...Chapter 7 – Internal Controls • Key topics: • Know the broad definition of internal control and its purposes, including the objective that is particularly relevant to an audit (i.e. reliability of financial reporting) A process, effected by the entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations (effective and efficient operations), reporting (accurate financial reporting) and compliance (compliance with laws and regulations) • Describe the 5 components of internal control, related examples of each, and how each contributes to the overall control system within an entity (CRIME) 1. Control Environment: The foundation for the other internal control components; it is defined by the standards, processes, and structures that guide individuals in carrying out their duties. Basic principles include: Commitment to integrity and ethical values, Board of directors demonstrates independence from management and exercises effective oversight of internal control, Establishment of effective structure, including reporting lines, and appropriate authorities and responsibilities, Commitment to attract, develop, and retain competent employees, and Holding employees accountable for internal control responsibilities. 2. Risk Assessment: Risk assessment is management's process for identifying, analyzing, and responding to risks from internal and external sources that threaten...
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...CHAPTER NO 1 FINANCIAL ACCOUNTING To understand the financial statements of company, one must understand first its operations. Accounting is a system the collects and processes financial information about an organization and reports that information to the decision makers. Decision makers could be internal decision makers and outsider decision makers. External decision makers are creditors, investors, suppliers and customers. Internal decision makers could be managers to make day to day operations. Balance Sheet reports financial position (assets, capital, and liabilities) of a company at a point of time. Assets: Assets are the economic resources controlled by the organization so that future benefits can be obtained. Assessment of assets is important to its creditors and to its owners because assets provide a basis for judging whether the company has sufficient resources available to operate the business. Typically, the assets of a company include the following: 1. Current assets (short-term): short term assets that transform into cash and within the next year or the operating business cycle of the company. a. Cash and cash equivalents: Highly liquid assets, that can be easily convertible to cash such as bonds, marketable securities. b. Short-term investments: represents the reported values of shares of other companies as investment of access cash c. Trade receivables: When a company sells it products on credit, and receives promises...
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...such as cash, accounts receivable, inventories and equipment. 3. It’s important you get independent advice to help you find the best way to deal with your debts. TRUE 4. If assets equal 100,000 and liabilities equal 25,000, then owner's equity is 125,000. Wrong Since assets (100,000) must equal liabilities (25,000) plus owner’s equity, owner’s equity is 75,000 5. Credits increase asset and expense accounts. Wrong It’s debits that increase assets and expense accounts. 6. Priority debts are ones where serious action can be taken against you if you don't pay what you owe. TRUE 7. To avoid any problem, you should sort out exactly what you owe and who you owe it to. TRUE 8. If liabilities equal 75,000 and owner's equity equals 25,000, then assets are 50,000. Wrong Since liabilities (75,000) plus owner’s equity (25,000) must equal assets, assets equal 100,000. 9. An investment by the owner to his/her business will decrease owner's capital. Wrong An investment made by an owner increases not decreases owner’s equity (capital) 10. The normal balance for the owner's drawing account is a credit balance. Wrong The owner’s drawing account normally has a debit balance. 11. Supplies On Hand would be classified as an expense. Wrong Supplies on hand is an asset account; its supplies used or consumed that is an expense account. 12. Fees earned are classified as an asset account. Wrong Fees earned is a revenue account. 13. The cash account...
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...questions and content may or may not be representative of questions you may see on any upcoming exams. 2006 AICPA Newly-Released Auditing Questions An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management's financial statement assertions of: Presentation and disclosure Yes Yes No No Existence or occurrence Yes No Yes No a. b. c. d. ANSWER: Choice "c" is correct. In testing the existence or occurrence assertion, the auditor is concerned that fictitious or overstated receivables may have been recorded. Observing the mailing of monthly statements and reviewing evidence of follow-up on errors reported by customers provides evidence that procedures are in place to identify and correct such errors. Choice "a" is incorrect. Observing the mailing of monthly statements and reviewing evidence of follow-up on errors reported by customers does not provide any assurance regarding how receivables are presented and disclosed in the financial statements. Choice "b" is incorrect. Observing the mailing of monthly statements and reviewing evidence of follow-up on errors reported by customers provides support for the existence or occurrence assertion, but does not provide evidence of proper financial statement presentation and disclosure, as discussed in the explanations for items "c" and "a" above. Choice "d" is incorrect. Observing...
