Examination Techniques Sharing Forum on QP Module Examinations

Transcription

1 Examination Techniques Sharing Forum on QP Module Examinations Module A (June 2015 Session) Date: 15 April 2015

2 Part 1: Introduction 2

3 Today s objective: Finding ways to pass the Module Examination! 3

4 HKICPA QP Module Examinations Examination Format: Section A Case Questions (50%) Section B Essay / Short Questions (50%) 3 hours duration for each Paper All compulsory questions 4

5 Part 2: Common Weaknesses

6 Major causes to examination failure 6

7 Aspect 1: Questions Difficulty in identifying the specific question requirements Misinterpretation of the question requirements 7

8 Aspect 2: Answers Approach or structure of answers are disorganized Answers are either too long or too short Answers are wrong or irrelevant Answers are not linked to the case facts Answers are straight copy from LP or reference materials Did not attempt all questions 8

9 Aspect 3: Candidates Inadequate or ineffective preparation Other commitments affecting examination preparation Not in a good form to perform on examination day Felt panicking or got nervous in the examination centre Poor time management 9

10 Part 3: Sharing with Markers

11 Examples 11

12 Module A Exam Demonstration Exam Technique - overall Survey the entire exam first what kinds of questions are being asked, length etc. Mark down relevant standards (if possible) Quickly budget for the amount of time to spend on each question Answer easy questions first to save time and build confidence Attempt every question Quickly budget for the amount of time to spend on each sub question 100 marks in 3 hours = 180 min; 1 mark = 1.8 min /mark Section A 50 marks = complete in 90 min! 12

13 Module A Exam Demonstration Exam Technique per question Read over the question requirement first Highlight key words that indicate what you are being asked to do (e.g. Calculate / Advise / Comment / Discuss etc ) Mark down any specific format required (e.g. Prepare a memorandum) Start with an intro and end with a conclusion easy marks! 13

14 Today s Agenda Module A Exam Demonstration (Dec 2014) Section A: Case Questions Question 1(a) 8 marks Section B: Essay / Short Questions Question 5(a) 11 marks 14

15 Example 1 Assume that you are Yvonne Lam, the accounting manager, and you are required to draft a memorandum in response to the question raised by Ms. Manni Tam, a Director of MHL, regarding the retirement plans. In your memorandum, you should: Subject matter December 2014 session Sect A Q1(a) Highlight key words / requirement Question 1 Action (a) advise the appropriate accounting treatment for the retirement plans for employees in Country X and in Hong Kong; Memo 1 2 (8 marks) 15

16 Example 1 December 2014 session Sect A Q1(a) Presentation: Memorandum format Critical file (Memo template) To : Memo Assume that you are Yvonne Lam, the accounting manager, and you are required to draft a memorandum in response to the question raised by Ms. Manni Tam, a Director of MHL, regarding the retirement plans. In your memorandum, you should: Ms. Manni Tam, Director of MHL From : Yvonne Lam, Accounting Manager Date : dd/mm/yyyy Subject : Accounting treatment of retirement plans Prepare your own critical file! [Opening] I refer to your queries regarding.. [Closing] I hope the above.please feel free to contact me if you have further queries. Best regards, Yvonne Lam 16

17 Example 1 December 2014 session Sect A Q1(a) Identify Issues Identify relevant accounting standards Understand the requirement of the accounting standards Apply the standards Recommend and Justify

18 Example 1 December 2014 session Sect A Q1(a) Issue Applicable Standard Standard Requirement Apply the Standard Justify your answer To determine type and related accounting treatment for retirement plans in Country X and Hong Kong HKAS 19 Employee Benefits Defined contribution pay fixed contribution (no further obligation to pay) Defined benefits all others Now turn to the case background

19 Example 1 Case Background Extracts (1 of 2) For employees in Country X, MHL Group contributes on a monthly basis to various defined contribution plans organised by the relevant municipal and provincial governments in Country X. For employees in Hong Kong, MHL Group contributes to the Mandatory Provident Fund ("MPF") scheme. For employees in Country X MHL Group s required contributions to the defined contribution plans in Country X for 2013 are $3.5 million (translated from the local currency of Country X). Of this sum, MHL Group had paid $3.2 million by the end of MHL Group was told that the relevant fund assets maintained by the municipal and provincial governments may be insufficient to finance the expected retirement benefit obligations payable to all existing and future retired employees under these plans. 19

