Honorary Advisers Contents - hkiaat.org

HKIAAT NewsPresident’s Message 1

New Name Ceremony and Annual Dinner 2006 2

Tune in for HKIAAT! 3

The 16th Education and Careers Expo 4

Career Talk for Secondary School Career Masters 4

Brand New AAT-branded Merchandise for You! 4

Professional Bridging ExaminationExaminable Accounting Standards for Paper I – 5

Financial Reporting in the June 2006 Session

June 2006 Session Timetable 6

Format of the June 2006 Examination Papers 7

Important Notes for Candidates 7

(From Examination Entry to Sitting the June 2006 Examination)

Examination Technique Seminars 8

December 2005 Graduates 8

December 2005 Pass Rates and Top Students 8

Examiners’ Reports for the December 2005 Session 9

Accounting Technician ExaminationExaminable Accounting and Auditing Standards in the June 2006 Session 15

June 2006 Session Timetable 16

Important Notes for Candidates 17

(From Examination Entry to Sitting the June 2006 Examination)

Examination Rules and Regulations 18

December 2005 Session Pass Rates and Top Students 18

December 2005 Graduates 18

Examiners’ Reports for the December 2005 Session 21

Members’ CornerMeeting the UKAAT & Meet-the-President Session 30

Welcome to New Members 30

Studies in Foundation AccountingBook-keeping and Accounts Examination and 31

Computerised Accounts Examination

Examiners’ Reports for the December 2005/January 2006 Sessions 32

Activity HighlightsStudent Orientation Programme 36

Technical Seminar: Advanced Excel in Accounting 36

Visit to Coca-Cola Bottling Plant 37

GreenfieldThe Puzzle 38

Q&A 39

FeaturesHighlights of the Revenue Proposals in the 2006/07 Budget – 40

By Dr Dora L Y Lee

Relevant Costs Concept for Decision Making – By Dr Gerry K H Li 42

Honorary AdvisersPresident and Vice-Presidents of the Hong Kong Institute of Certified Public Accountants

Board MembersDoug Oxley(President)Kennedy Tat-yin Liu(Vice-President)James T W Kong(Vice-President)Chan Cheuk HayIvan K F ChanChew Fook AunStella P L ChoDennis C O ChungWilson Y W FungJohnson C H KongPeter S T LeeAndy T M LiDennis H S MakWan Shiu KeeLindy W W YauJoseph S W Yau

Editorial CommitteeLindy W W Yau(Chief Editor)Patrick P H Ng(Deputy Chief Editor)C H Cheng(Deputy Chief Editor)Joseph S W Yau(Monitor of the Issue)Selwyn S Y ChengCharles K C ChiuChris K C LauLisa S K WongMichael C W Wong

Staff ResponsibleMargaret W Lam(Secretary General)Kitty K W Siu(Administrative Officer)

Vol 2 Mar/Apr 2006Hong Kong Institute of Accredited Accounting Technicians Limited香港財務會計協會有限公司

17/F, Fortis Bank Tower77-79 Gloucester RoadWanchai, Hong KongTel: 2823 0600Fax: 2823 0606Hotline: 2823 0660Web: www.hkiaat.orgE-mail: [email protected]

(Circulation: 8,600 copies)

Contents

Dear members and students

The New Name Ceremony and Annual Dinner 2006 was held on 31 March 2006 at JW Marriott Hong Kong. We are very grateful to have Mrs Fanny Law, GBS, JP as our guest of honour to officiate the launch of our new name and logo. Many important guests and HKIAAT stakeholders attended the event to witness this important stage in our development. They included the President of our parent institute, the Hong Kong Institute of Certified Public Accountants Mr Paul Chan, Vice-President Mr Mark Fong and other Council Members, representatives from various government departments, educational institutions and professional bodies, as well as the President of the Association of Accounting Technicians in the United Kingdom (UKAAT) Mr Trevor Salmon and his wife and Chief Executive of UKAAT Ms Jane Scott Paul. The whole night was filled with joy and excitement and we would like to express our sincere gratitude to all guests for attending the event.

As you may know, we signed a Reciprocal Membership Agreement (RMA) with UKAAT in February this year. Under the RMA, members of both bodies are eligible to apply for the membership of the other body and enjoy the benefits afforded to members in both jurisdictions. Mr Salmon and Ms Scott Paul, who traveled a long distance to Hong Kong to attend the annual dinner, also took the opportunity to meet some of our members who are interested in becoming members of the UKAAT. Our members were given an overview of the UKAAT membership and gain a better understanding of the wide recognition of the AAT qualification, especially by employers in the UK. After meeting with the UKAAT representatives, the two Vice-Presidents, the Secretary General and myself then mingled with our members to discuss the problems they face in their workplace, and had suggested ways that we could help them overcome their problems. Members were also free to express their comments on how to improve our membership benefits and services. We treasured the time we spent with our members and will certainly take their suggestions into consideration. If you happened to miss this function, don’t be disappointed as we will be organising other “Meet–the–President” sessions on a regular basis.

We are happy to announce that our membership base has increased to over 700 since its launch in 2004. In the December 2005 session, 378 graduates successfully completed the Accounting Technician Examination and are now ready to join our membership. The AAT qualification that we offer is an elite symbol - our qualification provides the knowledge and relevant and practical skills expected of accounting technicians in a wide range of accounting and finance jobs. No matter what age group or previous experience, the AAT qualification is a ticket to a promising accounting career in the business and public sector. And those of you who are currently working hard to get the AAT qualification: remember that we are always here to help and provide all the necessary support.

In the coming months, we will be launching a series of activities to raise public awareness of our new name and logo. We will also be stepping up our promotional campaigns to increase the awareness of the AAT qualification in Hong Kong. May I invite you to support the HKIAAT initiatives: let’s join together to build up a strong AAT profession – the “backbone of business”!

Doug Oxley President

President’s Message

HKIAAT News

2 March 2006 ended with great joy as it marked the formal launch of our rebranding. We were very honoured to have Mrs Fanny Law, GBS, JP, Permanent Secretary for Education and Manpower as the Guest of Honour of our New Name Ceremony and Annual Dinner 2006, which was held at JW Marriott Hong Kong.

Many important guests and HKIAAT stakeholders attended the event to witness this important point in our development. The ceremony began with the launch of our new name and logo officiated by Mrs Fanny Law and our President Mr Doug Oxley. The simple contemporary design of our new logo signifies solid skills and bold optimism. The two distinctive wings symbolise the first flight towards a career in accounting, while the orange colour represents youth and dynamism. This new design also shows our ties to the Hong Kong Institute of CPAs, being its subsidiary body that adopts the same important values of quality, depth, rigour and ethics. After unveiling the new logo, all HKIAAT Board Members, Hong Kong Institute of CPAs Council Members and management of both institutes went up to the stage to propose a toast to the future of the HKIAAT, education reforms and continued prosperity in Hong Kong.

Mr Doug Oxley welcomed all guests as he spoke about the objectives of our rebranding, the unique position of AAT as the “backbone of business”, the Reciprocal Membership Agreement (RMA) with UKAAT and the future developments of the HKIAAT. He also talked about the close working relationship between the HKIAAT

Mrs Fanny Law, GBS, JP, and Mr Doug Oxley officiating at the formal launch of our rebranding.

HKIAAT Board members and Hong Kong Institute of CPAs Council Members raising their glasses for a toast.

Mr Doug Oxley giving his welcoming speech.

Mrs Fanny Law addressing the event.

New Name Ceremony and Annual Dinner 2006

and the Education and Manpower Bureau in the development of the Career Oriented Curriculum, the proposed elective subject “Business, Accounting and Financial Studies” under the new 3+3+4 curriculum, and in organising the Accounting Case Competition.

In her speech, Mrs Fanny Law, GBS, JP, first congratulated the HKIAAT on the launching of its new name and logo and its efforts in providing a clearly articulated pathway for people who wish to pursue a career in accounting. She then talked about the education reforms, which she saw as the ultimate solution to nurturing a new generation of knowledge workers who were self-directed lifelong learners. Finally, she looked forward to the continuing partnership with HKIAAT to nurture a new generation of lifelong learners.

Mr Kennedy Tat-yin Liu, our Vice-President then delivered his thank-you speech to express our sincere gratitude to all guests for attending the event.

The second highlight of the event came with the announcement of the RMA with the UKAAT and the exchange of souvenirs between Mr Trevor Salmon and Mr Doug Oxley. Under the RMA, members of both bodies are eligible to apply for the membership of the other body and enjoy the benefits afforded to members in both jurisdictions.

Mrs Fanny Law was then invited to present certificates and awards to the HKIAAT scholarship recipients, top students of

the HKIAAT examinations and winners of the Accounting Case Competition. The ceremony ended with the announcement of table prizes for all guests.

Bringing a touch of light and music to the evening was a performance by students of St Paul’s Secondary School who played guitar, clarinet, flute and performed a Chinese dance. The dinner reached its climax when Mr Trevor Salmon danced with Hong Kong Institute of CPAs Council Member Ms Susanna Chiu on the stage. Their extempore talent show amazed all guests and won great applause. The dinner ended in a happy atmosphere with lucky draw prize winners receiving their prizes.

HKIAAT News

�Acknowledgement

Hong Kong Institute of Accredited Accounting Technicians Limited wishes to extend its appreciation to the following organisations and persons for their sponsorships:

Mr Doug Oxley (left) exchanging souvenirs with Mr Trevor Salmon.

Students of St Paul’s Secondary School performing their Chinese dance.

Tune in for HKIAAT!

Tune in Metro Radio FM99.7 every Thursday in April, June and July at 9:30am for a 13-serial programme “增值青雲路”, featuring topics relating to HKIAAT and the accounting technicians profession in Hong Kong. If you’ve missed the chance to listen to the live broadcast, please go to our website www.hkiaat.org for the recorded version.

An extempore talent show by Mr Trevor Salmon and Ms Susanna Chiu.

Hong Kong Institute of Certified Public AccountantsACCA (The Association of Chartered Certified Accountants Hong Kong)Andy Lam, JP, President, Hong Kong Accounting Professionals AssociationBDO McCabe Lo Limited CCIF CPA LtdCertified Management Accountants Society of British Columbia, Canada (Hong Kong Branch)CGA Hong Kong (Canadian Certified General Accountants Association of Hong Kong)Chew Fook Aun, Board Member, Hong Kong Institute of Accredited Accounting TechniciansChurchill Design & Advertising LtdCIMA Hong Kong DivisionColorPrint Production LtdCompulink ConsultantsCPA Australia Hong Kong China DivisionDoug Oxley, President, Hong Kong Insititute of Accredited Accounting TechniciansJames Kong, Vice-President, Hong Kong Institute of Accredited Accounting TechniciansHong Kong College of TechnologyHong Kong School of CommerceHKU School of Professional and Continuing Education

Kennedy Tat-yin Liu, Vice-President, Hong Kong Institute of Accredited Accounting TechniciansLee Kum Kee Company LimitedLingnan UniversityMark Coggins, Managing Director, Kaplan InternationalProfessor Lui Yu Hon, Director, Li Ka Shing Institute of Professional and Continuing Education, OUHKSamble Office Supplies & Printing CoSnow White Bodyline & Beauty Salon LimitedThe Association of International Accountants – HK BranchThe Society of Chinese Accountants & AuditorsWong Brothers & Co CPA

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“Leaders of the 21st Century”

Never has the business world offered more opportunities – or more challenges – to those who want to shape its future. Find out more about broadening leadership skills and competence in coping with business challenges through the “Leaders of the 21st Century” workshop, which is organised by the Institute for Leadership & Potential Development (HK) Ltd. (“i-LeaP”). More information about the workshop can be found on the i-LeaP website http://www.i-leap.com.hk/corporate.htm.

A special 5% discount is being offered to HKIAAT members who enroll for the workshop before 10 May 2006. For details, please contact i-LeaP directly on 2121 1266.

HKIAAT News

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The 16th Education and Careers Expo

In its role as one of the major accounting bodies training hundreds of accounting personnel every year, the HKIAAT has taken part in the 16th Education and Careers Expo with the Hong Kong Institute of CPAs. The Expo ran between 23 and 26 February 2006.

Our booth came with an attractive design using the open booth concept. Visitors were amazed with our bright new logo which symbolises the first flight towards a career in accounting. During the four-day exhibition, the Secretariat staff, members of the Communication Committee and Member and Student Services Committee took turns to man the booth to answer enquiries from both students and the public. Visitors were keen to know about an accounting career in general and the HKIAAT’s examinations, and to find out how to become an Accredited Accounting Technician – AAT.

The HKIAAT was invited to participate in a career seminar during the Expo. The Vice-President Mr James Kong spoke on the topic ”Moving forward to a successful accountancy career”, explaining in detail how to attain an Accredited Accounting Technician qualification via the examinations offered by the HKIAAT. After pointing out that the examination structure was both economical and flexible, Mr Kong elaborated on the attributes that an accounting technician should have and what the job entails, and further outlined the pathways of academic and professional progression that the AAT qualification could offer its members. Around 100 participants, consisting students from secondary schools, commercial schools and technical institutes, and members of the public, attended the seminar, during which many questions were raised.

We would like to take this opportunity to thank Mr Kong and members of the Committees for the time and effort that they offered during the exhibition.

Visitors were keen to know about the accounting technician profession.

Mr James Kong speaking at the seminar.

Career Talk for Secondary School Career Masters

A career talk jointly organised by the Hong Kong Association of Careers Masters and Guidance Masters, the Hong Kong Institute of CPAs and the HKIAAT was held on 18 February 2006 at YMCA Kowloon. An attentive, packed audience of around 250 careers masters, secondary school teachers and students attended the talk, which was divided into three sessions. Mr Andy Li, Board member of HKIAAT, first spoke about the HKIAAT’s mission and its examination structure, focusing on what the HKIAAT could offer secondary school students as a promising career option. He also elaborated on the attributes that an accounting technician should have and what the job entails and further outlined the pathways for academic and professional progression. Mr Edmund Li, then followed, describing his work as a certified public accountant and a representative of the Hong Kong Institute of CPAs, explaining the structure of CPA QP. To wrap the talk up, the audience showed a great enthusiasm in the AAT profession judging by the lengthy Q&A session. Finally, an open invitation was extended to all participating schools for the HKIAAT to arrange career talks for their students.

Mr Andy Li at the career talk for secondary school career masters.

Some smart-looking AAT-branded merchandise with the new logo is now ready for sale at the HKIAAT counter. There is high quality silk necktie that comes in three colours: orange, red and silver and full-sized umbrella in orange and silver. Remember your member/student card gives you 20% discount!

Brand New AAT-branded Merchandise for You!

ITEM LISTED PRICE MEMBER/STuDENT PRICE (HK$) (HK$)Silk necktie 160 128Full-sized 75 60umbrella

Professional Bridging Examination

�In order to keep abreast of the latest developments of the international harmonisation of accounting standards, the Hong Kong Institute of Certified Public Accountants decided in 1993 to adopt International Accounting Standards (now referred to collectively as International Financial Reporting Standards, or IFRSs) as the basis for developing future accounting standards in Hong Kong. This change of policy has resulted in all the Statements of Standard Accounting Practice (SSAPs) being replaced by Hong Kong Financial Reporting Standards (HKFRSs) which are, in all material respects, fully converged with IFRSs as from accounting periods beginning on or after 1 January 2005.

Please note that a 6-month rule is adopted for examinable accounting standards and the cut-off date for new amendments (including new standards/interpretations) being examinable for the June 2006 examination is 30 November 2005. It should be noted that the 6-month rule refers to the enactment date of the legislation and the release date of the pronouncements, not the effective date.

The applicable HKFRSs for Paper I for the June 2006 PBE are set out below.

