...Business Accounting Revenue Recognition ACCOUNTING PRINCIPLE: REVENUE RECOGNITION This document describes the Revenue Recognition methods that are currently employed at ASB(ASB): Revenue Recognition Methods The ASB revenue recognition policy follows the definitions and principles stated in the Nokia Accounting Standards as well as the relevant International Financial Reporting Standards (IFRS) mainly IAS 11 "Construction contracts" and IAS 18 "Revenue". ASB´s main revenue recognition methods are contract accounting, general revenue recognition and service revenue recognition methods. Basic Revenue Recognition Criteria Revenue can be recognized for majority of ASB sales (regardless of revenue recognition methods) when all the following criteria have been met: 1. A contract is in place (binding obligation) 2. Delivery has occurred: a. IAS 11 (contract accounting); delivery has occurred and services performed according to the contract delivery terms, b. IAS 18 (general revenue recognition); the significant risks and rewards of ownership (as defined in the contract) have transferred to the customer. 3. Continuing managerial involvement usually associated with ownership and effective control have ceased, 4. The amount of revenue can be measured reliably (the fee is fixed or determinable), 5. It is probable that economic benefits associated with the transaction will flow to ASB (collectibility is probable) and 6. The costs incurred or to be incurred in respect of the transaction...
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...BOSTON AUTOMATION SYSTEMS INC. Boston Automations Systems is a capital equipment and testing instrument manufacturer and supplier to electronics based and semiconductor industries. During 1999, Boston Automation had three divisions- Glendale division, Advanced Technology Division and Technical Devices division. Problem Statement: The CFO of the company, Daniel Fischer undertakes a revenue recognition review for each of the 3 divisions as SEC has issued SAB 101 guidelines. The effects of applying this guideline would be reported as a cumulative effect adjustment resulting from a change in accounting principle. As a test, Fisher has selected from each of the three divisions a limited number of representative sales transactions to review and the main question is- if all revenue recognition criteria is met other than the issues raised by the customer acceptance provisions, when should revenue be recognized. SAB 101 The guidelines are as follows: 1. Persuasive evidence exists 2. Delivery of ordered goods has occurred or services have been rendered. 3. The sellers price to the buyer is fixed or determinable 4. Collectability of the sales proceeds is reasonable assured ANS1. The revenue recognition methods adopted by Boston Automation Systems are as follows: 1. Product revenue is recognized upon shipment i.e Sales Method. The products of the company come with a warranty, and the company recognizes the estimated cost of this warranty when the revenue...
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...planning we have to take step back, look at the whole picture, and understand how it begins. Financial Management is the key essential in an organization when you plan financially. Financial Management is the building blocks for all accounting records and business transactions that occur. We cannot forget that decisions are based on the organizations fiscal objectives others are based on general accounting principles. So to better understand you must ask the question of “Is the financial management of the organization strong and how is the financial reporting records validity”? When we think of financial management we have to start with the basic framework of any accounting structure and that would be the generally accepted accounting principles (GAAP) is the hierarchy of accounting standards. As we look at these accounting standards, the GAAP has a long list that follows such as; standards, conventions and the rules of the organizations accounting follows when during summarizing all transactions for the financial statement. Then we have what is known as the third parties these should be free of any type of bias and inconsistency without debate or the GAAP standards will follow. With any organization the “general accepted accounting principles are guidelines precisely, are a group objectives and conventions that have been set up permanently over time to set how financial statements are prepared and presented (FASAB, 2010). When you deal with any type of financial data, you...
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...Code of Ethics Fundamental Principles Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour * * APES 110, s290 provides specific guidance on independence requirements for audit and review engagements, while s291 provides similar requirements for other assurance engagements (don’t quote s291 or marks deducted in first assignment) Corporate Governance System by which companies are directed and managed covers conduct of board of directors Independent Director A director will not be independent if he/she Substantial shareholder Employee in executive capacity in the last three years Principal, employee of advisor/consultant role in last 3 years A material supplier or customer Material contractual relationship with the company Served on the board for a period Has an interest or relationship that could reasonably be perceived to interfere with the directors ability to act in the companies best interest Corporate Governance – the UK 1992 committee on the financial aspects of corporate governance issued the Cadbury report Corporate Governance – Australia 1991 Corporate Practices and Conduct was set Groups in Australia advocating corporate governance ASX ASIC + few more * * ASX Corporate Governance Council’s Principles of Good Corporate Governance Principle 1: Lay solid foundation for management and oversight Principle 2: structure the board to add value Principle 3: Promote ethical and responsible...
