I think I can talk about accounting in the comments, this is not a spoiler. Audiences who have watched the film know that the content of accounting occupies a negligible part of the film. It is not the main line of the story at all and does not hurt the entertainment of the film itself.
1. Common sense errors
First of all, the subtitle group has a problem with the translation of the word amortization. Amortization Chinese accounting term is translated as " amortization ".
After an enterprise obtains an intangible asset and enters it in the account, the asset will be used as the basis for business operation and profit within a certain period in the future. For example, technology, as one of the intangible assets of a company, enables the products produced by the company to gain competitiveness in the market and serve as the basis for the products to be sold in the market.
The value of intangible assets is not constant. As time goes by, the value of intangible assets will be reduced in each accounting period until the loss is zero. This loss is called "amortization." Similarly, the depreciation of fixed assets in each accounting period is called " depreciation " (depreciation).
Depreciation and amortization form expenses in each accounting period, as one of the variables of the company’s profit calculation; this concept embodies the principle of "correspondence between expenses and income periods" in accounting treatment, because before the asset value impairment is zero, each period will Continue to provide the basis for business operations and profitability, so the total amount of assets cannot be fully accrued in a single period, but should be separately accrued during each income generation period.
Then let's take a look at how the profit mentioned in the film is calculated. According to China’s Accounting Standards for Business Enterprises, “ profit after tax ” is the use of operating income to deduct operating costs, taxes and surcharges, asset impairment losses, gains and losses from changes in fair value, investment income, three period expenses, plus or minus non-operating expenses. Income and expenses are calculated after deducting income tax expenses.
( Special reminder to financial workers who have been in the business for several years: "Business tax and surcharges" has become history. After the VAT reform, the business tax disappeared. The Accounting Department of the Ministry of Finance of China changed the name to "taxes and surcharges": Original link )
If the effects of taxes and surcharges, financial expenses, asset impairment losses, gains and losses from changes in fair value, investment income, non-operating income and expenditure, and income tax expenses are omitted, the calculation of profit only includes operating income, operating costs, management expenses, and sales expenses. calculated when profit is called EBIT (earnings before interest and tax, abbr . EBIT). The amount of profit before interest and tax reflects the business ability of a company without the benefits of financing activities, and is an indicator frequently used by Chinese financial analysis practitioners to evaluate business conditions.
Operating costs, management expenses, and sales expenses often contribute to the depreciation of fixed assets and amortization of intangible assets. If you omit the impact of depreciation and amortization, calculated profit is called interest, taxes, depreciation and amortization profit (earnings before interest, tax, depreciation and amortization, abbr. EBITDA). This indicator often appears in the financial reports of North American companies, but it is rare in China.
Analysis by an accountant played by Ben Affleck: Nine years ago, Living Robotics’ income increased, and profit before tax and depreciation (sorry, I have never heard of the concept of "profit before tax and depreciation", and I don’t know what the screenwriter thinks). The reason The company fabricated a production line procurement contract.
The introduction at the beginning of this article has pointed out that one of the channels through which fixed assets (production lines, etc.) affect the amount of profit in each accounting period is depreciation. So to translate the accountant’s analysis in the film into another expression:
"The fictitious amount of depreciation of fixed assets leads to an inflated amount of profit (EBITDA) that does not take into account the depreciation of fixed assets." This is a logic that even elementary school students can see that there is a problem.
2. The similarities and differences between the U.S. tax law and China's "Individual Income Tax Law" in terms of personal business activities
Film accountant and the couple discuss tax issues (tax return) the focus of the film is also a financial knowledge. Anyone who has worked in the United States knows that taxpayers must report their personal income and expenditures for the previous year before April 15 each year and send them to the Internal Revenue Service (abbr. IRS) and the State Revenue Service, because The taxation department of the United States pre-collects taxes each year based on the overall situation, and then calculates the actual tax payable based on the tax table submitted by the taxpayer. The difference is refunded to the taxpayer in the form of a check or bank transfer.
In 2011, I received more than half a year's salary in American school, and then I went to France. At the beginning of 2012, I received an email from an American school asking me to file a tax return, and the Americans sent the tax form directly to France. At that time, although I didn't know anything about the US tax law, after filling out the tax forms for 2 years, I still knew how to calculate the tax refund amount higher. So I quickly filled out the tax form and sent an international letter to the IRS and the state tax bureau. Not long after, the Indiana state government sent me a check in France. The amount was the amount of state tax refund that I filled in. The federal government ignored me. I don’t know if I think there’s a problem with my calculations, or find a check. The reason squinted my money. I have two thoughts on this matter: The tax bureaus of governments all over the world are very powerful organizations, and they have to send me tax forms from far away. I have always had a good impression of the Indiana government.