Hong Kong Financial Reporting Standards Examinable in the June 2006 Examination

STANDARD TITLE ISSuE/REVIEW DATE Hong Kong Accounting Standards (HKAS) HKAS 1 Presentation of Financial Statements Nov 05 HKAS 1 (Amendment) Capital Disclosures Sep 05 HKAS 2 Inventories Mar 04 HKAS 7 Cash Flow Statements Dec 04 HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Sep 04 HKAS 10 Events after the Balance Sheet Date Mar 04 HKAS 11 Construction Contracts Dec 04 HKAS 12 Income Taxes Nov 04 HKAS 14 Segment Reporting Nov 04 HKAS 16 Property, Plant and Equipment Nov 05 HKAS 17 Leases Dec 04 HKAS 18 Revenue Nov 04 HKAS 19 Employee Benefits Dec 04 HKAS 19 (Amendment) Employee Benefits – Actuarial Gains and Losses, Group Plans and Disclosures Apr 05 HKAS 20 Accounting for Government Grants and Disclosure of Government Assistance Dec 04 HKAS 21 The Effects of Changes in Foreign Exchange Rates Mar 04 HKAS 23 Borrowing Costs Dec 04 HKAS 24 Related Party Disclosures Dec 04 HKAS 26 Accounting and Reporting by Retirement Benefit Plans Aug 04 HKAS 27 Consolidated and Separate Financial Statements Nov 05 HKAS 28 Investments in Associates Mar 04 HKAS 29 Financial Reporting in Hyperinflationary Economies Mar 04 HKAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions Dec 04 (will be withdrawn when HKFRS7 becomes effective) HKAS 31 Interests in Joint Ventures Dec 04 HKAS 32 Financial Instruments: Disclosure and Presentation Nov 04 HKAS 33 Earnings Per Share Mar 04 HKAS 34 Interim Financial Reporting Oct 04 HKAS 36 Impairment of Assets Aug 04 HKAS 37 Provisions, Contingent Liabilities and Contingent Assets Nov 04 HKAS 38 Intangible Assets Aug 04 HKAS 39 Financial Instruments: Recognition and Measurement Nov 04 HKAS 39 (Amendment) Transition and Initial Recognition of Financial Assets and Financial Liabilities Feb 05 HKAS 39 (Amendment) Cast Flow Hedge Accounting of Forecast Intragroup Transactions Jul 05 HKAS 39 (Amendment) The Faire Value Option Jul 05 HKAS 39 & HKFRS 4 Financial Instruments: Recognition and Measurement and Insurance Contracts – Sep 05 (Amendment) Financial Guarantee Contracts HKAS 40 Investment Property Nov 05 HKAS 41 Agriculture Dec 04

Examinable Accounting Standards for Paper I – Financial Reporting in the June 2006 Session


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Paper I – Financial Reporting

Paper II – Management Accounting

Paper III – Financial Management

Paper IV – Legal Environment

8 June 2006 (Thursday)

10 June 2006 (Saturday)

15 June 2006 (Thursday)

17 June 2006 (Saturday)

2:00 pm – 5:00 pm

2:00 pm – 5:00 pm

2:00 pm – 5:00 pm

2:00 pm – 5:00 pm

PAPER DATE TIME

June 2006 Session Timetable

Hong Kong Financial Reporting Standards Examinable in the June 2006 Examination (Cont’d)

STANDARD TITLE ISSuE/REVIEW DATE Hong Kong Financial Reporting Standards (HKFRS) HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards Sep 04 HKFRSs 1&6 (Amendment) First-time Adoption of Hong Kong Financial Reporting Standards Jul 05 and Exploration for and Evaulation of Mineral Resources HKFRS 2 Share-based Payment Apr 04 HKFRS 3 Business Combinations Nov 05 HKFRS 4 Insurance Contracts Aug 04 HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations Aug 04 HKFRS 6 Exploration for and Evaluation of Mineral Resources Feb 05 HKFRS 7 Financial Instruments: Disclosures Sep 05 Hong Kong (IFRIC) Interpretations (HK(IFRIC)-Int) HKFRS-Int 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities Aug 04 HKFRS-Int 2 Members’ Shares in Co-operative Entities and Similar Instruments Feb 05 HKFRS-Int 4 Determining Whether an Arrangement Contains a Lease Feb 05 HKFRS-Int 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Feb 05 Rehabilitation Funds HK(IFRIC)-Int 6 Liabilities arising from Participating in Specific Market – Sep 05 Waste Electircal and Electronic Equipment Hong Kong Interpretations (HK-Int) HK-Int 1 The Appropriate Accounting Policies for Infrastructure Facilities May 05 HK-Int 2 The Appropriate Accounting Policies for Hotel Properties May 05 HK-Int 3 Revenue-Pre-completion Contracts for the Sale of Development Properties May 05 HK-Int 4 Leases-Determination of the Length of Lease Term in May 05 Respect of Hong Kong Land Leases Hong Kong (SIC) Interpretations (HK(SIC)-Int) HK(SIC)-Int 10 Government Assistance – No Specific Relation to Operating Activities Dec 04 HK(SIC)-Int 12 Consolidation – Special Purpose Entities Mar 04 HK(SIC)-Int 12 Scope of HKAS – Int 12 Consolidation – Special Purpose Entities Feb 05 (Amendment) HK(SIC)-Int 13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers Dec 04 HK(SIC)-Int 15 Operating Leases-Incentives Dec 04 HK(SIC)-Int 21 Income Taxes – Recovery of Revalued Non – Depreciable Assets Mar 05 HK(SIC)-Int 25 Income Taxes – Changes in the Tax Status of an Enterprise or its Shareholders Dec 04 HK(SIC)-Int 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease Dec 04 HK(SIC)-Int 29 Disclosure – Service Concession Arrangements Dec 04 HK(SIC)-Int 31 Revenue – Barter Transactions Involving Advertising Services Dec 04 HK(SIC)-Int 32 Intangible Assets – Web Site Costs Dec 04


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The week commencing 24 April 2006

The last batch of Examination Entry Acknowledgements has been despatched to all candidates for the June 2006 session.

Upon receipt of the Examination Entry Acknowledgement, candidates must check that all details contained in the document are correct. If any data are incorrect, candidates should contact the HKIAAT IMMEDIATELY.

DATE HKIAAT ACTION CANDIDATE ACTION REMARKS

Rejection letters together with cheque(s) and cancelled Entry Forms will be sent to students whose applications are rejected for the following reasons: i) incomplete application despite

reminders; or ii) late applications.

Upon receipt of the Examination Attendance Docket, candidates must check all details on document. If any data are incorrect, candidates should contact the HKIAAT IMMEDIATELY.

No change in centre will be entertained.

Candidates who have applied for and have not received the duplicate Examination Attendance Docket should check with the HKIAAT IMMEDIATELY to establish their examination centre.

At least two working days are required to make special arrangements for candidates who cannot produce the Examination Attendance Docket on the date of examination. Therefore candidates are strongly advised to alert the HKIAAT at the earliest opportunity of non-receipt of the duplicate docket.

8, 10, 15 and 17 June 2006

All papers last for 3 hours.

Important Notes for Candidates (From Examination Entry to the Sitting June 2006 Examination)

From 5 June to date of examination

Each paper is made up of two sections as follows:

Section A: 2 compulsory questions Section B: 3 (out of 4) questions

Both sections may contain computational questions, short questions and short case studies. Each paper lasts for 3 hours.

The HKIAAT has adopted the policy of the Hong Kong Examinations and Assessment Authority (HKEAA) on the use of calculators. Electronic calculators, including programmable calculators, may be used in any examination session provided that the calculators are battery-powered, silent in operation, with neither print-out nor graphic/word-display facilities and do not use dot-matrix technology in the main display. Other electronic devices with graphic/word-display facilities (such as databank watches) are NOT permitted in the examination centre. If they are brought in, this is a breach of regulations and will lead to confiscation of the calculators. Students who wish to check whether their calculators are allowed to be used in the examination should refer to the list of permitted calculators on the HKEAA website at www.hkeaa.edu.hk.

Format of the June 2006 Examination Papers

28 April 2006

15 May 2006

Candidates who have neither received an Examination Entry Acknowledgement nor a rejection letter should contact the HKIAAT IMMEDIATELY to enquire the status of their examination entry.

22 May 2006

Examination Attendance Dockets will be despatched by the Hong Kong Examinations and Assessment Authority to all candidates.

29 May 2006

At least two working days should be allowed to process a duplicate copy of the Examination Docket. Candidates are strongly advised NOT to leave such an application until the last minute.

Candidates who have not received the Examination Attendance Docket or have misplaced it should contact the HKIAAT IMMEDIATELY for a duplicate copy.


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December 200� Pass Rates and Top Students

PAPER NO OF CANDIDATES ENROLLED PASS RATE NAME OF TOP STuDENT

I – Financial Reporting 184 68% Lau Yuk Miu

II– Management Accounting 143 40% Ho Kin Wai

III – Financial Management 170 50% Leung Shuk Yi

IV – Legal Environment 195 29% Ho Shuk Yin, Emily

In order to assist students to prepare themselves for the coming Professional Bridging Examination, the HKIAAT is organising Examination Technique Seminars which are to be held in May 2006. The seminars will place special emphasis on question-answering techniques and on addressing the common problems that most students encounter during examinations, based on past papers. Experienced lecturers will be conducting the seminars on a paper-by-paper basis. A free Q&A booklet from the latest examination session will be distributed to each seminar participant.

NAME OF PAPER DATE TIME

Paper I – Financial Reporting 15 May 2006 (Mon) 7:15 pm – 8:45 pm

Paper II – Management Accounting 16 May 2006 (Tue) 7:15 pm – 8:45 pm

Paper III – Financial Management 17 May 2006 (Wed) 7:15 pm – 8:45 pm

Paper IV – Legal Environment 19 May 2006 (Fri) 7:15 pm – 8:45 pm

Examination Technique Seminars

Venue: Multi-purpose Room, HKIAATMax. no. of attendees: 40Admission fee: HK$60 per head for HKIAAT members/students and HK$90 per head for non–HKIAAT members/studentsClosing date: 10 May 2006 (Wed)Application: Complete the enrolment form (inserted in this journal) and return it, together with the admission fees, to the HKIAAT before the closing date.

Enrolments will be processed on a first-come-first served basis with priority given to registered members/students. Fees paid will not be refunded unless the event is cancelled.

Remarks: The HKIAAT reserves the right to change the date, venue and time of the seminars should this be necessary.

Seminar Schedule

December 200� Graduates

In the December 2005 session, a total of 45 graduates successfully completed all four papers of the PBE – a record high since the examination was first launched in December 2002. These graduates are eligible for direct admission to the CPA Qualification Programme (CPA QP) of the Hong Kong Institute of CPAs. Mr Ho Kin Wai has been nominated as the CPA QP Scholarship recipient. Congratulations to Mr Ho and the other fresh graduates!

AU, Hok Man JeffersonAU, Lai SheungCHAN, Chun FaiCHAN, Kit Yee BurthaCHAN, Pik Ki PeggyCHAN, Pui SemCHAN, Shun CheongCHAN, Siu FungCHAU, Siu ShanCHER, Ka ManCHEUNG, Wang KeiCHIU, Sai CheungCHO, Tsz PongCHOI, Yin YingCHOW, Nga ManCHU, Wing Hung

CHUI, May LinCHUNG, Churk Fun ThomasFOK, Wai FanFONG, Tsui Pik RebeccaFU, Fung YauHO, Kin WaiHUNG, Ching ManKONG, Ming YanKWOK, Po KingLAI, Chi FaiLAM, Hung MuiLAM, Kin ManLEE, Chong YehLEUNG, Ka ManLI, Man KitLO, Wai Chu

LUK, JoyceMUI, Ying Han AngelaNG, Sai ManNG, Sau KuenNG, Yin FunTO, Wo ChunTSANG, Choi LinWONG, Fu WingWONG, Hoi PingYAU, Ka YiYEUNG, Chak SumYIP, Piu YeungYUEN, Hau Ting


�Paper I – Financial Reporting

General Comments

The performance of candidates in this examination was a little disappointing. This paper was of a fair standard that a well-prepared candidate should be able to pass without difficulty.

Recently, there have been a number of new accounting standards and changes to existing standards. As a general rule, candidates should expect, when new standards or changes become effective, that questions will likely be set on them at the earliest opportunity. However many candidates in this session did not seem to be aware of the recent changes: even when they were, they failed to grasp their significance.

Performance on non-computational questions continued to be unsatisfactory. Most candidates were weak in their discursive skills. Some candidates failed to identify the issue in the question, and many answers lacked focus and discussed other general information that was of no relevance to the question.

A lot of the textbooks on financial reporting presently available from book stores or libraries are now out of date. To obtain updated knowledge, candidates should develop the habit of reading professional journals and articles and visiting the web sites of the HKICPA and large CPA firms on a regular basis. This will certainly improve their discursive skills as well.

In this session, most candidates showed improvement by providing workings for their computational questions. This is important because it allows markers to give credit for partially-correct answers which would otherwise have scored zero. It is, however, equally important that workings should be kept brief to save time. For example, in most cases, it will be unnecessary to include detailed debit and credit journal entries (unless they are specifically asked for in the question) for adjustments to figures in the question.

Following this are specific comments on the individual questions. Although these comments tend to concentrate on where candidates went wrong, they are given to help direct future study and highlight poor techniques so that candidates can improve their future performance.

Specific Comments

Section A – Compulsory QuestionsQuestions 1 — This question tested candidates’ understanding of the cash flow statement. Part (a) of this question was fairly

Examiners’ Reports for the December 200� Session

straightforward and required the preparation of a cash flow statement. A lot of candidates did well in this part, although many appeared to have difficulty dealing with acquisitions involving a finance lease and a few did not know the correct format of a cash flow statement. There were still many signing errors (ie inflows treated as outflows or vice versa), which showed a lack of true understanding of cash flows and passive reliance on memorising by rote. Part (b) required candidates to discuss the treatment for interest received and paid in a cash flow statement. Many candidates were not aware that while interest received and paid are usually classified as operating cash flows for a financial institution, there is no consensus on the classification of these cash flows for other entities. Almost all candidates did not mention the requirement that interest received and paid shall each be separately disclosed in a cash flow statement. Part (c) was on the difference between the direct and indirect methods of reporting operating cash flows. Many candidates appeared to understand the technical difference, but did not go into greater depth (e.g. which method is more preferred and why) to gain higher marks.

Question 2 — Question 2 required the preparation of consolidated financial statements. On the whole, this was a well-answered question. Some candidates displayed excellent understanding and gained very high marks. Some candidates remained unaware of the recent changes in the treatment for goodwill, which is to be reviewed for impairment rather than amortised. Some also appeared unaware of the new requirement to allocate the profit or loss on the face of the income statement between “profit or loss attributable to minority interest” and ”profit or loss attributable to equity holders of the parent”. This suggested perhaps the use of out-of-date study material. It was disappointing to note that some candidates still got confused with some of the very elementary issues in consolidation, for example, the elimination of intra-group dividends and the split between the pre- and post-acquisition element.

Section B – Optional QuestionsQuestion 3 — Question 3 tested candidates’ basic understanding of the long-standing equity method for investments in associates and the newly introduced proportionate consolidation method for investments in joint ventures. The parts that required preparation of balance sheets were reasonably well answered. Even though the proportionate consolidation method is new, the name of the method itself probably gave a lot of guidance. However, when it came to part (b) where candidates had to explain the difference between the two methods and why HKAS 31 recommended the use of the proportionate consolidation method (rather than the equity method), the answers were quite poor. While many candidates managed to outline the


10 mechanical differences between the two methods, explanations on the preference for the proportionate consolidation method for joint ventures were vague and irrelevant. Candidates failed to recognise that the choice was essentially between a one-line method and a proportionate multi-line method and that the one-line method simply was uninformative in conveying the economic effects of the investment in and commitment to the joint venture by the investor.

Question 4 — Question 4 examined candidates’ basic understanding of construction contracts. Part (a) of this question appeared straightforward – describe the accounting treatment for contraction contracts, and almost all candidates jumped in to offer the percentage-of-completion method. Many candidates did not seem to know that the application of the percentage-of-completion method comes with a condition attached – that the outcome of the construction contract could be estimated reliably. These candidates certainly missed out the restriction on revenue recognition when the outcome could not be estimated reliably. Parts (b) and (c) required the calculation of the stage of completion and of the amount of revenue and expenses to be recognised. Most candidates did well and gained high marks on these two computational parts. Part (d) required a discussion on whether the percentage-of-completion method violated the revenue recognition principle. Most candidates appeared weak in their discussion on this part. Some candidates began with some good points about revenue recognition in general, but then failed to link them up to the percentage-of-completion method. These candidates eventually ended up with an incorrect conclusion.

Question 5 — This question examined the topic of deferred tax. It was the least preferred question on the paper. Many candidates attempted this question as their last question and often they scored poorly due to lack of knowledge. Parts (a) and (b) were computational and straightforward: most answers were however disappointing because they were based on the out-of-date timing differences concept and income statement approach. HKAS 12 Income Taxes adopts the concept of temporary differences and requires the use of a comprehensive balance sheet approach. Part (c) addressed the very fundamental issue of why deferred tax had to be provided for. Disappointingly, only very few candidates seemed to know, and this part was generally left unanswered. Part (d) required a discussion on why it was sometimes inappropriate to recognise a deductible temporary difference as a deferred tax asset. Pleasingly, this part was better answered than the earlier part (c), and some candidates managed to mention the importance of availability of taxable profits in future periods to utilise the deductible temporary difference, but they failed to discuss in sufficient depth to gain higher marks.

Question 6 — This last question was concerned with accounting for investment properties. The question was included to test candidates’ knowledge of a recent change in accounting for investment properties: that if the fair value model is adopted, all changes in the fair value of an investment property have to be recognised in the profit or loss in the income statement (rather than in equity or reserves). This is very different from the treatment for revaluation changes for property, plant and equipment. Parts (a) and (c) tested candidates’ awareness of this difference and its impact on the income statement and balance sheet. Most candidates who attempted this part and were knowledgeable about the change and the difference, and gained reasonable marks. Some candidates appeared confused between the three basic models in accounting for assets – cost model, revaluation model and fair value model – and whether or not depreciation should be charged under each model. Part (b) contained four shorter parts, each detailing an asset, and candidates had to indicate with reasons whether the asset was an investment property or not. A few candidates however forgot to provide reasons in their answers and therefore lost some marks.

Paper II – Management Accounting

General Comments

The overall performance of candidates in this paper was not satisfactory. A number of candidates who passed the paper just achieved a bare pass and some performed very poorly. Many candidates did not demonstrate sufficient knowledge and skills to pass this paper. Only a very small number of candidates achieved good performance. In general, candidates were not able to achieve well-balanced scores on all the questions attempted. This could be due to insufficient knowledge on some specific topics or poor time management skills in not finishing all the required five questions satisfactorily.

Most candidates demonstrated lack of sufficient knowledge on key management accounting issues to answer the questions. There were indications that candidates misunderstood the requirements of the questions and that their writing skills were weak, perhaps due to poor English language skills. As in previous sessions, candidates performed better in computational questions than in descriptive questions. Some candidates who provided irrelevant answers were clearly not well prepared for the examination.


11Specific Comments

Section A – Compulsory QuestionsThe performance of candidates in Section A was poorer than that in Section B. A small number of candidates did not attempt either one of the compulsory questions in this Section, demonstrating insufficient knowledge of the syllabus. The overall performance on both questions in this section, especially Question 2 on MIS, was poor. In addition, candidates’ weak performance in essay-type questions was exacerbated by their poor writing skills.

Question 1 — The general performance in this question was very poor. Only 15% of candidates were able to score half, or above, the maximum marks. Most candidates did not understand the term “budget slack” or the meaning of responsibility centres. This indicated that candidates were weak in key conceptual issues of management accounting. Some candidates were not able to appreciate how a cash budget is related to the income statement and the balance sheet, and merely prepared a statement of cash flows as required in financial accounting. Candidates should be better prepared for this paper and should develop the necessary understanding and skills on all the topics covered in the syllabus in this paper so as to avoid losing a lot of marks in this compulsory section.