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...| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The work that accountants do is divided into three broad fields: 1. Financial Accounting consists of the process that results in the preparation and reporting of financial statments. The Bookkeeping activity is an important subdivision of financial accounting. Bookkeeping is the process of accumulating the financial results of an entity's activities. 2. Managerial Accounting consists of the use of economic and financial information to plan and control many activities of the entity and to support the management decision-making process. Cost Accounting is a subset of managerial accounting that is involved with the determination and accumulation of product or service costs. 3. Auditing, or Public Accounting is the function in which a firm's financial statements are reviewed or examined by an independent third party (the auditor). Public accounting firms and individual certified Public Accountants (CPAs) provide this auditing service. The work that accountants do is divided into three broad fields: 1. Financial Accounting consists of the process that results in the preparation and reporting of financial statments. The Bookkeeping activity is an important subdivision of financial accounting. Bookkeeping is the process of...
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...Assignment 4: Just for Feet Harold Ruttenberg, a native of South Africa, paid for his college education by working as a sales clerk in a men`s clothing store. Following his graduation, Harold Ruttenberg began importing Levi`s jeans from the United States and selling them from his car. Ruttenberg earned enough capital from selling the Levi`s jeans to open his own retail store. By the time Harold Ruttenberg reached the age of 30, he owned a small chain of men`s apparel stores. Due to mounting political and economic troubles in South Africa during the early to mid-1970s, Ruttenberg decided to move his family to the United States. Ruttenberg arrived in California in 1976 with less than $30,000 due to South Africa`s strict emigration laws, but he was nonetheless determined to become a successful retail business entrepreneur. Ruttenberg and his family eventually settled in Birmingham, Alabama in favor of a more affordable business environment. In 1988, Ruttenberg decided to begin a new business venture in the retail shoe business. At the time Ruttenberg began his new business venture the market for high priced athletic shoes was growing rapidly, and becoming a larger segment of the retail shoe industry. During this time, the principal retail outlets for the major athletic shoe manufacturers were in thousands of suburban malls across the United States. A problem with having a retail store in a suburban mall is the space is relatively small limiting a retailer’s ability to display...
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... The Balance Sheet and Financial Disclosures CHAPTER LEARNING OBJECTIVES OVERVIEW LO1 LO2 LO3 LO4 LO5 Chapter 1 stressed the importance of the financial statements in helping investors and creditors predict future cash flows. The balance sheet, along with accompanying disclosures, proAfter studying this chapter, vides relevant information useful not only in helping you should be able to: investors and creditors predict future cash flows Describe the purpose of the balance but also in the related assessments of liquidity sheet and understand its usefulness and limitations. and long-term solvency. Distinguish between current and noncurrent The purpose of this chapter is to provide assets and liabilities. Identify and describe the various balance sheet an overview of the balance sheet and asset classifications. notes to the financial statements and to Identify and describe the two balance sheet liability classifications. explore how this information is used by Explain the purpose of financial statement decision makers. disclosures. LO6 Explain the purpose of the management discussion and analysis disclosure. LO7 Explain the purpose of an audit and describe the content of the audit report. LO8 Identify and calculate the common liquidity and financing ratios used to assess risk. FINANCIAL REPORTING CASE What’s It Worth? “I can’t believe it. Why don’t you accountants prepare financial statements that are relevant...
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...Deloitte United States Services Audit & Enterprise Risk Services Consulting Financial Advisory Services Tax Deloitte Growth Enterprise Services Featured Services Industries 2014 Industry Outlook Aerospace & Defense Automotive Banking & Securities Consumer Products Federal Government Health Care Providers Health Plans Insurance Investment Management Life Sciences Media & Entertainment Oil & Gas Power & Utilities Process & Industrial Products Real Estate Retail & Distribution State Government Technology Telecom Travel, Hospitality & Leisure Insights Deloitte University Press Browse by Content Type Browse by Role Innovation Centers Email Subscriptions Careers About Press Events Alumni Clients Contact Global > United States > About > University Relations > Deloitte Foundation Global site selector Go Search Search Top searches Top searchesBookmark Email Print this page Increase font Alliances Catalyst for Innovation Community Involvement Corporate Responsibility Deloitte’s sponsorship of the U.S. Olympic Committee Inclusion Deloitte University Ethics & Independence Deloitte Life Growth Through Acquisition History Investor Confidence Leadership University Relations Deloitte Foundation Faculty Resources Faculty and Ph.D. Support Life, Inc. Student Events The Trueblood Case Studies DOWNLOAD For a complete index of Cases and Addendum summary please click the download button above. The Trueblood Series cases...