Pulled away. Many American taxpayers find it troublesome to file their tax returns, so they pay to find an accountant to help them fill out their tax forms. This is the case in the film. The hostess in the film said that she made necklaces at home and sold them. The accountant heard that this is a self-employed business owner , this can be tax deductible. The U.S. tax law clearly stipulates this:
To qualify to deduct expenses for business use of your home, you must use part of your home:
- Exclusively Principal Place your AS and Regularly of Business ;
-Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business;
-In the case of a separate structure which is not attached to your home, in connection with your trade or business;
-On a regular basis for certain storage use;
-For rental use; or
-As a daycare facility.
Figuring the Deduction
Electing to use the simplified method . The simplified method is an alternative to the calculation, allocation, and substantiation of actual expenses. In most cases, you will figure your deduction by multiplying $5 , the prescribed rate, by the area of your home used for a qualified business use. The area you use to figure your deduction is limited to 300 square feet .
Simplified Amount
To figure your deduction for the business use of a home using the simplified method, you will need to know the following information for each qualified business use of the home.
-The allowable area of your home used in conducting the business. If you did not conduct the business for the entire year in the home or the area changed during the year, you will need to know the allowable area you used and the number of days you conducted the business for each month.
-The gross income from the business use of your home.
-The amount of the business expenses that are not related to the use of your home.
-If the qualified business use is for a daycare facility that uses space in your home on a regular (but not exclusive) basis, you will also need to know the percentage of time that part of your home is used for daycare.
To figure the amount you can deduct for qualified business use of your home using the simplified method, follow these 3 steps.
1. Multiply the allowable area by $5 (or less than $5 if the qualified business use is for a daycare that uses space in your home on a regular, but not exclusive, basis).
2. Subtract the expenses from the business that are not related to the use of the home from the gross income related to the business use of the home. If these expenses are greater than the gross income from the business use of the home, then you cannot take a deduction for this business use of the home.
3. Take the smaller of the amounts from (1) and (2) . This is the amount you can deduct for this qualified business use of your home using the simplified method.
Simply translated into Chinese is: if you do business in your own home, the expenses of the part of your home dedicated to doing your business can be deducted from your taxable income; if you do not account for the actual expenses of this part of the area, You can choose the simple method - multiply the square feet of this area by 5 dollars to calculate the deduction amount, but there are two premises, one is that the area of this area cannot exceed 300 square feet , and the other is that the amount cannot exceed yours. The total income of the business minus the amount of expenses not related to the business . If it exceeds, the excess cannot be deducted.
The accountant in the film asked the couple to report the area of the living room at home to 300 square feet, which is to take advantage of the 300 square feet limit in the tax law.
For the complete content, please refer to the IRS website: original link
The accountant in the film also suggested that the couple report the family truck as a truck for business use, also to increase deductions. The idea is similar to the deductions mentioned above. I won’t go into details. The specific content is on the IRS website. .
China's "Individual Income Tax Law" defines individuals engaged in commercial activities as "individual industrial and commercial households." When the Chinese tax law stipulates the tax liability of individual industrial and commercial households, the legislative idea is to first compare the provisions of corporate income tax, and then revise the tax liability of individual industrial and commercial households according to the characteristics of individual taxation.
The specific tax clauses of Chinese tax law and the calculation method of tax payable are not the same as those of the U.S. tax law, but the ideas are similar. It is nothing more than the full deduction if it can be deducted in full, and the tax law will give you the deduction if it cannot be deducted in full. Proportion. The only difference is that the U.S. tax law gives you a simple calculation method for multiplying the square feet by 5 dollars when you can’t calculate the actual deduction. The Chinese tax law is colder. Can’t you calculate the actual deduction? Then don't deduct it and pay all taxes .
However, if you want to follow the requirements of the above-mentioned individual industrial and commercial households, the premise is that you are an individual industrial and commercial household first. To become an individual industrial and commercial household, you need to register with the administrative department of industry and commerce in accordance with the "Regulations on Individual Industrial and Commercial Households": Original link
If you didn't register, can you do business on your own? The "Regulations" did not say. According to the principle of "substance is more important than form" in accounting, even if you do not register, if you earn money from doing business on your own, you have to "obtain taxable income without a withholding agent" as required by the "Individual Income Tax Law". In the case of individual industrial and commercial households, they should go to the local taxation bureau where the actual business is located to declare and pay taxes on their own .
Well, I know you never declare. If you don't declare, you won't pay taxes, all of them squinted by themselves, hehe. It doesn't matter if you don't declare it. Unless the amount is extremely large, the tax bureau may not be interested in fighting for your gray income of tens of thousands of hundreds of thousands.
3. Related parties of the accounting firm
ZZZ Accounting in the film is an entity that specializes in money laundering services. The partner of the client that this entity serves happens to be the same person as the executive partner of the entity.
The screenwriter has finally created the image of an accounting genius, so he has the heart to let him make low-level mistakes? Any accounting practitioner knows the issue of independence of financial services . I can understand that tax filing does not require independence. What about auditing? Financial practitioners at the level of accountants in the film should adhere to the principle of "gentlemen do not stand under a dangerous wall", and they should be cautious in providing services to related parties. What's more, he hopes to cover people's eyes and register fake enterprises. You don't even change your name. What kind of accounting genius is this? I really took it.
