Moderator's Newsletter
July 2011
Contents
- Modifying tasks for assessing 90977 (Equivalent previous standard 90024)
- Assessment of AS 90977
- Additional contexts that may be used for assessing AS 90981
- Assessment of AS 90981
- Assessment of AS 90504
Modification of tasks for assessing 90977 (Equivalent previous standard 90024)
The standard involves processing financial transactions for a small entity and, where practicable, requires students to process transactions as they exist in small entities throughout New Zealand.
When modifying tasks to assess this standard, be aware that in order to demonstrate sufficiency the task should include:
- Entities where GST is calculated to cents and,
- A variety of electronic and cash transactions.
Assessment of AS 90977
Example 1
A student has consistently used an incorrect total for the GST component in the journals due to the use of an incorrect multiplier, but has demonstrated correct treatment of GST, non-GST, and cash and electronic transactions following good accounting practice.
In 90024 this may have resulted in each line item of the cash journal to be adjudged as incorrect and prohibit a student from achieving the standard.
In applying Materiality the student has made one error which has flowed through the entire journal, and may consequently flow through to the Bank Reconciliation statement and subsequent accounting records. In reality, the student has processed transactions to an in-depth (Merit) level whereby end users are able to make decisions.
Example 2
Part 1: In the source documents section the student has incorrectly completed a receipt showing that the customer has paid in full (rather than a lay-buy deposit). All else is correct.
Part 2: Closing bank statement balance xx - instead of using the closing bank statement balance the student used a closing bank account balance.
Add deposits not on the bank statement - correct and added
Less withdrawals not on the bank statement - correct and subtracted
Final answer - was calculated but did not agree with the bank account balance as they had used that to start their reconciliation.
The processing of the cash journals are entirely correct, as is the ledger (except, they also made a couple of misclassifications in the chart of accounts - insurance as a liability and Fittings and Equipment as an expense) and the trial balance (which informs Good Accounting Practice for the Ledgers).
Additionally, the student has updated the cash journals correctly as well and their bank account was 100% correct.
Overall, although the student has not correctly entered financial transactions impacting on all financial elements in the accounting records of the entity, they have processed financial transactions in depth for a small entity which reaches a Merit level.
Additional contexts that may be used for assessing AS 90981
At the Accounting Moderation Best Practice Workshops, there has been discussion regarding the wide range of decision making topics (from buying an entertainment unit, to a fundraising drive) that have been chosen by teachers to engage their students with the standard.
Additionally, there has been some discussion around savings/investment as a context. The following is an example:
"You have $7000 to invest for your future. What will you choose to invest in?" (Below are some options):
A) The Z Energy bond issue.
B) A bank term deposit at a maturity (of your choosing).
C) Investing in the share market.
D) Starting Kiwi Saver with a lump sum deposit.
E) A forthcoming Initial Public Offering (Media is speculating that there are a number of IPOs that are looking to occur in the forthcoming months).
F) Ethical investments.
Note that the students only need to make a decision between two options.
Assessment of AS 90981
When assessing the student work, it is important to note that the assessment is on the report only. The other aspects of the task – i.e. the information gathering forms part of the primary/secondary evidence gathering and sources.
Students credited with the standard will have done the following in their report:
a) Articulated a decision of where they will invest their funds, and how much they will be investing.
b) Given financial information to support the decision, comparing and contrasting the two options - this could be (from Explanatory Note 5 of the standard):
EN 5: Financial information must be linked to the financial decision and may include:
- relevant costs
- sources of income
- cash budget
- statement of affairs
- alternative interest rates (or returns)
c) Given non-financial information to support the decision, comparing and contrasting the two options.
This could be the time taken to have access to the original investment; the employment issues, investing in "Kiwi made", bank's credit-worthiness, being able to withdraw their Kiwi Saver for a 1st home, the environmental and sustainable discussions surrounding their investment. This is where the students could need to be encouraged to look at the bigger picture.
The in-depth (explaining) and comprehensive (justifying) evidence needs to be based on the quality of their reasons for selecting an option and how they interweave the financial and non-financial information into their decision.
Assessment of AS 90504
Students credited with the standard should focus on the core business of the firm studied in their report. This may also aid focusing students on the relevance of the information for the end-user's decision.
There is no requirement in the standard for students to calculate their own ratios.
Please also note that the Explanatory Note 2 of the standard enables the assessment to be based on:
- an actual annual report of a New Zealand registered company obtained by the student or issued by the teacher, or
- a case study that contains a set of financial statements and supporting information, including a range of non-financial information typical of that found in the published annual reports of New Zealand registered companies.