...section establishes standards and provides guidance on compilations of financial statements. The accountant is required to comply with the provisions of this section whenever he or she is engaged to report on compiled financial statements or submits financial statements to a client or to third parties. Establishing an Understanding .02 The accountant should establish an understanding with management regarding the services to be performed for compilation engagements1 and should document the understanding through a written communication with management. Such an understanding reduces the risks that either the accountant or management may misinterpret the needs or expectations of the other party. For example, it reduces the risk that management may inappropriately rely on the accountant to protect the entity against certain risks or to perform certain functions that are management's responsibility. The accountant should ensure that the understanding includes the objectives of the engagement, management's responsibilities, the accountant's responsibilities, and the limitations of the engagement. In some cases, the accountant may establish such understanding with those charged with governance. .03 An understanding with management and, if applicable, those charged with governance, regarding a compilation of financial statements should include the following matters: • The objective of a compilation is to assist management in presenting financial information in the form of financial...
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...BUS 424 Auditing Summary of Key Audit Planning Concepts Dr. Miller I. GAAP versus GAAS/SAS Generally Accepted Accounting Principles (GAAP) – Consists of Statements of Financial Accounting Standards (SFAS) created by FASB to guide the preparation of financial statements. Generally Accepted Auditing Standards (GAAS) – 10 general standards representing a framework from which AICPA can provide interpretations. They are organized into 3 groups – General Qualifications, Field Work Performance, and Reporting Results. They are broad guidelines. General Qualifications: 1. Adequate training & proficiency – technically qualified and experienced with the industry 2. Independence in mental attitude – both in fact and in appearance 3. Due professional care – auditors are professionals responsible for fulfilling their duties diligently and carefully. Field Work Performance: 1. Adequate planning & supervision – to ensure adequate audit and proper supervision of assistants. 2. Understanding the client’s internal control system – to determine the adequacy of client’s system to provide reliable data and safeguarding assets and records. 3. Sufficient competent evidence – how much and what types of evidence to accumulate for given set of circumstances. Requires professional judgment. Reporting Results: 1. Determine whether statements are prepared in accordance with GAAP. ...
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...the public accounting firm issues a written communication that express a conclusion about the liability of a written assertion of another party. * Three categories of Attestation services: a. Audit historical financial statements A form of attestation services in which the auditor issues a written report expressing an opinion about whether the financial statement are in material conformity which accounting standard. b. Review of financial statement: A type of attestation service performed by public accountants. Many entities want to provide assurance on their financial statement, without incurring the cost of an audit. c. Other attestation services Such as a natural extension of audit of historical financial statement, as users seek independent assurance about other types of information. For example: banks often require debtors to engage public accountants to provide assurance about the debtor’s compliance with certain financial covenant provision stated in the loan agreement. 2. Other assurance services, They are similar to attestation services in that public accountant must be independent and must provide assurance about information used by decision maker, but differ in that the public accountant may not be required to issue a written report. a. Assurance services on information technology b. Assurance services on other types of information 3. Non-assurance services provided by public accountants. * Accounting and bookkeeping...
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...impact on the audit of Smackey due to the SEC’s influence in setting generally accepted accounting principles (“GAAP”), the required disclosures for financial statements and any major changes proposed by the Financial Accounting Standards Board (“FASB”). Nonetheless, during the audit of Smackey, Keller CPA is subject the six generally accepted auditing standards established by the Auditing Standards Board (“ASB”) under the Accounting Institute of Certified Public Accountants (“AICPA”) which includes the ten standards of auditing. Q2: Discuss the essential activities involved in the initial planning of an audit. How do these all specifically to the Smackey Dog Food client? Solution: Audit planning includes eight major parts, of which the first seven are intended to help Keller CPA to establish the eighth, which is to develop an overall audit plan and audit program. They are as follows; Acceptance of the client and perform initial audit planning – Keller has already agreed to accept this client, although they should still try to assess Smackey with regards to other audit client of theirs. They should go through the usual client acceptance procedure which Keller CPA has in place and the decision to take on the audit should have been made before any substantial costs have been incurred. This decision should not be taken lightly and Keller CPA should ensure that they feel the client is appropriate to take on. The initial planning procedures that Keller CPA will go through...
