...CPA Report This memo has been prepared in response to Mr. Butterworth’s inquiry on behalf of the independent audit team reviewing XYZ Corporation, a wholly owned subsidiary of ABC Company. Specifically this memo addressed the methodology used to determine deferred taxes, the procedure for reporting accounting changes and error corrections, and the rationale behind establishing XYZ Corporation as a subsidiary. Also included in this memo, as requested, is a discussion of the responsibilities of a CPA, and the differences between a financial review report and a financial audit report. Methodology used to Determine Deferred Taxes Deferred taxes can be one of two different types of deferred tax entries, permanent or temporary. Permanent deferred tax liabilities are income generating events that do not incur tax liabilities, and thus a permanent adjustment to the financial reports is made to adjust for the discrepancy between income for tax purposes, and income for reporting purposes. A temporary deferred tax liability is a liability where taxable income is different from reportable income, but at some future point, the taxable income will reconcile to the reportable income (Kieso, Weygandt, & Warfield, 2007). Temporary deferred tax liabilities can result in either an excessive or insufficient amount of tax withheld in the current period, which will be reconciled at a later period. An example is the depreciation of a capital asset. If the book depreciation of a...
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...Memorandum To: Manager CC: CPA Report From: Victoria Callahan Date: 3/4/2013 Re: CPA Report Knowing what to write in the CPA report is important because of the information that is being used to make decision with. In the report it includes the questions that have been ask and what the responsibilities is for a CPA. The method that is used for deferred taxes is temporary difference. Temporary difference is the difference between the tax basis of an asset or liability and its reported (carrying or book) amount in the financial statements (Kieso, Wyegrandt, and Warfield, 2007). The reason is that the difference in the timing of the recording of the revenue and expenses. The accounting method that is used for deferred taxes is accrual. Deferred tax is recognized on the financial statements when the taxes are recognize on the asset or liability. The retrospective approach is an approach that the Financial Accounting Standards Board requires for companies when reporting accounting changes (Kieso, Wyegrandt, and Warfield, 2007). In this approach, when one would make the changes of the accounting principle he or she would go back in previous financial statement to make the changes. This would show the consistency in the company financial statements. When reporting an error the same principle applies. When making corrections to an error, one must restate the prior statement in order to correct the error. Afterwards, document what the error was and report it to the company management...
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...Memo To: Outside CPA From: CC: Manager Date: April 25, 2011 Re: CPA Report Below I have summarized an explanation to the questions that came about during your examination of a subsidiary that has been set up as a corporation. • The methodology used to determine deferred taxes. The deferred taxes reported are a temporary difference. The deferred taxes were calculated based on what needed to be reported versus what has been posted to the corporations’ books. The “temporary difference is the difference between the tax basis of an asset or liability and its reported (carrying or book) amount in the financial statements, which will result in taxable amounts or deductible amounts in future years” (Kieso, el. 2007, Ch. 19). The corporation has taken the balance sheet approach to account for this timing issue and SFAS 109 guidelines have been followed. • The procedures for reporting accounting changes and error corrections. According to Kieso, Weygandt, and Warfield (2007, Ch. 22), and the Financial Accounting Standards Board [FASB], reporting accounting changes should be done using the retrospective approach. The retrospective approach reflects the changes done in previous financial statements so that they are more comparable. To report these changes first the corporation adjusts each prior period financial statements and then the corporation “adjusts the carrying amounts of assets and liabilities as of the beginning of the first year presented”...
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...CPA Report Dawn Rouse ACC545 December 9, 2013 Jeffrey Mitchell CPA Report INTERNAL MEMO TO: Management FROM: Dawn Rouse, CPA RE: CPA Report ------------------------------------------------- DATE: December 9, 2013 ------------------------------------------------- I’m writing to let give you the rough draft of the information that I will provide to the CPAs in response to their questions about the subsidiary. You will find my responses to their questions along with the information you request regarding the responsibilities of a CPA and the differences between a review and an audit. US GAAP (SFAS 109) requires deferred taxes to be computed under the liability method. This method states that deferred tax assets and liabilities are recognized when there is a temporary difference between the stated value of an asset or liability for tax purposes and the value for financial reporting purposes. Deferred tax is contingent on future revenue and income being sufficient to offset the deferred tax. When an asset’s carrying value exceeds its tax basis the result is deferred tax and when it is less it is considered a tax asset. When a liability’s carrying value exceeds its tax basis, the result is a tax asset and when it is less it’s a tax liability. SFAS 154 requires “retrospective application” for any voluntary changes in accounting principles. Restating comparative financial statements to show the new method as if it had been applied the whole time is retrospective...
