances xx
Loss/Gain xx

Cash xx
Ordinary Shares (Par) xx

Share Premium xx

UPON THE SELECTION OF THE HIGHEST

[FMV OF SHARES - CV OF LIABILITY]

BIDDER
-

Cash xx

Subscription Receivable (bal) xx

Expenses/Advances

Interest Income xx

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2). Original Issue Price > Cost
TREASURY SHARES
Ordinary Shares xx

COST MODEL Share Premium - OS. xx

Treasury Shares xx

REACQUISITION:
Share Premium - TS xx

Gain from capital transaction: credit to APIC

Treasury Shares xx

Cash (@ COST) xx
3). Original Issue Price < Cost
Ordinary Shares xx

REISSUE Share Premium - OS. xx

Share Premium - TS. xx

1). Reissue Price = Cost

Retained Earnings. xx

Treasury Shares xx

Cash xx

Treasury Shares xx

2). Reissue Price > Cost Loss from Capital transaction: Debit to

1). APIC - Treasury Shares

Cash xx

2). Retained Earnings

Treasury Shares xx

Share Premium - TS xx

*Gain from capital transaction: credit to APIC

REACQUISITION WITH
3). Reissue Prince < Cost IMMEDIATE RETIREMENT

Cash xx

Share Premium - TS xx

Retained Earnings. xx

Treasury Shares xx

* Loss from capital transaction: Debit to

1). APIC - Treasury Shares

2). Retained Earnings

DONATION FROM
RETIRE: Original Issue Price (PAR + Share STOCKHOLDERS (DONATED
Premium)
CAPITAL)
1). Original Issue Price = Cost
Ordinary Shares

Share Premium - OS

Treasury Shares xx

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Donor?

Related Party

Non - Related Party

Ex: government grant

PROBLEM #3:

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CONVERTIBLE PREFERENCE
SHARE

SHARE RIGHTS, WARRANTS

AND OPTIONS

PROBLEM #4

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OPTIONS: EQUITY-SETTLED
SHARED BASED PAYMENTS

3 STEPS APPROACH

1). VESTED IMMEDIATELY/ NOT YET VEST