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...(CPA), following the General Accepted Accounting Principles (GAAP). The GAAP’s are an aggregate accounting rules that framework how firms and corporations prepare their financial statements and report their business transactions. The GAAP financial statement principles and standards delineate specific details on the preparation and recording accounting information reported in companies’ balance sheet, measurement of shares and revenue recognition. In other words, GAAP furnishes the basic rules on how companies prepare and present their business income, expense, assets, and liabilities. For decades the GAAP has successfully served this modern era dynamic economy. However, its authoritative rules have displayed an inability to successfully uphold today evolving commerce economical and financial environment. Given today uncertain economical environment and the international complex economy, the capital market required workable and cultural business principles that embrace and cope with today’s dynamic business financial changes. In response to this national and international financial concern, on May 2011 the U.S. Securities and Exchange Commission (SEC) Staff issued a “Staff Paper” which elaborates on the possibility to incorporate International Financial Reporting Standards (IFRS) into the U.S. financial reporting system ("IFRS in the U.S. Responding to the Challenge ", n.d). The IFRS creates centralized financial reporting principles that provide the potential...
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...FASB Codification System Orientation Paper The Financial Accounting Standard Board (FASB) Codification System would be a system that has been put into place that holds all resources together from the GAAP standards. The standards includes FASB, the Accounting Principle Board, the Securities and Exchange. The information within the FASB has all of the information located within one central location. The purpose of having the FASB Codification System in place would be for all of the information within one central location. The system also helps to avoid valuable information from being overlooked due to having the information within multiple locations. With the FASB codification system another purpose was to make researching simple; less complicated. The nine content areas located in the FASB Codification System consist of: 1. General Principles which within this locations holds the overall information of the General Acceptance Accounting Principles. 2. Presentation which holds overview and information for the following: a. Presentation of Financial Statements b. Balance Sheet c. Statement of Shareholder Equity d. Comprehensive Income e. Income Statement f. Statement of Cash Flows g. Notes to Financial Statements h. Accounting Changes and Error Corrections i. Earnings Per Share j. Interim Reporting k. Limited Liability Entries l. Personal Financial Statement 3. Assets containing: a. Cash and Cash Equivalents b. Receivables c. Investments d. Inventory ...
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...Accounting firm Barnes and Fischer Medium sized national CPA firm Partnership formed in 1954, with 6000 professionals on the payroll. Firm provides auditing and tax services, also builds information systems for the consulting side of business for non-audit clients, or clients who have not publicly traded. first assignment as an audit mangager is to assist an audit partner on a client acceptance decision. prospective client is OCEAN MANUFACTERING medium sized manufacturer of small home appliances. At a local chamber of commerce meeting, the president met the company’s president. The company decided to end its relationship with its current auditor because they want to build a relationship with a more nationally established CPA firm because the company want to make an initial public offering IPO of its common stock within the next few years. Ocean’s annual financial statements have been audited each of the past 12 years to comply with the debt covenants and to receive interest rate on the company’s existing line of credit. The December 31 fiscal year has passed so NOW it is the time for the company to contract with a new auditor to get the audit under way. Our partner Jane Hunter is intrigued with the idea of having a client in the home appliance industry. Especially oceans, because it has a favourable market position and growth potential!! Our company never had a client in this industry (small home appliances) before. Most of our audit clients are in the...