Question 2 — The general performance in this MIS question was poor - as in previous sessions. Only 12% of the candidates were able to score half, or above, the maximum marks. The question tested candidates on the reasons why accountants should be involved in investment (putting more resources) in information systems. Most candidates misunderstood the question as meaning that accountants had to maintain records of investments by preparing financial statements. In addition, candidates did not understand the inherent resistance, i.e., behavioural impact, of a change in information systems and how management could take action to minimise the resistance in organisations. Candidates should be better prepared for the MIS part in future examination sessions as the question on MIS is a compulsory one.

Section B – Optional QuestionsCandidates’ performance in this section was satisfactory as the overall performance was better than that in compulsory section. Some candidates passed the paper due to good performance in this section, compensating for their weak performance in Section A. This was because they had the choice of answering questions/topics on which they were more familiar. All the candidates attempted Question 3 on relevant cost concept in making business decisions, an important and common topic examined in previous sessions. Candidates obtained unbalanced marks for the questions attempted in this section; this may be due to poor

time management skills or lack of sufficient knowledge of all topics examined in this section.

Question 3 — The average performance in this question was good. Around 51% of the candidates were able to score half, or above, the maximum marks. The question tested how the relevant cost concept is applied in making special orders and make-or-buy decisions. In part (a), while most candidates understood the nature of the two types of decisions in organisations, some candidates were not able to demonstrate sufficiently how the relevant cost concept is applied in these decisions. In part (b), while most candidates were able to calculate the contribution margin as the basis of making the decision, some candidates deducted fixed overheads in their calculations and this was a fundamental weakness and barrier in them passing this paper. Candidates should have a better understanding on the key issues facing organisations and on relevant calculations in making managerial decisions.

Question 4 — The general performance in this question was mixed with good, average, and poor candidates. Around 57% of the candidates attempted this question and, among these candidates, only 36% of them were able to score half, or above, the maximum marks. The question tested the candidates’ understanding on the differences between absorption and variable costing systems in determining the amount of profits. While some candidates were able to demonstrate an understanding of the requirements, a number of them were unable to deal with the treatment of fixed overheads correctly in preparing the forecasts under the variable costing system. Candidates should develop a full understanding on how fixed overheads are treated differently under both absorption and variable costing systems.

Question 5 — The general performance in this question was very poor. This was an essay-type question covering various contemporary management accounting issues focusing on conceptual understanding. Around 48% of candidates attempted this question and, among these candidates, only 24% of them were able to score half, or above, the maximum marks. In general, candidates did not understand the life-cycle costing and budgeting approach and some candidates even provided answers on general budgeting. In addition, candidates demonstrated a lack of in-depth understanding on the traditional versus just-in-time systems of inventory management, though basic understanding was exhibited. Candidates’ performance was also limited by their weak writing skills in putting their ideas and knowledge on paper. Candidates should develop better thinking and writing skills in preparing for examinations rather than passive learning with hard memorisation of learning materials.


12 Question 6 — The overall performance in this question was fair. The question tested candidates’ understanding on using activity-based concepts in determining quality-related costs in making supplier decisions. This was another popular question as 88% of candidates attempted this question and 51% of them were able to score half, or above, the maximum marks. In part (a), while most candidates were able to use the correct drivers in assessing the quality costs of the component from different suppliers and make the correct recommendation, a small number of candidates used the number of units as the basis of calculation. This was also the case in part (b). In part (c), very few candidates were able to explain value chain analysis correctly. This indicated that candidates did not understand the importance of the activity concept in managing organisations, in particular supplier selection as in this question. Candidates should understand the ways in which activity management contributes to cost reduction and, hence, organisational efficiency and effectiveness.

Paper III – Financial Management

General Comments

A record number of 145 candidates sat for this paper – the highest number since the Professional Bridging Examination were introduced. Candidates’ overall performance showed an improvement over the last few sessions, with 50.3% passing the examination.

Specific Comments

Section A – Compulsory QuestionsQuestion 1 — Question 1 required an application of the discounted cash flow analysis, which is commonly used for investment decisions. Candidates were tested on their understanding of some other important concepts such as time value of money, risk, and opportunity cost of capital. The question was reasonably attempted, although the overall performance was below expectation. Most candidates failed to realise that a poor investment would not turn into a good one simply because of differences in funding sources. They also showed poor grasp of the concept of opportunity cost.

Question 2 — Question 2 required candidates to demonstrate their understanding of the key issues associated with the Modigliani-Miller (MM) irrelevance propositions on capital structure. The overall performance on this question was slightly better than Question 1, but still unsatisfactory. Quite

surprisingly, many candidates did not understand the many real-life imperfections that would make the MM irrelevance propositions invalid. Furthermore, they failed to see the relationship between leverage and risk – as a company’s financial leverage (gearing) increases shareholders demand a higher return on their investment.

Section B – Optional Questions Each of the questions in this section consisted of three components: financial management, statistics, and economics. Most candidates attempted Questions 3, 4 and 5.

Question 3 — Question 3 tested candidates’ knowledge on modern portfolio theory, frequency distribution, and market competition. On average, Question 3 was the best attempted question in this session. Most candidates correctly computed the expected returns and standard deviations of the two possible portfolios. Many candidates also had little trouble interpreting the data provided in a frequency table. However, they performed rather poorly in identifying and explaining some major entry barriers to the grocery supermarket sector in Hong Kong.

Question 4 — Question 4 was the most popular choice with sub-questions on the capital asset pricing model (CAPM), conditional probability, and the theory of the consumer. In general, the CAPM question was well attempted. Although many candidates successfully answered a simple question on probability, they had trouble applying the concept of conditional probability. Furthermore, they performed poorly in explaining the income and substitution effects resulting from a significant increase in the housing price.

Question 5 — Question 5 consisted of sub-questions on initial public offerings (IPO), hypothesis testing, and income elasticity of demand. The overall performance was the second worst among the six questions. Many candidates could easily identify and explain the benefits that an IPO brings to a company, but did not understand the concept of “winners’ curse” – that investors usually earn little on their IPO shares despite the fact that they are under-priced on average. Most candidates continued to demonstrate their weakness in performing a simple hypothesis test. The question on income elasticity was reasonably well attempted.

Question 6 — Question 6 was the least popular choice and was the worst attempted. It comprised sub-questions on market efficiency, probability theory, and nominal versus real interest rates. The question was the least computation-intensive among the six questions in this session. On average, candidates displayed almost total ignorance of the concept of the efficient market hypothesis. The probability question was relatively well attempted. The most


1�surprising was perhaps the poor performance on the question of nominal and real interest rates, which was intended as a “giveaway”.

Paper IV – Legal Environment

General Comments

For many, this paper proved to be difficult and as a consequence the pass rate was again fairly low. A poor performance by some of the candidates can be attributed not only to a lack of understanding but also to not answering the question which was set and/or ignoring the facts given in the question.

A significant majority of the candidates were not able to demonstrate the level of understanding and competence required by the syllabus. In the case of candidates whose score was close to the pass mark, their ultimate failure was attributed in most cases to a very uneven performance in their answers and to very little explanation or discussion of the relevant law - statute law, common law or case law.

Specific Comments

Section A – Compulsory QuestionsQuestion 1 — This was a fairly straightforward question dealing primarily with the law governing a reduction of share capital. The question was divided into three parts as a means to provide some framework for the answer and to separate the discussion of the forms which a reduction may take from the relevant procedures. Whilst some candidates were able to deal with the procedural requirements the first part was often very muddled and candidates were side-tracked by their understanding of buying back shares as opposed to considering all the possible forms of reduction. Very few candidates considered the reduction which would be suited to the facts given in the question, and answers to the last part of the question were invariably very weak.

Question 2 — This question was also divided into three parts, all of the parts requiring candidates to demonstrate an understanding of the law concerning charges. The focus of the first part was on the definition of the differences between fixed and floating charges, and this was generally answered well. The focus in the second part was on the consequences of further charges being created. Here the discussion was generally very weak but a few candidates did clearly explain and correctly apply the laws governing priority of charges. The last part looked for discussion of the requirements for registration and validity and

was generally answered well. Candidates generally scored much higher marks on this question than on Question 1.

Section B – Optional QuestionsQuestion 3 — This question required discussion of the issues concerning a company’s annual general meeting and the requirements relating to annual reports and accounts. The first part was generally answered in a satisfactory manner but very few candidates considered the fact that the company in question was a private company, thereby missing the opportunity to score a considerable number of marks in answering the second part of the question. Few candidates were able to provide an adequate answer to the last part – some candidates even suggested that no one is responsible for maintaining a company’s accounts.

Question 4 — This was the least popular choice of question in Section B of the paper. The first part of the question invited discussion of the law concerning disclosure of interests under the Securities and Futures Ordinance and was generally answered very poorly indeed. Many candidates appeared to confuse independent non-executive directors with non-executive directors, who are not independent, and so missed the point of the question. The second part concerned conflicts and interest and directors’ duties in that regard and was generally well answered in terms of the requirements of section 162 of the Companies Ordinance.

Question 5 — This question concerned matters which are frequently asked in examination questions – the duties, powers and liabilities of auditors. It was not only the most popular question in Section B of the paper but also the question in Section B which was answered most satisfactorily. Whilst some candidates scored good marks on this question others failed to supply sufficient detail and depth of understanding to warrant a pass mark.

Question 6 — This question was primarily concerned with the section 168A of the Companies Ordinance. The marks gained on this question were generally very low because of insufficient detail or very poor explanation of the relevant case law. Some candidates confused the requirement of section 168A with the new statutory derivative action and consequently provided very muddled discussion. The last part of the question served to demonstrate that candidates had very little understanding of the courts which would deal with section 168A or the matter of compensation.

The Institute would not be held responsible for the content of the advertisement.










Accounting Technician Examination

1�

Examinable Accounting and Auditing Standards in the June 2006 Session

The following is a list of standards applicable for the June 2006 Session and is provided as a reference for candidates taking Paper 7 – Advanced Accounting and Paper 8 - Auditing. Please note that it does not mean all parts of the standards are examinable. Candidates should read this list in conjunction with the syllabus for Papers 7 and 8.

Paper � – Advanced Accounting

Hong Kong Accounting Standards (HKAS) Issue/Review DateHKAS 1 Presentation of Financial Statements Nov 05HKAS 1 Capital Disclosures Sep 05(Amendment)HKAS 2 Inventories Mar 04HKAS 7 Cash Flow Statements Dec 04HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Sep 04HKAS 10 Events after the Balance Sheet Date Mar 04HKAS 11 Construction Contracts Dec 04HKAS 16 Property, Plant and Equipment Nov 05HKAS 17 Leases Dec 04HKAS 18 Revenue Nov 04HKAS 23 Borrowing Costs Dec 04HKAS 24 Related Party Disclosures Dec 04HKAS 27 Consolidated and Separate Financial Statements Nov 05HKAS 28 Investments in Associates Mar 04HKAS 31 Interests in Joint Ventures Dec 04HKAS 33 Earnings Per Share Mar 04HKAS 36 Impairment of Assets Aug 04HKAS 37 Provisions, Contingent Liabilities and Contingent Assets Nov 04HKAS 38 Intangible Assets Aug 04HKAS 40 Investment Property Nov 05

Hong Kong Financial Reporting Standards (HKFRS)HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards Sep 04HKFRS 3 Business Combinations Nov 05HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations Aug 04

Preface and FrameworkPREFACE Preface to Hong Kong Financial Reporting Standards Oct 04FRAMEWORK Framework for the Preparation and Presentation of Financial Statements Sep 04

Paper � – Auditing

Hong Kong Standards on Auditing (HKSA) HKSQC 1 Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Service Engagements Oct 04 HKSA 200 Objectives and General Principles Governing an Audit of Financial Statements Nov 04HKSA 210 Terms of Audit Engagements Jun 05HKSA 220 Quality Control for Audits of Historical Financial Information Oct 04HKSA 240 The Auditor’s Responsibilities to Consider Fraud in an Audit of Financial Statements Oct 04HKSA 250 Consideration of Laws and Regulations in an Audit of Financial Statements Jun 05HKSA 260 Communication of Audit Matters with Those Charged with Governance Jun 05HKSA 300 Planning an Audit of Financial Statements Nov 04HKSA 315 Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement Nov 04HKSA 320 Audit Materiality Jun 05 HKSA 330 The Auditor’s Procedures in Response to Assessed Risks Nov 04HKSA 402 Audit Considerations Relating to Entities Using Service Organisations Jun 05


16 HKSA 500 Audit Evidence Nov 04HKSA 501 Audit Evidence – Additional Considerations for Specific Items Jun 05HKSA 505 External Confirmations Jun 05HKSA 510 Initial Engagements - Opening Balances Jun 05HKSA 520 Analytical Procedures Jun 05HKSA 530 Audit Sampling and Other Means of Testing Jun 05HKSA 540 Audit of Accounting Estimates Jun 05HKSA 545 Auditing Fair Value Measurements and Disclosures Jun 05HKSA 550 Related Parties Jun 05HKSA 560 Subsequent Events Jun 05HKSA 570 Going Concern Jun 05HKSA 580 Management Representations Jun 05HKSA 610 Considering the Work of Internal Audit Jun 05HKSA 620 Using the Work of an Expert Jun 05HKSA 710 Comparatives Jun 05HKSA 720 Other Information in Documents Containing Audited Financial Statements Jun 05

Statements of Auditing Standards (SAS)SAS 230 Documentation Jan 97SAS 470 Overall Review of Financial Statements Jun 05SAS 600 Auditors’ Reports on Financial Statements Sep 04

Practice Notes PN 1001 IT Environments – Stand-alone Personal Computers Sep 04PN 1002 IT Environments – On-line Computer Systems Sep 04PN 1003 IT Environments – Database Systems Sep 04PN 1009 Computer-assisted Audit Techniques Sep 04

�:�0 am -12:�0 pm2:00 pm -�:00/�:�0 pm*

Paper 1- Financial Accounting

Paper 5 - Hong Kong Taxation

Paper 2 - Busniess Communication

Paper 3 - Cost Accounting

Paper 7 - Advanced Accounting

Paper4 - Information Technology Applications in Accounting*

Paper 8 - Auditing Paper 6 - Hong Kong Business Law

Friday,2 June 2006

Saturday,� June 2006

Friday,� June 2006

Saturday,10 June 2006

DATE

TIME

* DacEasy Accounting for Windows v. 11 and Microsoft Excel 97 (or higher version) for both Chinese and English Windows will be used in the Paper 4 examination. Please note that this paper lasts for 3.5 hours (2:00 pm to 5:30 pm)

June 2006 Session Timetable


1�

The week commencing 18 April 2006

The last batch of Examination Entry Acknowledgements has been despatched to all candidates for the June 2006 examination.

Upon receipt of the Examination Entry Acknowledgement, candidates must check that all details contained in the document are correct.

If any data are incorrect, candidates should contact the HKIAAT IMMEDIATELY.

DATE HKIAAT ACTION CANDIDATE ACTION REMARKS

Rejection letters together with cheque(s) and the cancelled Entry Form will be sent to students whose applications are rejected for the following reasons:

i) incomplete application despite reminders; or

ii) late applications.

24 April 2006 Candidates who have neither received an Examination Entry Acknowledgement nor a rejection letter should contact the HKIAAT IMMEDIATELY to enquire the status of their examination entry.

At least two working days should be allowed to process a duplicate copy of the Examination Docket. Candidates are strongly advised NOT to leave such an application until the last minute.

From 29 May 2006 to date of Examination

Candidates who have applied for and have not received the duplicate Examination Attendance Docket should check with the HKIAAT IMMEDIATELY to establish their examination centre.

15 May 2006 No change in centre will be entertained.

Important Notes for Candidates (From Examination Entry to Sitting the June 2006 Examination)

Examination Attendance Dockets will be despatched by the Hong Kong Examinations and Assessment Authority to all candidates.

Candidates who have not received the Examination Attendance Docket or have misplaced it should contact the HKIAAT IMMEDIATELY for a duplicate copy.

22 May 2006

21 April 2006

Upon receipt of the Examination Attendance Docket, candidates must check all details on the document. If any data are incorrect, candidates should contact the HKIAAT IMMEDIATELY.

At least two working days are required to make special arrangements for candidates who cannot produce the Examination Attendance Docket on the date of examination. Therefore candidates are strongly advised to alert the HKIAAT at the earliest opportunity of non-receipt of the duplicate docket.

2, 3, 9, 10 June 2006

All papers last for 3 hours, other than Paper 4 which lasts for 3.5 hours (this includes the time needed for basic data input and report printing)


1�

Examination Rules and Regulations

The HKIAAT would like to remind students that breaching the examination rules is prohibited under any circumstances, and disciplinary action will be taken against students who are found to be in violation of the rules. These students strictly will be disqualified from the examinations and more severe penalties, such as permanent removal from our student register, may be imposed.

Students should read the notes shown on the back of the examination attendance docket carefully and follow the Centre Supervisor’s instructions during the examinations. Please bring your ID card, student registration card and the examination attendance docket with you to EVERY examination. If you have misplaced either the registration card or docket, you should contact the HKIAAT IMMEDIATELY to arrange for a replacement.

The HKIAAT has adopted the policy of the Hong Kong Examinations and Assessment Authority (HKEAA) on the use of calculators. Electronic calculators, including programmable calculators, may be used in any examination session provided that the calculators are battery-powered, silent in operation, with neither print-out nor graphic/word-display facilities and do not use dot-matrix technology in the main display. Other electronic devices with graphic/word-display facilities (such as databank watches) are NOT permitted in the examination centre. If they are brought in, this is a breach of regulations and will lead to confiscation of the calculators. Students who wish to check whether their calculators are allowed to be used in the examination should refer to the list of permitted calculators on the HKEAA website at www.hkeaa.edu.hk.

Students are also NOT permitted to bring dictionaries into the examination.

Admission to the examination centre after the first 30 minutes of an examination is at the discretion of the Examination Supervisor. Students are therefore requested to arrive at the examination centres on time. Otherwise, you may have marks deducted or be disqualified from the examination.