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...The recent release of the Statement of Accounting Standards No. 112 regulation made it necessary to communicate the standard and its impacts to the accountants within the firm. It was also imperative to make our key clients aware of the regulation and how it might affect their business. Finally, to ensure seamless compliance with the regulation, we are educating our clients’ bookkeepers of the regulation and its ramifications on their duties. When accounting standards are updated, the changes often must be communicated to several different audiences, as demonstrated by this change. Communicating this information to different audiences presents several challenges that need to be carefully navigated. One challenge that exists when communicating to different audiences is that they have a need of different levels of information. In the example here, our client’s senior leaders need to possess a high level understanding of the change so that they can properly manage the new expectations that their staff will need to follow. The bookkeepers will need to understand the implications to their job functions. The firm’s accountants, however, will need to understand the full breadth of the regulation to ensure compliance to the new standard. A second challenge is the need to understand the knowledge base of audiences that are being addressed. Not every audience will possess the same understanding of accounting. As a result, the materials delivered to different groups must be tailored...
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...Client Understanding Paper Judy Blackman ACC/541 August 1, 2011 Kenneth Quirk client understanding 1 I want to thank you for the opportunity to work with you and your organization on this important project. As I was analyzing the papers provided, I realized that additional information was needed. It was brought to my attention that you are unclear about why the additional information was requested on the adjusting lower cost of market inventory on valuation, the capitalizing interest on building construction, the recording of gains or losses on asset disposal, and the adjusting goodwill for impairment. The adjusting lower cost of market inventory on valuation is specified in Accounting Research Bulletin No. 43 (ARB No. 43). Statement of Financial Accounting Standards (SFAS) No. 34 is the statement, which deals with capitalization of interest as part of the cost of the asset. SFAS No. 144 addresses the reporting and accounting for the impairment of the disposal of long-lived assets (Federal Accounting Standards Advisory Board, n.d.). New rules for the accounting for goodwill has been addressed in SFAS No. 142. I will be explaining each of these items in full detail. I will include the accounting principles and practices in hopes of improving your organization's practices and knowledge from this analysis. Adjusting lower cost of market inventory on valuation The lower-of-cost or market (LCM) is defined by “a basis whereby inventory is stated at the lower...
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...Accounting Firm, LLC. Memo To: Firm Accountants From: Junior Accountant Date: 20/08/2012 Re: The New Statement of Accounting Standards (SAS) 112 Changes have been made regarding the rules auditors must follow. The purpose of this memo is to inform all the accountants about the new Statement of Accounting Standard (SAS) No. 112,Communicating Internal Control Related Matters Identified in an Audit issued by the American Institute of Certified Public Accountants (AICPA). Management considers SAS No. 112 an imperative accounting standard to know, understand, and communicate effectively and efficiently. SAS No. 112 establishes standards and provides guidance on communicating matters related to an entity’s internal control over financial reporting identified in an audit of financial statements (American Institute of Certified Public Accountants, 2011). SAS No. 112 replaces SAS No. 60 and is effective for periods ending on or after December 15, 2006. Consequently, the term “reportable condition” will become extinct. The terms “significant deficiency” and “material weaknesses” are used to describe control deficiencies that must be communicated to management and those charged with governance during audits. The underlying principle deals with identified control deficiencies and determines whether these deficiencies, individually or in combination, are significant deficiencies or material weaknesses (American Institute of Certified Public Accountants, 2011). Auditors are...
