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ACCO 30073: Audit in Specialized Industries
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ACCO 30073: Audit in Specialized Industries

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What are the three types of banks classified in the Philippines?

  • Universal and commercial banking (correct)
  • Investment banking
  • Thrift banking (correct)
  • Rural and cooperative banking (correct)

    • What is the nature of the banking and finance sector in the Philippine economy?

    Responsible for mobilizing domestic savings and converting them into directly productive investments.

    Banks in the Philippines are not allowed to engage in investment banking activities.

    False

    The Bangko Sentral ng Pilipinas (BSP) has regulatory and supervisory power over ______ and non-bank financial institutions.

    <p>banks</p> Signup and view all the answers

    Match the following types of non-bank financial institutions with their services:

    <p>Insurance companies = Provide term insurance policies Investment banks = Underwriting debt instruments and stocks Financing companies = Offer loans for various purposes Pawnshops = Provide financial services using collateral</p> Signup and view all the answers

    What are the four types of real estate mentioned in the content?

    <p>Residential, Industrial, Land, Commercial</p> Signup and view all the answers

    Real estate development involves purchasing raw land, rezoning, renovation, construction of buildings, and sale or lease of finished products to end-users to __________ value to the land.

    <p>add</p> Signup and view all the answers

    Property management firms assist real estate owners in selling their buildings.

    <p>False</p> Signup and view all the answers

    What is one major driver for the real estate sector in the Philippines?

    <p>growth in the number of multinational companies and BPO’s</p> Signup and view all the answers

    What are some of the growing industries in the Philippines mentioned in the content?

    <p>Global in-house centers (GICs), healthcare information management, animation, and gaming</p> Signup and view all the answers

    How has the COVID-19 pandemic affected Philippines' BPO industry?

    <p>Clients pulled out their accounts</p> Signup and view all the answers

    BPO companies in the Philippines faced challenges due to clients' increased demand during the pandemic.

    <p>False</p> Signup and view all the answers

    According to UNESCO, the Philippines has an average literacy rate of __%.

    <p>98.2</p> Signup and view all the answers

    Match the risks of Business Process Outsourcing with their descriptions:

    <p>Security = Communication and privacy risks, potential data breaches Underestimating the costs of services = Running costs, upgrades, internal transitions Overdependence on service providers = Extraneous costs, decreased productivity Communication issues = Language barriers, delays in processes</p> Signup and view all the answers

    What tax incentives are provided for foreign investors in the Philippine BPO industry?

    <p>Income tax holiday, 5% gross income tax option, tax-free import of equipment</p> Signup and view all the answers

    What type of activities contribute to the economy through the mining sector?

    <p>Create employment, provide education and health services, increase foreign exchange reserves, improve infrastructure, create economic activities</p> Signup and view all the answers

    What is the main contribution of the extractive sector to the national economy in the Philippines?

    <p>relatively small</p> Signup and view all the answers

    Which mineral commodities are the Philippines a leading producer of?

    <p>All of the above</p> Signup and view all the answers

    The Philippines is only behind China as the world's leading producer of nickel.

    <p>False</p> Signup and view all the answers

    The main taxes levied on the mining sector in the Philippines include corporate income tax, excise tax on minerals, and royalties on mineral ____________.

    <p>reservations</p> Signup and view all the answers

    Match the following key financial concepts in the mining industry with their descriptions:

    <p>Revenue = Ore (tons) x Grade (g/t) x Recovery x Payability x Metal Price Royalties = Properties often have royalties on them (e.g., 2% Net Smelter Return) Operating costs = Per ton basis (e.g., $2.50/ton for mining) Reclamation costs = Accrued for accounting purposes but not accrued in a cash flow model</p> Signup and view all the answers

    What is the nature of the specialized industry discussed in the content?

    <p>Business process outsourcing (BPO)</p> Signup and view all the answers

    What are the four elements that must work together for the success of transformations in organizations according to the content?