December 200� Session Pass Rates and Top Students

PAPER NO OF CANDIDATES ENROLLED PASS RATE NAME OF TOP STuDENT

Paper 1 - Financial Accounting 268 29% Ip Wai Chong

Paper 2 - Business Communication 326 51% Lee Hoi Kei

Paper 3 - Cost Accounting 429 42% Lau Ka Wai

Paper 4 - Information Technology 247 37% Wong Hon Chung Applications in Accounting

Paper 5 - Hong Kong Taxation 568 34% Wan Yin Ki

Paper 6 - Hong Kong Business Law 498 40% Man Ling Sui

Paper 7 - Advanced Accounting 618 28% Fung Choi Yuk

Paper 8 - Auditing 501 48% Pang Lai Shan

December 200� Graduates

We are pleased to announce that out of 2,141 students sitting for 3,455 papers in the Accounting Technician Examination, 378 students completed all 8 papers of the examination either by examination or exemption. Congratulations to the following new graduates!

AU YEUNG, Wing YuAU, YEUNG Wing ManAUW-JONG, Henry CHAK, Fung HanCHAN, Chi KuenCHAN, Chi KwongCHAN, Chiu ChoiCHAN, Chui ShanCHAN, Chung HoCHAN, Chung YanCHAN, Ho SzeCHAN, Ka ManCHAN, Kin CheungCHAN, Kwan HoCHAN, Lai Ha

CHAN, Lai LeeCHAN, Lai YukCHAN, Man ChungCHAN, Mei ShanCHAN, Mei YungCHAN, Mun YunCHAN, Nga SumCHAN, Oi PingCHAN, Pik SauCHAN, Pui LingCHAN, Shuk TaiCHAN, Siu LeungCHAN, Suet FeiCHAN, Suk Man JenniferCHAN, Suk Wah


1�CHAN, Wai YeeCHAN, Wai YinCHAN, Wing KinCHAN, Wing KwokCHAN, Wing TszCHAN, Yan KiCHAN, Ying MeiCHAN, Yiu Man JoeCHAN, Yuen KwanCHAN, Yuk MeiCHANG, Siu YinCHAO, Tsz KwanCHAU, Kit YeeCHAU, Pui YeeCHE, Hong FionaCHE, Nga KwanCHEANG, Shuk WahCHEANG, Suk YingCHENG, Ka WaiCHENG, Ka Yi KatieCHENG, Lai PingCHENG, May Heung LisaCHENG, Pui YanCHENG, Shing PuiCHENG, Shui Lin SallyCHENG, Wai FongCHENG, Wai KeiCHENG, Wai KingCHENG, Wing KinCHEONG, IokCHEUNG, Chi ManCHEUNG, Hei YungCHEUNG, Ka KeungCHEUNG, Ka Lai IreneCHEUNG, Kin KanCHEUNG, Ming HoCHEUNG, Pui ManCHEUNG, Sik FeiCHEUNG, Sik KwanCHEUNG, Wai Lee VivianCHEUNG, Wing Kan BennyCHIK, Mei LingCHIM, Chi LamCHING, Siu WaiCHIU, Hau NgaiCHIU, Lan FongCHIU, Pui ShanCHOI, Yuk YingCHONG, Suk Ling NicoleCHOW, Chui FungCHOW, Hoi YinCHOW, Hok Kim JethroCHOW, Kit TingCHOW, Pik ShanCHOW, Pui YeeCHOW, Tat WahCHOW, Wai ShunCHOW, Wing Yan

CHOW, Yin LingCHOY, Lai SinCHU, Ka WingCHU, Loi Kei MarkusCHUI, Ka WaiCHUNG, Wing Sze RainbowCHUNG, Yuk PingFAN, Wing SzeFONG, Tsui YuenFUNG, Choi YukFUNG, Chung SingFUNG, Ka YanFUNG, Shuk Han DebbieHAU, Wing Kei KelvinHO, Ching HangHO, Chui ChunHO, Fung HO, Kam YeeHO, Mei LingHO, Pui YanHO, Siu LeungHO, Wai LingHON, Ming Wai JanetHONG, Sze Ming WilliamHUI, Chak Shan ClementHUI, Chung YanHUI, Yin KwanHUNG, Ching ShanHUNG, Mei MeiHUNG, Yuk YiIP, Mei YingKAM, Pui SzeKAM, Siu ChiKAM, Wai Shan DaintyKAN, Yim LanKAN, Yuen YeeKEUNG, Ka YeeKO, Hung SunKOK, Chor YingKU, Kit Ling BeckyKU, Yee NgaKWAN, Hoi ManKWAN, Lai KingKWAN, Pui WahKWOK, Chi HoKWOK, Chui FanKWOK, Lai LingKWOK, Lai YukKWOK, Yuk YinKWONG, Man ChunLAI, Lai YiLAI, Siu YingLAI, Wing KinLAI, Yim KingLAI, Yim MeiLAM, Chi ChungLAM, Chi HongLAM, Ching Han

LAM, Ching ManLAM, Cho YanLAM, Chun YinLAM, Chun YiuLAM, Ka KeeLAM, Ka LaiLAM, Ka PoLAM, Ka PoLAM, Kam LanLAM, Suk TingLAM, Tak HonLAM, Wing HangLAM, Yi ManLAM, Yiu KwokLAM, Yuen ChauLAU, Ching YiLAU, Hang HoLAU, Hang WaiLAU, Ka HoLAU, Kam TingLAU, Kwai Sheung LauraLAU, Lai WahLAU, Mei LunLAU, Tsui BingLAU, Wai KwokLAW, Ching ManLAW, Ka MiuLAW, Sai HungLAW, Shuk MingLAW, Sui YinLEE, Chi FaiLEE, Ching HoiLEE, Fung YingLEE, Hoi YinLEE, Ka FaiLEE, Mei MeiLEE, Mei YuLEE, Pik LaiLEE, Pui KamLEE, Pui WahLEE, Shuk YinLEE, Ting Kwan KevinLEE, Wai KwanLEE, Wing HoLEE, Yan WahLEE, Yan YanLEE, Yuk FanLEUNG, Bik FongLEUNG, Cho YanLEUNG, Chun YinLEUNG, Chung Yi JoeyLEUNG, Ho BunLEUNG, Ka LingLEUNG, Ka YeeLEUNG, Kai WingLEUNG, Kei Lo LydiaLEUNG, Lan Sze NancyLEUNG, Man Ki

December 200� Graduates (Cont’d)


20 LEUNG, Mei ShanLEUNG, Shuk HanLEUNG, Shuk Man CindyLEUNG, Tsz PuiLEUNG, Wai KitLEUNG, Wai ShanLEUNG, Wai SimLEUNG, Wai YanLEUNG, Wai YeeLEUNG, Wing ShanLEUNG, Wing Yan SimoneLEUNG, Yi LanLI, Hiu ChingLI, Ho ChuenLI, Ka KiLI, Lai FunLI, Lai YinLI, Man WeiLI, Ming KinLI, Sze WaLI, Tsz PingLI, Wing ShuenLI, Wing YanLI, Yin FongLI, Yuk SuetLIM, Hoi YingLING, Chung KeiLING, Wai LaiLIU, Fung Lan SherryLIU, Suk Hing MonicaLO, Chi HongLO, Ming SzeLO, Wai ChuiLO, Yin KongLO, Yuen MeiLUI, Fung KiuLUI, Siu YimLUI, Ying LaiLUK, Chiu YinLUNG, Chau Yue TonyLUNG, Yee WanMA, Man YiMA, Wai YeeMAK, Chi Yin AdaMAK, Ka WaiMAK, Ka YiuMAK, Man YeeMAK, So MeiMAK, Wai ChingMUI, Po TingNG, Hang PingNG, Hoi LamNG, Hung KeungNG, Ka ManNG, Ka MingNG, Mei YingNG, Oi ManNG, Po Chun

NG, Pui ShanNG, Wai YanNG, Yuk ManPANG, Lai ShanPANG, Lok YipPANG, Sau ChingPHANG, Wai Yi AnitaPOON, Nga KwanSHE, Yin LingSHEK, TungSHIH, Hung HamSHUM, Wai HuenSIN, Ka YanSIN, Wai YeeSIT, Siu Yin EdithSIU, Kim YingSO, Ka Man CarmenSO, Pui ShanSO, Suet FanSO, Yee HanSO, Yu YanSOO, Lai KuenSUNG, Wing YeeSZETO, Kim MingSZETO, Sai WaiSZETO, Woon SauTAI, Hung FaiTAM, Man Wai TeresaTAM, Yuk PingTANG, Chi HangTANG, Chung BunTANG, Kwok TungTANG, Mei MeiTANG, Pok YanTENG, Mei LingTHAM, Maya YucookTIN, Lai FanTING, Chung YeeTONG, Siu ManTRUONG, Bao LoanTSANG, Chi KiTSANG, Hoi TingTSANG, Jing NeiTSANG, Man WaiTSANG, May Yee BelindaTSANG, Mei SheungTSANG, Pui Sze MeikeiTSANG, Wai KwanTSANG, Wai LunTSE, Chun LaiTSE, Pui YinTSE, Sau YeeTSE, Wai CheungTSE, Wai YeeTSE, Wing YiTSOI, Chuen YauTSUI, Ka YanTUNG, Ling Mui

WAN, Chi CheongWAN, Wai YingWAN, Wing KunWAN, Yee Yin AimanWANG, Shing LungWONG, Chi HoWONG, Chi HungWONG, Ching YinWONG, Chor ManWONG, Chun PongWONG, Fai KiWONG, Fu WingWONG, Hiu KwanWONG, Ho YinWONG, Hoi TsimWONG, Ka LokWONG, Kam HingWONG, Lai WaWONG, Lee YanWONG, Man Yee EileenWONG, Mei Ling AmyWONG, Pik ShanWONG, Po WanWONG, Sau FaWONG, Siu ManWONG, Suk KwanWONG, Wai ManWONG, Wai YanWONG, Woon CheungWONG, Yim YingWONG, Yuk LanWU, Tat ManWUN, Ka ManYAN, Mei SzeYANG, Ka Po MayYAU, Hoi Ying DolarsYEUNG, Chi KeungYEUNG, Chi WaYEUNG, Lai YinYEUNG, Po WaYEUNG, Wing YanYEUNG, Yuen YeeYEUNG, Yuk LinYIM, Hoi FungYIM, Ka YiYIM, Wai HanYIP, Ho KwanYIP, Hoi LingYIP, Lai MingYIP, Wing YeeYIP, Yim FanYU, Kin Yan YU, Lai KingYU, Suet YanYUEN, Suet LaiYUEN, Wai ChiYUNG, Lai ChingYUNG, Mei Hung

December 200� Graduates (Cont’d)


21Paper 1 — Financial Accounting

General Comments

The overall performance of candidates taking this paper was quite disappointing and the pass rate was significantly lower than that in the last session. The poor performance in some of the questions might due to the fact that many candidates had not prepared adequately for the examination. In addition, they were weak in answering theoretical questions and in applying accounting concepts. Some common mistakes that were pinpointed in previous Examiner’s Reports could still be found in this session, such as the failure to round up figures to 2 decimal places, preparation of financial statements in the vertical instead of the horizontal format, etc. Candidates should note that making these mistakes will cause them to lose marks.

Section A – 20 Multiple Choice QuestionsCandidates’ performance was far from satisfactory in this section. More than half of them could not achieve a pass mark in this section. The multiple choice questions usually cover a wide range of topics and include both conceptual and computational types of questions. Therefore, in order to obtain good marks on this part, candidates are advised to prepare themselves more fully to cover all aspects of the syllabus.

Section B – 4 QuestionsQuestion B1: limited companies – (a) trading and profit and loss account with appropriation section in vertical format, and (b) balance sheet in vertical format

This question was a very straightforward question, which tested candidates’ ability in preparing the financial statements of a limited company. This was the most popular and the highest scoring question in this section. Some candidates did not obtain good marks because they failed to prepare properly the profit and loss appropriation account. In addition, they did not properly recognise the presentation for proposed dividend in the balance sheet. The proposed dividend should be grouped under shareholders’ equity instead of as current liability in the balance sheet. This revealed that candidates seldom read the Institute’s journal or update their knowledge as a result of the new or revised financial reporting standards.

Question B2: conversion of partnership into limited company – (a) partnership’s realisation account, (b) partners’ capital accounts, (c) journal entries to record the purchase of the partnership’s assets and liabilities, and (d) reasons for a partnership to convert into a limited liability company

This question was the second most popular question but the results were not satisfactory. Parts (a) and (b) tested candidates’ ability in preparing the partnership’s realisation account and partners’ capital accounts prior to the dissolution of partnership. Candidates did not exhibit sufficient understanding of these topics and failed to calculate the purchase consideration offered by the

limited company. Many candidates obtained low marks in part (c) because they did not know how to record the purchase of the partnerships’ assets and liabilities in the buyer’s book. Many candidates failed to answer part (d), or gave irrelevant answers for this part. This revealed their lack of knowledge in basic accounting concepts and principles.

Question B3: ratio analysis and interpretation – (a) calculation of ratios, (b) comment on short-term liquidity position, and (c) comment on profitability and efficiency in using resources

This was the second least popular question and was badly answered. Part (a) tested candidates’ ability in calculating various accounting ratios. Most of the candidates did not know how to calculate the gearing ratio, interest cover, asset turnover, earnings per share, price earnings ratio, dividend cover and dividend yield. The last four ratios were included in this paper for the first time. The failure of candidates to compute these ratios might due to the fact that they did not know these ratios were part of the syllabus. Candidates should always pay attention to changes in the syllabus: the updated version of the syllabus can be downloaded from the Institute’s website. In view of their wrong calculations and poor analytical skills, parts (b) and (c) were badly answered. In addition, some of the candidates failed to recognise the meaning of “industry average” and treated the figures under this column as the past performance of the company. Therefore, most of their answers were irrelevant.

Question B4: issue of shares and accounting concepts – (a) journal entries to record share issues, and (b) accounting concepts in relation to provision for depreciation of fixed assets and change of method of valuing closing inventory

Question B4 was the least popular question and the overall results for this question were quite disappointing. Most of the candidates who attempted this question were unable to obtain a pass mark. In part (a), candidates did not demonstrate sufficient preparation and understanding of the practice concerning the issue of shares. Many candidates could not prepare the journal entries concerning the allotment of shares and collection of the balance due. Although part (b) of this question only covered some common accounting concepts and principles – consistency of presentation and accrual basis of accounting – most candidates could not give relevant answers and some of the answers were in fact unacceptable. This again revealed their lack of knowledge of basic accounting concepts and principles.

Paper 2 – Business Communication

General Comments

The overall performance in this session of the Business Communication paper was fair. Just over 51% of candidates

Examiners’ Reports for the December 200� Session


22 who attempted the paper passed. Disappointingly, the standard of answers seemed to have dropped significantly in comparison with previous sessions. While some candidates presented clear and grammatical scripts, many showed neither a confident use nor good grasp of grammar. Also while many were confident in their ability to produce a letter, a number were unable to prepare other standard forms of written communication.

In general, candidates who passed made a reasonable attempt at all questions. Reasons for marginal candidates not passing include attempting only two out of three possible questions in Section C, or doing well in the theory (multiple choice questions and questions C1 and C2) or in the questions requiring them to show their own written communication skills, but not in both. Candidates are once again reminded that the main objectives of this paper are to test both their language proficiency and their understanding of the fundamental concepts of business communication. In order to pass, they need to have a good grasp of the technical theory behind business communication as well as to be able to prepare letters, memos, etc.

Candidates are reminded that they should allocate their time according to the marks given. While there was no evidence that candidates did not have sufficient time to answer all the questions, a few candidates failed because they spent a great deal of time on one or two of the long questions and did not devote much time to the remaining long questions.

As in previous sessions, many candidates copied background information slavishly from the question when presenting their answers, often not bothering to change the person involved (from “you” to “I”) or referring to “the relevant date” as given in the question rather than stating what the date was. Future candidates are reminded that they will not be awarded marks if they do not adapt the material given in the question when writing their answers.

Section A – 10 Multiple Choice QuestionsQuestions in this section tested candidates’ knowledge of the basic concepts of business communication. The average score in this section was 10.5 marks, representing an improvement from the 9.5 average noted in the June 2005 session.

Section B – 5 Short QuestionsSection B tests candidates’ comprehension skills by requiring them to read a press release and to answer five short questions on the text.

The main problem with many of the answers was that often candidates did not read the question’s requirements properly. For example, while question B3(a) asked how much foreign direct investment (FDI) was brought in by projects that Invest Hong Kong had been involved in, many candidates instead answered with reference to the total FDI brought into Hong Kong during the period.

Another problem was that candidates also included unnecessary material in their answers. For example, when asked to find three reasons given in the press release why companies would choose to invest in Hong Kong, some candidates gave their own reasons and provided far more detail than the 3 mark allocation for this question merited.

Section C – 4 Long QuestionsSeveral otherwise reasonably competent candidates failed the examination because they only attempted two questions in this section. Candidates are reminded that they should attempt three questions in this section.

While most candidates were familiar with the basics of how to set out a letter, it was disappointing to note that many were less capable when it came to other forms of written communication such as the agenda and fax.

A number of candidates showed a disinclination to tackle any of the theory elements in this section. Candidates are reminded that this paper tests both their theoretical knowledge and their practical application of business communication. Future candidates should be aware that both elements of the syllabus can be examined in any of the questions in the paper.

Question C1: This was a question on the writing process. Few candidates attempted this question. Gratifyingly, a number of those who did performed reasonably well. In fact there was no reason why all candidates should not have performed well in this question, as much of the information required in the answer came directly from the set text.

Question C2: This question required candidates to write a letter giving the outline of a proposed presentation on resumes. It would appear that a number of candidates were put off this question because they had to combine business communication theory with their practical written communication skills. However, not only were candidates given a fairly strong hint about the technical content, but also relatively few marks were allocated to this aspect of the question. In fact candidates could have obtained a fair number of marks here through their layout, use of good grammar, spelling, presentation and personal style.

Quite a number of candidates did not seem to realise that the purpose of the letter was to outline the content of their presentation to the students. Many took it as an opportunity to simply write what they knew about the content of a resume. Others misunderstood the requirements of the question, and talked instead about their own resumes or about detailed information (such as educational history) that should be included. The question was quite clear in its requirements, and even gave the three sub-headings that should have formed the main body of the letter.