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...CHAPTER 6 Audit Planning, Understanding the Client, Assessing Risks, and Responding Review Questions 6–1 In their investigation of a prospective client, the CPAs should assess the backgrounds and reputations of the prospect and its major shareholders, directors, and officers. Thus, inquiries are made of underwriters, bankers, and attorneys that conduct business with the prospective client. Also, the CPAs are required to make inquiries of the prospect’s predecessor auditors to obtain information that might enter into the acceptance decision, such as information regarding the integrity of management. The prospect’s financial reports, SEC filings, credit reports, and tax returns are used as sources of financial background information. 6–2 The audit committee of a board of directors must be composed of at least three independent directors. Independent directors are those who are outside directors (not officers or employees) who have no relationships that might impair their independence. This would include relationships such as performing consulting services for company management. In addition, the members must be financially literate; at least one member must be a financial expert. 6–3 An engagement letter is sent to the client by the auditors to make clear the nature of the engagement, any limitations on the scope of the audit, work to be performed by the client’s staff, and the basis for computing the auditors’ fee. The engagement letter...
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...CHAPTER 6 Audit Planning, Understanding the Client, Assessing Risks, and Responding Review Questions 6–1 In their investigation of a prospective client, the CPAs should assess the backgrounds and reputations of the prospect and its major shareholders, directors, and officers. Thus, inquiries are made of underwriters, bankers, and attorneys that conduct business with the prospective client. Also, the CPAs are required to make inquiries of the prospect’s predecessor auditors to obtain information that might enter into the acceptance decision, such as information regarding the integrity of management. The prospect’s financial reports, SEC filings, credit reports, and tax returns are used as sources of financial background information. 6–2 The audit committee of a board of directors must be composed of at least three independent directors. Independent directors are those who are outside directors (not officers or employees) who have no relationships that might impair their independence. This would include relationships such as performing consulting services for company management. In addition, the members must be financially literate; at least one member must be a financial expert. 6–3 An engagement letter is sent to the client by the auditors to make clear the nature of the engagement, any limitations on the scope of the audit, work to be performed by the client’s staff, and the basis for computing the auditors’ fee. The engagement letter...
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...or clerks, bookkeepers perform some of the same daily tasks as do accountants and certified public accountants. Many bookkeepers work as freelancers for small businesses in need of financial recordkeeping. Bookkeepers maintain daily accounting records, posting debits and credits, generating invoices for clients and checks for vendors as well as handling payroll. Many small business owners often double as bookkeepers. Bookkeepers typically lack the education of an accountant or CPA, as they gain on-the-job experience. Professional organizations for bookkeepers help to improve professional recognition for bookkeepers by accounting professionals as well as providing certification programs of abilities and skills. Accountants Accountants have a four-year college degree. While many accountants have an educational background in accounting, some are more general business majors. Companies that generate more than a million dollar in sales each year might have an accountant on staff or hire the services of a professional accountant from an accounting firm managed by a certified public accountant. As the company grows, the accounting department expands to handle the increased fiscal responsibilities within the organization. Accountants work with accounting clerks and technicians who handle daily financial entries. Accountants oversee or perform billing, make general ledger entries, review accounts payable activity completed by clerks or...
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...prepare for the Uniform CPA Examination. Weights The percentage range following each area represents the approximate percentage of total test questions associated with the area. The ranges are designed to provide flexibility in building the examination, and the midpoints of the ranges for all areas in each section total 100%. The examination questions will be selected from each area to fall within the percentage allocation range. No percentages are given for groups or topics. The presence of several groups within an area or several topics within a group does not imply equal importance or weight will be given to these groups or topics on an examination. Auditing and Attestation (AUD) The Auditing and Attestation section tests knowledge and understanding of the following professional standards: Auditing standards promulgated in the United States of America (related to audits of an “Issuer” (a public company), a “Nonissuer” (an entity that is not a public company),...