4. Fixed assets, corporate equity investment, related party accounting treatment, tax-related regulations and audit procedures
Speaking of related parties, this is the highlight of this article. There are two main ways of falsifying the financial report of Living Robotics in the film: the purchase of a fictitious production line and the fictitious investment in a subsidiary .
If Living Robotics' accounts appear in China, the two incidents of rising profits and rising investment in subsidiaries cannot directly determine that the company's financial reports are fraudulent, because there is no direct collusion relationship between these two subjects -of course, Auditors can suspect fraud due to suspicious occupational diseases, but suspicion alone is not enough. You must have audit evidence .
Therefore, when Chinese auditors see this kind of accounting, the first question they ask may not be "where does the money come from" like in the film, but start with the audit on the authenticity of the investee, so the efficiency may be better. Taller. It may be the difference between the Chinese and American auditing standards, or the difference between my brain circuit and the screenwriter.
Then, in accordance with China’s "Accounting Standards for Business Enterprises", relevant tax laws, and "Auditing Standards", let's take a look at the accounting treatment and accounting treatment that financial practitioners should pay attention to in accordance with the three different businesses of fixed assets, corporate equity investment and related parties. Tax-related regulations and audit procedures.
Warning: The following content is long and boring, and it is boring for non-related people to read .
Fixed assets (purchase of production lines)
Accounting treatment: divided into three parts: initial measurement, subsequent measurement and disposal.
In terms of initial measurement, the cost of a company’s outsourcing of fixed assets includes the purchase price, relevant taxes, and the transportation costs, loading and unloading costs, installation costs and professionals that are attributable to the assets incurred before the fixed assets reach the expected usable state. Service fees, etc.
If the enterprise purchases fixed assets by installment payment, and the payment period stipulated in the contract is relatively long, and the normal credit conditions are exceeded, it is of financing nature, and the cost of purchasing the asset should be determined by the sum of the present value of the payment in each period. The difference between the sum of the actual payment in each period and the current value of the purchase price shall be included in the cost of fixed assets if it meets the capitalization conditions specified in the "borrowing costs", and the remaining part shall be recognized as financial expenses during the credit period , Included in the current profit and loss.
If it is a fixed asset leased by corporate finance, the lower of the fair value of the leased asset on the lease start date and the present value of the minimum lease payment shall be taken as the entry value of the leased asset on the start date of the lease term, and the minimum lease payment The amount is regarded as the entry value of long-term payables, and the difference is regarded as unrecognized financing expenses. The initial direct cost refers to the cost that can be directly attributed to the lease item in the process of lease negotiation and signing of the lease contract. The initial direct expenses incurred by the lessee usually include stamp duty, commission, legal fees, travel expenses, negotiation fees, etc. The initial direct expenses incurred by the lessee shall be included in the value of the leased asset.
The purchase of a production line like Living Robotics is a large-value fixed asset purchase, which often uses installment or financing methods. During the audit, you should also focus on this and whether the subsequent depreciation amount is accurate.
In terms of follow-up measurement, the company should depreciate all fixed assets. Except for fixed assets that have been fully depreciated and continue to be used, and land that is separately priced and recorded.
When capitalized subsequent expenditures on fixed assets occur, companies should generally write off the original price of the fixed assets, accrued accumulated depreciation and impairment provisions, transfer the book value of the fixed assets to the construction in progress, and stop the accrual depreciation.
Some subsequent expenditures on fixed assets incurred by the enterprise may involve the replacement of certain components of the original fixed assets. When the subsequent expenditures incurred meet the conditions for the recognition of fixed assets, they should be included in the cost of fixed assets, and the book value of the replaced part should be deducted .
When the subsequent expenditures incurred by the fixed assets are completed and reach the expected usable state, they are converted from construction in progress to fixed assets, and depreciation is accrued based on the re-determined useful life, estimated net residual value and depreciation method.
The cost of major repairs incurred by an enterprise for regular inspections of fixed assets can be included in the cost of fixed assets if there is conclusive evidence showing that it meets the conditions for the confirmation of fixed assets. Those that do not meet the requirements for the confirmation of fixed assets shall be expensed and included in the current profits and losses. Fixed assets shall be depreciated according to the period between regular major repairs.
If an enterprise classifies a fixed asset as held for sale, it should adjust the estimated net residual value of the fixed asset so that the estimated net residual value of the fixed asset can reflect its fair value minus disposal expenses. The difference between the original book value and the estimated net residual value after adjustment shall be included in the current profit and loss as an asset impairment loss.
The fixed assets held for sale shall not be depreciated, and shall be measured according to the lower of the book value and the net value of the fair value minus the disposal expenses.