    <p>People, process, data, technology</p> Signup and view all the answers

    Which of the following are types of BPO services? (Select all that apply)

    <p>Human resource services</p> Signup and view all the answers

    Filipino employees are not fluent in English compared to their Indian counterparts.

    <p>False</p> Signup and view all the answers

    In BPO, business functions could be either ________ or ________.

    <p>technical, nontechnical</p> Signup and view all the answers

    What are some key considerations management and owners should plan for when preparing for discussions with auditors?

    <p>Status of operations, negotiations with tenants or lenders, audit timing, legal or regulatory issues, subsequent events, accounting standard updates, deadlines, and impacts of accelerated filers.</p> Signup and view all the answers

    What are some steps to prepare for changes in audit requests?

    <p>All of the above.</p> Signup and view all the answers

    Rent concessions under GAAP require recognition as lease modifications.

    <p>False</p> Signup and view all the answers

    Under GAAP, a triggering event may prompt an impairment analysis of ____.

    <p>assets</p> Signup and view all the answers

    Match the following accounting considerations with their corresponding accounting standards:

    <p>Rent Concessions = ITB - Direct offset to revenue; GAAP - Certain relief recognized in current period Rent Deferrals = ITB - Impacts cash collection timing; GAAP - Deferred as an offset to revenue Asset Impairment = GAAP - Impairment analysis triggered by adverse events Deferred Financing Costs = Dealing with existing and new financing costs under different accounting treatments</p> Signup and view all the answers

    What is the difference between the logistics industry and the transportation industry?

    <p>The transportation industry focuses on the movement of goods, while the logistics industry includes transportation along with storage, handling, inventory, packaging, and more.</p> Signup and view all the answers

    Who seized the assets of Meralco in 1972?

    <p>Marcos administration</p> Signup and view all the answers

    Why did the administration of Corazon Aquino decide not to operate the Bataan Nuclear Power Plant?

    <p>for reasons of safety and economy</p> Signup and view all the answers

    What is the main focus of inbound logistics?

    <p>Movement of goods between businesses and their suppliers.</p> Signup and view all the answers

    Who signed the first BOT contract for a power plant in 1989?

    <p>NPC</p> Signup and view all the answers

    In outbound logistics, goods move from companies to end-users.

    <p>True</p> Signup and view all the answers

    According to EO 215 s. 1987, the generation of electricity is considered a natural monopoly.

    <p>False</p> Signup and view all the answers

    What arena must logistics experts manage activities within due to the expansion of the global marketplace? They must manage activities within a ___________ arena.

    <p>worldwide</p> Signup and view all the answers

    Match the global channel intermediaries with their roles:

    <p>Foreign freight forwarders = Handlers of various foreign freight services Export management companies = Providers of expertise for selling products overseas Customs house brokers = Overseers of goods movement through customs Ship agents = Local representatives handling ship operations</p> Signup and view all the answers

    What has disrupted the global supply chain and had significant effects on logistics during the COVID-19 pandemic?

    <p>COVID-19</p> Signup and view all the answers

    What are some impacts of COVID-19 on the logistics and warehousing industry? (Select all that apply)

    <p>Countries on lockdown delaying shipments</p> Signup and view all the answers

    Safety policies are not important in the transportation industry.

    <p>False</p> Signup and view all the answers

    In the power industry, the government pursued rural electrification through the cooperative business model starting in __________.

    <p>1969</p> Signup and view all the answers

    Match the following audit considerations with their descriptions:

    <p>Revenue Recognition Principles = Analyze elements ensuring quality, safety, and legal standards Payroll Audits = Systematically analyze payment records and timesheets for accuracy Safety Policy Audits = Audit safety policies and disaster response plans Physical Equipment Audits = Conduct audits of trucks, trailers, and machinery for safety and repair records Legal Compliance Audits = Ensure compliance with state and federal mandates</p> Signup and view all the answers