Question C3: This question asked candidates to produce an agenda for a board meeting. Many easy marks were available


2�in this question for candidates who could follow the basic layout of an agenda, include the relevant headings, and who could remember to refer to attachments. This was a relatively easy question that offered good marks to candidates who had bothered to learn the basics about the content of an agenda. However, only 50% of candidates who attempted this question obtained a pass mark in it.

A worrying number of candidates did not appreciate the purpose or presentation of an agenda, and instead produced either a memo or minutes from a meeting. Many were not familiar with the basic layout of an agenda and did not realise that, for example, the follow-up discussion on the internal audit should be included in “matters arising from previous meeting” rather than as an agenda item of its own. A number of candidates merely copied the information from the question without changing the format or language used.

Question C4: This question required candidates to produce a fax requesting additional information needed to complete an audit. This question was relatively easy, and in fact the pass rate (67%) was the highest out of all the questions in Section C.

Despite this, there were some frequently occurring problems with the answers given. One common issue was that candidates gave far too much background information in the introduction to the letter (an example of this was explaining that the audit manager had only just reviewed the files – this was not relevant to the fax). One candidate even included a paragraph on the audit needing to show a true and fair view. Candidates should be aware that they will be penalised for including irrelevant material in their answers.

Paper � – Cost Accounting

General Comments

Generally speaking, the overall performance of candidates taking this paper was fair. The overall pass rate for this paper was 42%. The range between the highest score and the lowest score was significant (i.e. 82 marks) and, similarly, the standard deviation came close to 48 marks. This suggested that the paper distinguished candidates who had properly prepared for the examination against those who had not. It is worth mentioning that 32% of the candidates who had registered for this examination had finally failed to turn up. This again demonstrated that a large proportion of the candidates had not prepared themselves well in advance for this examination.

Some common mistakes that were pinpointed in previous Examiner’s Reports could still be found in this session’s answer scripts. Such mistakes included, among others, wrong descriptions of the figures and careless computational errors. Candidates are once again reminded to make their workings as

clear as possible because marks can be awarded for workings on a quantum merit basis.

The question which the candidates were most reluctant to select was question B3, which covered job costing and allocation of overheads. Question B1, on budgeting, was the most popular question in this session.

Overall, there was no evidence to suggest that candidates were not provided with enough time to answer the multiple choice questions as well as the four other questions. It is believed that the main cause for the poor result was the lack of adequate preparation for the examination on the part of the candidates.

Section A – 15 Multiple Choice QuestionsCandidates’ performance in this section was fair. About 56% of the candidates obtained 10 marks or more. The mean score for this section was 9.7 marks and the standard deviation was 9.9 marks, showing that the performance of individual candidates varied significantly in this section. It was also noted that, as in the previous examination, a few candidates selected more than one answer for one single question. When this happens, no marks are awarded. Therefore candidates should select one answer only.

Section B – 5 QuestionsQuestion B1: The pass rate for this question was 74% (with a standard deviation of 11.8 marks), the highest in Section B. This was a question on budgeting and candidates were required to prepare a six-month cash budget. The most common mistakes found in part (a) of the question were:

(i) incorrect computation of cash sales as a result of cash discount being neglected; and

(ii) incorrect interpretation of the terms of payment to suppliers and from customers.

These mistakes could have been avoided if candidates had read the question carefully.

Parts (b) and (c) of the question were simple and most candidates performed well in these parts.

Question B2: The pass rate for this question was 50% (with a standard deviation of 10.5 marks). Part (a) of the question tested the candidates on activity based costing (ABC). The major reason candidates scored low marks in this part of the question was due to their association of activities with inappropriate cost driver rates. As a result, overhead costs were incorrectly associated with the wrong activities. Part (b) was poorly answered as it built on the answers to the earlier part. Part (c), on the advantages of using ABC, was straightforward and most candidates provided a fairly good answer to this part.

Question B3: As mentioned earlier, this was a very unpopular question and the pass rate for this question was only 5% (with


2� a standard deviation of 4.7 marks), the lowest in Section B. Part (a) of the question tested candidates’ knowledge on job costing and application of a pre-determined overhead allocation rate to allocate overheads to work in progress, finished goods and cost of goods sold. It was disappointing to note that a large proportion of candidates could not master the concept of overhead allocation using a pre-determined rate such as direct manufacturing labour costs.

Part (b) of the question tested candidates’ ability to explain the treatment of overallocated manufacturing overheads and factors leading to direct labour efficiency variance. Relatively speaking, part (b) was well answered.

Question B4: Part (a) of the question tested the candidates’ ability in computing simple variances. The overall pass rate for this question was 51% (with a standard deviation of 10.8 marks). The question was supposed to be very straightforward but some candidates were confused about whether to use the quantity purchased or quantity used in production when computing the material price and material usage variances. The part on variable overhead variances was poorly answered.

Answers to part (b) of the question, on the static budget and flexible budget, were generally satisfactorily.

Question B5: The overall pass rate for this question was 53% (with a standard deviation of 10.2 marks). Parts (a) to (c) of the question covered cost-volume-profit analysis and sensitivity analysis. This was a straightforward question given candidates knew how to compute the contribution margin and contribution margin ratio, and understood how these were used to compute the break-even point. However, many candidates who gave poor answers were not able to work out the correct contribution margins.

Part (d) was a question generally expected by candidates who had prepared for the topic of break-even analysis. As such, this part was generally well answered.

Paper � – Information Technology Applications in Accounting

General Comments

The overall pass rate for this paper was around 37%, which was much lower than that of last session (62%). Candidates obtained relatively poor results in Section A and average results in Section B.

Section A – 25 Multiple Choice QuestionsThis section requires candidates to demonstrate their understanding on the selection and implementation of computerised accounting systems and software, human

information processing of computerised accounting systems, data control and security.

The pass rate for this section was 18%, which was lower than that of last session (24%). In fact most of the questions were straight forward and had been extracted from the recommended textbooks. Candidates are reminded that they should not only focus on hands-on computerised accounting routines tested in Section B of the paper: they should also prepare for the computer concepts questions in the multiple choice section.

Section B – 2 Hand-on QuestionsQuestion B1 – Excel: Many candidates achieved average results in this question. The pass rate for this question was around 42%.

1. NamesAs specified in sub-section (c), names must be used in formulae wherever applicable. Otherwise, marks will not be given. Many candidates did follow the instructions in creating names. However, some candidates simply used cell references in the formulae. This demonstrated that they were not familiar with the Name function and therefore no marks were given.

2. Creating data tablesIn the absence of data tables in sub-section (d), many candidates just input other formulae in C15:E20. No marks were given as their answers demonstrated that they were not familiar with the data table function.

3. Using scenario managerAs specified in the sub-section (f), candidates are required to use the scenario manager to prepare a scenario summary. However, many candidates input other formulae instead. Although they may have obtained the same result as that from using the scenario manager, no marks were given as their answers demonstrated that they were not familiar with the scenario manager function.

Question B2 – DacEasy: The question aimed to assess candidates’ ability in applying computerised financial accounting systems for financial reporting purposes. Many candidates got average results in this question. The pass rate for this question was 53%, which was comparatively lower than that of the last session (78%).

According to the instructions, candidates have to use the partly completed chart of accounts pre-loaded in their computer terminals. Then they have to create new accounts and records of customers and suppliers. However, some candidates did not follow the instructions and used the default chart of accounts provided by DacEasy. As such, they did not get any marks on sub-section (e) in relation to chart of accounts.


2�Paper � – Hong Kong Taxation

General Comments

This paper consisted of three sections. Section A contained multiple choice questions, Section B contained one compulsory question on profits tax and Section C contained other long questions. The questions tested candidates’ basic understanding of taxation concepts but candidates’ performance was not satisfactory. Among those who passed, many only achieved a marginal pass and very few candidates obtained high marks. As in the past, candidates were reluctant to answer essay-type parts which showed that they had not spent time on their written presentation techniques. Candidates are reminded that they will not achieve good results if they are unable to present their knowledge in writing.

Section A – 15 Multiple Choice QuestionsCandidates’ overall performance in this section was not very good. Multiple choice questions usually test candidates’ general knowledge of taxation and therefore can cover every part of the syllabus. Candidates have to extend the coverage of their studies in order to obtain good marks in this section.

Section B – 1 QuestionAs usual, the compulsory question concerned the computation of profits tax liability. The poor performance of the candidates in this question might be a leading factor to the overall poor results. As well as the basic profits tax computation, a computation of depreciation allowances on plant and machinery and industrial buildings were incorporated in the question. Many candidates did not know how to compute the depreciation allowance on plant and machinery. They pooled the assets under hire purchase with the other assets. Candidates were also unable to compute the annual industrial building allowance, which was based on 4% of cost of construction. Also, candidates demonstrated the following common weaknesses:

(a) many candidates wrongly added back directors’ remuneration; and

(b) they wrongly added back the difference between the opening and closing balance of general provision for bad debts – this should have been deducted from the assessable profit because it had fallen.

In part (d), many candidates had no idea about the treatment of royalties received by a non-resident. They did not know that 30% of the royalty income was to be assessed as assessable profit, even though it was received from an associate company, as the intellectual property was never owned by a person in Hong Kong.

Part (e) concerned the explanation of the tax treatment of interest paid, and many candidates were reluctant to answer this part. Those who answered the question did not answer it well despite the fact that this is a common examination topic.

Section C – 5 QuestionsQuestion C1: This was a question on salaries tax with non-Hong Kong employment. Candidates achieved the best result in this question. They were able to compute the number of days attributable to Hong Kong services. However, in computing the salaries tax liabilities, candidates showed the following weaknesses:

(a) they did not know what kind of income was subject to apportionment;

(b) candidates were weak in the computation of holiday journey benefit;

(c) they were not familiar with the calculation of gains on share options; and

(d) many candidates wrongly treated the subscription fee as self-education expense and incorrectly deducted this from assessable income.

Question C2: This was a question on property tax. Usually, this kind of question is well answered. However, candidates performed poorly in this question. This was probably due to the candidates’ reluctance to answer part (b), which concerned the listing of obligations of an individual owner of a property. Most candidates scored only few marks in this part.

When it came to the computation of property tax liability, many candidates did not realise that:

(a) repairs should be included as assessable value; and (b) the mortgage loan interest was not deductible.

They also failed to:

(a) compute the rental income and premium correctly for the year of assessment 2004/05;

(b) apply the standard rate correctly; and(c) understand the basic format for the computation of net

assessable value.

Question C3: This question was mainly concerned with the allocation of profits (losses) of a partnership business. The overall result of this question was quite good.

(a) Although the assessable profits (losses) were already given in the question, many candidates wrongly recomputed the assessable profits (losses) again.

(b) Candidates incorrectly transferred the loss brought forward from previous years to personal assessment.

(c) They failed to reallocate the profits to other partners when there were losses allocated to the partners.

Part (b) required candidates to state the circumstances where allocation of profits or losses was required for a partnership business. Again, this was an essay-type question; the few candidates who attempted it did poorly.


26 Question C4: This question was concerned with personal assessment. Although candidates’ performance on this question was quite good, they demonstrated the following weaknesses:

(a) some candidates wrongly computed the income and tax payable under personal assessment of husband and wife separately;

(b) they were not familiar with the calculation of the amount of charitable donations in respect of husband and wife to be deducted under personal assessment; and

(c) they failed to apportion the amount of tax payable under personal assessment between husband and wife.

Question C5: This was an essay-type question on:

(a) a taxpayer’s obligation to notify chargeability;(b) the power of an assessor in raising an assessment; and(c) the requirements for a valid objection.

Very few candidates attempted this question and the pass rate was very low. This showed that candidates were not prepared well for topics regarding tax administration.

Paper 6 – Hong Kong Business Law

General Comments

Candidates’ performance in this paper was satisfactory. The pass rate for this session was more or less the same when compared with the previous sessions. As usual, most candidates obtained pass marks in the multiple choice questions. The overall performance in the essay questions was not satisfactory. Candidates should bear in mind good answering techniques in their law examinations. Just providing a correct answer, e.g. by saying yes there is a contract or no there is no contract, is never enough. They should provide the reasoning behind their answer and show that they know and understand the underlying principles. In addition, candidates did not familiarise themselves with the new law and did not well prepare for topics that do not frequently come up.

Section A – 20 Multiple Choice QuestionsMultiple choice questions test candidates’ knowledge of a wide range of topics in the syllabus. Most of the candidates did well in this section. Different legal knowledge and skills were tested in Sections A, B and C. Those candidates who performed well in multiple choice questions might not have demonstrated similar performance in Sections B and C.

Section B – 4 Short QuestionsThis section comprised four short questions. These questions examined candidates’ understanding of some basic legal concepts. Question B1 was on the jurisdiction of the Lands Tribunal. This question was straightforward and posed no problem to most

candidates. Question B2 was about “liquidated damages” in the law of contract; as this was a topic which did not come up frequently, many candidates omitted it in their preparation for the examination and many candidates failed because they could not distinguish a liquidated damages clause from a penalty clause. Question B3 was on a floating charge. Again the question was simple and candidates who were well versed with the characteristics of a floating charge earned good marks. Question B4 required candidates to describe the four principal grounds on which a person may be disqualified under Part IVA of the Companies Ordinance from acting as a director of a private company. Some candidates wrongly thought that the question was on breach of director’s fiduciary duties. Again, many candidates failed this question.

Section C – 5 Long QuestionsQuestion C1: This was a question on the HKSAR legal system. It was not a popular question, but average performance was seen. Most candidates did not have a problem in part (a) which tested their knowledge on the jurisdiction of the Magistrates’ Court. Part (b) required an understanding of the enactment of a new statute with particular reference to its effective date. Many candidates omitted to explain why Yuen would not be required to pay the double fine under the new law and this caused them to loose many marks. In part (c), many candidates wrongly thought that delegated legislation had to be passed by the Legislative Council.

Question C2: This question tested candidates’ knowledge of the formation of contract. This was a popular question and many candidates who attempted the question showed that they knew the basic principles. In part (a), many candidates omitted the requirement “Discuss with the help of cases” in the question and hence even though they answered correctly, good marks were not obtained. While it is important to master the basic principles, it is also important that candidates know landmark cases like Carlill v Carbolic Smoke Ball and this was what part (a) expected the candidates to provide. Again, in parts (b) and (c), although many candidates could point to the right answer, only a few of them were able to provide a discussion with proper analysis.

Question C3: The question was on issue of shares. In part (a), many candidates could identify the need for a capital increase but only few of them considered the next two matters, which were section 57B and section 49 of the Companies Ordinance. These two sections, it should be noted, also constitute restrictions and limitations. And in fact it is necessary to consider section 57B in every share issue, whether it is redeemable or not. In part (b), not all realised the advantage of issuing redeemable shares to raise short-term capital without increasing the company’s permanent membership. However, generally this part was answered well by most candidates who attempted this question. In part (c), many candidates wrongly equated redeemable ordinary shares with preference shares. There can be redeemable preference shares but the question was not on that: it always pays to read the words in examination questions carefully.


2�Question C4: This question on company meetings was the most popular. The question was straightforward but the performance in many answers was disappointing. There are a few areas candidates should note. First, the question required candidates to point out the notice requirements for an AGM and an EGM. The notice period for an EGM varies depending on whether special resolutions are proposed. Secondly, the written resolution procedure is not applicable to the removal of directors. The procedure under section 116B of the Companies Ordinance should not apply to a resolution under section 157B. Thirdly, while most candidates considered the need for holding a general meeting to remove directors, not all of them highlighted the rights of the directors to be removed to make representations in writing. Finally, the removal of directors is now achieved by ordinary resolution. The answers showed that these areas were not sufficiently understood by candidates.

Question C5: Question C5 was not a popular question. The Standing Committee on Company Law Reform made a number of recommendations for changes to the Companies Ordinance. The Companies (Amendment) Ordinance 2003 implemented part of the recommendations. However, even one year after the operation of this ordinance, many answers still referred to the old law. Candidates should pay more attention to substantial changes in the law. Candidates who are using materials prepared a few years before they sit the examination should update their materials, for example by using the latest edition of textbooks. Performance in this question would probably have been better if more candidates had done this.

In part (a) only a few candidates highlighted that under the old law, companies could have had only one effective member by having a second member holding one share as a nominee. In part (b), there were candidates who did not see that there was no change in law in terms of the liability of members in a private company. Part (c) was poorly answered. Some candidates misunderstood the question. Only the better candidates could elaborate on section 162B of the Companies Ordinance. In part (d), candidates lost marks by not answering “how” to produce a written record of a decision by a single member company.

Paper � – Advanced Accounting

General Comments

This examination assesses candidates’ understanding of accounting standards and their applications. The examiner noted that, in general, candidates were weak in answering theoretical questions and in applying accounting standards, especially when it came to questions requiring the application of accounting concepts in particular situations. In this session, candidates generally did better in Section B1; that is, the question of preparing consolidated financial statements.

Those candidates who performed poorly in this examination were found not to have prepared sufficiently on the accounting standards and in all topics covered in the syllabus. Candidates are advised to prepare for the examination early enough to study sufficiently for those topics covered in the syllabus and to allow for unexpected events coming up occasionally.

Candidates are also advised to read the questions carefully before answering them. It is not uncommon to find that candidates’ answers are irrelevant to the question or that candidates omit important points. As a result, significant portion of marks may be lost because of the lack of care in reading the question.

Section A – 15 Multiple Choice QuestionsThe performance in the multiple choice questions was a little bit disappointing as around 38% of candidates did not achieve a pass mark in this section. The multiple choice questions usually cover a wide range of topics in the syllabus of Paper 7, and include both conceptual and computational types of questions. Therefore, candidates are expected to spread their knowledge over most of the syllabus of this paper.

Section B – 1 QuestionQuestion B1: This question examined candidates’ understanding of investment in associates and how to prepare consolidated financial statements. This question was fair but not too difficult. However, performance in this question was disappointing as only 39% of candidates achieved a pass in this question.

In answering parts (a) to (c), many candidates clearly did not understand what the question required. In many occasions, they recited definitions or accounting treatments gleaned from study manuals or accounting standards without demonstrating comprehension of what the question required or applying the relevant definitions or accounting treatments in answering the specific question.