One of the main characteristics of assets is that they can bring in the inflow of economic benefits to the enterprise. If the economic benefits brought by the asset are lower than its book value, then the asset cannot be recognized at the original book value and an impairment provision should be made .
If there are signs of impairment of fixed assets, an impairment test should be conducted on the balance sheet date to estimate the recoverable amount of the asset. The estimate of the recoverable amount of an asset shall be determined based on the higher of its fair value minus the net amount of disposal expenses and the present value of the expected future cash flow of the asset.
The contents of disposal expenses include: legal expenses related to asset disposal, related taxes, and handling fees; direct expenses incurred to bring the asset to a saleable state. Financial expenses and income tax expenses are not included.
The management of the enterprise shall base the forecast of the future cash flow of assets on the latest financial budget or forecast data approved by the management of the enterprise. The content of the expected future cash flow of the asset includes: the expected cash inflow during the continuous use of the asset; the expected cash outflow necessary to realize the cash inflow generated during the continuous use of the asset; and at the end of the useful life of the asset, received or received from the disposal of the asset Net cash flow paid.
When determining the discount rate, an enterprise should first use the market interest rate of the asset as the basis. If the interest rate of the asset cannot be obtained from the market, it can use an alternative interest rate estimate.
Once an asset impairment loss is recognized, it cannot be reversed in the subsequent accounting periods. The asset impairment provision accrued in the previous period can be transferred out only when assets are disposed of, sold, invested abroad, swapped out by means of non-monetary asset exchange, and settled debts in debt restructuring.
Tax-related regulations: For production line equipment, it is mainly the regulation of corporate income tax.
In terms of corporate income tax, if a company purchases and actually uses special equipment for environmental protection, energy saving and water saving, and safe production that meet the regulations during the production process, 10% of the investment in the special equipment can be deducted from the company’s tax payable for the year; If the credit is insufficient in the current year, the credit can be carried forward in the next 5 tax years.
If a company leases fixed assets through financing, the total payment agreed in the lease contract and the relevant expenses incurred by the lessee in the process of signing the lease contract shall be used as the tax basis. If the total payment is not stipulated in the lease contract, the fair value of the asset and the relevant expenses incurred by the lessee in the process of signing the contract shall be used as the tax basis.
For biopharmaceutical manufacturing, special equipment manufacturing, railway, shipbuilding, aerospace and other transportation equipment manufacturing, computer, communications and other electronic equipment manufacturing, instrumentation manufacturing, information transmission, software and information technology services, etc.6 For the fixed assets newly purchased by enterprises in all industries after January 1, 2014, the depreciation period can be shortened or accelerated depreciation methods can be adopted; for all industries and enterprises newly purchased after January 1, 2014 for R&D equipment and equipment If the unit value does not exceed 1 million yuan, it is allowed to be included in the cost of the current period and deducted when calculating the taxable income, and the depreciation is no longer calculated annually.
Living Robotics’ fixed assets and R&D equipment meet the above conditions.
If an enterprise incurs major repair expenditures on fixed assets, it shall be amortized in installments according to the remaining useful life of the fixed assets. The expenditure on major repairs of fixed assets referred to in the Income Tax Law refers to expenditures that meet the following conditions at the same time: the repair expenditure reaches more than 50% of the tax base when the fixed asset is obtained; the service life of the fixed asset after the repair is extended by more than 2 years.
The pre-tax deduction of corporate income tax on asset impairment losses is relatively tolerant, and deductions can generally be made. After the VAT reform, the value-added tax regulations generally require that the input tax of the loss part is not deducted and should be transferred out.
Audit procedures: The accounting treatment of impairment of fixed assets has audit value, but the relevant substantive procedures are relatively streamlined.
The substantive procedures for the audit of the fixed asset impairment provision include: obtaining or preparing a detailed statement of the fixed asset impairment provision, rechecking whether the addition is correct, and whether it is consistent with the total number of accounts and the total of the detailed accounts; checking the fixed assets accrued by the audited unit Whether the basis for impairment provision is sufficient and whether the accounting treatment is correct; check whether the identification of the asset group is appropriate, whether the basis for the provision for impairment of fixed assets is sufficient, and whether the accounting treatment is correct; whether the provision for impairment of fixed assets at the end of the period is calculated as a percentage of the fixed assets at the end of the period The ratio of the original value and the comparison with the ratio at the beginning of the period to analyze the quality of fixed assets; check whether the original provision for impairment of fixed assets when the audited unit disposes of fixed assets is carried forward at the same time, and whether the accounting treatment is correct; check whether there is a reversion to fixed assets The situation of asset impairment provision.
Equity investment (investment in subsidiary)
Equity investment is a complex business with cumbersome content and is generally only involved in large enterprises. Please note that equity investment is different from ordinary companies buying a little equity in other companies. What can be called equity investment here can often control the invested company. Therefore, " control " is the primary concept that defines whether an investment company should be incorporated into the investment company's consolidated financial statements.
