HONG KONG INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS SYLLABUSES OF THE TRANSITIONAL EXAMINATIONS (TE)

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1 HONG KONG INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS SYLLABUSES OF THE TRANSITIONAL EXAMINATIONS (TE) Standard of the paper The standard of the paper is set at equivalent to the Certificate Stage of the Joint Examination Scheme. In terms of competency-based standards, the competency is level 1 to 2. Level 1 requires a general professional awareness of the field and related concepts, but without a detailed operational knowledge at the applied level. Level 2 requires a good understanding of the field with the ability to perform professional tasks competently without assistance in straightforward situations or applications. Assessment methods and format of the paper The paper is made up of two sections, Section A and Section B as follows: Number of marks Section A : 3 compulsory questions of twenty marks each 60 Section B : 2 (out of 3) questions of twenty marks each Both sections may contain questions on computation, essay and case studies. Duration It is a 3-hour close-book written examination. PAPER I - AUDITING AND INFORMATION MANAGEMENT Objectives of the paper Students are expected to have an understanding of the different core areas of financial auditing and information management likely to be encountered in the working environments. This includes an understanding of methodologies for examining, verifying, evaluating and reporting on financial or non-financial representations of organisations, reporting on the level of compliance of activities, systems or processes within organisations with internally or externally generated policies, standards, legislation or other requirements, and assessment and development information systems requirements for the organisation. Syllabus Competency level Design and implement methodologies for examining, verifying, evaluating and reporting on financial or 2 non-financial representations of organisations Objectives Organisational analysis Audit risk Professional and regulatory requirements Audit plan Liaison Mechanics of auditing Working papers Report preparation Ethics and independence of auditors P:\E&T\AAOET(CHY)\Web Revamp\Y10.doc - 1 -

2 Design and implement methodologies for examining, verifying, evaluating and reporting on the level of 2 compliance of activities, systems or processes within organisations Compliance requirements Documentation of organisational structures and systems Liaison with line staff Implementation of audit plan Understand methodologies for evaluating and reporting on managerial, operational or procedural processes in 1 organisations Organisational/managerial processes, systems and analyses Performance audits Understand the development of professional standards or benchmarks for auditing processes and outcomes 1 Social, political and research processes in developing regulations or standards Benchmarking Understand the management of auditing work 1 Planning, allocating, monitoring and controlling resources; quality control and professionalism; client/auditor relationships Understand the contexts of accountability which bear on the conduct and outcomes of auditing work 1 Auditing contexts Negotiation of change Understand information systems requirements for the organization 1 The role of information technology in solving business and accounting problems The system development life cycle to plan, design, implement, and evaluate an information system The application of information technology to accounting systems and the generation, reporting, internal control and attestation of accounting information The application of information technology to the functioning, management and information needs of organizations Recommended Reading List Millichamp A.H. & Tze Yiu Lau, P., Hong Kong Auditing, 4 th edition, Hong Kong: Pilot Publishing Company Ltd, 2001 Ethics in Management: A Practical Guide for Professional Accountants, HKICPA and HKEDC Sprague, R.H. Jr. & NcNurlin, B.C., Information Systems Management in Practice, 5 th edition, USA: Prentice Hall, Hong Kong Institute of Certified Public Accountants Members Handbook P:\E&T\AAOET(CHY)\Web Revamp\Y10.doc - 2 -

3 PAPER II - FINANCIAL MANAGEMENT Objectives of the paper Students are expected to have an understanding of the different core areas of financial management likely to be encountered in the working environments. This includes understanding the financial implications of organisational choices, policies and environment, managing financial risks and assessing financing choices. Syllabus Competency level Understand the financial implications of organisational choices 2 Scope of financial management Alternative forms of business organisations Goals of corporate firms Agency problems Understand the financial implications of an organisation s environment 1 Financial and capital markets in Hong Kong and overseas Consumption choices over time Consumption choices with investment opportunities Calculate and value Bonds and Stocks 1 Interest rates and bond prices Yield to maturity Dividend-growth models of stock valuations Understand the concept of financial risks in investment portfolios 1 Definitions and measures of risk Return and risk for individual securities Return and risk for portfolios Efficient sets Market equilibrium: The Capital-Asset-Pricing-Model (CAPM) Manage an organisation s financial operation 2 The Net Present Value (NPV) rule The basics of capital budgeting Some alternatives to NPV and their problems The use of the NPV rule: Incremental cash flows Inflation and capital budgeting Investments of unequal lives Manage financial risks in organizations 2 Risk and the cost of equity capital Estimation of systematic risk (Beta) Determinants of systematic risk Weighted average cost of capital (WACC) Understand the theory on the financial implications of an organisation s financial environment 1 Definitions of efficient markets Different forms of efficient markets and their verifications Implications of efficient markets for strategic financial decisions P:\E&T\AAOET(CHY)\Web Revamp\Y10.doc - 3 -

