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In 1b audit risk question, i notice that in answer sheet
1. In deferred tax asset, it says that deferred tax asset (DTA) is recognized for unused tax credit if considered probable that there will be sufficient future taxable profit which loss can be utilized and will be written offf if it is no longer recoverable.
Im not sure why it will be written off it is no longer recoverable
From my understanding, we can recognize DTA if there’s taxable profit in the future but why is it related with recoverability ?
2. In disposal of shares in Calgary Co, answer sheet states that several errors seem to have been made in accounting for the disposal and in respect of its disclosure.
We just simply assume that dispaal of shares in Calgary Co is wring cuz Profit on disposal has been accounted wrongly ?
3. Lastly, in revenue, the question never states about the finance director’s comment of insignificant change during the year so im not sure how they get this information.
1. Two general principles of financial reporting are relevant here:
(a) The criteria for recognition of an asset are more stringent than those for a liability – the cash flows from an asset must be expected (i.e. more likely than not), whereas settlement of a liability need only be possible (i.e. can be less than probable – meaning 50%).
(b) Any asset that is no longer expected to be recoverable must be written down to its carrying amount.
If recovery of any asset is no longer expected it will be written down/off.
2. The answer explains the “several” in the paras that follow (“firstly …” and “secondly …”).
3. In the Q, under the heading “Notes from meeting with the Group finance director and audit committee representative”, the first sentence is “The Group has not changed its operations significantly this year.”
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