Control means that the investor has the power over the investee, enjoys variable returns by participating in the relevant activities of the investee, and has the ability to use the power over the investee to affect the amount of return.
When judging control, the investor should first consider the purpose and design of the investee to identify related activities, how to make decisions about related activities, which party has the current ability to dominate these activities, and which party obtains returns from these activities.
Related activities refer to activities that have a significant impact on the return of the investee. Operating and financial activities usually have a significant impact on the return of the investee. Specifically, related activities may include but are not limited to the following activities: sales and purchase of goods or services, management of financial assets, purchase and disposal of assets, research and development activities, determination of capital structure and obtaining financing.
Examples of making decisions on related activities include: making decisions on the investee’s operations, financing and other activities, including preparing budgets; appointing key management personnel or service providers of the investee, determining their remuneration, and terminating their provision of services Business relationship or dismiss it; change the strategic direction, including the acquisition and disposal of subsidiaries; purchase and disposal of major capital assets; appoint directors and other key management personnel and determine their remuneration; approve annual plans and budgets and dividend policies ,and many more.
The right to give the investor power over the investee (pay attention to distinguish the difference between power and rights) mainly include: voting rights or potential voting rights; appointing or dismissing key management personnel or other subjects of the investee who have the ability to lead the investee's related activities Rights; the right to decide the investee to conduct a certain transaction or to veto a certain transaction; the decision-making right granted by the management contract, etc.
When evaluating whether the power comes from voting rights, the voting rights owned by the investor must be substantive rights, and the investor has the current ability to dominate the relevant activities of the investee (usually achieved by deciding on financial and operating policies).
When evaluating whether the investor controls the investee, the investor needs to determine whether it enjoys variable returns by participating in the investee. Variable returns are returns that are not fixed and may vary with the performance of the investee. They can be only positive returns, only negative returns, or include both positive returns and negative returns. When the investor evaluates whether and to the extent that it enjoys the return of the investee, it should be based on the essence of the contractual arrangement, not the legal form.
The investor must not only have the power over the investee and the variable return that is assumed or the right to obtain because of its involvement in the investee, but it must also be able to use its power to influence the investor's return due to its involvement in the investee.
If, after the above judgment, the investor has control over the investee and the investee constitutes a business, then the investee should be incorporated into the investor’s consolidated financial statements .
Business refers to a combination of certain production and operation activities or assets and liabilities within an enterprise. This combination has input, processing and output capabilities, and can independently calculate its costs and expenses or the income generated, but generally does not constitute an enterprise and does not have independent Qualifications of legal persons, such as branches of enterprises, independent production workshops, and branches without independent legal person qualifications.
For a combination of assets and liabilities to form a business, it should usually have the following elements: input, which refers to the input of intangible assets such as raw materials, labor, necessary production technology, and other long-term assets such as machinery and equipment that constitute production capacity; processing process, Refers to a certain management ability and operation process that can organize inputs to form output; output, such as producing finished products, or reducing the overall operating cost of the enterprise by providing services to other departments, and other methods that bring economic benefits.
Accounting processing:
Business combinations are classified into those under the same control and those not under the same control. A business combination under the same control means that the enterprises participating in the combination are ultimately controlled by the same party or multiple parties before and after the combination and the control is not temporary. A business combination not under the same control refers to a combination transaction in which the parties involved in the combination are not ultimately controlled by the same party or the same multiple parties before and after the combination, that is, a business combination other than the business combination under the same control.
In the case of a business combination under the same control, the assets and liabilities of the combined party recognized by the combining party in the combination are limited to the previously recognized assets and liabilities on the combined party's book, and no new assets and liabilities will be generated during the combination. The assets and liabilities of the merged party acquired by the merging party in the merger shall maintain their original book value in the merged party. The difference between the book value of the net assets obtained by the merging party in the merger and the book value of the consideration paid for the business combination shall be adjusted for the relevant items of owner’s equity and shall not be included in the current profit and loss of the business combination.
The basic principle for the treatment of a business combination under the same control is to treat it as if the reporting entity formed after the combination has been in existence on the combination date and before. In the combined balance sheet, the retained earnings (surplus reserve) realized by the combined party The sum of undistributed profits) attributable to the merging party shall be transferred from the capital reserve of the merging party to retained earnings.
If it is a business combination not under the same control, the purchaser, purchase date, and business combination cost shall be determined in order. The cost of a business combination includes the fair value of cash or non-cash assets paid by the purchaser for the business combination, debts issued or assumed, and equity securities issued on the purchase date. Subsequently, depending on the merger method, the merging party shall respectively confirm the identifiable assets and liabilities obtained in the merger in the consolidated financial statements (controlling merger) or individual financial statements (absorption merger).
The difference between the cost of a business combination greater than the fair value of the acquiree's identifiable net assets obtained in the combination shall be recognized as goodwill. The difference between the business combination cost and the fair value of the acquiree's identifiable net assets obtained in the combination shall be included in the current profit and loss of the combination.