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...professions, but is not needed for society in general. B) a set of moral principles or values. C) not formed by life experiences. D) always incorporated in laws. Answer: B Terms: Ethical Principles Diff: Easy Objective: LO 4-1 AACSB: Ethical understanding and reasoning abilities 2) ________ means that a person acts according to conscience, regardless of the situation. A) Caring B) Fairness C) Integrity D) Respect Answer: C Terms: Ethical principles and integrity Diff: Moderate Objective: LO 4-1 AACSB: Ethical understanding and reasoning abilities 3) One of the main reasons people act unethically is that they choose to act selfishly. A) True B) False Answer: A Terms: Ethical Principles Diff: Easy Objective: LO 4-1 AACSB: Ethical understanding and reasoning abilities Learning Objective 4-2 1) A six-step approach is often used to resolve an ethical dilemma. The first step in this process is to: A) identify the alternative actions available. B) identify the ethical issues from the facts. C) determine who will be affected by the outcome of the dilemma. D) obtain the relevant facts. Answer: D Terms: Ethical dilemma Diff: Moderate Objective: LO 4-2 AACSB: Ethical understanding and reasoning abilities 2) Describe an ethical dilemma that an auditor or an accountant might face in his or her business career, then illustrate how the auditor or accountant might use the six-step approach presented in the text to resolve that dilemma...
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...experience by analyzing financial performance of Medez – Galanto & Associates. A. SECTIONS IN THE MEDEZ- GALANTO & ASSOCIATES 1. Accounts Payable and Receivable The accounts payable section of an accounting department records goods and services that it receives and the payments it owes, such as inventory from a supplier or other expenses. The department records each accounts payable as a liability and accounts receivable as assets. Assets such as revenue and customers’ obligations pay for goods and services. 2. Payroll The payroll function of an accounting department ensures that the organization pays its employees accurately, including bonuses, commissions and benefits. The department monitors employees' time off, vacation and sick days. It pays the government taxes as well as union dues and other withholding from an employee's paycheck. The department reimburses employees for expenses and makes payments to vendor. 3. Inventory A company's inventory is the goods owned for the purpose of sale. Inventory is usually sold within a year. An accounting department watches the cost of inventory over a specific period against its revenues to ensure that the cost of raw materials, labor and overhead do not negatively impact cash flow. The accounting department tries to find a balance between high inventory levels that satisfy customers but are...
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...mind at all times during the audit. The audit approach and tests/procedures are customized to the fraud assessment made. The audit team can incorporate random testing and sampling approach in the audit work which are difficult to anticipate by the client. Also the team understands where the focus will be as a result of the fraud assessment b. Theft of personal property from the business for the purposes of depriving the owner of its possession is a method of fraud referred to as lapping. Disagreed. Lapping refers to misappropriation of cash receipts. The theft is concealed by manipulation of A/R to cover the cash receipts. The cash received later is recorded toward the original A/R. The fraud is also covered by recording cash transfers to rare expenses or other accounts in G/L. c. A critical evaluation of evidence and professional skepticism are required for all financial statement audits, fraud examinations, and financial forensic examinations. Agreed. A critical evaluation of evidence is required to ensure that what has been stated is not misrepresented. Professional skepticism ensures that the auditor is alert and with a questionable mind to situations which indicate possible misstatements due to error or fraud. d. A client...
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...Client Understanding Paper 541 ACCOUNTING THEORY AND RESEARCH Client Understanding Paper As a newly hired Staff I, you are responsible for analyzing the work papers for one of the clients of your organization. Your client is not clear about why you are asking for information on the following topics: Adjusting lower cost of market inventory on valuation “The conservatism principle and a specific accounting pronouncement, Accounting Research Bulletin No. 43 (ARB No. 43) leads to an accounting valuation method known as the lower of cost or market, or LCM. In this method the term "market" includes both the market in which the company purchases its merchandise as well as the market in which it sells its merchandise.” (Arverkamp, 2013) The Lower of cost or market aspect (LCM) is also supported and defined by SFAC No. 2 and SFAC No. 6. The LCM rule considers the market that purchases and sells the inventory. Capitalizing interest on building construction Under FASB 34, companies must capitalize interest on construction projects. Interest cost should be capitalized as part of the historical cost of acquiring certain assets. The interest cost eligible for capitalization in most situations would be the interest cost recognized on borrowings and other obligations. The amount capitalized is an allocation of the interest cost incurred during the period required to complete the asset. This interest rate for capitalization purposes should be based on the rates...
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