20 Example 1 December 2014 session Sect A Q1(a) Apply the Standard Advise the accounting treatment Country X Defined contribution Obligation $3.5 million Accrual (B/S) & Exp (P/L) Paid ($3.2 million) Accrual (B/S) & Cash (C/F) Outstanding $0.3 million

21 Example 1 Case Background Extracts (2 of 2) For employees in Hong Kong Employees and employers who are covered by the MPF scheme are each required to make regular mandatory contributions calculated at 5% of the employee s relevant income to the MPF scheme, subject to the minimum and maximum relevant income levels. For a monthly-paid employee, the minimum and maximum relevant income levels are $7,100 and $25,000 respectively. On 17 July 2013, the Legislative Council passed an amendment to the maximum relevant income level (increased from $25,000 to $30,000 per month, applicable to contribution periods commencing on or after 1 June 2014). For the month ended 31 December 2013, the relevant income for the employees of MHL Group in Hong Kong amounted to $10 million, with all the employees salaries ranged between $7,100 to $25,000. MHL paid the salaries for the month on 31 December 2013 and paid the relevant mandatory contributions on 10 January

22 Example 1 December 2014 session Sect A Q1(a) Apply the Standard Justify your answer MPF scheme are each required to make regular mandatory contributions calculated at 5% of the employee s relevant income to the MPF scheme Fixed contribution = Defined contribution relevant income for the employees of MHL Group in Hong Kong amounted to $10 million all the employees salaries ranged between $7,100 to $25,000 All employees are subject to MPF contribution Employer s contribution = $10 million x 5% Employee s contribution = $10 million x 5% (settle by deducting from employee s monthly salary)

23 Example 1 December 2014 session Sect A Q1(a) Employee s Salary 95% Employer 5% Employee 5% Employee 5% Employer s Financial Statement MPF scheme 23

24 Application Standard req ment Example 1 December 2014 session Sect A Q1(a) Answer 1(a) HKAS 19 Employee Benefits prescribes the accounting and disclosure by employers for employee benefits, including the post-employment retirement benefits. Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans. In this case, both the retirement plans for employees in Hong Kong and in Country X are defined contribution plans. Under these defined contribution plans, MHL Group is required to pay fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. HKAS 19 requires MHL Group to recognise contributions to the defined contribution plan when an employee has rendered service in exchange for those contributions. 24

25 Application & Conclusion Example 1 December 2014 session Sect A Q1(a) Answer 1(a) Cont d For employees in Country X For employees in Country X, the income statement should show an expense of $3.5 million while the statement of financial position should show an accrual of $300,000. MHL Group has no further liability since this is a defined contribution plan. For employees in Hong Kong For employees in Hong Kong, MHL Group are required to calculate an employee s relevant income and the amount of mandatory contributions for each contribution period (generally the payroll period), deduct the amount from the employee s income as his/her mandatory contributions, and pay the employee s contributions, together with the employer s contributions from their own funds. Since the relevant income for December 2013 is $10 million, the amount of mandatory contributions from employees and MHL Group would be $1 million ($10 million x 10%) and $500,000 should be deducted from the amount paid to the employees. 25

26 Application & Conclusion Example 1 December 2014 session Sect A Q1(a) Answer 1(a) Cont d For the month ended 31 December 2013: $500,000 deducted from gross salary and recognised as a liability: Dr. Employee benefits expense $10,000,000 Cr. MPF Payable (B/S) (employee's portion) $500,000 Cr. Bank $9,500,000 Employer's portion has to be accrued: Dr. Employee benefits expense $500,000 Cr. MPF Payable (B/S) (employer's portion) $500,000 The total mandatory contributions must be paid to the MPF trustee on or before the contribution day. Thus when MHL Group settle the contributions on 10 January 2014: Dr. MPF Payable (B/S) (employee & employer) $1,000,000 Cr. Bank $1,000,000 26

27 Example 1 Common weakness Misinterpreted the question/ requirement Copy from materials Answer too general without applying case facts Copy from question and not elaborating how it relates to the conclusion Weak in technical knowledge and common knowledge 27