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...CPA Report Michelle Richardson ACC/545 Internal Control Systems September 10, 2012 Jeffrey Mitchell Memo Accounting Professionals, Inc. To: Management From: Michelle Richardson CC: Jeffrey Mitchell Date: September 10, 2012 RE: CPA Report ________________________________________________________________________ Per your request, this memo provides explanations regarding a subsidiary that has recently been set up as a corporation. This explanation includes the procedures for reporting accounting changes and error corrections, the methodology used to determine deferred taxes, and the rationale for establishing the subsidiary as a corporation. According to the AICPA (2012), “licensed CPAs are subject to regulation by their respective state boards of accountancy and strict professional ethics rules adopted by the boards to protect the public against fraud, incompetence and conflicts of interest” (para. 1). As such, the responses to the outside CPA’s in regard to the above-mentioned matters will be handled with the utmost diligence. In addition, to clarify the questions regarding the differences between reviews and audits, an audit is the “accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria” (Arens, Elder, & Beasley, 2006, p. 19). Reviews, on the other hand, are a “form of attestation in which a CPA firm issues a written report concerning historical...
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...To: Outside CPAs From: CPA Date: November 12, 2012 Subject: Professional responsibilities as a Certified Public Accountant (CPA), difference between a review and an audit; explanations regarding deferred tax methods, accounting changes and error corrections, and establishing a subsidiary as a corporation. CC: manager It has come to my attention that my expertise is warranted for the explanations on the following topics: the methodology used in determining deferred taxes, procedures required for reporting accounting changes and error corrections, and the rationale behind establishing a subsidiary as a corporation. CPA Professional Responsibilities and Roles I am delighted that you seek my expertise in these topics. I want to first give you a brief overview of my professional responsibilities and role as a CPA for this company. As a licensed CPA by the Tennessee State Board of Accountancy (TNSBA), and a current member of the American Institute of Certified Public Accountants (AICPA), I am required to uphold and practice with a level of ethical conduct. I ensure that I have the required educational background and experience, and continue to maintain updated educational recaps every three years. According to the Code of Professional Conduct, members are to have “…a continuous responsibility to cooperate with each other to improve the art of accounting” (AICPA, 2012, para. 1). I am responsible...
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...CPA Report Laura Sferra Acc/545 November 3, 2014 Mr. Hung Tran We are currently in a review engagement with XYZ CPA firm. The CPAs from this firm will be performing procedures (primarily analytical procedures and inquires) that will provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with Generally Accepted Accounting Principals (GAAP). A review does not obtain an understanding of this organization's internal control, assess fraud risk, test accounting records or other procedures ordinarily performed in an audit. The CPAs will issue a review report stating that the review was performed in accordance with Statements on Standards for Accounting and Review Services. This report will not issue an opinion ( as with an audit) but will state that a review is substantially less scope than an audit and that the CPA is not aware of may material modifications that should be made to the financial statements for them to be in conformity with GAAP. It will also state that the financial statements are the responsibility of management. As a professional accountant within this organization I am responsible for the preparation and fair presentation of the financial statements in accordance with Generally Accepted Accounting Principals. It is my role to ensure and safeguard the integrity...
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...CPA Report Financial Reporting June 4, 2012 A subsidiary is its own legal entity that is governed by a board of directors. For independence, the subsidiary corporation has its own liability and is separate from the parent corporation for taxation and regulatory guidance from state and federal agencies. Control over the subsidiary is maintained by the parent corporation holding more than fifty-percent shareholder value and voting rights in the subsidiary charter. The professional responsibilities of the certified public accountant (CPA) are to provide assurance services and attestation services that include an audit and review of historical financial statements and internal control effectiveness of reporting financial transactions. These services are usually divided between two separate CPA firms to review asset and revenue balances of subsidiaries which make up a portion of the totality of the parent company’s financial statements. A review of financial statement transactions by a certified public accountant consists of an analysis of accounting procedures to determine if there are errors in financial reporting and that they adhere to generally accepted accounting principles (GAAP). During this phase, the CPA will consult with management and accounting staff with a follow up of the organization’s written policies to determine that financial statements are prepared in conformity to GAAP. The audit of financial statements include a testing of...
