...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 data that provides less assurance than an audit as to whether the financial statements are in material conformity with generally accepted accounting principles (GAAP)” (Arens, Elder, & Beasley, 2006, p. 19). CPA Report When setting up a subsidiary as a corporation, many factors need to be considered such as the procedures for...
Words: 1249 - Pages: 5
...| 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...
Words: 1063 - Pages: 5
...1. Multinational Corporations(MNCs) 1) Definition: firms that engage in some form of international business. 2) The goals of MNCs: maximizing the value of the MNCs and shareholder wealth. 2. Agency problems 1) Agency problems: The conflict of goals between a firm’s managers and shareholders is often referred to as the agency problem. 2) Agency costs are normally larger than for purely domestic firms for several reasons (1) MNCs with subsidiaries scattered around the world may experience larger agency problems because monitoring managers of distant subsidiaries in foreign countries is more difficult. (2) Foreign subsidiary managers raised in different cultures may not follow uniform goals. (3) The sheer size of the larger MNCs can also create large agency problems. (4) Some non-U.S. managers tend to downplay the short-term effects of decisions. 3) The parent corporation of an MNC may be able to prevent agency problems with proper governance. (1) Communicating the goals for each subsidiary to ensure that all subsidiaries focus on maximizing the value of the MNC rather than their respective subsidiary values. (2) Overseeing the subsidiary decisions to check whether the subsidiary managers are satisfying the MNC’s goals. (3) Implanting compensation plans such as stocks that reward the subsidiary managers who satisfy the MNC’s goals. 4) The ways to reinforce corporate governance of MNCs. (1) Establishing a centralized database...
Words: 804 - Pages: 4
...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...
Words: 1212 - Pages: 5
...CPA Report ACCT 545 Deborah Asbury CPA Report Memo To: Outside CPAs From: Date: April 13, 2014 Re: CPA Report In response to the examination of the subsidiary that has been set up as a corporation, the explanations to the deferred tax methods, procedures for accounting changes and corrections, and the reasoning for setting up the corporation as a subsidiary will be addressed in the following memo. Deferred Tax Method Financial reporting and tax reporting create temporary differences between the amounts reported for income taxes and on the financial statements because an accrual basis is used for financial reporting and a modified cash basis is used for tax reporting. Deferred taxes reported contain a temporary difference between the tax basis of a liability or asset and its reported amount in the financial statements that will result in taxable or deductible amounts reporting years. Deferred tax liabilities and assets are recognized on the balance sheet based on the difference between the financial statement values and the tax basis (Kieso, Weygandt, & Warfield, 2007). The balance sheet approach and the guidelines of the Financial Accounting Standards (FAS No. 109) have been followed to account for this timing issue. Deferred tax assets are recorded when there are greater expenses for financial reporting than tax reporting. At some point the tax amount paid to the Internal Revenue Service (IRS) will be higher than the tax on the financial statements. Deferred...
Words: 1054 - Pages: 5
...as “fictitious corporation” from this point forward. I will evaluate fictitious corporation to ensure the company reporting is consistent with the Generally Accepted Accounting Principles (GAAP). In addition, I will evaluate the company to ensure their methodology is acceptable for determining deferred taxes and that their procedures for reporting accounting changes and/or error corrections is being carried out correctly. Lastly I will audit fictitious corporation to ensure that the company’s rationale behind establishing one of their newer subsidiaries as a corporation. Methodology for determining deferred taxes We will look to see how the company is treating their deferred taxes and which methodology they should be using. The company should be determining deferred taxes based on the prior year’s difference between income tax expense and its income tax payable. It is important that there will be differences that arise between fictitious corporation’s income tax expense and income tax payable as this company uses the full accrual method for financial reporting but when looking at taxes they are evaluating based on a modified cash basis. Procedures for reporting accounting changes/error corrections We will look to see how fictitious corporation is reporting their accounting changes. We are also intending to look at any error correction to ensure they were handled appropriately as well. I will be sure to first start off by informing fictitious corporation that we as an...
Words: 508 - Pages: 3
...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...
Words: 834 - Pages: 4
...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...
Words: 1149 - Pages: 5
...provide information to outside CPAs who are examining a subsidiary that has been set up as a corporation. As part of their review, the CPAs have asked you to provide them with the following explanations: • The methodology used to determine deferred taxes • The procedures for reporting accounting changes and error corrections • The rationale behind establishing the subsidiary as a corporation Prepare your response to the three questions. Before submitting your response, your manager would like to know a little bit more about the request. She has asked you to tell her what your professional responsibilities are as a CPA, and the difference between a review and an audit. Provide draft responses to the above questions. Additionally, provide your manager with a summary of your responsibilities in an internal memo (no more than 1,050 words). 1. The methodology used to determine deferred taxes Because tax reporting and financial reporting are based on two sets of assumptions, they create temporary differences between the amounts reported on the financial statements and income tax statements. A modified cash basis is used for tax reporting and accrual basis is used for financial reporting (Intermediate book, 966). A company will recognized deferred tax assets and liabilities on their balance sheet based on the differences between the financial statement carrying values and the tax basis (Book1,166). Deferred tax asset and deferred tax liability are two different...
Words: 1627 - Pages: 7
...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 is a type of business that is owned by a larger corporation, also known as the parent company. The parent company can own the entire corporation, or a large percentage of the shares in that corporation. Additionally, the parent company has the option to control the actions of the subsidiary corporation. Thank you very much for your feedback and inquiries regarding the subsidiary. I hope...