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...Ethics in business: Author: Institution: Introduction. Ethics have been defines as the discipline that differentiates between what is good from what is bad. Ethics are a set of moral principle or value. Ethics assist individuals to make moral decisions when faced with any kind of situation. In business, ethics assist individuals in applying ethical considerations when making any decisions. Ethics regarding the carrying on of business have been described as principles and standards of behavior that are expected of individuals in business. There are various philosophical approaches to decision making in business. One of the most popular philosophical approach to ethics in business is the consequentialist approach. According to this school of thought, a decision ought to be analyzed to ensure that the benefits of making that particular decision outweigh the possible harm that can be occasioned by that decision. According to this theory, the only variables under considerations are the cost benefits involved as well as the level of harm that is likely to be caused by a particular decision. The deontological school on the other hand addresses issues which are related to duties, rights and considerations of justice using standards that are rooted on morality. There are various problems associated with this philosophical school of thought since it advocated for a strict observance of ethical behavior. One of the major problems is the conflict between the ethical duties owed to various...
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...INTERNATIONAL STANDARD ON AUDITING 200 OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF FINANCIAL STATEMENTS (Effective for audits of financial statements for periods beginning on or after June 15, 2006)∗ CONTENTS Paragraph Introduction .................................................................................................... 1 Objective of an Audit of Financial Statements .............................................. 2-3 Ethical Requirements Relating to an Audit of Financial Statements ............. 4-5 Conduct of an Audit of Financial Statements ................................................ 6-9 Scope of an Audit of Financial Statements .................................................... 10-14 Professional Skepticism ................................................................................. 15-16 Reasonable Assurance ................................................................................... 17-21 Audit Risk and Materiality ............................................................................. 22-32 Responsibility for the Financial Statements ................................................... 33-36 Determining the Acceptability of the Financial Reporting Framework ......... 37-48 Expressing an Opinion on the Financial Statements ...................................... 49-51 Effective Date ................................................................................................ 52 ∗ ISA 315, “Understanding...
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...value of the best alternative. An opportunity cost provides an indication of the relative importance of a decision. When the opportunity cost is small, the cost of an incorrect choice is small. Similarly, when the opportunity cost is large, the cost of not making the best choice is large. Suppose you sell a car for $7,200 without much forethought. You find out the next day that the car could have been sold for $7,300. You have incurred an opportunity cost of at least $100. You might not consider that very significant. But suppose you discovered the next day that the car could have been sold for $9,500. You probably would consider the opportunity cost of $2,300 on an asset worth $9,500 significant. An important application of the Principle of Self-Interested Behavior is called agency theory. Agency theory analyzes conflicts of interest and behavior in a principal–agent relationship. Broadly speaking, a principal–agent relationship is a relationship in which one entity, an agent, makes decisions that affect another entity, a principal. Moral hazard refers to situations in which the agent can take unseen actions for personal benefit even though such actions are costly to the principal. By carefully analyzing individual behavior, agency theory helps us develop more-effective provisions for contracts between a principal and an...
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...Chapter 5 REVENUE AND MONETARY ASSETS Changes from Tenth Edition The chapter has been updated. The SEC’s SAB101 Revenue Recognition tests have been added. Approach The sequence of transactions for accounts receivable and bad debts often causes difficulty; indeed, the time that one is sometimes forced to spend on this topic is all out of proportion to its importance. Students often do not understand why an Allowance for Bad Debts account is necessary at all; they do not grasp the notion that although we feel reasonably sure that some accounts will go bad, we do not know which ones they will be. Even when they do understand this, the chain of transactions involved in estimating bad debts, writing off specific accounts, and booking bad debts recovered, is complicated and not easy to follow. If experience is any guide, it is quite likely that at the time this chapter is taught the press will be describing a company that has gotten into trouble for overstating its revenue or understating its bad debt or warranty allowance. Discussion of such a situation would be interesting. Cases Stern Corporation (A) is a straightforward problem in handling accounts receivable and bad debts. MacDonald’s Farm, by contrast, has few technical calculations but provides an excellent opportunity for a realistic discussion of alternative ways of measuring revenue and of valuing assets. Joan Holtz (A) is a different type of case. It is a device for raising several discrete, separable...