The aforementioned equity investment that the investor exercises control over and has a significant influence on the investee shall be included in the long-term equity investment account of the investor’s individual financial statements .
If a merger of holdings under the same control is formed, the share of the book value of the owner’s equity of the merged party obtained on the merger date shall be used as the initial investment cost of the long-term equity investment. In a business combination, the intermediary expenses incurred by the merging party, such as auditing, legal services, evaluation and consulting, and other related management expenses, shall be included in the current profits and losses (management expenses) when they are incurred.
In the event of a merger of controlling shares not under the same control, the purchaser shall use the determined business merger cost as the initial investment cost of the long-term equity investment. The cost of a business combination includes the sum of the assets paid by the purchaser, the liabilities incurred or assumed, and the fair value of the issued equity securities.
There are two accounting methods for long-term equity investment: cost method and equity method. Investments in subsidiaries held by investors shall be accounted for using the cost method, unless the investor is an investment entity and the subsidiary is not included in its consolidated financial statements; investments in joint ventures and associates shall be accounted for using the equity method.
If the capital transfer of Living Robotics in the film is an investment in a subsidiary, it should fall into the category of cost accounting. The accounting processing of the equity method is more complicated and cumbersome, and there are more special matters.
For long-term equity investments accounted for by the cost method, when additional investment is made, the book value of the long-term equity investment is increased according to the fair value of the cost paid for the additional investment and related transaction costs incurred. Where the investee declares to distribute cash dividends or profits, the investor shall recognize the current investment income based on the portion that it should enjoy. After the enterprise confirms the cash dividends or profits that the investee should receive in accordance with the above regulations, it should consider whether the long-term equity investment is impaired. When a subsidiary directly converts undistributed profits or surplus reserves into share capital (paid-in capital), and does not provide investors with the option of equivalent cash dividends or profits, the parent company does not have the right to receive cash dividends or profits. The transaction usually belongs to the reclassification of the subsidiary's own equity structure, and the parent company should not recognize the relevant investment income.
Audit procedures:
Because the content of equity investment is complicated and cumbersome, it is often the key part of risk assessment of management fraud. First, we should consider the issue of the audit of the financial statements of the parent company ( group ) and subsidiary ( component ). When considering this issue, the important components of the group should be determined .
An important component refers to a component identified by the group project team that has one of the following characteristics: a single component is financially significant to the group; due to the specific nature or circumstances of the single component, there may be significant errors in the group’s financial statements. Special risks reported.
The nature of the business of the subsidiaries that accept the investment of Living Robotics in the film is very special, and it is likely to have a special risk of causing major misstatements in the investor's consolidated financial statements, and should be defined as an important part of the group.
Then, if the financial practitioners auditing for the group are based on the group audit purpose and the plan requires the component CPA to perform the related work of the component financial information, the group project team should understand the component CPA. The component certified public accountant refers to a certified public accountant who performs related work on the financial information of the component based on the purpose of the group audit and in accordance with the requirements of the group project team. For the purpose of group auditing, members of the group project team may perform related work on the financial information of the components in accordance with the work requirements of the group project team. In this case, the member is also a part of the certified public accountant.
If the component CPA does not meet the independence requirements related to the group audit, or the group project team has major doubts about the component CPA’s professional ethics, professional competence and the regulatory environment, the group project team should discuss the component’s financial The information obtains sufficient and appropriate audit evidence, and the component CPA should not be required to perform relevant work on the component’s financial information.
Next, the group project team should determine the overall importance of the group's financial statements, one or more levels of importance applicable to specific types of transactions, account balances or disclosures, the critical value of obvious minor misstatements, and the importance of components. The " importance " mentioned in the audit refers to the maximum amount of misstatement that the auditor can tolerate for reasonable assurance that there is no major risk of misstatement in the financial report. Therefore, the low level of importance means that the amount of misstatement that can be tolerated is low, and the audit requirements are relatively strict. This logic may be the opposite of the importance of what we usually talk about. Please understand it carefully.
After the risk assessment, the group project team shall take countermeasures against the assessed risks. First, the project team divides the work to be implemented into important and unimportant parts.
The nature of the work of the important components is financially significant, and there may be special risks that may cause major misstatements in the group's financial statements. For this type of work, the project team uses the importance of the components to audit the financial information of the components; for one or more account balances, one or more types of transactions or related to special risks that may cause major misstatements in the group’s financial statements Disclosure matters are audited; specific audit procedures are implemented for special risks that may cause major misstatements in the group's financial statements.
For unimportant components, the project team only needs to implement analysis procedures at the group level, and this type of procedure does not require the participation of the certified public accountants of the components.