Words: 312 - Pages: 2
...Memo To: Manager From: CC: Date: Re: Professional Responsibilities of a Certified Public Accountant (CPA), and the differences between an audit and a review “Accountants, as professionals, are expected to maintain a level of ethical conduct that goes beyond society’s laws” (Schroeder, Clark & Cathey, 2005, p. 563). Therefore, the American Institute of CPAs (AICPA) established a Code of Professional Conduct to ensure public confidence in the quality of services provided by CPAs (Schroeder, et al., 2005). The June 12, 2012 Code of Professional Conduct list the Principles as; Responsibilities, Public Interest, Integrity, Objectivity and Independence, Due Care, and Scope and Nature of Services (AICPA, 2013). The principle of responsibilities requires the CPA to perform their responsibilities as professionals, by exercising sensitive professional and moral judgments on activities (AICPA, 2013). The principle of public interest requires the CPA to approach duties in a way that serves the public interest, honors the public trust and demonstrates commitment to professionalism (AICPA, 2013). The principle of integrity requires the CPA to maintain and expand public confidence, and execute professional duties with the highest level of integrity (AICPA, 2013). The principle of objectivity and independence requires the CPA to be free...
Words: 1166 - Pages: 5
...TO: Nazgrel Darkmoon, CEO FROM: Furious Styles DATE: January 09, 2011 SUBJECT: CPA report The recent acquisition of the subsidiary we have taken control of has been set up as a corporation. I have received your email regarding the aspects of this transaction that you would like to have explained, and will also give you an idea of what the professional responsibilities are for the CPA’s involved. In addition, I will detail the methodology used to determine deferred taxes, the procedures for reporting accounting changes and error corrections, and the rationale behind establishing the subsidiary as a corporation. At the root of the advantage of using Certified Public Accountants in our examinations are their reputation, independence, and overall competence to provide the required results. CPA’s are highly trained, have very high standards of ethics, and can simply provide a more detailed and thorough service for us. Their ongoing education ensures us that their methods are always up to date, and their professionalism will provide us with accurate and verifiable results that won’t have to be re-checked. Their key function for our needs will be to examine the financial statements of our new subsidiary Reviewing the financial statements simply isn’t a proper way to get a clear picture of our new subsidiary. In a financial audit, the CPA’s will determine if the financial statements have been prepared in accordance with generally accepted accounting...
Words: 1186 - Pages: 5
...Foreign direct investment (FDI) is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra company loans".[1] In a narrow sense, foreign direct investment refers just to building new facilities. The numerical FDI figures based on varied definitions are not easily comparable. FDI is the sum of equity capital, other long-term capital, and short-term capital as shown the balance of payments. FDI usually involves participation in management, joint-venture, transfer of technology and expertise. There are two types of FDI: inward and outward, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares.[3] FDI is one example ofinternational factor movements Importance and barriers to FDI[edit] The rapid growth of world population since 1950 has occurred mostly in developing countries[citation needed]. This growth has been matched by more rapid increases...
Words: 1892 - Pages: 8
...nance Chapter 1 Multinational Financial Management: An Overview 1. The commonly accepted goal of the MNC is to: A) maximize short-term earnings. B) maximize shareholder wealth. C) minimize risk. D) both maximize short-term earnings and minimize risk. E) maximize international sales. 2. With regard to corporate goals, an MNC is mostly concerned with maximizing _______, and a purely domestic firm is mostly concerned with maximizing _______. A) shareholder wealth; short-term earnings B) shareholder wealth; shareholder wealth C) short-term earnings; sales volume D) short-term earnings; shareholder wealth 3. For the MNC, agency costs are typically: A) non-existent. B) larger than agency costs of a small purely domestic firm. C) smaller than agency costs of a small purely domestic firm. D) the same as agency costs of a small purely domestic firm. 5. The valuation of an MNC should rise when an event causes the expected cash flows from foreign to _______ and when foreign currencies denominating these cash flows are expected to _______. A) decrease; appreciate B) increase; appreciate C) decrease; depreciate D) increase; depreciate 6. Which of the following theories identifies specialization as a reason for international business? A) theory of comparative advantage. B) imperfect markets theory. C) product cycle theory. D) none of these. 7. Which of the following theories identifies the non-transferability of...
Words: 1071 - Pages: 5
...the First Philippine Commission placing all banks under the Bureau of Treasury. The Insular Treasurer was authorized to supervise and examine banks and banking activities. | | | February 1929 | The Bureau of Banking under the Department of Finance took over the task of banking supervision. | | | 1939 | A bill establishing a central bank was drafted by Secretary of Finance Manuel Roxas and approved by the Philippine Legislature. However, the bill was returned by the US government, without action, to the Commonwealth Government. | | | 1946 | A joint Philippine-American Finance Commission was created to study the Philippine currency and banking system. The Commission recommended the reform of the monetary system, the formation of a central bank and the regulation of money and credit.The charter of the Central Bank of Guatemala was chosen as the model of the proposed central bank charter. | | | August 1947 | A Central Bank Council was formed to review the Commission’s report and prepare the necessary legislation for implementation. | | | February 1948 | President Manuel Roxas submitted to Congress a bill “Establishing the Central Bank of the Philippines, defining its powers in the administration of the monetary and banking system, amending pertinent provisions of the Administrative Code with respect to the currency and the Bureau of Banking, and for other purposes. | | | 15 June 1948 | The bill was signed into law as Republic Act...
Words: 2270 - Pages: 10
