F8 Performance materiality

ISA 320 gives this definition:

Performance materiality means the amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.

By interpreting this definition, it shows that performance materiality/planning materiality (PM) is set to reduce the risk that misstatements are too large.

Auditor will first determine the PM based on eg. 5% of profit before tax or larger amount if the company is very large, then any item that is more than this materiality level will be tested, ie. considered to be material. For those items less than this materiality level, ie. considered immaterial, sample will be taken for testing.

Later, errors will be projected to be compared to the materiality set for the financial statements as a whole (let's call it final materiality here). When the projected errors are still larger than final materiality, then auditor will consider whether to revise the PM.

Note that the setting of PM requires the exercise of professional judgement.

In conclusion, ISA 320 also states that the purpose of determining performance materiality is to assess the risks of material misstatement and determining the nature, timing and extent of further audit procedures. :)

Warren Buffett

Warren Buffett is the world's second richest man. He has donated $31 billion to charity! The following is his stories (red) and advices (blue) to us.

1. He bought his first share at age 11 and he now regrets that he started too late!
Things were very cheap that time, encourage your children to invest.

2. He bought a small farm at age 14 with savings from delivering newspapers.
One could have bought many things with little savings, encourage your children to start some kind of business.

3. He still lives in the same small 3-bed house in mid-town Omaha, that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.
Don't buy more than what you "really need" and encourage your children to do and think the same.

4. He drives his own car everywhere and does not have a driver or security people around him.
You are what you are.

5. He never travels by private jet, although he owns the world's largest private jet company.
Always think how you can accomplish things economically.

6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis.
Assign the right people to the right jobs.

7. He has given his CEO's only two rules. Rule 1: do not lose any of your shareholder's money. Rule 2: Do not forget rule number 1.
Set goals and make sure people focus on them.

8. He does not socialise with the high society crowd. His past time after he gets home is to make himself some pop corn and watch television.
Don't try to show off, just be yourself and do what you enjoy doing.

His advices to young people:
Stay away from credit cards (bank loans) and invest in yourself and remember:
1. Money doesn't create man but it is the man who created money.
2. Live your life as simple as you are.
3. Don't do what others say, just listen to them, but do what you feel good.
4. Don't go on brand name; just wear those things in which you feel comfortable.
5. Don't waste your money on unnecessary things; just spend on them who really in need rather.
6. After all it's your life then why give chance to others to rule our life.

You may like to take him as your role model :D

Remember to claim discount for exam fees

The last date for paying a reduced exam fees is just 3 days away from now, ie. 8th of September. As you know, you will save a lot of money if you pay before or at this date. Therefore, don't hessitate anymore, pay as soon as possible and don't miss out this chance.

For those who have problem in paying the fees, you can try to call ACCA to pay as I have heard of people paying through telephoning ACCA.

Note that you can also pay for June 2012 sitting but I don't recommend that because the papers that you can sit will be uncertain. Finally, make sure that you select the papers that you are going to sit in December 2011 with great care, including the variants.

What after result?

Congratulation for those who passed all their papers sat in June 2011 and for those who do not pass all, don't keep it in mind and start thinking forward, failure is part and parcel of success and it is very common in ACCA exams.

Now we are moving into second term and this indicates that December 2011 is coming soon! Therefore, don't wait, start to revise what you had learnt in first term now because you will learn many more new things in second term. Don't do last minute study because the cumulative unrevised topics cannot be revised in a short time.

Remember ACCA is not an academic exam, to pass ACCA paper, the first condition is to cover the whole syllabus, the second condition is to practice enough questions to get the skill of attempting questions and the third condition is to revise in a continuing basis. If you have passed these 3 conditions, it is very likely that you will pass the exam.

Result time is decided

ACCA has decided to release the result at 22nd of August, 0500 BST (British Summer Time). This information can be found when you click on "myacca" at ACCA website. 0500 BST is equal to 12.00pm Malaysia time so take note of this, it is not 1.00pm :)

5 days to go for result

Result will be out in just 5 days away from this date, ie. release at 22nd of August 2011. The time of release is most likely 0500 GMT, ie. 1.00pm Malaysia time. If you had not registered to receive your result through email, the only choice for you is to try and log in to "myacca" at 1.00pm (best time) as many will start to log in and after a while you may not be able to log in due to high traffic. It is not possible to register to receive result through email now as I think the option is not there anymore in "myacca".

I wish you all the best in the result and hope to see you guys in second term ;)

When we inject capital, why we credit capital instead of debit capital?

Have you ever thought that when the owner invests money into the business, why does the double entry shows as debit cash, credit capital? Some of you may think that it is because of double entry principle that one entry must be debit and another must be credit. There is actually a reason behind it.

If you are unawared, to obtain a right (asset) there must be an obligation (liability). Therefore, applying this to the above case, image yourself as the business and one guy puts money into your pocket, you get the rights of using money but at the same time you will also have an obligation toward the guy who puts his money into your pocket.

Therefore, we credit capital account when it increases because it shows the obligation of the business to its owner, that means the amount that business owes to the owner.

Those who are studying ACCA P level papers should have such detailed understanding of something and not just learning something without knowing the reason. This is an example of the bigger picture of something :)