23 Feb You work for company A and have been approached by company B which wishes to collaborate with your company in developing high quality lubricants which are anticipated to have qualities which
urgent questions
Requirements: aproppirate answers
CANDIDATE NAME:
INTERVIEW QUESTIONS
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QUESTION ONE:
You work for company A and have been approached by company B which wishes to collaborate with your company in developing high quality lubricants which are anticipated to have qualities which are not currently available in existing products on the market. Company A will provide know-how and other technical input, as well as cash, to fund a number of projects run by company B. In return, you will have the option to purchase a 25% stake in entity C, at a favorable price, which will initially be wholly owned by company B. In addition, both parties will be allowed to publicize that they are collaborating with the other which will include utilization of the other partys brand name in press and other public communications.
Requirement:
What IFRS standards would it be necessary to consider in advising your management on the likely accounting treatment of all aspects of the above? Include a brief explanation of why there would be a need to consider each standard.
How would you determine whether the costs associated with the development of the new lubricants could be capitalized or not?
Based on the limited information available, how would the option to purchase a 25% stake in entity C be accounted for? What information would you need in order to be more definitive in your answer?
QUESTION TWO:
ASSET RETIREMENT OBLIGATIONS Policy Development Exercise
Introduction: Asset Retirement Obligations (AROs?) involve consideration of legal and accounting requirements. Companies are required to make provisions for the retirement of tangible long-lived assets to bring the assets back to their original condition after the business is done using the assets. AROs involve the removal of machinery and equipment but may also include restoration of property and environmental cleanup.
ARO expense occurs at the end of an assets useful life; however, it is estimated at the start of a project to allow the recording of a discounted Liability on the Balance Sheet which is gradually increased to match the expected obligation at the end of the assets life. Accordingly, an Asset is recorded to be depreciated to the Income Statement.
Asset Retirement Obligations are essential for proper accounting as they relate to expenses to be provided for. Accounting for these obligations in advance supports the fairness and accuracy of the financial statements as well as planning for the eventual cash flow.
What steps would you execute to build a Policy on this topic?
How would you breakdown the policy to ensure ease of use to the broad range of stakeholder, i.e. what sections would you include in writing the Policy?
In no more than 200 words, draft the Accounting section of this policy while considering key activities (e.g., use of estimates, discount rates, etc.) as well as relevant parties (e.g., operations, accounting, financial reporting, etc.) to be included.
QUESTION THREE:
Describe all key stages of an ICFR cycle
Explain the difference in control deficiency, significant deficiency and material weaknesses from both concept and disclosure impact perspective (from US Sarbanes Oxley Act perspective)
Explain why IT General Controls are relevant for ICFR. Give examples of 3 ITGCs
What is considered to be the gold standard for ICFR and enumerate key legislation, guidance and literature used to establish a high quality ICFR program.