28 Example 1 Sample script 1 According to HKAS 37, a provision should be recognised when there is present obligation as a result of past event, outflow of resources will be required and reliable estimate of the amount. In this case, it is likely that there is a present obligation of making contribution to employees for maintaining all existing and future retained employees. The past event for the present obligation will be the requirement to provide contribution. It is expected that the fund contributed may not be sufficient to finance expected retirement benefit obligations payable. More cost incurred for future operation which indicate there will be a probable outflow of resources. The estimate of obligation now is $3.5 million for 2013 in Country X. Given MHL finally paid $3.2 million only. However, the MPF payable should not be adjusted down as the insufficient fund asset indicates the company may need to incur more liability in future. Therefore, provision should be made and adjust payable when a more reliable and accurate estimate is available in future. For plan in Hong Kong, this is an event after reporting period as it is clear that the company know the max relevant income level will increase from $25000 to $ Applying wrong standards in the analysis Misinterpret the question 28

29 Example 1 Sample script 2 HKAS 19 requires that short-term benefits are recognised in the period which the related service is provided by the employee as a liability and expense unless standard requires or permits inclusion in the cost of asset. Short term employee benefits includes wages, salaries, medical care, housing. Contribution to a defined contribution plan are recognised as an expense in the period which are payable Accounting for defined contribution plan is: - Contribution to a defined contribution plan are recognised as an expense in period which are payable. - Any liability for unpaid contributions that are due as at the end of the period should be recognised as a liability. - Any excess contribution paid should be recognised as an asset (prepaid expense), but only to the extent that the prepayment will lead to a reduction in future payment or a cash refund. 1. Quote the right standard but wrong classification (retirement plans are post employment benefit.) 2. Change to different classification Inconsistency weak technical knowledge 3. Copy from material without application to case (i.e. plans in Country X and 29 Hong Kong)

30 Example 1 Sample script 3 (1 of 2) Retirement plan in Country X According to HKAS 19, the defined contribution plan are postemployment benefit plans under which an entity pay fixed contribution into a separate entity (a fund) and will have no legal contribution and constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior period. Contribution to a defined contribution plan are recognised as an expense in the period which are payable. For unpaid contributions due as the end of the accounting period should be recognised as a liability (accrued expense). For any excess contributions paid, they should be recognised as an asset but only to an extent that prepayment will lead to. Retirement plan in Hong Kong Employee and employers are covered by the MPF scheme which calculated at 5% of the emloyee s relevant income are post-employment benefits. This MPF scheme is a defined contribution plans since both of them pays a fixed 5%. Quote the right standard, provide definition and correct conclusion that plan in Country X is a DC scheme. Answer too general. Fail to apply facts provided in case in the accounting treatment advice. 30

31 Example 1 Sample script 3 (2 of 2) Since the MPF will be settled within 10 days of the next month, a liability will be recognised accordingly. Journal entries for plans in Hong Kong Dr Salary Cr Cash Dr MPF employee (10000x5%) Dr MPF employer (10000x5%) 500 Cr MPF payable 1000 Being payment of employee s salaries Dr MPF payable 1000 Dr MPF employer (10000x5%) 500 Dr Salary MPF employee (10000x5%) 500 Cr Accrued expense Able to comment MPF settled after month-end that creates a liability at month end but not demonstrated in JE weak in technical knowledge / mix-up time period 1. Lack of understanding of MPF scheme where employee s portion will be deducted from payroll wrong journal entries are provided. 31

32 Example 1 Exam Panellists' Comments Specific Comments Question 1(a) 8 Marks This question required the candidates to advise as to the appropriate accounting treatment for the retirement plans for employees in Country X and in Hong Kong. The performance was satisfactory. Many candidates could conclude that both retirement plans are defined contribution plans and thus the employer would have no obligation to pay further contributions as the fixed contribution had been paid. 32

33 Tips to Consolidation Prepare different templates for each component of the financial statements as quick reference Statement of Financial Position Statement of Profit or Loss and Other Comprehensive Income Statement of Change in Equity Statement of Cashflow Read requirement carefully Plan your answer before attempt Show working This helps illustrating concept for marks to be rewarded Number & name each working clearly This helps yourself to save time during revision Don t try to work out everything all at once e.g. Depreciation - separate working for movement for each type of assets 33

34 Today s Agenda Module A Exam Demonstration (Dec 2014) Section A: Case Questions Question 1(a) 8 marks Section B: Essay / Short Questions Question 5(a) 11 marks 34