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...22E21000 Auditing - Theory and Practice Case: UNITED STATES SURGICAL CORPORATION Case: UNITED STATES SURGICAL CORPORATION Answer 1. In our opinion, with proper use of analytical procedures Ernst & Whinney should have detected the overstatement of the leased assets. The following analytical procedures should have been used, at least at the planning and overall review stages of the audit. Trend analysis is the analysis of changes in an account balance over time. Ernst & Whinney could have compared the balances of the leased assets and rent income and their changes over the years. Also, Ratio analysis could have been used to compare the relationships between financial statement accounts. Ernst & Whinney could have used common size analysis, which is one example of ratio analysis, to set all the account balances as either a percentage of total assets or revenue and compare them to detect any abnormalities. Finally, Reasonableness testing might also have helped in detecting the errors in the leased assets. Reasonableness testing is the analysis of account balances or changes in account balances within an accounting period in terms of their “reasonableness” in light of expected relationships between accounts. For example, Ernst & Whinney could have used the number of lease contracts in effect to form expectations about the amount of rent income, the amount of depreciation expenses on leased asset, and the balances of the leased assets over the years 1979-1981...
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...Financial Data Analysis Sharon M Flemming HCS 577 July 8, 2013 Dr. Patricia Jenkins Financial Data Analysis Financial management is an important aspect of health care financing. Whether for a hospital, medical group, or home care agency, long-term or short-term finance, maintaining accurate asset management records could mean the difference in failure or success for many organizations. The purpose of this assignment is to compare financial data for two consecutive years for Patton-Fuller Community Hospital from the 2008 and 2009 Balance sheets and Revenue and Expense sheets, and to identify significant changes between the years. I will also attempt to provide possible explanations for those changes based upon information provided within the Annual Report for that hospital. Patton-Fuller Community Hospital Financial Statements 2008-2009 Patton-Fuller Community Hospital (PFCH) is a large full service hospital providing cutting-edge medical care to Kelsey and the Northwest Valley since 1975. This is a physician owned organization with a fourteen member governing board in which each member with exception of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) have equal voting rights. Each member serves a three-year term and elections are held each December, at which time four new members are voted in by the shareholders and profits are distributed among the owners (Apollo Group, Inc., 2013). According to the 2009 Annual Report the CFO indicates that...
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...been a growing acceptance of International Financial Reporting Standards (IFRS) for a basis of U.S. financial reporting. The number of countries adapting to this convergence has increased since its first suggestion. Within the United States, the SEC is taking its first steps as to whether or not the U.S. is to converge in to this universal approach to accounting. The international standard-setting process began a few decades ago as an effort by industrialized nations to create standards that could be used by developing and smaller nations unable to establish their own accounting standards, states the author of International Financial Reporting Standards. However, as the business world became more global, regulators, investors, large companies, and auditing firms began to realize the importance of having common standards in all areas of the financial reporting chain, continued the author. At this time, there are approximately 120 different nations that are required to, or have the option to report under IFRS. A few examples that already use IFRS include Australia, New Zealand, and Israel. It has been confirmed that the European Union has virtually adopted all international standards. Canada is said to adapt to IFRS in 2011, with Mexico following in 2012. The U.S. SEC has, in part, been the leader in developing this common international set of accounting standards. In 2007, the SEC voted to allow foreign private issuers to file financial statements prepared in accordance with IFRS...