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...Chapter 5 REVENUE AND MONETARY ASSETS Changes from Tenth Edition The chapter has been updated. The SEC’s SAB101 Revenue Recognition tests have been added. Approach The sequence of transactions for accounts receivable and bad debts often causes difficulty; indeed, the time that one is sometimes forced to spend on this topic is all out of proportion to its importance. Students often do not understand why an Allowance for Bad Debts account is necessary at all; they do not grasp the notion that although we feel reasonably sure that some accounts will go bad, we do not know which ones they will be. Even when they do understand this, the chain of transactions involved in estimating bad debts, writing off specific accounts, and booking bad debts recovered, is complicated and not easy to follow. If experience is any guide, it is quite likely that at the time this chapter is taught the press will be describing a company that has gotten into trouble for overstating its revenue or understating its bad debt or warranty allowance. Discussion of such a situation would be interesting. Cases Stern Corporation (A) is a straightforward problem in handling accounts receivable and bad debts. MacDonald’s Farm, by contrast, has few technical calculations but provides an excellent opportunity for a realistic discussion of alternative ways of measuring revenue and of valuing assets. Joan Holtz (A) is a different type of case. It is a device for raising several discrete, separable...
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...Non-Adoption of IFRS The United States (US) should not adopt the International Financial Reporting Standards (IFRS) as a replacement for the Generally Accepted Accounting Principles (GAAP) we currently follow. The basic concept of the IFRS is to provide the reporting standards for global financial organizations and the framework on how to disclose their financial statements in a general format, similar to a template from a software program. The argument has been made about the need for a one set of standards due to the need of global companies (corporations). The simplification of accounting standards into a one language, one format for the purpose of credit ratings, is very questionable. GAAP is the standard for the US and the US dollar is still the driving force for the world economies. The question of stability and going concern arises when comparing the Euro dollar against the US dollar. The Euro dollar is suffering along with the European Union. Lately, their joint venture has been on very shaky ground. Is America willing to give up control of its accounting authority, interpretation, and leadership in the world economy? This is the equivalent of the U.S. giving up most of their military control to the “blue helmets” -- the United Nations personal army. Surely, these “blue helmets” will not advocate America’s interest first above all the other nations. The first argument against the adoption of IFRS is based on the standards. IFRS standards are...
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...standards? Measures of the quality of the auditor’s performance c. The general group of U.S. generally accepted auditing standards includes a requirement that- due professional care be exercised by the auditor d. What is the general character of the three generally accepted auditing standards classified as standards of field work? The criteria of audit planning and evidence gathering 2-17- a. A CPA firm is reasonably assured of meeting its responsibility to provide services that conform with professional standards by having an appropriate system of quality control b. The nature and extent of a CPA firm’s quality control policies and procedures depend on The CPA Firm’s size, The Nature of CPA firm’s practice and Cost benefit consideration c. Which of the following are elements of a CPA firm’s quality control that should be considered in establishing its quality control policies and procedures? Human resources, monitoring and engagement performance d. One purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to provide reasonable assurance that the integrity of the client is considered 2-19- a. Appropriate accounting and auditing research requires adequate technical reference materials. Each firm professional has online password access through the firm’s Internet Web site to electronic reference materials on accounting, auditing, tax, SEC, and other technical information, including industry...
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...information could result in the detection of biased information in the process of preparing financial statements. Possible associations between data might logically exist and go on, and that the methods fail replace analysis of balances and transactions. When determining whether transactions are recorded, the bearing of the audit analysis ought to be from the general ledger balances, adjusted trial balances, original source materials, and the general journal entries. The technique of sampling may be applied in an audit especially if the risk of a material misstatement is fairly low, (Weygandt, at el 2002). The auditing has to report on the financial statements that sampling was used. The main advantage applying statistical sampling is that it minimizes the level of risk faced in performing a test. The various types of transaction and financial account affected include cash sale overview of the Revenue Process, credit sale purchases, cash collection purchases, cash sales account receivable, and inventory credit sales. The most important used financial records are: the Purchasing process order entry which shows the acceptance of client orders for goods and services, (Weygandt, at el 2002). This ensures proper support of client orders for credit endorsement and creditworthiness; Issuance of sales invoices to clients for products billing and shipment; also, dispensation of billing adjustments involving allowances, discounts, and income. Cash revenue processing of the receipt for...
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