...Responsibilities I will be auditing publicly traded company, known 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...
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...This memo outlines the following questions: What is the methodology used in determining deferred taxes, what is the procedures for reporting accounting changes and error corrections, and what is the rationale behind establishing the subsidiary as a corporation. It will also detail the professional responsibilities of a CPA and what the differences between a review and an audit are. The professional responsibilities of a CPA are to uphold the rules set forth by the State board of Certified Public Accountants, and to conduct ourselves in a manner bound by the rules of the AICPA’s Professional Code of Conduct. They also include: independence, scope of service, confidentiality, practice development, and difference on accounting issues. A CPA at all times should maintain a high level of ethical conduct that goes above and beyond society’s laws. As a CPA we are to keep our professional judgment unbiased and base our opinions on factual information and keep all personal interest separate from the work. CPA’s should keep all client information confidential, and only report information deemed necessary for investors and outside users, as well as determine and discuss with the client and differences in accounting issues that relate to transactions are handled so that they may be resolves in an accurate and timely manner (Schroeder, 2005). The difference between and audit and a review is that an audit provides a basis for an opinion for a company’s financials. A review on the...
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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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...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 hand, Deferred Tax Allocation Method is when deferred taxes are not adjusted by corresponding rate changes. In fact, the main purpose of Deferred Tax Allocation Method is to match tax expenses with pre-tax book income. In addition, this method place an effect on past tax differences. For example, the income tax expense is determined...
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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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...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 types that result from taxable temporary differences. “A deferred tax liability represents the increase in taxes payable in future years as a result of taxable...
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...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: 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 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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...The purpose of this memo is to help explain why a subsidiary would be set up as a corporation. When looking into deferred taxes, it is imperative to look into what the Financial Accounting Standards Board (FASB) has to say about the subject. " deferred tax liability is recognized for temporary differences that will result in net taxable amounts in future years." ("Financial Accounting Standards Board," n.d.). More simply stated deferred tax is a tax that is paid at a later period (ex. income tax, capital gains tax) which when the taxable item is obtained. An example of deferred taxes and the methodology used to determine them would be a 401k plan. The moneys are paid into the plan, and the taxes are not due until the money is withdrawn. Reporting accounting changes and error corrections is a process governed by the Financial Accounting Standards Board (FASB). The first thing to keep in mind is that an error is not the same thing as a correction. An accounting error is "Quantitative error caused by negligence or misapplication of accounting policies and/or the provisions of GAAP; any accounting mistake except fraud.” ("Businessdictionary.com", 2014). An accounting change is “Alterations or modifications that affect (1) accounting methods (such as a new depreciation schedule, or changeover from cash basis accounting to accrual basis accounting, or vice versa), (2) accounting estimates (such as earnings shortfall or amount of bad debts), or (3) accounting entity (such...
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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 Bambi Snyder ACC/545 December 16, 2013 Brooke Call CPA Report Memorandum To: Brooke Call, Management From: Bambi M. Snyder, CPA Date: 12/16/2013 ------------------------------------------------- Re: Professional Responsibilities of a CPA and the Difference between a Review and an Audit Professional Responsibilities of a CPA There are many professional responsibilities a CPA acquires when they accept the CPA license and a job position. As you may know, there have been many news reviews that have given the CPA name a bad reputation. The largest CPA scandal was the Arthur Anderson and Enron scandal in 2002. Unethical and illegal actions played a large role in the said scandal which in turn resulted in many people losing their investments in Enron and many employees being prosecuted by the criminal court system. One of the major responsibilities of a CPA is to remain and act ethical inside and outside of the business. Confidentiality is a major ethic hassle many CPAs have had a difficult time with. The information in a company is vital to the operations of the company. Leaking the vital information to the public or to the company’s competitors is an unethical action. When a CPA is hired by a company to review the financial statements of a company, which is their only job they must do. Preparing income tax refund papers, giving tax advice, or any other information to the management of the company is against the scope of practice what the CPA was hired...
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...CPA Report Furious Styles ACC/545 January 09, 2011 Instructor: LaToyia Tilley MEMORANDUM 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...
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...To: Manager From: Hunter, CPA Re: Deferred Taxes, Accounting Errors and Changes, Subsidiary As of May 14, 2012, this memorandum will provide thorough explanations the following questions: 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. We will also discuss the professional responsibilities of a CPA, and the difference between a review and an audit. Deferred Taxes According to FASB, deferred tax assets or liabilities are recognized for temporary differences that will result in taxable or deductible amounts in future years and for carry forwards. Temporary differences arise when the tax basis of an asset or liability is different from its carrying value on the financial statements. Accounting Changes and Error The three main types of accounting changes are as follows: • Change in Accounting Principle-a change from one accounting principle to another. • Change in Accounting Estimate- a change that happens when new information or additional experience has been given. • Change in Reporting Entities- a change from one entity to another. Although error corrections are not considered as an accounting change, it is still an important asset to use for the financial statements. Errors result from mathematical mishaps, misappropriating accounting principles, or misuse of factual information when preparing a financial statement....
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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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