    Study Notes

    Auditing Specialized Industries

    Module 1: Auditing Banking and other Financial Institutions

    • The banking and finance sector plays a critical function in the Philippine economy by mobilizing domestic savings and converting them into productive investments.
    • The sector is responsible for sustaining economic growth and creating new jobs in the long term.
    • Philippines' banks are classified into three types: universal and commercial banking, rural and cooperative banking, and thrift banking.
    • Universal and commercial banks have dominated the industry, with total deposits valued at approximately 12 trillion Philippine pesos.
    • The Bangko Sentral ng Pilipinas (BSP) is the independent central monetary authority of the Philippines, supervising the nation's banking system.
    • The banking sector continues to expand, creating greater prospects for employment over the next several years.
    • As of October 2020, the value of loans granted by universal and commercial banks in the Philippines amounted to nearly 9.7 trillion Philippine pesos.
    • The ratio of bank nonperforming loans to total gross loans in the Philippines was almost two percent as of 2019, indicating a healthy banking sector.

    Module 2: Auditing Business Process Outsourcing Industry

    • Business process outsourcing (BPO) is the practice of contracting a specific work process or processes to an external service provider.
    • BPO services can include payroll, accounting, telemarketing, data recording, social media marketing, customer support, and more.
    • The global BPO industry is expected to be worth $250 billion by 2020, with the Philippines accounting for 10 to 15 percent of the market.
    • BPO can be divided into two main types of services: back office and front office.
    • The BPO industry is divided into three categories based on the location of the vendor: offshore, nearshore, and onshore.
    • Each BPO company will specialize in specific services, including customer interaction services, back-office transactions, IT and software operations, finance and accounting services, human resource services, and knowledge services.
    • The decision to outsource a business process is often made by organizational executives to reduce costs, improve efficiency, and address workforce challenges.### Outsourcing and Business Process
    • The organization needs to invest in technology to enable smooth work flow from in-house to outsource provider.
    • Scope of work must be identified, including workflows and processes impacted by the shift.
    • Executives should identify key objectives for outsourcing a function, such as cost savings, increased quality, or quicker turnaround.
    • Those objectives should serve as the basis for contractual obligations to assess the performance of the outsourced provider.

    Business Process Outsourcing (BPO) Industry in the Philippines

    • The BPO sector is worth over $300 billion globally.
    • India and the Philippines are leading BPO destinations, with over 3 million and 1 million employees, respectively.
    • The Philippines has been a popular BPO destination due to government support, low income tax, and incentives.
    • Key factors that contributed to the growth of BPO in the Philippines include:
      • Microsoft's donation of free apps licenses to the government
      • Incentives such as tax holidays and exemptions on imported equipment
      • Filipino employees' fluency in English and patience when dealing with customers
      • Government's quick passage of key legislative changes
      • Focus on growing industries in both voice and non-voice sectors
    • The COVID-19 pandemic has affected the BPO industry, with some clients pulling out their accounts and employees on floating status.

    Audit Considerations

    • Risks associated with outsourcing include:
      • Security and data privacy breaches
      • Underestimating the costs of services
      • Overdependence on service providers
      • Communication issues
      • Quality control and operation restoration
    • Tax considerations for BPO companies in the Philippines include:
      • Income tax holiday or corporate income tax exemption for four to eight years
      • Option to pay a 5% gross income tax in place of all national and local taxes
      • Tax-free and duty-free import of capital equipment and supplies

    Mining Industry in the Philippines

    • The mining industry is a major backbone of the Philippine economy.
    • The Philippines is the fifth most mineral-rich country in the world for gold, nickel, copper, and chromite.
    • The country has an estimated $840 billion worth of untapped mineral wealth.
    • The mining sector contributes to the development of the economy through taxes, employment, and social-economic infrastructural development.
    • The mining life cycle includes exploration, development, extraction, processing, and mine closure.
    • The mining sector in the Philippines is a significant contributor to the national economy, but it is also contentious due to environmental impact and displacement of indigenous peoples.