Quite a number of candidates did not know how to calculate the amount of investment in an associate using the equity method. HKAS 28 “Investment in Associates” clearly spells out how to calculate the amount of investment in associates.

Some candidates treated the associate as a subsidiary in preparing the consolidated income statements and consolidated balance sheet; as a result, the whole of the results of Aster Limited were included in the consolidated financial statements. These candidates lost a significant portion of marks for part (e) to (f).

Section C – 4 QuestionsQuestion C1: This question tested candidates’ understanding of the recognition, measurement and disclosures of brand name, inventory and contingencies surrounding a particular event given in question. This was the least popular question as only 21% of the candidates attempted this question. Performance of this question was poor.


2� This was probably the most difficult question in this examination. Most of the candidates were unable to identify the main theme of the event and therefore could not apply the requirements of the appropriate accounting standards to the circumstances given in the question. In many cases, candidates only cited definitions given in the accounting standards and could not demonstrate their understanding to the situation given in question. Moreover, it is found that the candidates had not prepared well on the accounting standards tested, especially new standards.

Question C2: This question was not very popular and about 41% of the candidates attempted it. Performance in this question was satisfactory. Most of the candidates did better in part (a) than in part (b) where they had to justify their application of certain accounting treatments in the journal entries prepared.

Some candidates failed to state the differences between “investment properties” and “owner-occupied properties” clearly and only provided the relevant accounting treatments. As a result, they failed to achieve good marks in part (a) of this question.

As for part (b), the candidates did quite well in preparing the journal entries to record the transactions given in question. However, most of the candidates were careless in reading the question and therefore wrongly calculated the remaining useful live of the apartment block. Also, candidates were weak in the discussion of the appropriate accounting treatments to be applied in their calculations and the journal entries prepared by them. Some candidates applied SSAP 13, which has been superseded by HKAS 40, in their discussion and wrongly stated that the change in value of the investment properties should be included in revaluation reserves rather than charged to the profit and loss account.

Question C3: This was a straightforward question which required a working knowledge of the calculation of both basic and diluted earnings per share. Surprisingly, this question was not very popular and about 39% of the candidates attempted it. Performance was less satisfactory than expected. Most of the candidates did better in part (b) than in part (c) where they needed to know the disclosures required for earnings per share. Probably, the candidates had not studied HKAS 33 “Earnings per Share” sufficiently. Some candidates lost marks in part (a) simply because they could not explain the importance of presenting earnings per share on the face of financial statements.

Question C4: This was the most popular question in Section C. More than 74% of candidates attempted this question and they got, on average, the highest score of all the questions in this section. This question tested candidates’ ability to prepare partnership accounts as well as their knowledge on the valuation of leased assets. This question was a straight-forward question on the preparation of partnership accounts. Most of the candidates obtained satisfactory results in this question.

Paper � – Auditing

General Comments

The overall performance in this session improved with the pass rate raised from 44% to 48%. However, candidates were weak in tackling questions on auditing theory and guidelines. In preparing for the examination, candidates are advised to read both past papers and articles on auditing published in the Institute’s journal.

In this session, questions B4, B5 and B6 were the most popular questions. Around 91% of candidates attempted the latter two questions and 82% of candidates attempted question B4. Slightly more than half of the candidates attempted questions B2 and B3, but question B1 was the least favoured, with only 20% of candidates attempting it.

Section A – 20 Multiple Choice QuestionsIn this section, questions were set on general auditing concepts. Candidates performed much better in this section than they did in the examination as a whole, and 76% of them were able to obtain 10 marks or above. Overall, both the average and the median were improved from the previous session’s 10 marks to 12 marks. The best candidate scored 19 marks from this section.

Section B – 6 QuestionsThe median scores for questions B2, B3, B4 and B6 ranged from 7 to 9 marks. Question B5 had the highest median of 12 marks. However, the median score for question B1 was just 2 marks. Candidates who attempted the combination of questions B2, B4, B5, and B6 tended to obtain higher marks and got a pass. Although question B6 was the most popular choice, poor performance in this question dragged down many candidates’ overall performance. Only 41% of the candidates were able to score 10 marks or above from this question. On the whole, performance in this section was not impressive, especially in questions related to auditing theory and guidelines. Candidates would have performed much better if they read the questions carefully. Many candidates were not answering what the questions were asking for, and they wasted a lot of time in writing non-rewarding points.

Question B1: This question examined candidates’ knowledge on audit procedures in gathering audit evidence concerning subsequent events. Many candidates could not distinguish subsequent events and confused them with subsequent payments. The highest mark scored was 13 and the median was 2 marks. Just 7% of the candidates who attempted this question got more than 10 marks.

In part (a), most candidates could not distinguish between adjusting events and non-adjusting events. In part (b), some candidates gave examples about checking of debtors and creditors, which were irrelevant, and therefore scored nothing. Many candidates skipped part (c) and did not comment on the incorrect argument from the financial controller. In part (d),


2�candidates were weak in financial accounting and mixed up adjusting events with non-adjusting events. Overall performance here was very poor. It is surprising that candidates were not familiar with the topic of post balance sheet events.

Question B2: This question required candidates to show their knowledge on going concern, such as on the symptoms, audit procedures, responsibility of auditors and management, and the implications of a going concern issue on the auditors’ opinion. The highest mark scored was 19 and the median was just 8 marks. Around 36% of the candidates who attempted this question got more than 10 marks. The overall performance was weaker than expected.

In part (a), many candidates could not distinguish financial conditions from financial ratios. Some candidates did not read the question and gave examples of non-financial conditions. Candidates performed the best in part (b) and were able to list out audit procedures that may identify conditions and events indicating going concern problems. However, in part (c), most candidates could not distinguish between the responsibilities of management and those of the auditors. In part (d), some of the candidates created hybrid audit opinions. Candidates should go through all the examples shown in the appendix of SAS600 Auditors’ Reports on Financial Statements.

Question B3: This question examined candidates’ knowledge of professional ethics and internal auditors. The highest mark for this question was 19 and the median was 7 marks. Around 31% of the candidates who attempted this question got more than 10 marks.

Candidates had difficulties in connecting internal auditors with independence. In parts (a) and (b), the overall performance was good. However, many candidates simply gave some examples but failed to explain them clearly, thus lost some marks. In part (c), some candidates did not read the question carefully and misread internal auditors as external auditors. In part (d), many candidates could not correctly comment on the three cases and lost all six marks. The overall performance was dragged down by the poor performance in parts (c) and (d), as candidates could not apply their knowledge of professional ethics governing external auditors to internal auditors.

Question B4: This question related to cut-off and auditors’ liabilities. The highest mark scored was 17 and the median score was 8 marks. Around 30% of the candidates who attempted this question scored more than 10 marks. The overall performance was disappointing; especially since candidates failed to pick some easy marks from each part, which in aggregate might have been worth 4 to 5 marks!

Candidates were weak in the topic of auditor’s liabilities and did not pay attention to the requirements. Part (a) was an easy question, but still some candidates could not give a proper explanation of cut-off tests. There were three questions in part (b), but many candidates only answered one of them. In part (c),

many candidates could identify the cut-off error and quantified the amount of sales. In part (d), many candidates could not compute the impact to net profit. There was no absolute correct answer to part (e). Marks were given to candidates who gave reasonable justifications to support their answer. In part (f), most candidates could not analyse the case by referring the relevant factors, such as financial loss, negligence, and exercise of due care, etc.

Question B5: This question related to the internal control of a payroll system. The highest mark scored was 20, and the median was 10 marks. Around 78% of the candidates who attempted this question scored more than 10 marks. The overall performance was satisfactory.

This was a typical question on the evaluation of payroll system of a manufacturing company. Candidates were quite familiar with this topic and were able to give good answers. However, some candidates misunderstood the second column of the table, which required them to advise on the possible consequences arising from the internal control weaknesses. These consequences could be fraud or errors, however, some candidates thought it was a choice between fraud and error. In part (b), most candidates could state the key objectives of the audit of a payroll system.

Question B6: This question involved the testing of candidates’ knowledge of substantive tests for the verification of various balance sheet items. The highest mark for this question was 17 and the median was 9 marks. Only 42% of the candidates who attempted this question scored more than 10 marks. Candidates did poorly in items (a), (b), (f), (i) and (j).

In item (a), the land search should be done at the Land Registry – not the Lands Department. In item (b), candidates should note that Hong Kong listed companies normally have their register of members closed to make an update each quarter. Therefore if the shares were sold after the book close, the name of the new members would not be on the register until next book close, and this would be provided that the members have sent their share certificates to the registrar for updating. Some candidates suggested checking the annual return, but this was not reliable, as the members’listing of the annual return was only one of the four quarterly updates. In item (f), many candidates misunderstood how to a lease payment should be verified. This was required to ensure the disclosure of a lease obligation. Auditors should distinguish whether a lease is a finance lease or an operating lease before checking the sufficiency of the disclosure to the notes of the accounts. In part (i), many candidates did not understand the operation of a public warehouse. As the public warehouse is an independent third party, auditors normally rely on stock confirmation from the public warehouse for verification of the quantity of the stock items. In part (j), some candidates suggested performing a physical count. It should be noted that there was a risk of understatement here as the company might not be able to contact all shareholders to ask them to hand in their share certificates for the auditors’ inspection.

Members’ Corner

�0

Welcome to New Members

The HKIAAT would like to extend its warmest welcome to the following new members:

Associate MemberChan Chan KeongChan Ka KiChan Man ChunChan Pik Shan Chan Wai Ming Chan Yee Lok Cheng Timothy Cheuk YanCheng Ting WahCheong Iok Cheung Ka Lai Irene Cheung Ka Shing Cheung Kwok Kwong Chiang Ka WingChing Fung Chi Chow Wing Suet Fong Wai Ling Fook Wai Ki Vicky Hung Miu SzeLai Ka Yi Lai Wing TungLam Ka Lai Lam Wai Hei Law Hoi Yin Law Yun Ting Lee Kwok Lun

Leung Ching Yi Leung Chun Yin Leung Kai Chi Leung Kin Kan Leung Kit Ming Leung Sui ManLi On Ki Lo Wai Nam Lui Chui Mei Mak Choi Sim Ng Oi Man Ng Pui ShanNg Sze ChunNg Yee Kwan Pang Wai YeeShek Lai Ting Shek Pok To Sin Ha Ping So Pak Kei Tam Suet Ying Tang Kwan WaiTse Tze Ling Tsui Kit Ching Tsui Lai Ho Wong Chi Hung

Wong Chin PikWong May May MimiWong Pui Yee Wong Yuk YuYeung Lai SinYeung Wai Shan Yip Hoi Ling Yuen Ting Sum Sam

Fellow MemberChan Ning HongChan Shun CheongChan Suk LingCheng Kwan YanCheung Lai ShanCheung Moon HungChiu Pui Shan Choi Ling NaChow Wing Yin Chu Ching ManChu Wing HungHo Yick man PhoebeKoo Siu Pun Kwan Yuk Chun JanetLau Wai Po

Lau Yin WaLee Kai YingLee Pik Kwan Cynthia Lee Pui KamLeung Kam LingLeung So HaLo Lai KwanLo Pui FanLui Fung KingNg Hing KeungNg Kwok YungPoon Wai YiuLeung Kai Chi Pun Siu LunSo Pui Man PrimulaSo Pui ShanTsang Wah Mui Wan Chi LanWong Kwai Nam Wong Lai Ni YamiWong Wing Fu JackyWong Yee ManYam Wai TaiYeung Mei SzeYim Yu ShanYip Piu Yeung

Meeting the uKAAT & Meet-the-President Session

On 1 April 2006, 11 of our members attended a session to meet with the President and Chief Executive of the UKAAT, Mr Trevor Salmon and Ms Jane Scott Paul. Members also met the HKIAAT’s President Mr Doug Oxley, Vice-Presidents Mr Kennedy Tat-yin Liu and Mr James Kong and the Secretary General Mrs Margaret Lam.

As announced in the last issue of T/Dialogue, our members are now eligible to apply for membership of the Association of Accounting Technicians in the United Kingdom (UKAAT). The representatives of the UKAAT were delighted to meet our members as potential members of the UKAAT. Members briefly introduced themselves to the representatives, and expressed interest in learning more about the UKAAT membership.

The representatives then gave our members an overview of the UKAAT membership and highlighted that the AAT qualification was widely recognised, especially by employers in the UK. Members showed a positive response to the UKAAT membership and many stated that they would definitely apply for the UKAAT membership if they decided to look for a job outside Hong Kong.

After the UKAAT representatives excused themselves, the second Meet-the-President session began. The President, Vice-Presidents and the Secretary General mingled casually among the members. A variety of topics were discussed from the direction of the Institute’s rebranding project to our examinations. Some members discussed problems that they were facing at their workplace and suggested ways that the Institute could help them overcome these problems. Other members gave us comments on how to improve our membership benefits and services. Most felt that this was a good opportunity for members to voice their comments and encouraged the Institute to organise similar functions in the future.

All in all, members enjoyed a relaxed Saturday afternoon at the Institute and were happy that the Institute was here to listen.

Group photo with the President, Vice Presidents and representatives of UKAAT

Mingling with the President, Mr Oxley

Studies in Foundation Accounting

�1

Book-keeping and Accounts Examination and Computerised Accounts Examination

1. The examination for Book-keeping and Accounts Examination will be held on 17 June 2006 (Sat) from 2:00 p.m. to 5:00 p.m. The Computerised Accounts Examination will be held on 8 July 2006 (Sat) from 2:30 p.m. to 5:00 p.m.

2. The following two documents will be sent to candidates before the following dates. Please check the details on each document you receive carefully, and inform the HKIAAT IMMEDIATELY of any error. You can contact us by phone at 2823 0600, by fax at 2823 0606 or by email at [email protected].

DOCuMENT BOOK-KEEPING AND ACCOuNTS COMPuTERISED ACCOuNTS

EXAMINATION EXAMINATION

1. Examination Entry Acknowledgement 4 May 2006 22 May 2006

2. Examination Attendance Docket 2 June 2006 23 June 2006

Examination Results

Candidates who sat for the Book-keeping and Accounts Examination and Computerised Accounts Examination held in December 2005 and January 2006 should by now have received their results. Those who have yet to receive it should contact the HKIAAT IMMEDIATELY.

EXAMINATION NO OF CANDIDATES PASS RATE NAME OF TOP STuDENT

Book-keeping and 113 70% Lee Chi Kiu, Chan Hei Lung and Wong Tim Yu (English)

Accounts Examination Wong Yat Sing (Chinese)

Computerised Accounts 124 66% Chan Ho Wa and Mai Xiufen

Examination

Students who have passed both examinations will be awarded the Certified Accounts Clerk qualification upon application.

Students who have obtained a credit result or above in the Book-keeping and Accounts Examination are eligible to apply for an exemption from Paper 1 – Financial Accounting of the Accounting Technician Examination.

HKIAAT Professional Bridging Examination

- Revision Courses -Objective

To equip candidate with the essential knowledge and competence for attempting the HKIAAT PBE

Course Fee HK$900 per paper (including course materials)

Enquiry and Application Kindly contact Chris Lau at: [email protected]

2595-8213 (Tel); 2505-4216 (Fax)

Paper I – Financial Reporting• 20 May 2006 (Sat) 14:00 – 17:00• 27 May 2006 (Sat) 14:00 – 17:00

• 4 June 2006 (Sun) 10:00 – 13:00 and 14:00 – 17:00

Paper II – Management Accounting• 21 May 2006 (Sun) 10:00 – 13:00• 28 May 2006 (Sun) 10:00 – 13:00

• 3 June 2006 (Sat) 14:00 – 17:00 and 18:00 – 21:00

Paper III – Financial Management• 20 May 2006 (Sat) 18:00 – 21:00• 27 May 2006 (Sat) 18:00 – 21:00

• 11 June 2006 (Sun) 10:00 –13:00 and 14:00 –17:00

Paper IV – Legal Environment• 21 May 2006 (Sun) 14:00 –17:00• 28 May 2006 (Sun) 14:00 –17:00• 12 June 2006 (Mon) 18:30 –21:30• 13 June 2006 (Tue) 18:30 –21:30

Venue Hong Kong Institute of Vocational Education (Chai Wan),

30 Shing Tai Road, Chai Wan

Course Schedule (12 hours per paper)



�2 December 200� Book-keeping and Accounts Examination

General Comments

The results for this session were satisfactory. Over 70% of candidates passed the examination and many of them obtained very high marks. Despite this, about 10% of candidates obtained very low marks.

As usual the essay-type questions were far less popular than the computational questions.

Question 1: Final accounts for a limited companyThis was a very popular and well-answered question. In part (a), candidates’ performance was satisfactory. They scored high marks.

In part (b), a few candidates omitted the company name in the header of final accounts. Some candidates did not include the accrued debenture interest in the profit and loss account. Many candidates wrongly treated last year’s retained loss as retained profit.

In part (c), some candidates wrongly classified the proposed final dividend as a current liability. In addition, some candidates did not record the share premium on the balance sheet.

Question 2: Bank reconciliation statementThe question was satisfactorily answered. In part (a), most of the candidates demonstrated the ability to prepare a cash book correctly, but some candidates wrongly included the cheque payment as per item (v) in the cash book.

In part (b), some candidates did not know how to tackle the bank credit error as per item (viii).

Part (c) of this question required an explanation of why a bank reconciliation statement is useful for cash control. Some candidates did not provide an answer to this part.

Question 3: Accounting for partnership – dissolutionThis was a popular and well-answered question. In part (a), some candidates mixed up partnership changes with partnership dissolution. They wrongly treated admission and retirement of partners as one of the reasons for partnership dissolution.

In part (b), some candidates did not record the amount of debtors in the realisation account properly. They only showed discounts

allowed to debtors in the realisation account. In addition, some candidates failed to debit the realisation account with the realisation expenses.