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...| Brown, LLC | Memo To: Management From: Brown LLC CC: Partners & External CPAs Date: [ 4/17/2012 ] Re: CPA Report First, I want to take this opportunity to thank you in advance for your time and consideration. I am honored to provide you with the best recommendation(s) to ensure you are aware of the correct information as it pertains to examining a subsidiary for a corporation. I am aware of your concerns and want to educate you on the options that are available. I will address: * The methodology used to determine deferred taxes. * Discuss the procedures for reporting accounting changes and error corrections. * Provide a rationale for establishing a subsidiary as a corporation. * Discuss my primary responsibilities of a CPA. * Provide the difference between a review and an audit. The methodology used to determine deferred taxes. Companies will have two different types of deferred tax methods to choose: 1. Liability Tax Allocation Method 2. Deferred Tax Allocation Method Liability Tax Allocation Method suggests that deferred taxes are based on estimated tax rates because; temporary difference will reserve itself. Meaning, all tax rates are adjusted according to corresponding rate change(s), for future use within a current period. In addition, Liability Tax Allocation Method is allowed for financial reporting purposes and should be reflected on the balance sheet (Keiso, Weygandt, & Warfield, 2007). On the other...
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...CPA Report ACC/545 University of Phoenix Internal Memo To: Management From: CPA Re: Further Information regarding Request Before any information can be given to outside CPA’s, the professional responsibilities of a CPA must be outlined and understood as well as what the differences between a review and an audit are. With the examination of a subsidiary that has been established as a corporation there are certain questions that arise such as: What is the methodology used in determining deferred taxes, What it t he procedures for reporting accounting changes and error corrections, and What is the rationale behind establishing the subsidiary as a corporation. The draft below outlines my response to the questions that have been provided. CPA Professional Responsibility As an accountant I am expected to maintain a high level of ethical conduct that must go above and beyond society’s law. The motivation behind such a high level of ethical conduct lies in the need for a significant level of public confidence in the value of the services that are provided by the accounting profession, in spite of the person who is behind providing the services. It is my responsibility as a CPA to conduct myself in a manner that has been set forth by the AICPA’s Professional Code of Conduct. This code of conduct outline’s required behaviors in relation to accounting responsibilities, the Public Interest, Integrity, Objectivity and Independence, Due Care, Scope, and Nature of Services (AICPA...
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...Vincent Mokwenye ACCA 545- Financial Reporting Monday December 18, 2012 Memorandum- CPA Report MEMORANDUM Date: December10, 2012 To: Libby Grimes Re: CPA Report This memo is in response to the request for information from the CPA firm examining our subsidiary. The memo addresses information regarding the methodology used to determine deferred taxes, the various procedures used for reporting accounting changes and error corrections, and the rationale for establishing the subsidiary as a corporation. In addition it provides information on the professional responsibilities of Certified Public Accountants (CPA’s). Finally, a distinction is made between a financial audit and a financial review. The Methodology used to Determine Deferred Taxes It is common knowledge that companies report different amounts of income on their income statements and tax returns respectively. This difference is caused by the fact that taxable income is determined on the cash basis of accounting using the internal revenue service (IRS) code; whereas the pre-tax income reported on the income statement is determined on the accrual basis of accounting using generally accepted accounting principle (GAAP). This difference in accounting basis causes the differences in the amounts reported on the income statements and the tax returns. This temporary difference is responsible for deferred tax liability or asset that is recorded on a company’s balance sheet. Therefore, where the amount of taxes payable...
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...MEMORANDUM TO: Outside CPAs , XYZ Company FROM: DATE: August 19, 2013 SUBJECT: CPA Report CC: Jane Doe, Accounting Manager A CPA has many professional responsibilities. My personal responsibilities are to take ownership in certain aspects of the organization such as finance and record keeping. Moreover, I am responsible for reviewing and auditing the financial books to ensure accuracy and compliance. A review consists of analytical procedures and inquiries to ensure there is no need for material modifications of the financial statements. An audit has different procedures including; testing internal controls, assessing fraud risks, and testing samples of accounting records. In some cases, I may help develop new processes to streamline day to day activities. I also help oversee tax preparation for the organization, although tax is not my specialty. On certain occasions I am involved in the hiring process, to ensure we place the right candidate in the right position. Lastly, it is my duty to adhere to a strict code of ethics and remain professional at all times. In addition to the responsibilities listed above, there are certain situations that may arise that need further explanation. In a recent meeting, I was asked to provide the following detailed explanations. Methodology used to determine deferred taxes: Procedures for reporting accounting changes and error corrections: Rationale behind establishing the subsidiary as a corporation: A subsidiary corporation...
