Auditing Memo

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Memo
To: John Doe
From: Team C
Date: February 20, 2012
Subject: Auditing, share-based payment and SPE reporting

A publically traded company offers challenges to auditing when it comes to shared-based payment reporting and special-purpose entities (SPE) reporting individually. The most basic principle of GAAP at risk is the qualitative characteristic of reliability. Shared-based payment and SPE reporting individually has been broken down to better equip the audit for our client. It is important to notice that Special Purpose Entities should be carefully reviewed by each member of the auditing team. Even more after it was proven that most of Enron’s fraudulent accounting practices involved SPE. SPE allows companies to reduce their credit risk and lower the financial cost of investment. Shared-Based Payment

A share based payment is a transaction in which a company obtains or receives goods or services as consideration for equity or by acquiring liabilities for amounts based on the price of the company’s shares or other equity instruments of the entity. The accounting requirements for the share-based payment depend on how the transaction will be settled; by the issuance of equity or cash. Examples of items included in the scope of IFRS No. 2 are share appreciation rights, employee share purchase plans, employee share ownership plans, share option plans, and plans where the issuance of shares (or rights to shares) may depend on market or non-market-related conditions. IFRS No. 2 requires an entity to recognize share based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity as an increase in a component of stockholders’ equity and an expense. The objective of IFRS No. 2, “Share-Based Payment,”34 is to specify the financial reporting by an entity for the effects of share-based payment transactions, including expenses associated with...
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