35 Example 2 December 2014 session Sect B Q5(a) Highlight key words / requirement Action Advise ABC s management the accounting implications and the appropriate accounting treatment for each of the above events (i) to (iii) in accordance with the relevant financial reporting standards. (11 marks) 35

36 Example 2 December 2014 session Sect B Q5(a) Essay background extract (1 of 2) In the preparation of the financial statements for the year ended 31 March 2014 of ABC Group Limited (ABC), the following events have taken place: 5(a)(i) ABC has four investment properties which it used to measure at cost model. The management planned to change the measurement of investment properties to the fair value model for two of these investment properties and the carrying amount of these two investment properties was initially adjusted to fair value at 31 March

37 Example 2 December 2014 session Sect B Q5(a) Issue Applicable Standard Standard Requirement cost model change the measurement of investment properties to the fair value model for two of these investment properties To advise implication and accounting treatment for voluntary change in accounting policies How changes should be applied to IP? HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 40 Investment Property HKAS 8 retrospective change HKAS 40 either the fair value model or the cost model for all investment property even for cost model still need to disclose FV

38 Application Standard req ment Example 2 December 2014 session Sect B Q5(a) Answer 5(a)(i) This is a voluntary change in accounting policy which should be applied retrospectively unless retrospective application is impracticable. An accounting policy shall be changed only if such change is required by a HKFRS or such change results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity s financial position, financial performance or cash flows. Cost model: FV is disclosed In this case, retrospective application is feasible as the necessary fair value information in respect of prior periods will have been obtained and disclosed in accordance with HKAS 40. The entity shall adjust the carrying amount of the investment properties to the earliest period presented, i.e. 1 April 2012, not 31 March The new accounting policy should be applied to all investment properties, not only 2 of the investment properties for consistent accounting policy except for the scenario under HKAS 40.32A where dual models are allowed. 38

39 Example 2 Sample script 1 Change from cost model to fair value model for investment property under HKAS 40, reporting entities have a choice between cost model and fair value model. Under HKAS 40, whatever model the entity choses should apply to all of its investment properties consistently. Therefore in this case, ABC cannot only change the measurement of only two of the investment properties from cost to fair value model. If the entity want to change to fair value model, all 4 of the investment property need to be changed. If entity adopts the FV model, all of its properties should be carried at their fair value, except when: - An IP for which in exceptional case and initial recognition only, the FV can t be determined reliably on a continuing basis. - An IP under construction which FV cant be reliably determined at present - Using cost model until the earlier of the date when the FV of property can be determined reliably. Applying wrong standards in the analysis Misinterpret the question/ weak in technical knowledge. Correct comment on inappropriate accounting treatment Fail to provide appropriate accounting treatment as wrong standard being applied 39

40 Example 2 Sample script 2 According to HKAS 40 Investment Property the investment property should be stated at cost model or fair value model. The investment property at cost should be stated at carrying amount less any accumulated deprecation and impairment. The deficit will be recorded in profit or loss, while the revaluation surplus will be in other comprehensive income. While the investment property at fair value model, there will be no depreciation and any value surplus will be provided in profit or loss. When the fair value model is chosen all the IP should be at fair value unless when the market for comparable properties are inactive, and alternate reliable measurement of fair value is not available. So ABC should ensure whether it s appropriate only to change 2 properties because fair value model should apply to the same class. According to HKAS 8, when there is change in accounting policy then the change should be accounted for in accordance with specific transition provision. This should be applied prospectively. Comment on accounting for cost and FV model, but not on changes in policy from cost to FV. Correct comment on accounting policy should apply to whole class of IP Quote HKAS 8 as relevant standard but fail to identify this is voluntary change not change in initial application of HKFRS change 40 retrospectively

41 Example 2 December 2014 session Sect B Q5(a) Exam Panellists' Comments Extracts Question 5(a)(i) The performance in this question was average. For the first scenario, most candidates focused on the relevant accounting treatment of properties under HKAS 16 and HKAS 40 whereas the question asked about the change in the accounting policy under HKAS 8. However, for the scenario of change in use of the property from owned occupied property to investment property, the question was straightforward and candidates were able to provide the proper treatment. 41

42 Example 3 December 2014 session Sect B Q5(a) Essay background extract (2 of 2) In the preparation of the financial statements for the year ended 31 March 2014 of ABC Group Limited (ABC), the following events have taken place: 5(a)(ii) ABC owns an office building (Property A) that has been classified as property, plant and equipment in previous periods and accounted for under HKAS 16 using the cost model. On 1 April 2013, ABC moved out from Property A and decided that Property A will no longer be for its own use. ABC subsequently leased out Property A to a third party on 1 June