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...MEMORANDUM TO: All Employees FROM: DATE: August 29, 2011 SUBJECT: CPA Report The methodology used to deferred taxes is by having a temporary tax. By doing this the company can show what they have to pay for the years later on. The company can show how much is left by putting the temporary tax under the Long-term Liabilities on the balance sheet. Schroeder, Clark, & Cathey (2005) states: “Accounting for deferred taxes involves the following steps: Calculate taxable income and income tax payable for the year. Compute deferred income taxes at the end of the year. Determine deferred tax expense (benefit) and make the journal entry to record income taxes. Classify deferred tax assets and liabilities as current or noncurrent in the financial statements.” The procedures for reporting accounting changes depend what types of changes are being made. There are three types of accounting changes: Change in Accounting Principle, Change in Accounting Estimate, and Change in Reporting Entity (Schroeder, Clark, & Cathey, 2005, p.1152). Each change is different due to what is being change. If inventory is change then the Change in Accounting Principle would be used. If a depreciated asset is being changed by the number of years that at one time had a different useful life then the Change in Accounting Estimate. The Change in Reporting Entity is when a company merges with another company and becomes a partnership or when a partnership is no longer...
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...CPA Report CPA Report To: George Smith From: Subject: Accountant Responsibilities The duties and responsibilities of a corporate accountant can vary considerably depending on the area assigned and the need for different assignments that need to be completed. As an accountant I can have responsibilities from working on the corporations financial statements to accomplishing research into how to reduce the overhead on our products and services. Another aspect of this type of job would be to provide management with the vital financial information that they need to make informed decisions about where our company needs to go in the future to become more of a success. Working with other accountants and various departments we make sure that the financial statements are done correctly and on time, make sure that all the tax preparation is done and paid on time, payroll, accounts payable, and accounts receivable are all done correctly and in a timely fashion. Another aspect of corporate accounting would be internal auditing. This is an important area as it helps to make sure that the company has strong internal controls and is preforming all of its tasks correctly. This area also helps to prevent and detect any fraudulent activity that might be occurring. All accountants are held to a Code of Conduct and this code can be found on the AICPA and FASB website. By adhering to this code of conduct it helps assure the people relying on the information that any accountant produces...
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...THE UNIFORM TEXAS CPA EXAMINATION: REQUIREMENTS AND PROCESS Prepared for Dr. Newman by Stefanie Chen October 19, 2015 CONTENTS EXECUTIVE SUMMARY……………………………………………………………………..ii INTRODUCTION…………………………………………………………………………........1 REQUIREMENTS TO APPLY FOR AND SIT FOR THE TEXAS CPA EXAM…….............1 Moral character………………………………………………………………………….1 Degrees&150 hours…………………………………………………………………......2 Accounting, business, and ethics courses…………………………………………….....2 FOUR SECTIONS AND TEST STRUCTURES………………………………………….........5 Coverage and structure………………………………………………………………….5 THE RULES, TESTING WINDOWS, AND SITES……………………………………...........6 Rules…………………………………………………………………………………….6 Testing window………………………………………………………………………….6 Testing center……………………………………………………………………………6 PREPARE FOR AND TAKE THE UNIFORM CPA Exam…………………………………….7 Courses and options……………………………………………………………………...8 Taking the Uniform CPA Exam under rules…………………………………………….9 Receiving scores…………………………………………………………………………9 ADDITIONAL REQUIREMENT FOR TEXAS CPA…………………………………...........10 Submit a licensure application…………………………………………………………10 Ethics exam……………………………………………………………………………..10 Work experience in Texas……………………………………………………………...10 BENEFITS TO BECOME A TEXAS CPA…………………………………………………..11 CONCLUSIONS……………………………………………………………………………….11 WORKS CITED…………………………………………………………………………….....11 EXHIBITS AND NOTES……………………………………………………………………...12 APPENDIXES…………………………………………………………………………………17 Appendix 1-Application of Intent…………………………………………………...
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