Features of testing the impairment of financial investments
Under the terms of PBU 19/02, the methodology for testing transactions related to the depreciation of financial investments was significantly updated. This is not only an analysis of the correctness of the formation of a provision for impairment of these assets, but also confirmation of their impairment in principle. The latter is particularly important, as it approximates their valuation to fair value.
The auditor assumes that the decrease in the cost of financial investments is recognized as an impairment when there is a sustained significant decrease in their value below the economic benefits that are considered sustainable when the following conditions are met:
- at the balance sheet date and for the previous reporting date, the carrying amount is substantially higher than their estimated value;
- during the reporting year, the estimated value of financial investments has changed significantly only in the direction of its decrease;
- As of the reporting date, there is no evidence that a significant increase in the estimated value of these financial investments is possible in the future.
If these conditions are met, the organization independently calculates the impairment and determines the estimated value of financial investments, which will be the difference between their value, by which they are reflected in the accounting (accounting value) and the amount of such reduction (impairment).
On the need to determine the estimated value of financial investments due to their impairment may indicate signs of bankruptcy or declaring a bankrupt issuing organization, securities of which are owned.
Signs of bankruptcy may also indicate the impairment of financial investments, such as loans issued. Having determined that for any financial investment its impairment has occurred, the auditor should check the availability of conditions for a sustainable reduction in the cost of financial investments.
The impairment test must be carried out by the organization at least once a year as of December 31 of the reporting year if there are indications of impairment. The organization has the right to perform such a check on the reporting dates of the interim financial statements. When confirming the decline in the cost of financial investments in an organization, a provision for impairment of financial investments should be created from financial results (as part of operating expenses). Information about provisions for depreciation of investments in securities is reflected in account 59 "Provisions for impairment of investments". Since the list of financial investments PBU 19/02 includes not only securities, but also other types of investments, when creating in the allowed cases of provisions for their depreciation should also apply account 59.
In accordance with the requirements of paragraph 38 of PBU 19/02 in the financial statements, the value of financial investments for which a provision for impairment is formed is shown at the book value less the amount of the reserve. Therefore, the auditor should assess the compliance of the reporting indicators with the accounting data in the accounts 58, 59. Special attention should be paid to the presence of adjustments to the amounts of the previously created reserve in cases of further reduction of their estimated value or its increase.
Checking the disclosure of information on financial investments in financial statements
Subject to the materiality requirement, it is necessary that at least the following information is disclosed in the financial statements:
- ways to assess financial investments when they are retired by group (species);
- the consequences of changes in the methods of assessing financial investments upon their retirement;
- the value of financial investments for which the current market value is determined, and financial investments for which the current market value is not determined;
- the difference between the current market value at the reporting date and the previous valuation of financial investments for which the current market value was determined;
- for debt securities for which the current market value was not determined, - the difference between the initial value and the nominal value during the period of their circulation;
- the cost and types of securities and other financial investments pledged;
- the amount of the provision for impairment of financial investments with indication of: the type of financial investments; the amount of the reserve created in the reporting year; the amount of the provision recognized as operating income for the reporting period; the amount of the reserve used in the reporting year;
- for debt securities and loans granted - data on their valuation at the discounted cost, on the amount of their discounted value, on the discounting methods used (disclosed in the notes to the balance sheet and the financial results report).
Since information on financial investments is presented in a limited format in the balance sheet, all the other necessary information about them should be reflected in the explanatory note and with the financial investments division depending on the maturity term for short-term and long-term.
Checking the calculation of income tax
When checking the calculation of income tax auditor should take into account the specifics of determining the tax base for transactions with securities, which are established art. 280 of the Tax Code. Revenues from operations for the sale of securities are determined based on the price of their sale. The market price of securities circulating on the organized securities market is the actual price of sale or other disposal of securities if this price is in the interval between the minimum and maximum transaction prices (price interval) with the specified security registered by the trade organizer as of the date of the relevant transaction . In this case, in the case of the sale of securities circulating on the organized market, at a price below the minimum transaction price, the financial result is calculated from the minimal transaction chain on the organized securities market.
The specifics of determining the tax base for income tax on transactions with securities that do not circulate on the organized market are set out in Cl. 280 of the Tax Code. For securities that do not circulate on the organized securities market, the actual price of the transaction is accepted for tax purposes if this price is in the range between the minimum and maximum prices determined based on the settlement price of the security and the price deviation.
The maximum deviation in the prices of securities that do not circulate on the organized securities market is set at 20% up or down from the settlement price of the security.
In the case of the sale (purchase) of securities that do not circulate on the organized securities market at a price below the minimum (above the maximum) price determined on the basis of the settlement price of the security and the price deviation, in determining the financial result for tax purposes, the minimum (maximum) price, determined on the basis of the estimated price of the security and the maximum price deviation.
The organization can independently choose and fix in the accounting policy for tax purposes one of the following methods for writing off the costs of the retired securities for expenses (paragraph 9 of Article 280 of the Tax Code of the Russian Federation):
- at the cost of the first-time acquisition (FIFO);
- at a unit cost.
In order to conduct a full audit, the following analytical procedures for verification based on financial statements should be applied:
- analysis of the dynamics of indicators of financial investments;
- evaluation of the composition and structure of financial investments, which will make clearer the priorities and peculiarities of the financial activity of the audited organization;
- analysis of liquidity of financial investments, especially short-term ones, as they are often referred to highly liquid assets, equating to cash. Such an approach is legitimate if the auditor is confident that the securities are indeed easily realizable and reliable, have a short circulation period, have an insignificant risk of a decline in market value;
- identification of sources of financing of long-term financial investments, especially in large amounts;
- analysis of the effectiveness of management of financial investments;
- an estimation of profitableness of financial investments.
In addition, it is advisable to evaluate the effectiveness of financial investments in general and individual financial instruments, which will require the use of differentiated methods. There are retrospective and predictive assessments of the effectiveness of financial investments. To obtain a retrospective estimate, the amount of the received income from financial investments is compared with the average annual value of this type of assets. It is useful for the auditor to compare, for example, the yield of securities with alternative (guaranteed) income, which is the refinancing rate or the interest rate on government bonds. Forecasting the effectiveness of certain types of financial investments is carried out by calculating the current market chain of a particular financial instrument using discounting methods.
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