    Audit and Accounting Considerations for the Mining Industry

    • The mining sector is a major contributor to the national economy, but it is also a significant source of revenue for the government.
    • The main taxes levied on the mining sector include corporate income tax, excise tax on minerals, and royalties on mineral reservations.
    • The Bureau of Internal Revenue (BIR) is the main body responsible for collecting taxes paid to the central government.
    • Local government units (LGUs) are responsible for collecting subnational payments.
    • The mining industry is subject to various audit and accounting considerations, including beneficial ownership and politically exposed persons reporting.### EITI (Extractive Industries Transparency Initiative) in the Philippines
    • The Philippines EITI published a Beneficial Ownership (BO) roadmap in 2016, with several milestones achieved by 2021, including integration of BO in mainstream efforts and pilot disclosure of BO information.
    • According to the 2018 EITI Report, 41 out of 65 covered companies/projects fully or partially disclosed beneficial ownership information, with a total of 128 name entries declared as beneficial owners.

    Key Financial Concepts in the Mining Industry

    • Revenue calculation: Ore (tons) x Grade (g/t) x Recovery x Payability x Metal Price
    • Royalties: often 2% Net Smelter Return on properties
    • Operating costs: per ton basis (e.g., $2.50/ton for mining)
    • Capital costs: initial capital (construction of mine) and sustaining capital (ongoing equipment, etc.)
    • Reclamation costs: accrued for accounting purposes, but not in cash flow models
    • Depreciation: percentage of production bases over the entire life of the mine
    • Taxes: complicated, with mining companies operating in several countries, and mining-specific taxes and royalty agreements to consider
    • Changes in working capital: changes in accounts receivable, inventory, and accounts payable to be factored into a cash flow model

    Challenges in the Mining Industry in the Philippines

    • Responsible mining under the Philippine Mining Act
    • Circumvention of permits
    • Interfacing with Local Government Units (LGUs)
    • Delays in the declaration of Indigenous Peoples (institutional issues with National Center for IPs)
    • Impact of the COVID-19 pandemic

    High-Level Questions About Revenues from the Extraction of Minerals

    • Are revenues from mineral extraction significant?
    • Is there a difference between predicted and actual revenues?
    • Are there new revenue sources?
    • Has new relevant legislation or regulation been introduced?
    • When was the last review of the revenue framework conducted?
    • Are there public complaints or reports of inappropriate practices in the sector?

    High-Level Questions About Financial Assurances for Site Remediation

    • Is there a regulated system of financial assurances for site remediation in place?
    • Is the system recent or well-established?
    • Has a remediation fund been established?
    • What is the current cost estimate for rehabilitating all mining sites in the jurisdiction?
    • Is the risk of unfunded liability increasing over time?

    Construction and Real Estate Industry in the Philippines

    • Overview: The construction and real estate industry is a significant sector in the Philippine economy, comprising building, alteration, and repair of properties, including residential, commercial, industrial, and agricultural properties.
    • Nature and Background: The industry includes development, sales and marketing, brokerage, real estate lending, and property management.
    • Statistics: The construction sector is one of the important industries that the government has been focusing on since 2016, with 100 infrastructure flagship projects prepared by the public sector as of February 2020.
    • Drivers: Growth in the number of multinational companies and BPOs, increasing urbanization, and expansion in real estate construction projects.
    • Restraints and Challenges: Meeting the growing demand for properties, solving the problem of housing backlog, and boosting infrastructure spending.
    • Opportunities: Investing in real estate is considered one of the best investments, with the Philippines being a developing economy with a growing middle-class population.

    Audit Considerations for the Construction and Real Estate Industry

    • The industry is cyclical and requires a strong understanding of project accounting, revenue recognition, and valuation issues.
    • Management and owners should plan ahead for discussions with auditors regarding the current status and forecast of operations.

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    Description

    This quiz is based on the ACCO 30073 course, specifically covering audit in specialized industries. It's a simplified module for the new normal, second semester of AY 2020-2021. The quiz is compiled by Prof. Mark Anecito R. Perlas and Prof. Lady Diana P. Noleal.

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