Intangible assets and the role of auditor Essay

Harmonizing to Deegan ( 2010 ) intangible assets non-financial assets that have no physical substance. Common signifier of intangible assets include patents, good will, flags, brandnames, copyrihghts, research and development, and hallmarks ( Deegan, 2010 )

Paragraph 54 of the AASB on the presentation of fiscal statements, intangible assets as a class must be individually disclosed in a corporation ‘s statement of fiscal place. ( Deegan, 2010 ) .

Harmonizing to AASB 138 intangible assets- many internally generated intangible assets are specially precluded from being carried frontward as assets irrespective of the future economic benefits that might be expected to be generated ( deegan, 2010 )

Furthermore intangible assets with the exclusion of good will are considered to hold a limited utile life are required to be amortised over their utile unrecorded ( deegan, 2010 ) .

In the current scenario Krispy Kreme Doughnuts Corporation was engaged in purchasing up the franchise that had been financially disturbed. KKD paid it more boosting net incomes and on the other side non impacting the net incomes of the company.

Contrasting signifier the other operators with the similar concern Krispy Kreme did non amortize its intangible plus which resulted in exaggeration of the company ‘s gross and the profitsA ( Krispy Kreme franchise redemptions are questioned ) . Had Krispy Kreme considered the amortization, it would hold resulted in lower earning and would hold cut the company ‘s net income by about 30 % . Here one thing is to be noted that Krispy Kreme had been engaged in these sorts of tactics for considerable period and one time acquired franchise rights were treated as an intangible plus non capable to amortisation ( lessons from Krispy Kreme ) .

Above mentioned were the tactics that became the chief grounds for SEC transporting out an probe against the accounting intervention used by the Krispy Kreme Doughnuts.

Part 2:

There are several inducements for public listed corporations to prosecute in patterns that lead to an exaggeration of their periodic gross and net incomes for illustration, it gives likely cloaked image to the stakeholders of the corporation that corporation is working expeditiously ( even if it is non ) in bring forthing the gross and the net income. This exaggeration of net income will ensue in investors being more and more attracted to the company and would desire to hold the portions for the company ; this will take to the high demand of the company ‘s portions and therefore the monetary value of the portions will travel high giving an overall cloaked overall feeling of the company to all the stakeholders of the company.

However there are possible deterrences every bit good for illustration, exaggeration of gross and net income will ensue in high charge of revenue enhancement on the given net income, furthermore it will ensue in more liability for the company.

Part 3:

External hearer

A professionalA who performs an audit on theA fiscal statementsA of aA company, A authorities, A person, or any otherA legal entityA orA organisation, and who is independent of the entity being audited is called an external hearer. They are suppose to come up with an indifferent and just rating of the entities they are making audit to and come up with the study that could be utile for the stakeholders such as general populace, investors, and authorities ( External hearer. Available from: hypertext transfer protocol: //en.wikipedia.org/wiki/External_auditor [ Accessed: April 26, 2010 ]

Role of external hearer:

The primary function of external hearers is to show an sentiment on whether an entity ‘s fiscal statements are free of material misstatements ; external hearers do is by clearly analyzing the fiscal records of the entity.

Apart from that play an of import portion in doing certain the quality of internal controls through their audit ( Roles and Responsibilities of External Auditors. Available from: hypertext transfer protocol: //riskinstitute.ch/143300.htm [ Accessed: April 26, 2010 ]

Presents indispensable advice on utility of the internal control system.

An hearer assesses the accounting rules used and important estimations made by direction and evaluates the overall fiscal statement presentation ( Roles and Responsibilities of External Auditors. Available from: hypertext transfer protocol: //riskinstitute.ch/143300.htm [ Accessed: April 26, 2010 ]

Question 2

Gross

“ The sum ofA moneyA that a company really receivesA during a specific period, including price reductions and tax write-offs forA returned ware. It is the “ top line ” A orA ” gross income ” A figure from which costs are subtracted to find net income ” ( Revenue. Available from: hypertext transfer protocol: //www.investopedia.com/terms/r/revenue.asp [ Accessed: April 16, 2010 ] .A

Requirements of AASB 118:

This standard applies to gross originating from the sale of goods, the rendition of services and involvement, royalties and dividends. ItA does non cover with gross originating from:

Lease understandings ( see AASB 117A Leases )

A

Dividends originating from investings accounted for under the equity method

A

Insurance contracts within the range of AASB 4A Insurance Contracts

A

Changes in the just value of fiscal assets and fiscal liabilities or their disposalA

Changes in value of other current assets

A

Initial acknowledgment and from alterations in just value of biological assets related to agricultural activity ( see AASB 141 )

A

Extraction of mineral ores ( 2008 ) , A AASB 118 – Gross. Available from: hypertext transfer protocol: //www.charteredaccountants.com.au [ Accessed: April 26, 2010 ]

Harmonizing to the AASB 118 about the acknowledgment of the gross, gross can merely be recognised when the gross is incurred but in this instance gross is being recognised at the clip the house levy charge appears on members histories at 1st December, hence option one seems inappropriate.

Harmonizing to GAAP on accumulations the gross should be recognised when the dealing is completed or when the cost is incurred instead than the day of the month when the payment has been received. In the current scenario gross is being considered to be recognised on reception of hard currency in full colony of the House Levy charges. Hence once more this option in conformity to GAAP seems inappropriate.

Committee is sing recognizing gross in full on 1 January as the day of the month of beginning of the nine ‘s fiscal twelvemonth. Here it is noted that the levy that is collected is for whole fiscal twelvemonth and further harmonizing to the demands of the AASB 118 gross and disbursals should be matched. But looking at the present state of affairs there is no cost incurred that could be disbursals ; hence gross will non fit the disbursals. Therefore this option excessively seems non suited.

In this option commission considers to recognize gross in 12 equal episodes during the fiscal twelvemonth get downing on 1 January. This option partially fulfil the demand of AASB 118 as the liability will be monthly transferred to the members of the nine, nevertheless there is no cost incurred and therefore it could be a state of affairs once more that where gross would non run into disbursals. This option hence seems non appropriate.

Harmonizing to the option 5 Club says to recognize gross as service are used by the members on being charged for such services, thereby cut downing the several balances in their House Levy histories. Harmonizing to the AASB 118 the gross should be recognised instantly when the service is performed or in other words when the service has been used up by the related party in this instance members of the nine. This option is most suited as it matches the demands put up by the AASB 118.

This option is of recognizing gross in full at the terminal of the following fiscal year-31 December- when all unexpended levy sums, if any, are transferred under the nine ‘s regulations to its assorted gross history. There is no manner provided how to account for the sundry disbursals and further it has dilemma similar to that of option 3 that is gross would non fit the disbursals, roll uping money in progress is considered as unearned gross and it can non be put into the gross history. Hence this is option is non suited.

Decision:

Analyzing all the options provided by the nine ‘s commission it is suggested that option 5 seems most fitted as mentioned above it meets all the demands and therefore option 5 of the gross acknowledgment should be opted.