4 Manage an organisation s financing operations 2 Basic sources of long-term financing Patterns of long-term financing The process of issuing equity securities Under pricing of IPOs Types of long-term debt Indentures and debt covenants Credit analysis and bond ratings Understand the financial implications of an organisation s capital structure 1 Financial leverage and returns to shareholders The Modigliani and Miller propositions Financial distress costs Agency costs of debt Determinants of capital structure Understand financial implications of an organisation s dividend policy 1 The Modigliani and Miller irrelevance proposition Arguments for relevancy of pay-out decisions Stock repurchases Recommended Reading List Ross, S.A., R.W. Westerfield and J. Jaffe, Corporate Finance, 6 th Edition, Irwin McGraw-Hill, J.C. Van Horne, Financial Management and Policy, 12 th Edition, Prentice-Hall Inc., Brigham, E.F., L.C. Gapenski and M.C. Ehrhardt, Financial Management: Theory and Practice, 10 th Edition, Thomson Learning, Hong Kong Institute of Certified Public Accountants Members Handbook P:\E&T\AAOET(CHY)\Web Revamp\Y10.doc - 4 -

5 PAPER III - MANAGEMENT ACCOUNTING Objectives of the paper Students are expected to have an understanding of the different core areas of management accounting likely to be encountered in the working environments. This includes an understanding of strategic management in organisations and the design of information system for decision making, planning and control and performance measurement. Syllabus Competency level Understand management accounting in organisations 1 Functions of management accounting Traditional and contemporary roles of management accounting The changes in the external business environment Implications of the internal organisational environment: structure and culture Understand strategic management in organizations 1 The strategic management process (environmental and SWOT analyses, strategy formulation, implementation, and evaluation) The value chain concept Competitor analysis and benchmarking Strategic cost management Analyse information for managerial decision making 2 Cost accumulation for decision making Relevant costs and revenues for decision making Pricing policies and decisions Customer profitability analysis Project appraisal processes and techniques Contribute to the design of information system for planning and control 2 Management and internal control systems The budgeting process and preparation of budgets Standard costing and variance analysis Transfer pricing method Contribute to the design and review of performance measurement system 2 Decentralisation and responsibility centres Segment reporting and profitability analysis Financial and non-financial performance measures The balanced scorecard: linking strategy and performance Recommended Reading List Drury, C., Management and Cost Accounting, 5 th Edition, Business Press, Thomson Learning, Garrison, R.H. and E.W. Noreen, Managerial Accounting, 9 th Edition, Irwin, P:\E&T\AAOET(CHY)\Web Revamp\Y10.doc - 5 -

6 References (Supplementary) Wheelen, T.L. and J.D. Hunger, Concepts in Strategic Management and Business Policy, 8 th Edition, Prentice Hall, Atkinson, A.A., R.D. Banker, R.S. Kaplan, and S.M. Young, Management Accounting, 3 rd Edition, Prentice Hall, Horngren, C.T., G.L. Sundem, and W.O. Stratton, Introduction to Management Accounting, 12 th Edition, Prentice Hall, Barfield, J.T., C.A. Raiborn, and M.R. Kinney, Cost Accounting Traditions and Innovations, 4 th Edition, South-Western, Thomson Learning, Horngren, C.T., G. Foster, and S.M. Datar, Cost Accounting: A Managerial Emphasis, 10 th Edition, Prentice Hall, Hong Kong Institute of Certified Public Accountants Members Handbook PAPER IV - TAXATION AND TAX PLANNING Objectives of the paper Students are expected to have an understanding of the different core areas of Hong Kong taxation likely to be encountered in the working environments. This includes the determination of tax liability of an individual, partnership and corporation under profits tax, salaries tax, property tax, stamp duty and estate duty, and how to apply them in tax planning. Syllabus Competency level Understand the overall structure of the Hong Kong tax system 2 Structure of Inland Revenue Ordinance and Inland Revenue Department Source of law and authority statute, regulation, rules, case law, Board of Inland Revenue, Board of Review decisions, departmental interpretation and practice notes and information pamphlets. Duties and powers of Inland Revenue officers Duties, rights and liabilities of taxpayers and their agents Issue of returns and assessments Objections, holdover and correction of error and appeals Payment, recovery, hold-over and refund of tax Offence and penalties Official secrecy Approved charitable donations Compute tax liabilities for individuals 2 Scope of charge Income derived from employment, office and pension Source rules applicable to employment, office and pension Time basis assessment on employment income 60-day rule of visits Income taxed outside Hong Kong Taxable receipts and benefits Deductions and personal allowances Joint and separate taxation Calculation of tax liability P:\E&T\AAOET(CHY)\Web Revamp\Y10.doc - 6 -