Related party
If financial practitioners discover such things as Living Robotics’s fictitious production line purchases, fictitious investments in subsidiaries, and other unconventional businesses, they should further doubt whether the production line supplier and the investment-receiving subsidiary are related parties of the company, and whether there are other Related party transactions that were not discovered by financial practitioners and that the management of the company did not properly disclose. Once it is confirmed that the company has related parties, the transactions between the company and related parties should be assessed as transactions with special risks .
First, the relationship between related parties should be identified. The three contents of the relationship between related parties: there is a controlling or controlled relationship, the existence of joint control or being jointly controlled, a major influence or a major influence, or the relationship between an enterprise and a special individual. Special individuals mainly refer to the main investors, key management personnel, and family members close to them.
The types of related party transactions generally include: purchase or sale of commodities; purchase or sale of assets other than commodities; provision or acceptance of labor services; guarantees; provision of funds (loans or equity investments); leasing; agency; transfer of research and development projects; License agreement; debt settlement on behalf of the enterprise or by the enterprise on behalf of another party; remuneration of key management personnel. The suspected related party transactions of Living Robotics in the film include the purchase of assets and the provision of funds.
Accounting processing:
Regardless of whether there is a related party transaction, an enterprise shall disclose in the notes the information related to the parent company and subsidiary companies that have a controlling relationship between the enterprise: the names of the parent company and all subsidiaries; the business nature, registration place, Registered capital (or paid-in capital, share capital) and its changes; the parent company’s shareholding percentage and voting rights percentage of the company or the company’s subsidiary.
When disclosing the name of the parent company, if the parent company is not the ultimate controlling party of the enterprise, the name of the enterprise (or subject) within the enterprise group that has ultimate control over the enterprise should also be disclosed. If neither the parent company nor the ultimate controlling party provides external financial statements, it shall also disclose the name of the parent company closest to the parent company that provides external financial statements.
Where an enterprise has a related party transaction with an associated party, it shall disclose the nature of the related party relationship, transaction type and transaction elements in the notes. Transaction elements should include at least: the amount of the transaction; the amount of unsettled items, terms and conditions (including commitments), and information about the provision or acquisition of guarantees; the amount of bad debt reserves for unsettled items receivable; and pricing policies.
The amount of related party transactions shall disclose relevant comparative data.
An enterprise shall determine the amount of revenue from the sale of goods in accordance with the contract or agreement price received or receivable from the purchaser, unless the contract or agreement price received or receivable is unfair. "Unfair" refers to transactions between related parties.
When determining whether the exchange of non-monetary assets has commercial substance, an enterprise should pay attention to whether there is a related party relationship between the parties to the transaction. The existence of related party relationships may lead to non-monetary asset exchanges that do not have commercial substance. Donations and debt exemptions accepted by enterprises that meet the recognition conditions in accordance with accounting standards should usually be recognized as current income. If accepting direct or indirect donations from a controlling shareholder or a controlling shareholder’s subsidiary, it is judged from the economic substance that it belongs to the controlling shareholder’s capital investment in the enterprise, and it should be treated as an equity transaction, and the relevant gains are included in the owner’s equity (capital reserve).
Pay full attention to the economic nature of special transactions between related parties and make adequate information disclosures. The company should pay full attention to the economic substance of direct or indirect donations (including direct donations of cash or physical assets, direct exemption or repayment of debts, etc.) by the controlling shareholder, other related parties controlled by the controlling shareholder, and the actual controller of the listed company. . If the economic substance of the transaction indicates that it belongs to the controlling shareholder, other related parties controlled by the controlling shareholder, or the actual controller of the listed company’s capital contribution to the listed company, the company shall, in accordance with the principle of “substance over form” in the Accounting Standards for Business Enterprises, make the transaction As an equity transaction, the profit formed is included in the owner's equity.
Tax-related regulations:
The tax-related regulations for related party transactions are mainly the deduction of expenses related to fund borrowing and capital transfer. Living Robotics in the film does not involve borrowing and borrowing funds from subsidiaries , but asset purchases and equity investments. Equity investment does not involve the treatment of corporate income tax.
If Living Robotics has an affiliate relationship with the production line supplier, the financial practitioner should confirm whether there is any transfer pricing behavior in the transaction. If there is a transfer pricing act, the income and taxable income shall be calculated based on the fair transaction price. Fair transaction prices are generally determined through reasonable transaction costs and the profit rate of Kobe’s non-connected transactions.
The audit work requires the CPA to have a professional skepticism. Once an enterprise is found to have undisclosed related parties and their transactions, additional procedures should be implemented to further identify other related parties and their transactions not disclosed by the management and not discovered by the CPA, if they are involved For related party transactions such as fund lending and transfer pricing, the amount of expenses allowed for pre-tax deduction shall be reconfirmed in accordance with the relevant provisions of the Corporate Income Tax Law.
Audit procedures:
Major transactions that cause major misstatement risks beyond the normal business process, especially major transactions that occur near the end of the accounting period and that have difficulties in making judgments of "substance over form", provide opportunities for fraud by the management of the audited entity.
