In accordance with ISA 250 Consideration of laws and regulations in an audit of financial statements what are the responsibilities of the external auditor？

4 (a) The purpose of ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements is to

establish standards and provide guidance on the auditor’s responsibility to consider laws and regulations in an

audit of financial statements.

Explain the auditor’s responsibilities for reporting non-compliance that comes to the auditor’s attention

during the conduct of an audit. (5 marks)

A beneficiary, in accordance with the provisions of the applicable law, has the right to assign any proceeds to which he may be entitled under his credit which is not stated to be transferable. It is called

  (1)( ) transfer of funds.

  (2)( ) assignment of credit proceeds.

  (3)( ) remittance of the proceeds.

The statement of financial position of Pinto Co at 31 March 20X7 showed property, plant and equipment with a carrying amount of $1,860,000. At 31 March 20X8 it had increased to $2,880,000.During the year to 31 March 20X8 plant with a carrying amount of $240,000 was sold at a loss of $90,000, depreciation of $280,000 was charged and $100,000 was added to the revaluation surplus in respect of property, plant and equipment.What amount should appear under 'investing activities' in the statement of cash flows of Pinto Co for the year ended 31 March 20X8 as cash paid to acquire property, plant and equipment?

A、$1,640,000

B、$1,440,000

C、$1,260,000

D、$1,350,000

(a) The difference between debt and equity in an entity’s statement of financial position is not easily distinguishable for preparers of financial statements. Some financial instruments may have both features, which can lead to inconsistency of reporting. The International Accounting Standards Board (IASB) has agreed that greater clarity may be required in its definitions of assets and liabilities for debt instruments. It is thought that defining the nature of liabilities would help the IASB’s thinking on the difference between financial instruments classified as equity and liabilities.

Required:

(i) Discuss the key classification differences between debt and equity under International Financial Reporting Standards.

Note: Examples should be given to illustrate your answer. (9 marks)

(ii) Explain why it is important for entities to understand the impact of the classification of a financial instrument as debt or equity in the financial statements. (5 marks)

(b) The directors of Avco, a public limited company, are reviewing the financial statements of two entities which are acquisition targets, Cavor and Lidan.They have asked for clarification on the treatment of the following financial instruments within the financial statements of the entities.

Cavor has two classes of shares: A and B shares. A shares are Cavor’s ordinary shares and are correctly classed as equity. B shares are not mandatorily redeemable shares but contain a call option allowing Cavor to repurchase them. Dividends are payable on the B shares if, and only if, dividends have been paid on the A ordinary shares. The terms of the B shares are such that dividends are payable at a rate equal to that of the A ordinary shares. Additionally, Cavor has also issued share options which give the counterparty rights to buy a fixed number of its B shares for a fixed amount of $10 million. The contract can be settled only by the issuance of shares for cash by Cavor.

Lidan has in issue two classes of shares: A shares and B shares. A shares are correctly classified as equity. Two million B shares of nominal value of $1 each are in issue. The B shares are redeemable in two years’ time at the option of Lidan. Lidan has a choice as to the method of redemption of the B shares. It may either redeem the B shares for cash at their nominal value or it may issue one million A shares in settlement. A shares are currently valued at $10 per share. The lowest price for Lidan’s A shares since its formation has been $5 per share.

Required:

Discuss whether the above arrangements regarding the B shares of each of Cavor and Lidan should be treated as liabilities or equity in the financial statements of the respective issuing companies. (9 marks)

Professional marks will be awarded in question 4 for clarity and quality of presentation. (2 marks)

In Eurocurrency Markets，three broad classes of financial items are involved

  A．bank deposits and credits，for example dollar deposits heldatEurope- an banks(i.E.Eurodollardeposits)

  B．bank loans，for example Euro loans held at American banks

  C．primary securities in the form of Eurobonds and Euronotes

  D．derivative securities such as foreign currency options(e.g. on the ecu) or futures on eurodollar instruments

According to a recent survey on money and relationships, 36 per cent of people are keeping a bank account from their partner. While this financial unfaithfulness may appear as distrust in a relationship, in truth it may just be a form. of financial protection.

With almost half of all marriages ending in divorce, men and women are realizing they need to be financially savvy, regardless of whether they are in a relationship.

The financial hardship on individuals after a divorce can be extremely difficult, even more so when children are involved. The lack of permanency in relationships, jobs and family life may be the cause of a growing trend to keep a secret bank account hidden from a partner; in other words, an "escape fund" .

Margaret's story is far from unique. She is a representative of a growing number of women in long-term relationships who are becoming protective of their own earnings.

Every month on pay day, she banks hundreds of dollars into a savings account she keeps from her husband. She has been doing this throughout their six-year marriage and has built a nest egg worth an incredible $100000 on top of her pension.

Margaret says if her husband found out about her secret savings he'd hurt and would interpret this as a sign she wasn't sure of the marriage. "He'd think it was my escape fund so that financially I could afford to get out of the relationship if it went wrong. I know you should approach marriage as being forever and I hope ours is, but you can never be sure."

Like many of her fellow secret savers, Margaret was stung in a former relationship and has since been very guarded about her own money.

Coming clean to your partner about being a secret saver may not be all that bad. Take Colleen, for example, who had been saving secretly for a few years before she confessed to her partner. “I decided to open a savings account and start building a nest egg of my own. I wanted to prove to myself that I could put money in the bank and leave it there for a rainy day.”

"When John found out about my secret savings, he was a little suspicious of my motives. I reassured him that this was certainly not an escape fund and that I feel very secure in our relationship. I have to admit that it does feel good to have my own money on reserve if ever there are rainy days in the future. It's sensible to build and protect your personal financial security."

The trend to keep a secret bank account is growing because ______.

A．escape fund helps one through rainy days

B．days are getting harder and harder

C．women are money sensitive

D．financial conflicts often occur