Question 4: Year-end adjustments and accounting conceptsOnly a few candidates attempted this question. The overall performance was poor. In part (a), many candidates wrongly calculated the prepayment of the insurance premium as at 31 December 2004 as $2,400. In fact, the prepayment as at that date was only $200 as $2,400 was paid up to 31 January 2005.

Part (b) of this question tested candidates’ ability in explaining some accounting concepts. Most of the candidates skipped this part. Those who answered this part did not do so satisfactorily, showing their weakness in answering essay-type questions.

Question 5: Accounting ratiosThe overall performance of this question was satisfactory. Part (a) tested candidates’ ability to compute some basic accounting ratios. General speaking, many candidates were able to compute most of the ratios correctly. However, not many candidates could correctly compute the gearing ratio as per item (viii) and the capital turnover as per item (ix).

In part (b), candidates’ performance was fair. However, they merely described the increase or decrease in the ratio – few of them tried to explain the meaning and implication of the change.

Question 6: DepreciationThis was a popular question. Overall performance was satisfactory. In part (a), most of the candidates demonstrated an ability to compute the correct amounts of depreciation expense for the year. However, some candidates did not include the destroyed and scrapped equipment in the office equipment disposal account.

In part (b), candidates performed very well in describing two causes of depreciation.

Question 7: Correction of errors and omissionThis was a popular and well-answered question. In part (a) (iv), candidates should note that the correct debit entry should only affect the trial balance, but not the petty cash account. In part (a) (vii), a credit note for $1,337 received from a supplier had been posted to the wrong side of his account. Some candidates failed to correct this item. In fact, the entry to correct this error is to debit the trade creditors accounts with $2,674 ($1,337 X 2) and to credit the suspense account with $2,674 (instead of $1,337).

Examiners’ Reports for the December 200� / January 2006 Sessions


��In part (b), candidates showed that they were quite familiar with the preparation of the suspense account and they answered this part well.

Part (c) was well-answered, as most candidates could give a function of the suspense account.

二零零五年十二月試期簿記與會計考試

總評

本期考試的成績令人滿意。超過百份之七十的考生取得合格成

績，當中很多考生考獲頗高分數。雖然如此，仍有約百份之十

的考生考取頗低分數。

一如以往，計算的題目較寫文章的題目受考生歡迎。

第1題：有限公司的期末帳

本題較多考生選答，且表現良好。在本題(a)部，考生表現理

想，他們取得頗高分數。

在本題(b)部，少部份考生在期末帳的標題上遺漏了公司的名

稱。一些考生沒有將應付債券利息包括在損益帳內。很多考生

將上年的留存虧損誤作留存利潤處理。

在本題(c)部，一些考生錯誤地將擬派期末股息列作流動負債。

另外，一些考生沒有記錄股份溢價於資產負債表上。

第2題：銀行往來調節表

此題表現令人滿意。在本題(a)部，很多考生顯示有正確編製現

金簿的能力。但是，一些考生錯誤地將第(v)項的支票付款包括

在現金簿內。

在本題(b)部，一些考生不知道怎樣處理第(viii)項的銀行貸記錯

誤。

本題(c)部要求考生解釋為何銀行往來調節表能夠幫助控制現

金，有些考生並沒有作答此部份。

第3題：合夥人帳戶－結束業務

本題較多考生選答，且表現良好。在本題(a)部，一些考生混淆

了合夥轉變和合夥解散。他們錯誤地把合夥人的入股和退股當

作合夥解散的原因之一。

在本題(b)部，一些考生沒有適當地在變賣帳中記錄應收帳款的

金額，他們只顯示客戶的銷貨折扣在變賣帳內。另外，一些考

生沒有將變賣費用借記在變賣帳內。

第4題：期末更正和會計概念

只有少數考生選答此題，而整體表現差劣。在本題(a)部，很多

考生錯誤地計算在2004年12月31日的預付保險費為2,400元。

事實上，當日的預繳金額只有200元，因為2,400元是繳付至

2005年1月31日的。

本題(b)部測驗考生解釋一些會計概念的能力，大部份考生沒有

回答此部份。而回答此部份的考生表現亦不理想，這表示考生

作答寫文章題目的能力較弱。

第5題：會計比率

此題整體表現理想。本題(a)部測驗考生計算一些基本會計比

率的能力。一般來說，很多考生均能正確地計算出大部份的比

率。但並非很多考生能正確地計算出第(viii)項的資本負債比率

和第(ix)項的資本週轉比率。

在本題(b)部，考生的表現只屬一般。大部份考生只描述比率的

增加或減少，只有少數考生嘗試解釋數據轉變的意思和含意。

第6題：折舊的會計處理

此題較多考生選答，整體表現理想。在本題(a)部，很多考生顯

示有能力計算年度折舊的正確金額。但是，一些考生沒有將被

毀壞和報廢的辦公室設備包括在辦公室設備變賣帳內。

在本題(b)部，考生表現很好，他們能夠指出引致折舊的兩個原

因。

第7題：遺漏或錯誤的更正

本題較多考生選答，且表現良好。在本題(a)部第(iv)項，考生

須注意正確的借記只影響試算表，而不會影響零用現金帳。在

本題(a)部第(vii)項，收到一供應商的貸方單據1,337元錯記入

其帳戶的另一方，一些考生不能更正此項錯誤。事實上，更

正此錯誤需借記應付帳款2,674元 (1,337元 × 2) 和貸記暫記帳

2,674元，而不是1,337元。

在本題(b)部，考生對暫記帳的編製表現得頗為熟識，並作答得

宜。

考生在本題(c)部表現良好，大部份考生都能舉出暫記帳的功

能。

January 2006 Computerised Accounts Examination

General Comments

A total of 109 candidates attended the Computerised Accounts Examination (CAE) in January 2006 as compared with 56


�� in January 2005, an increase in over 100%. Of these, 48 candidates used MYOB and 61 used DacEasy. The total number of candidates using DacEasy remained similar (50 in January 2005 and 61 in January 2006) but there was a big increase in the proportion of candidates using MYOB (6 in January 2005 and 48 in January 2006). Out of the total 61 candidates using DacEasy, 34% achieved a distinction, 25% a credit, 11% a pass and 30% failed. Out of the 48 candidates using MYOB, 29% achieved a distinction, 21% a credit, 10% a pass and 40% failed. As shown from the above, the performance of candidates using either software was similar. Overall, 32% achieved a distinction, 23% a credit, 10% a pass and 34% failed. No candidate got over 90 marks and the overall pass rate was 70%. The overall result has improved as compared with January 2005 (when 50% of candidates failed).

The increase in the number of candidates and the improvement in overall pass rate were mainly due to the increase in candidates from commercial schools rather than private candidates, as is traditional in the January sitting. These candidates were taught how to use the software and had sufficient practice on past papers before sitting the examination.

Regardless of the software chosen, the questions asked were exactly the same for both papers and candidates were allowed the same length of time to complete the paper. Some candidates committed “strange“ mistakes. For example, some made up their own chart of accounts and did not use the one provided. This indicated that they either had no practice on past examination papers or did not read (or understand) the examination instructions. Many candidates committed the same errors as had been found in the previous sittings and lacked the skill and knowledge not only in using either software, but more in basic financial accounting.

Most candidates lost marks because they failed to perform all the end of the year adjustments correctly. None of the candidates got all the adjustment entries correct. For example, the majority could not calculate the correct figures for bad debts, or the provisions for bad debts and taxation. None of the candidates understood the term “payroll“ on the bank statement and they opened a new account called “payroll“ instead of debiting the amount in “wages and salaries“. Some opened a new account called “repairs“ instead of debiting the repairs to the motor van in the “motor expense“ account, which already existed.

As found in previous sessions, many candidates were careless and did not read the questions carefully. For example, in question 4 of the MYOB paper, some candidates failed to print the

accounts receivables aging “detail“ report. Instead they printed the aging “summary“ report. In question 6 of the MYOB paper, many candidates failed to extract the company’s bank account report from the detailed trial balance as stated in the question and choose some other options as offered by the software. In question 6 of the DacEasy paper, some still handed in the whole general ledger report instead of the report concerning the activities of bank. These candidates lost a total of 15 marks. This was an unacceptable mistake as it had been mentioned in all previous examiner’s reports that zero marks would be given for handing in the wrong report. Of all questions, question 7 was most poorly answered. Many candidates had no idea of how to create new accounts. Finally, it was also clearly stated in the paper that all figures should be rounded up to whole numbers but many candidates provided answers with decimal places for accounts like taxation, discounts allowed and discounts received.

The results for this session are compared with those of the January 2005 examination instead of July 2005 examination. This is because most candidates who attempted the July 2005 examination were from IVE. Their performance in CAE was better as compared with candidates (especially private candidates) sitting in the January examination because they had more support from their teachers in preparing for the examination.

Comments on individual questionsQuestion 1: Printing the trial balance as at 31 December 2005 after the year-end adjustments

Around 61% of the candidates passed this question this time, similar to 2005 (60%). As mentioned, most candidates lost marks because they failed to perform all the end of the year adjustments correctly, though the year end adjustments of this paper were easy and straightforward. None could work out the correct “wages and salaries“ amount as they all opened a new “payroll“ account. The overall performance was the same for both DacEasy and MYOB for this question.

Question 2: Printing the income statement for the period ended 31 December 2005

This was an extremely poorly answered question which no candidate passed. Candidates could not produce the correct gross profit, total expenses and net profit figures if they failed to work out the adjustment figures correctly. The majority only gained 0.5 mark and a few achieved 1 mark out of the total. However, this question only contributed 5 marks out of the total 100 marks. The overall performance was the same for both DacEasy and MYOB papers.


��Question 3: Printing the balance sheet as at 31 December 2005

The result was better than that for question 2. Most candidates gained 3 to 4 out of the total 5 marks. A few got zero which means not even their balance sheet date was correct. Again, this question only contributed 5 marks out of the total. The overall performance was the same for the DacEasy and MYOB papers.

Question 4: Printing the aging report as at 31 December 2005

This was in fact a very easy question and candidates should easily have achieved full marks if they were able to enter the dates, invoice numbers and amounts for all transactions correctly. Around 74% of them passed compared with 57% in 2005. Candidates who use MYOB did relatively worse than candidates who used DacEasy. Some candidates printed the accounts receivables aging summary report instead of the detailed report.

Question 5: Printing the bank reconciliation report for the month of December 2005

Candidates showed a clear improvement in answering this question, although the overall pass rate was not particularly good (57%). Candidates using DacEasy performed better than candidates using MYOB as the DacEasy reconciliation report is simpler than that of MYOB. Many candidates using MYOB could not get the correct figure for “reconciled deposits“.

Question 6: Printing the company’s bank account report from general ledger activity report from 1 January 2005 to 31 December 2005

Around 70% of candidates passed this question, a big improvement from last January (less than 50%). Most candidates entered the correct dates, descriptions and relevant document numbers for transactions via the bank and hence got full marks. A small number of candidates who used DacEasy got zero marks because they handed in the full general ledger report. This

was the tenth time CAE was offered and it is unacceptable that candidates still commit this error.

Question 7: Printing the completed chart of accounts

After questions 2 and 3, this was the most poorly answered question. The result was even worse than in January 2005. Only 52% of candidates passed this time as compared with 60% in January 2005. A few candidates (for both MYOB and DacEasy) used the chart of accounts provided by the software instead of the one created specifically for this examination. Many had no idea in how to create new accounts. For example, some put “accrual“ under “long term liability“ and “prepayment“ under “fixed assets“ or even “current liabilities“. Many candidates put“dividends“ under expense and only very small number put “advertisement“ under “selling and distribution expenses“; in fact, most simply put it under “general and administration expense“. Many candidates committed spelling errors and spelt “accrual“ as “accural“ and used “accrued“ as “accrual“ and “prepaid“ for “prepayment“. The chart of accounts is the core of all accounting systems and hence students should pay attention not only to account codes but also to correct levels, types, proper classification and spelling.

Conclusion

This was the tenth time the CAE had been offered since it was launched and as mentioned at the beginning, the result was much better than the past January examinations. The number of candidates sitting in the January examination doubled this year. The number of candidates using MYOB had also increased. The overall result was good with around 65% of candidates passing the examination. This may due to half of the candidates coming from commercial schools where they had formal training on the operation of the software and received instructions on how to tackle the paper from proper trainers. However, none of the candidates got over 90 marks. This implies that candidates still lack the full skills and knowledge both in using the software packages and in basic accounting.

Activity Highlights

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Student Orientation Programme

The first Student Orientation Programme for this year was held on 18 February 2006 and attracted 25 participants. The new students were introduced to (i) the background of HKIAAT; (ii) the relationship between the Hong Kong Institute of CPAs and HKIAAT; (iii) HKIAAT examinations and membership scheme; and (iv) student services.

The orientation was divided into various parts. Firstly, students had a chance to make friends with fellow students during the refreshment and game section. Mr Thomas Lo, Member of Member and Student Services Committee, then introduced the HKIAAT’s background, especially in light of our rebranding. Students were briefed on HKIAAT examinations and their prospects after graduation. This was followed by a sharing session where an AAT graduate, Mr Ronald Ling, shared his experience of the HKIAAT examinations, and gave the students some tips for the exams. The students were further briefed on the student benefits and services provided to them, and forthcoming activities that they could participate in. Students found the programme informative and felt it was a good opportunity for them to get to know other HKIAAT students. They felt that the programme had helped them learn more about the HKIAAT and would recommend other students to join similar orientation programmes in the future.

The HKIAAT would like to take this opportunity to thank Messrs Thomas Lo and Ronald Ling for their kind support of this activity.

Technical Seminar: Advanced Excel in Accounting

Microsoft Excel has become an essential piece of software for businesses nowadays. Many of us know how to use Excel, but may not know how to use it to its full potential. The HKIAAT has therefore organised a Technical Seminar in Advanced Excel, with a focus on how to use this handy piece of software to perform slightly more sophisticated tasks for accounting purposes. Sign up early to avoid disappointment.

DetailsTopic: Technical Seminar – Advanced Excel in AccountingSpeaker: Mr Simon S P Lee Instructor, The Chinese University of Hong KongDate & Time: Saturday, 13 May 2006 2:30 pm – 5:30 pmVenue: To be confirmedMax enrolments: 35Admission Fee: HK$100 for HKIAAT members/students HK$150 for non-HKIAAT members/students

Payment by crossed cheque made payable to “Hong Kong Institute of Accredited Accounting Technicians Limited”. A surcharge of HK$110 will be levied on every dishonoured cheque.

Application: Return the completed Enrolment Form (inserted in this journal) together with payment to the HKIAAT before Tuesday, 9 May 2006. Enrolments will be processed on a first-come-first-served basis with priority given to registered members/students. Fees paid will not be refunded if the application subsequently withdraws.

Remarks: The HKIAAT reserves the right to change the date, venue and time of the seminars should this be necessary. In the case of cancellation, the admission fee will be returned to participants by mail.

Mr Thomas Lo introducing the HKIAAT.

Ice breaking activity among students.

Activity Highlights

��Are you a great fan of Coca-Cola? Do you know Coca-Cola has a bottling plant in Hong Kong? Now you have a chance to see what goes on behind the scenes at one of the most popular soft drinks companies in the world. You will also get the opportunity to learn about Coca-Cola from the fascinating history of the company to modern production processes, health facts, and more. Details of the trip are as follows:-

Venue: Coca-Cola bottling plant in ShatinDate: Saturday, 24 June 2006Time: 3:00 p.m. to 4:30 p.m.Max. participants: 50Fee: Free of charge

(A fully refundable deposit of HK$50 per person is required to reserve a place on the tour. The original cheque will be returned to participants at the visit. However, if for any reasons anyone fails to turn up, his/her deposit will be forfeited.)

Application: Return the completed enrolment form to the Institute before Friday, 9 June 2006 together with a cheque for the deposit. Enrolments on a first-come-first-served basis with priority given to registered members/students. If the function is cancelled, the cheque will be returned to applicants by mail.

Remarks: The HKIAAT reserves the right to change the date, venue and time of the function and to cancel the function should this be necessary.

Visit to Coca-Cola Bottling Plant

Visit to Coca-Cola Bottling Plant –24 June 2006Enrolment Form

(Deadline for enrolment: Friday, 9 June 2006)

(Please read the details of the function carefully before you complete this form.)

I would like to enrol for person(s) (including the undersigned) for the visit to Coca-Cola Bottling Plant. I enclose a crossed cheque in the amount of HK$ (HK$50.00 each) payable to “Hong Kong Institute of Accredited Accounting Technicians Limited”, being the booking fee, which I understand the entire amount will be refunded to me after the event. I agree that the said amount will be forfeited if I fail to attend the visit.

I. Name: *Mr/Mrs/Ms/Miss (English) (Chinese)

Membership No./Student Registration No. Telephone No.(Day-time)

Address:

Name of guest: *Mr/Mrs/Ms/Miss Contact No. (if any)

Signature Date

* Delete as appropriate

Mr Thomas Lo introducing the HKIAAT.

Ice breaking activity among students.

Greenfield

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The Puzzle

Thank you for supporting the Puzzle. We appreciate the effort made by all members and students who participated. The first 10 entries with the right answers have won a HK$100 Park’N’Shop Cash coupon. Congratulations to the winners!

Answers to the Jan/Feb 2006 issue puzzle

Want to be in our next batch of winners? Have a go at the puzzle below and send in your entry as soon as possible to 17/F, Fortis Bank Tower, 77-79 Gloucester Road, Wanchai (Fax: 2823 0606). Prizes will be given to the first 10 entries with all the correct answers on a first-come-first-served basis. The answers and winners’ list will be published in the next issue.

Questions for Mar/Apr 2006 issue:

There are 8 tax-related terms in the letter grid below. For instance, one is the initials of the Hong Kong Institute of Accredited Accounting Technicians Limited. To be one of our winners, find and circle each of the 8 terms.

To: Hong Kong Institute of Accredited Accounting Technicians Limited, T/Dialogue Entry Form for The Puzzle – Mar/Apr 2006 Issue

Name:

Address:

HKIAAT Member / Student*:

Registration No.:

Telephone No.: (Home)

(Office)

(Mobile)

* Please tick the appropriate box

Yes No

(To keep your Journal in good shape, please use a photocopy of this form.)