Major misstatement risks that may be caused by related party transactions include: there is a major misstatement risk caused by a related party with a dominant influence; related party relationships or major related party transactions that the management fails to identify or disclose to the certified public accountant Material misstatement risk; management determines that related party transactions are executed in accordance with the prevailing terms in a fair transaction and may have a material misstatement risk; management fails to properly account for specific related party transactions in accordance with the provisions of the applicable financial report preparation basis Deal with and disclose the risk of material misstatement.
Common methods for companies to use related party fraud include: related party transactions are true, but management deliberately does not make confirmation, measurement and disclosure in financial statements; use third parties to conceal related party transactions; Conducted transactions but did not truthfully and completely disclose in the financial statements; colluded with related parties to conduct fraudulent transactions. The Living Robotics transaction is clearly unfair and there is a suspicion of collusion.
Risk response measures for related party transactions:
Consider the existence of related party relationships or transactions that may be revealed by management that has not been disclosed to the certified public accountant, and implement corresponding audit procedures. In order to determine whether there is a related party relationship or related party transaction that the management and governance did not disclose to the CPA, the CPA inspected the bank and lawyer's confirmation letter response, the shareholders' meeting and the governance meeting minutes obtained during the implementation of the audit procedure. And other records and documents deemed necessary.
If identification may indicate the existence of related party relationships or transaction arrangements or information that management has not previously identified or disclosed to the CPA, the CPA shall determine whether the relevant circumstances can prove the existence of the related party relationship or related party transactions. When determining, if deemed necessary and feasible, the CPA can consider implementing procedures including: investigating the background information of the counterparty of a major or unconventional transaction, such as the shareholding structure, business scope, legal representative and registered address; whether the counterparty is The audited entity has an unusual relationship, asking the grassroots employees directly involved in the transaction; conducting on-the-spot observation or inquiring about important customers or suppliers with doubts; inquiring about the important shareholders or key management personnel of the audited entity; checking the bank Reconciliations and transactions of large sums of money; use the work of experts, such as anti-fraud experts.
As related parties are not independent of each other, the relationship between related parties may provide more opportunities for management to collude, conceal, or manipulate behavior. Therefore, even if it identifies arrangements or information that may indicate that there is a related party relationship or transaction that the management has not disclosed to the CPA, after the CPA implements additional procedures, it may still be unable to determine whether there is indeed a related party relationship or related party transaction. . In this case, the certified public accountant can use this situation as a major difficulty in the audit to communicate with the management and request the management to provide further information. After communicating with the governance level and obtaining further information provided by it, if the certified public accountant is still unable to determine whether there is a deliberate failure of management to disclose related party relationships or major related party transactions to the certified public accountant, the certified public accountant should consider the impact of this situation on the audit opinion. Influence.
When identifying related party relationships or major related party transactions that the management has not previously identified or disclosed to the certified public accountant, the CPA’s response measures include: immediately notify other members of the project team of relevant information to help project team members determine these Whether the information has an impact on the results of the implemented risk assessment procedures and the conclusions drawn therefrom, including whether the risk of major misstatement needs to be reassessed. When the applicable financial report preparation basis stipulates related parties, the management is required to identify all transactions with newly identified related parties so that the CPA can make further evaluations, and inquire about the relationship with related parties and their transactions Why did the relevant control fail to identify or disclose the related party relationship or transaction? Implement appropriate substantive procedures for newly identified related parties or major related party transactions. Reconsider the possible risks of other related parties or major related party transactions that the management has not previously identified or disclosed to the certified public accountant, and if necessary, implement additional audit procedures. If the management does not disclose the relationship between related parties or the transaction appears to be intentional, thus showing that there may be a major risk of misstatement due to fraud, evaluate the impact of this situation on the audit. The CPA may therefore also consider whether it is necessary to re-evaluate the management’s response to the inquiry and the reliability of the management’s statement.
Identifying major related party transactions that are beyond the normal business process: For the identified major related party transactions that are beyond the normal business process, the CPA should: check the relevant contract or agreement (if any); obtain audit evidence that the transaction has been properly authorized and approved .
If the management makes a determination in the financial statements that the related party transaction is executed in accordance with the terms equivalent to the prevailing fair transaction, the certified public accountant shall obtain sufficient and appropriate audit evidence for the determination. The management of the audited entity can only disclose that related party transactions are fair transactions if they provide conclusive evidence. The CPA shall check the adequacy of the disclosure of related party transactions, and at the same time evaluate the disclosure of related party transactions as fair transactions. If sufficient and appropriate audit evidence cannot be obtained and it is reasonably certain that the management's disclosure of related party transactions is a fair transaction, the certified public accountant may request the management to withdraw this disclosure. If the management does not agree to the revocation, the CPA should consider its impact on the audit report.
The above is about fixed assets, equity investment, related party accounting, taxation regulations and audit procedures related to the accounting content mentioned in the film. Those who are willing to see here verbatim are not ordinary people.
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