43 Example 3 December 2014 session Sect B Q5(a) Issue Applicable Standard Standard Requirement Property A property, plant and equipment cost model. On 1 April 2013, moved out no longer be for its own use subsequently leased out Property A to a third party on 1 June Change in use? Date of change? HKAS 16 Property, plant and Equipment HKAS 40 Investment Property HKAS 16 PPE = owner s occupied HKAS 40 IP = held for rental/ capital appreciation Date of change (PPE IP) = end of owner-occupation

44 Application & Standard req ment Example 3 December 2014 session Sect B Q5(a) Answer 5(a)(ii) This is a change in use, evidenced by end of owner-occupation, for a transfer from owner-occupied property to investment property, rather than a change in accounting policy. Property A should be reclassified from property, plant and equipment (HKAS 16) to investment property (HKAS 40) upon end of owner-occupation (i.e. 1 April 2013) and transferred at fair value. The difference between the carrying amount of Property A in accordance with HKAS 16 and its fair value is treated as a revaluation and to be recognised in accordance with HKAS

45 Example 3 Sample script HKAS 40 Investment property defined investment property as property held to earn rental or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purpose, or sale in the ordinary course of business. For ABC, the property was used as office building that was correctly classified as property, plant and equipment under HKAS 16. However, ABC moved out and leased out the property to third party. The property is an investment property as it meets the definition stated above. Thus ABC should treat property as investment property at the end of 31/3/2013 or since 1/4/2013. Weak elaboration. Correctly comment on IP classification but fail to identify issue as change in use and fail to justify the answer Correct comment on date of change Fail to advise the accounting treatment on date of change from PPE to IP 45

46 Example 3 December 2014 session Sect B Q5(a) Exam Panellists' Comments Extracts Question 5(a)(ii) However, for the scenario of change in use of the property from owned occupied property to investment property, the question was straightforward and candidates were able to provide the proper treatment. 46

47 Part 4: Preparation for the Examinations 47

48 1. Prepare your examination 2. Prepare yourself for examination 48

49 1. Prepare your examination Before examination DO Committed to your Study Plan Cover beyond LP Form Study Group with fellow students Prepare Critical File Practise past papers Visit QP Learning Centre Past papers and Examiners reports; Special topics and/or Important notice; and Examination preparation seminar archives 49

50 Committed to your Study Plan Advantages: 3 months roadmap - schedule ahead Build long term memories maximize efficiency Avoid last minute work 50

51 Prepare critical file How to prepare: Use different colour post-it for different standards / topics Organise materials by different standards / topics Understand theories behind each standards / topics Get familiar with this file Advantages: To use colour coding for standards / topics easy identification (same file used in examination time saving!) To build up long term memories To avoid indexing without understanding 51

52 Before writing answers on the answer booklets DO Identify question requirements Highlight key words (e.g. Calculate / Advise / Discuss etc ) Mind-map or sketch the question requirement Outline your answers or approach Pay attention to specific format requirements (e.g. Write a memorandum) Start with an introduction and end with a conclusion Get easy marks! 52

53 Mind Map Radiate the ideas out from the central theme and main branches Start at the centre of a blank, landscape paper Use highlighters, codes and arrows to link and emphasis different aspects Use key words and images along a line Make the lines associate as clear as possible 53

54 During examination DO Apply technical knowledge Do an easy question first to gain confidence Leave time at the end to check for careless mistakes Write legibly DON T Don t make up any information that was not provided by the question Don t write more than required Don t struggle, move to another question 54

55 Handwriting 55

56 Examples of handwriting Example 1: Example 2: adverse adverse opinion matters substantive matters?? Example 3: misleading seriously misleading???? 56

57 2. Prepare yourself for examination Arrive early (examination centre opens for entry 45 minutes before start) Be aware of the examination regulations printed on the Examination Attendance Docket ( EAD ) The EAD will be posted to students 2 weeks before the examination Failure to follow any of the examination regulations may result in marks penalty or even disqualification from the entire examination! 57

58 There is no shortcut to any examinations including QP! This is your examination and not others examination The only way to pass is to prepare properly for it! 58

59 Thank you 59