7 Compute tax liabilities for unincorporated businesses, partnerships and companies 2 Scope of charge Existence of a trade and a business carried on in Hong Kong Badges of trade Source of various types of income Capital and revenue income Deemed trading receipts Deduction of expenses Capital and revenue expenses Depreciation allowance, industrial building allowance and commercial building allowance Accounting profit and assessable profit Treatment of loss Basis period and change of accounting date Calculation of profits tax liability for various forms of business, including sole-proprietor, partnership, corporation, and special businesses such as financial institution, insurance, club and trade association Understand property tax liabilities 1 Scope of charge Ascertainment of assessable value Exemption and deduction Calculation of property tax liability Understand personal assessment 2 Advantages of election for personal assessment Persons entitled to elect for personal assessment How to elect for personal assessment Calculation of total income, deduction, allowances and tax liability Understand liabilities for stamp duty 1 Principle and scope of charge (including contingency principle) Definition of Hong Kong stock and bearer instruments Charge of stamp duty on sale and transfer of Hong Kong residential and non-residential property Charge of stamp duty on lease of Hong Kong immovable property Charge of stamp duty on sale and transfer of Hong Kong stock (excluding stock borrowing) Charge of stamp duty on issue of bearer instruments What constitutes consideration and valuable consideration [excluding section 24(2) and (3)] Exemption for government and consular premises, gift for charitable institution and marriage consideration, and simple group relief under section 45 (excluding the concept of trust) Calculation, assessment and payment of stamp duty Stamp duty appeals Consequences of non-stamping and late stamping Principle of adjudication Understand liabilities for estate duty 1 Principle and scope of charge Who are liable to pay estate duty Location of dutiable items Valuation of dutiable items Deduction and exemption Calculation, assessment and payment of estate duty Estate duty appeals Simple estate duty planning (excluding control company and marriage settlement relief) P:\E&T\AAOET(CHY)\Web Revamp\Y10.doc - 7 -

8 Understand tax planning and anti-avoidance 1 Salaries tax planning opportunities including source of employment outside Hong Kong, performance of service outside Hong Kong, remuneration package, being employed and self-employed Simple profits tax planning opportunities including source of income outside Hong Kong, simple transfer pricing transactions General understanding of general tax anti-avoidance provisions under sections 61 and 61A of Inland Revenue Ordinance (No questions will be set on general anti-avoidance on stamp duty and estate duty) Recommended reading List Ho, Patrick, Hong Kong Taxation and Tax Planning, Pilot Publishing Co. Ltd., 2001 Flux, David & Smith, David G., Hong Kong Taxation: The Law & Practice, The Chinese University Press, Inland Revenue Ordinance, Hong Kong Government Printer Inland Revenue Rules, Hong Kong Government Printer Stamp Duty Ordinance, Hong Kong Government Printer Estate Duty Ordinance, Hong Kong Government Printer Departmental Interpretation and Practice Notes, Inland Revenue Department, HK Inland Revenue Board of Review Decisions, Hong Kong Government Printer Hong Kong Tax Cases, Hong Kong Government Printer Relevant articles in the Technical Columns of The Hong Kong Accountant and The Prospective Accountant, Hong Kong Institute of Certified Public Accountants Hong Kong Institute of Certified Public Accountants Members Handbook HKICPA 27 July 2004 P:\E&T\AAOET(CHY)\Web Revamp\Y10.doc - 8 -