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...Chapter 5- Regulators Securities and Exchange Commission- protects investors and maintains integrity of the securities market- Oversees FASB and PCAOB FASB- Financial Accounting Standards Board- sets GAAP PCAOB- (public company oversight board) - sets auditing standards for CPA's Management of a company has responsibility for financial statements and related disclosures Board of Directors (audit committee) is responsible for ensuring that processes are in place for maintaining the integrity of the company's accounting, financial statement prep, and financial reporting Independent Auditors (CPA's) present Unqualified (clean) Audits Unqualified/Clean Audit- attests to the fairness of financial statements and related disclosures Institutional Investors- private and public pension funds, mutual funds, endowment and charitable funds, and trust funds Private Investors- individuals who purchase shares in the company Creditors- suppliers and financial institutions that lend money or supplies to the company Other Users of financial info include customers, suppliers, competitors, and employees. Each User evaluates the financial health of companies Guiding Principles for Communicating Useful Information: Information must be- Relevant - Reliable Consistent - Comparable All material amounts must be disclosed Conservatism Accounting Method is least likely to overstate Assets and Net Income Form 10-K Annual Report- includes detailed descriptions of products...
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...equation, and define assets, liabilities, and owner’s equity. Analyze the effects of business transactions on the accounting equation. Understand the four financial statements and how they are prepared. Questions 1, 2, 5 Exercises 1 2. 3, 4 2 3. 3 4. 6 4 5. 7, 8, 9, 10 4 6. 11, 12, 13 1, 2, 3, 4 5, 6, 7, 11 1A, 2A 4A 1B, 2B 4B 7. 14, 15, 16, 18 5, 6, 7, 8 6, 7, 8, 10, 11 1A, 2A, 4A, 5A 1B, 2B, 4B, 5B 8. 17, 19, 20, 21 9, 10 9, 12, 13, 14, 15, 16 2A, 3A, 4A, 5A 2B, 3B, 4B, 5B 1-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number 1A 2A Difficulty Level Moderate Moderate Time Allotted (min.) 40–50 50–60 Description Analyze transactions and compute net income. Analyze transactions and prepare income statement, owner’s equity statement, and balance sheet. Prepare income statement, owner’s equity statement, and balance sheet. Analyze transactions and prepare financial statements. Determine financial statement amounts and prepare owner’s equity statement. Analyze transactions and compute net income. Analyze transactions and prepare income statement, owner’s equity statement, and balance sheet. Prepare income statement, owner’s equity statement, and balance sheet. Analyze transactions and prepare financial statements. Determine financial statement amounts and prepare owner’s equity statement. 3A Moderate 50–60 4A 5A Moderate Moderate 40–50...
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... | a fiscal year. | C. | an interim period. | D. | a distressed year. | | | | 4. | The time period assumption states that A. | companies must wait until the calendar year is completed to prepare financial statements. | B. | companies use the fiscal year to report financial information. | C. | the economic life of a business can be divided into artificial time periods. | D. | companies record information in the time period in which the events occur. | | 5. | An accounting time period that is one year in length is A. | a calendar year. | B. | a fiscal year. | C. | an interim period. | D. | a quarterly period. | | 6. | The revenue recognition principle dictates that companies recognize revenue in the accounting period in which payment is received. A. | True | B. | False | | 7. | The revenue recognition principle dictates that revenue should be recognized in the accounting records A. | when cash is received. | B. | when performance obligation is satisfied. | C. | at the end of the month. | D. | when it is probable that future economic obligations will be paid and reliable measurement of the amount is possible. | | 8. | The expense recognition principle matches A. | assets with expenses. | B. | expenses with revenues. | C. | assets with liabilities | D. | assets with owner's equity. | | 9. | Which of the following statements about the accrual-basis of accounting...
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...in each of the four basic financial statements and the way that it is used by different decision makers (investors, creditors, and managers) * Identify the role of generally accepted accounting principles (GAAP) in determining financial statement content and how companies ensure the accuracy of their financial statements. * Why do we need financial accounting and reporting? * Companies want to raise capital to fund their business * Debt from Creditors/Banks * Investments from Investors (in the form of stock) * Who owns a business? * Investors own a business that is publicly traded. * Investors have managers run that business on their behalf. * Investors want to be sure managers are making good use of their money (their investment) * Managers know more about the inner-workings of a company than do investors. (We call this information asymmetry). * Therefore investors need managers to report the operations of the business to them in a useable format. These are what we refer to as FINANCIAL STATEMENTS. * Managers can act in their own self-interest (at the expense of shareholders), even potentially lying to them (fraud) to increase investments in the company. How do we resolve this dilemma? * Financial Reporting according to GAAP (guidance to ensure that the company FAIRLY and ACCURATELY presents its financials) * Financial Statement Auditors – auditors...
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