C X Y X R E T U R N S

O B J E C T I O N V A

M A C X H K I A A T X

P V X A X X Y Z A A X

L X Y P H N Y Y N X N

I Q Z P V V C C R R I

A S S E S S M E N T S

N A K A Y Y L B Z A A

C V Y L X X Y Z C I R

E S E C N A W O L L A

P R O P E R T Y T A X H

R B A S I S P E R I O D

O P R E M I U M D F D D

F S X C H K I A A T I G

I X Y R X W Y E P Z P X

T A X R A T E S D S N Y

S D X C W W X W X Y X H

T E X E M P T I O N Y G

A Q W E R X X Y H J K B

X Q W D Z D E S X X Y X

X A T S E I R A L A S Z

Winners of HK$100 Park’N’Stop cash coupon:

1. Cherk Fung Ting2. Tso Kam Man3. So Pui Man4. So Pui Shan5. Chiu Mung Yee, Celia6. Chan Fung Ling7. Sin Lai Fong8. Wong Kam Hing9. Hou Weldon10. Chan Sze Chun

Notification has been sent to the winners. Please collect your Park’N’Shop cash coupon at the HKIAAT reception on or before Wednesday, 31 May 2006.

Greenfield

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Q: Can I obtain a higher academic qualification, say a bachelors degree, upon completion of the Accounting Technician Examination?

A: Upon completion of the Accounting Technician Examination, you are eligible to obtain exemptions from or direct entry to the following degree programmes offered by local and overseas universities:

Questions and Answers

Q: I was registered an HKIAAT student two years ago but I haven’t paid the annual fee for two years. How can I re-apply to be a student again?

A: You are welcome to re-register as our student. Please submit the following documentation to us in person during office hours or by post:

The student registration form can be downloaded from our website at www.hkiaat.org. Our opening hours are between 9:00 am and 5:30 pm from Mondays to Fridays and between 9:00 am and 12:00 noon on Saturdays. For further information on the HKIAAT, please visit our website.

The Q&A session is here to answer member’s and students’ enquiries. You are welcome to write to us at:

Q&A, Greenfield, T/Dialogue17/F, Fortis Bank Tower, 77-79 Gloucester Road, WanchaiFax: 2823 0606 E-mail: [email protected]

1. a completed student registration form;2. a certified true copy of your HKID card or passport;3. a cheque for the examination registration fee of $880 (which includes the student fee of $470 for 2006) payable to

“Hong Kong Institute of Accredited Accounting Technicians Limited”.

1. BBA (Hons) in Accounting / BBA in Accounting offered by the Open University of Hong Kong2. BA (Hons) in Accounting jointly offered by Napier University, UK and City University of Hong Kong3. BA (Hons) Accounting and Finance / BA (Hons) Business and Management offered by Leeds Metropolitan University, UK

after completion of the Professional Diploma in Accounting and Finance of HKIVE (Chai Wan campus)4. Bachelor of Business in Accounting jointly offered by Royal Melbourne Institute of Technology University and the Hong

Kong Management Association5. BA (Hons) in Accounting and Finance jointly offered by the University of Greenwich, UK and ABRS after completion of

the Advanced Diploma in Accounting and Finance of ABRS

Q: Where can I find a suitable accounting dictionary?

A: The Hong Kong Institute of Certified Public Accountants has published the “Glossary of Accounting Terms (Millennium Edition)” which is an indispensable reference tool for professional accountants, accounting students, translators, financial advisors, readers of financial statements and legal practitioners. If you are interested in purchasing the publication, please download the order form from www.hkicpa.org.hk.

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Introduction

On 22 February 2006, the Financial Secretary, The Hon Henry Tang Ying-yen, made his third budget speech, which covered the financial year 2006/07. According to him, our gross domestic product (GDP) registered in growth of 7.3% in 2005; the public expenditure fell and stayed below 20% of GDP as from 2005; and both the Operating and Consolidated Accounts recorded a surplus in 2005/06, the first time since 1997/98. GDP is forecast to grow by of 4-5% and the Composite Consumer Price Index is expected to rise by 2.3% for 2006. Below are highlights of Mr Tang’s proposals relating to revenue.

YEAR OF ASSESSMENT 2006/0� 200�/06

$ $Personal allowance Basic 100,000 100,000Married person’s 200,000 200,000Single parent 100,000 100,000

Child 1st to 9th child (each) 40,000 40,000

Dependent parent/grandparent (aged 60 or more, or eligible for government’s disability allowance) Basic 30,000 30,000 Additional (for dependant living with taxpayer) 30,000 30,000

Dependent parent/grandparent (aged 55-59) Basic 15,000 15,000 Additional (for dependant living with taxpayer) 15,000 15,000

Dependent brother/sister 30,000 30,000Disabled dependant 60,000 60,000

DeductionsSelf-education expenses 40,000 40,000Home loan interest 100,000 100,000Elderly residential care expenses 60,000 60,000Contribution to recognised retirement scheme 12,000 12,000Approved charitable donations 25% 25%

Tax rates % %

Standard 16 16

Progressive $1 – $30,000 2 2 $30,001 – $60,000 � 8 $60,001 – $90,000 1� 14 > $90,000 1� 20

TABLE A: Allowances, Deductions and Tax Rates

Highlights of the Revenue Proposals in the 2006/0� Budget By Dr Dora L Y Lee, The Community College, Lingnan University

Income taxesSalaries Tax, Property Tax and Personal Assessment

Progressive tax ratesAs our economy continues to improve, Mr Tang proposed implementing some modest tax concessions in 2006/07 to reduce the burden on taxpayers, particularly middle-class families, according to the principle of affordability.

He proposed to lower the second, third and top tax bands of the progressive tax rates by one percentage point, which will affect the tax payable under salaries tax and personal assessment. The

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Other proposals relating to revenue

A brief summary of other proposals relating to revenue is shown below.

Rates

Mr Tang will keep the rates charge unchanged at 5%. In the latest revaluation exercise, rateable values increased on average by about 9.2%. As a result, nearly 80% of ratepayers will see an increase in their rates bill which will cost about $37 per month on average.

TABLE B: Profits Tax Rates

YEAR OF ASSESSMENT 2006/0� 200�/06 Profits tax rates Corporations 17.5% 17.5%Unincorporated businesses 16.0% 16.0%

Deemed taxable income on 30% or 100% 30% or 100% royalties by non-residents

lowering of progressive tax rates will benefit nearly a million people and cost the revenue about $1.5 billion a year. Property tax will not be affected as the standard rate has not been changed.

Home loan interestTo many people, particularly the middle class, mortgage payments are major items of family expenditure. The recent increases in mortgage rates have added to their burden. Mr Tang proposed to extend the time limit for the deduction of home loan interest from a total of 7 years to 10 years, and to increase the deductible limit up to $100,000 per year. The proposal will cost the revenue about $1.2 billion in 2006/07.

Contributions to private medical insurance schemesThe Health, Welfare and Food Bureau is studying alternative arrangements for healthcare financing, and will conduct a public consultation later in the year. In finalising an overall package, the government will consider whether to provide a tax deduction for contributions to private medical insurance schemes.

Profits tax

As the Hong Kong’s tax rate is already very low, and businesses are allowed to offset their losses indefinitely against the profits in future years, our tax regime remains very attractive to investors. Therefore, Mr Tang has not proposed introducing any group loss relief or loss carry-back arrangements. A summary showing the profits tax rates for the years of assessment 2005/06 and 2006/07 is shown in Table B.

“Green” Tax

As in last year’s budget speech, Mr Tang said that it was necessary to impose “green” taxes in accordance with the “polluter pays” principle. The Secretary for the Environment, Transport and Works will introduce the Product Eco-responsibility Bill later in 2006. The products to be regulated will include tyres and plastic bags. The Environment, Transport and Works Bureau (ETWB) will levy a fee on tyres and require the industry to be responsible for their recovery and recyling. The ETWB intends to introduce legislation prohibiting the free distribution of plastic bags and to levy a tax to deter their use.

First Registration Tax for Vehicles

Mr Tang proposed exempting electric vehicles from first registration tax for a further 3 years up to 31 March 2009.

Sale and Securitisation of Government Assets

According to Mr Tang, the government will, in accordance with the principle of “Big Market, Small Government”, continue to identify suitable assets for sale or securitisation in order to increase government revenue and to offer more investment options to the public, spurring on the development of our financial markets.

Goods and Services Tax (GST)

Mr Tang is considering introducing a goods and services tax (GST) in order to develop a more stable source of revenue. The government intends to provide tax refunds to visitors and allow importers to defer payment so as to relieve pressure on their cash flow. To reduce the erosion of people’s purchasing power, the government will also propose relief and compensatory measures, including a reduction of other taxes. The government will launch a public consultation in the middle of 2006, which will last for 9 months. From taking a decision to introduce GST to its actual implementation will take about 3 years.

Conclusion

As was the case last year, the government has only proposed minor income tax concessions – the lowering of marginal tax rates and extension of the time for claiming home loan interest. On the other hand, it continues to consider the introduction of a green tax and goods and services tax (GST). The green tax will likely be imposed soon while GST may be imposed in 3 years’ time. For examination purposes, students who are preparing for Paper 5 - Hong Kong Taxation should update themselves on the tax rates, deductions and allowances for salaries tax, property tax, profits tax and personal assessment for the year of assessment 2006/07.

Features

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Introduction

In the September/October 2005 issue of the Accounting Personnel, a brief review on the essential topics included in management accounting examinations was provided. One of the common topics testing whether candidates have achieved sufficient understanding on the subject area is the decision making using relevant costs concept. As pointed out in the previous article, management accounting is concerned with the provision of relevant information, financial and non-financial, to the management for planning, controlling, and decision-making purposes. It is, therefore, important to apply the relevant costs concept correctly so as to avoid making wrong business decisions that may lead to organisational failure. This article aims to address how the relevant costs concept is applied in various common business decisions.

Decision Making In Organisations

One of the routine job functions of managers in all types of organisations is to ensure that the business decisions they make, be they at a strategic, tactical or operational level, create value for the different stakeholders of the organisation. Decision-making requires the comparison of relevant benefits and costs among different options available. In particular, managers should evaluate alternative courses of action and select the best alternative that provides the highest incremental benefit to the company or that will make the business better off in the future.

Agency theory addresses the potential conflicts of objectives between the owners and management of an organisation and, as a result, agency costs are incurred by shareholders in monitoring management actions. The conflict of interest can be reduced if the remuneration of management is linked to the success of the firm; this might involve share option schemes and/or profit-based salaries or bonuses. While a number of approaches exist in making sound decisions, it is necessary to provide justifications which are based on objective analysis of factual data and information, though subjective judgements on assumptions and estimates are common in reality.

Relevant Cost Analysis

In the decision-making context, a relevant cost is a cost that is applicable, pertinent, or logically related to making a decision that is under consideration. The costs that differ between or among the various decision alternatives are differential costs, and a cost must be differential to be relevant. Relevant costs are usually future costs but not sunk costs which are costs incurred in the past that are not relevant to any future courses of action,

such as the historical or past costs associated with the acquisition of an asset or a resource. However, not all future costs are relevant because some are common to all alternatives under consideration. All relevant costs are not found in the accounting records as they are only incurred in the future after decisions are made. Likewise, opportunity costs, which are potential benefits foregone because one course of action is chosen over another, are also relevant costs not found in the accounting records, which contain primarily all the historical costs.

Managers have to be aware that costs that are relevant in one decision situation are not necessarily relevant in another. Each decision situation is independent and the relevant costs have to be identified again at the time of making any decision. A basic relevant cost analysis involves the calculation of the incremental benefit/cost of each course of action or decision alternative by comparing its individual incremental revenues and incremental costs. Incremental revenue is the additional revenue resulting from an expected sale of goods or provision of services, whereas incremental cost is the additional cost to be incurred in earning the incremental revenue. Most variable costs are relevant while most fixed costs are not relevant. However, variable costs are not relevant if they are unchanged between different alternatives while fixed costs are relevant if they are differential future costs.

Accepting A Special Order

Special orders are normally one-time orders received from a new customer or, in some cases, an existing customer. A special order decision is a situation in which management must determine a sales price (for production or service jobs) that is usually lower than the normal price charged for the company’s normal sales. The sales price quoted on a special order job typically should be high enough to cover the variable and incremental fixed costs of the job and to generate a profit. From the financial perspective, as long as the incremental revenue from the order exceeds its incremental costs, the order should be accepted.

In general, all variable costs are incremental costs. Fixed costs are also incremental costs if the company is operating at full capacity; otherwise, they should be ignored if the company has excess capacity filling the special order. In addition, if the special order requires a resource which is constrained or in limited supply, managers should consider and include opportunity costs as part of the incremental costs. An example of the opportunity cost is the profit foregone by sacrificing existing production or sales in order to provide resources for the special order. While financial analysis of incremental benefits determines, to a large extent, the final decision on special orders, non-financial factors may outweigh financial factors. These factors include the potential

Relevant Costs Concept for Decision Making (Relevant to PBE Paper II – Management Accounting)Dr Gerry K H Li, The Hong Kong Polytechnic University

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long-term relationship with the customer and the potential synergies created with the existing operations of the company.

Make Or Buy A Component Or Part

A make-or-buy decision is concerned with whether a component or part should be produced internally or purchased from an external supplier. The decision analysis requires the comparison of the cost of internally producing the component or part of a final product or providing a service with the cost of purchasing it from outside suppliers (outsourcing) or from another division of the company at a specified transfer price. For example, a common decision is whether it is cheaper or better to outsource the company’s accounting services to an accounting firm instead of establishing an in-house accounting function. In the manufacturing industries, managers are concerned with whether the right quality components will be available at the right time and at a reasonable price to assure production. One of the common reasons that companies produce the component internally is so they can be assured that the component is available at the right time – when it is required.

The relevant information for a make-or-buy decision includes both quantitative and qualitative factors. The basic analysis is to compare the cost of internally producing the component to the cost of purchasing it from outside suppliers or from other divisions at specified transfer prices, while assessing the best uses of the available facilities. Relevant costs include variable production costs, and also fixed production costs if they can be avoided when production is discontinued when buying from external suppliers. If the company has idle facilities, relevant costs related to the decision typically include the direct material, direct labour, variable overhead, fixed overhead that may be avoided if the component is purchased, and these relevant costs should be compared with the purchase cost of buying the component. When idle facilities do not exist, managers should consider the alternative uses for the facilities that would be occupied if the component was made internally. These opportunity costs include the possible renting out of the space used to make the component and the possibility of producing other products in that space.

Production Mix Utilising A Constrained Resource

For many manufacturing firms, it is very common to have a constrained or scarce resource situation, either in the short run or the long run. A scarce resource is a resource that is essential to a production or service activity but is available only in some limited quantity. There is always a constraint as long as desires are unsatisfied. Scarce resources create constraints on producing goods or providing services. Examples of constrained resources

include machine hours, skilled labour hours, raw materials, and production capacity. In the short run, the major decision objective facing the managers is to make the best use of the resources available, though the availability of scarce resources may be more abundant in the long run.

Whenever demand exceeds productive capacity, a production constraint exists. The company is unable to fill all customer orders and some choices have to be made concerning which orders are filled and which are not filled. Therefore, a typical outcome of a constrained resource decision is to determine the optimal production mix of various products that provides the maximum benefit to the company. In such a situation, the key indicator in the decision analysis is the contribution margin per unit of the constrained resource, instead of the contribution margin per unit of the product because the product earning the highest contribution margin may utilise more scarce resources than other products. Since the fixed costs are usually the same no matter what products are produced, maximising the total contribution margin will also maximise profit. The total contribution margin is maximised by ranking the products in terms of their contribution margins per unit of the constrained resource.

Adding/dropping A Segment

Organisations usually have multiple segments: different product lines, departments, or strategic business units. Managers are required to make difficult decisions related to adding new products and/or dropping old products. There are two approaches in the data analysis of this kind of decision. The first approach is to compare the contribution margins and fixed costs of the different segments. A segment should be added only if the increase in total contribution margin is greater than the increase in fixed cost. A segment should be dropped only if the decrease in total contribution margin is less than the decrease in fixed cost.

The second approach is to calculate the total net operating income under each course of action. The preferred decision is to choose the alternative with the highest net operating income. This approach requires more information than the first approach since costs and revenues that do not differ between the alternatives must be included in the analysis when the net operating incomes are compared. In particular, managers should pay attention to the allocated common costs which can make a segment look unprofitable even though positive segment margin is generated. Segment margin is the excess of revenues over direct variable expenses and avoidable (or attributable or controllable) fixed expenses for a particular segment. Allocated common costs that would not be affected by a decision are irrelevant and should be ignored in a decision relating to adding or dropping a segment.

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Further Processing Of Joint Products

Joint products are two or more products produced from a single input/process which are not separately identifiable as individual products until their split-off point where the joint products become separate products. Examples of these products include chemicals, lumber, flour, and the products of petroleum refining and meatpacking. The costs associated with producing these products up to the split-off point are called joint costs, which are then allocated to the joint products using various allocation bases including relative sales values or output quantities. After the split-off point, separable costs are incurred for each individual separated product if they are further processed separately.

A common decision on joint products faced by the managers is whether to sell the products at the split-off point or to process some or all products further. The essence of the decision is to continue processing a joint product after the split-off point so long as the incremental revenue from such processing exceeds the incremental processing costs. The incremental revenue is the difference between the selling price at the split-off point

and the selling price after further processing; the incremental processing costs are those separable costs incurred for each individual product after the split-off point. In such decisions, the joint costs incurred before the split-off point and allocated after the split-off point are not relevant since they are sunk costs as far as the decision to further process is concerned and they are only relevant in a decision to shut down the joint process altogether.

Conclusion

The relevant costs concept for decision-making is commonly examined in management accounting examinations. The theories and techniques involved are also very useful to practising managers as they provide the basis for justification of their decisions. For each of the above decision situations, it is important to master the techniques of identifying the relevant costs because, even though a cost item is relevant in one particular decision, the same cost item may become irrelevant in another decision or even in the same decision made at a different time.