Qualification Programme Examination Panelists Report. Final Examination (June 2013 Session) Paper II

Transcription

1 Qualification Programme Examination Panelists Report Final Examination (June 2013 Session) (The main purpose of the following report is to summarise candidates common weaknesses and make recommendations to help future candidates improve their examination performance.) (I) Section A Case Questions General Comments Candidates performed better here than in Paper I. As before, some candidates had far from satisfactory English writing skills. They seemed unable to express what they intended or suggested and this was a considerable disadvantage in terms of their ability to score marks or pass the examination. Specific Comments Question 1(a) and (b) 10 marks This question required candidates to apply the residual (or fair value) method to calculate the revenue allocated to loyalty points at initial sales and at year end in order to determine the amount of revenue recognized during the year. Candidates performance was fair. Although most candidates were unable to define the residual (or fair value) method, some were able to determine the fair value of the loyalty points granted and the residual consideration allocated to initial sales. Nevertheless, most candidates were unable to determine the revenue arising from loyalty points redeemed during the year and consequently the amount of revenue recognized during the year. Most candidates were also not familiar with the relative fair value method. They were unable to provide the accounting entries for the allocation of consideration between initial sales and loyalty points. This also affected the determination of the amount of revenue recognized during the year as required. Question 2(a) 4 marks This question required candidates to apply the criteria under HK(IFRIC) Int-4 Determining whether an arrangement contains a lease and to analyse whether the case facts on the outsourcing arrangement contain a lease within the scope of HKAS 17 Leases. Most candidates performed well. They were able to discuss and analyse the case facts with reference to the criteria under HK(IFRIC) Int-4 and to draw a correct conclusion. Final Examination (June 2013 Session) Page 1 of 5

2 Question 2(b) 4 marks This question required candidates to discuss and analyse whether the factory and staff quarters in the case should be regarded as non-current assets held for sale under HKFRS 5. Particular consideration needed to be made as to how the nature of regulatory approval would affect the conclusion. Candidates performance was not satisfactory. Most candidates provided the definition and conditions to be fulfilled to classify non-current assets as held for sale under HKFRS 5. However, most candidates were not able to discuss how the regulatory approval would affect the highly probable criteria. Some candidates even considered the regulatory approval as irrelevant. Question 3(a) 4 marks This question required candidates to apply the requirements under HKAS 10 to determine whether the product recall is an adjusting or non-adjusting event after the balance sheet date; and to analyse the case facts to determine whether a provision should be made with reference to the general recognition criteria under HKAS 37. Candidates performance was fair to average. A lot of candidates failed to discuss and analyse whether the recall is an adjusting event after the balance sheet date. Most candidates simply quoted the general recognition criteria under HKAS 37 to be considered but were unable to apply those criteria to determine whether a provision for the recall should be made. Question 3(b) 3 marks This question required candidates to use their commonsense to suggest corporate governance improvement measures with reference to the case facts. Candidates performance was average. Many candidates suggested general corporate governance measures, instead of improvement measures that were specific to the incident as set out in the case. Question 4(a) 6 marks This question required candidates to discuss the pros and cons of acquiring existing production facility as opposed to building them up from scratch. In general, candidates were able to answer the key points. Some candidates included lower cost as an advantage in acquiring an existing production facilities (as compared to building one from scratch) which was not exactly correct in the context of the case. Some candidates seem to have copied the answer straight from the LP without sufficient elaboration. Final Examination (June 2013 Session) Page 2 of 5

3 Question 4(b) 5 marks This question required candidates to discuss the possible reasons why some acquisitions fail to enhance shareholders' value. This question was relatively well answered. Many candidates answered management move on to another acquisition quickly after the acquisition as one of the reasons for the failure to enhance shareholders value. This answer was copied straight from the LP but in fact it was not relevant to the case. Candidates needed to elaborate further in order to make their case if they believed it was a relevant point. Question 4(c) 3 marks This question required candidates to discuss the various financing options for a proposed acquisition. Many candidates did not show an understanding of the question's requirements. Some suggested the use of cash and overdraft. This indicated that they did not understand the topic examined. Others even noted the use of the existing bank loan (drawn down already). These were indications that candidates did not give sufficient consideration to the question scenario and requirements. Question 4(d)(i) 9 marks This question required candidates to discuss the factors to be considered before accepting financing offers. Many candidates did not show a proper understanding of the question requirements. Some even mentioned valuation of the bank loan and the convertible bond offered. Question 4(d)(ii) 2 marks This question required candidates to explain whether a company would be subject to the Takeovers Code. This question was a simple definition copying type of question. Many of the candidates did not know that the number of shareholders in a public company case is relevant to the application of the Takeovers Code. Question 5 12 marks This question required candidates to propose controls, including information technology general controls ( ITGC ), information technology application controls and other controls, to ensure that service booking and sales information for treatment is gathered and compiled properly for financial reporting purposes. Final Examination (June 2013 Session) Page 3 of 5

4 This was a question which received varied performances by the candidates. A few candidates answered the question systematically, discussing each type of control one by one and focusing on the control point required specifically for service booking and then the treatment of sales information. Candidates were generally stronger on ITGC. Some candidates did not understand clearly what application control is and did not fully address this part of the question. Question 6 13 marks This question required candidates to assess the risk of material misstatement and propose audit procedures for inventory and provision for recall. Candidates performance was not satisfactory. A few candidates could apply the case facts in assessing the risk of material misstatement and propose the relevant procedures, therefore, scoring very high marks. However, most candidates wrote long answers and still scored low marks because they just discussed in general the risk of material misstatements and the possible audit procedures for inventory and provision, without specifically referring to the relevant case facts and designing specific procedures. (II) Section B Essay Questions General Comments The case questions in this session were relatively easier than those in Paper I and as such most candidates performed better in this Paper. However, the candidates should improve their presentation skills more, e.g. writing in memo format as required by the questions. Also, candidates should state their thoughts clearly in the answers instead of jumping straight to the conclusion, especially in practical and analytical questions. This is actually the way to score higher marks. Specific Comments Question 7(a) 3 marks This question required candidates to state the monetary amount for late stamping and the penalty involved. This question related to Stamp Duty issues and was handled well. Question 7(b) 3 marks This question required candidates to state different treatments of tax loss. This question relating to tax loss utilization was handled well. Final Examination (June 2013 Session) Page 4 of 5

5 Question 7(c) 7 marks This question required candidates to discuss the challenge against the deductibility of various expenses. This question required candidates to understand and analyze s.16(1) of the Inland Revenue Ordinance. While some candidates answered this question satisfactorily, others did not show their proper understanding of the issues involved and argued that all the expenses should be fully deductible. Question 7(d) 3 marks This question required candidates to discuss whether the IRD are likely to raise other challenges against the utilization of tax loss under the anti-avoidance rules. This question should be a very easy question. However, quite a number of candidates mixed up the application of s.61a and s.61b in their answers and were awarded only a few marks. Question 8 9 marks This question required candidates to advise on the tax treatment of some research and development expenses and the filing requirements of certain tax forms and documents. This question required candidates to apply their general knowledge of salaries tax and profits tax and it was handled well. Final Examination (June 2013 Session) Page 5 of 5