...2. The following requirements relate to Ms. Stitt’s testimony about the audit committee presentation: (a) Visit the PCAOB’s website to identify where guidance related to auditor communications with audit committees resides. AS. 16 Communication with Audit Committees The objectives of the auditor are to: a. Communicate to the audit committee the responsibilities of the auditor in relation to the audit and establish an understanding of the terms of the audit engagement with the audit committee; b. Obtain information from the audit committee relevant to the audit; c. Communicate to the audit committee an overview of the overall audit strategy and timing of the audit; and d. Provide the audit committee with timely observations arising from the audit that are significant to the financial reporting process. Appointment and Retention Significant issues discussed with management in connection with the auditor’s appointment or retention Establish an understanding of the terms of the audit Obtaining Information and Communicating the Audit Strategy Obtaining information relevant to the audit Overall audit strategy, timing of the audit, and significant risks Results of the Audit Accounting policies and practices, estimates, and significant unusual transactions Auditor’s evaluation of the quality of the company’s financial reporting Other information in documents containing audited financial statements Difficult or contentious matters for which the auditor...
Words: 927 - Pages: 4
...Assertions may be classified into the following types: Assertions relating to classes of transactions | Assertions | Explanation | Examples: Salaries & Wages Cost | Occurrence | Transactions recognized in the financial statements have occurred and relate to the entity. | Salaries & wages expense has been incurred during the period in respect of the personnel employed by the entity. Salaries and wages expense does not include the payroll cost of any unauthorized personnel. | Completeness | All transactions that were supposed to be recorded have been recognized in the financial statements. | Salaries and wages cost in respect of all personnel have been fully accounted for. | Accuracy | Transactions have been recorded accurately at their appropriate amounts. | Salaries and wages cost has been calculated accurately. Any adjustments such as tax deduction at source have been correctly reconciled and accounted for. | Cut-off | Transactions have been recognized in the correct accounting periods. | Salaries and wages cost recognized during the period relates to the current accounting period. Any accrued and prepaid expenses have been accounted for correctly in the financial statements. | Classification | Transactions have been classified and presented fairly in the financial statements. | Salaries and wages cost has been fairly allocated between: -Operating expenses incurred in production activities; -General and administrative expenses; and -Cost of personnel...
Words: 670 - Pages: 3
...Hollas Illustration: Susanna Denti How to apply the appropriate transfer pricing methods to intercompany financial transactions In Canada, taxpayers are seeing an increased scrutiny of and more audit focus on intercompany financing transactions by the international tax auditors from the Canada Revenue Agency. The related party financial transaction being most commonly audited by the CRA are intercompany loans, factoring of trade receivables and provision of financial guarantees. This environment of rising transfer pricing controversy risk with respect to intercompany financial transactions conflicts directly with the multinational corporation's (MNC) increasing need to finance its foreign operations through intercompany, crossborder financial transactions. The transfer pricing risks and implications remain very significant both from a tax compliance standpoint and from a controversy risk management perspective. Today, MNCs need to mitigate the risk of significant transfer pricing adjustments by local and foreign tax authorities. While our focus is limited to the Canadian tax environment, it is critical to recognize that in all international related party transactions, with financial transactions being no exception, the transfer pricing issues include the other tax jurisdictions of the foreign related parties that are involved in the intercompany transaction. As such the transfer pricing legislation in those foreign tax jurisdictions must be considered. It is worth recalling...
Words: 1698 - Pages: 7
...reholders’ general meeting.” Regulations governing related-party transactions have been strengthened. Amendments to the Company Law now establish procedures for entering into related-party transactions, and require shareholder approval before a company can provide security to a shareholder or to the actual controlling person/entity. However, rules concerning majority/controlling shareholders should be more clearly elaborated as the market for corporate control/takeover develops in China. The CSRC Code is fairly detailed in its description of rules pertaining to related-party transactions. First, such matters as the nature, type, and other pertinent information of related-party transactions among a listed company and its connected parties should be disclosed in accordance with relevant regulations (“Disclosure of Related-Party Relationship and Transactions” published by the MOF in 1997 and rules as amended by the CSRC from time to time regarding the contents and standard format for information disclosure). Second, listed companies should take efficient measures to prevent related parties from damaging company interests. Third, related-party transactions should observe commercial principles. Fourth, a listed company should not provide financial guarantees for its shareholders or their affiliates7. The CSRC Guideline accords a special role to independent directors to oversee related-party transactions in a proper manner. Specifically,...
Words: 999 - Pages: 4
...manipulating the recognition of revenue. Among the most common methods of doing this are the bill-and-hold transaction and a long list of sham transaction involving shipping, billing and/or related-party involvements. Both the SEC and the AICPA seek to increase independent auditors' awareness of problems associated with these practices. Full Text: | Copyright American Institute of Certified Public Accountants Oct 1999 | [Headnote] Where there's revenue-recognition deviation, there could be fraud. SEC Chairman Arthur Levitt decried what he termed "accounting hocus-pocus" and called for coordinated efforts to uncover it. He targeted the practice by some companies of improperly boosting reported earnings by manipulating the recognition of revenue. Among the most common methods of doing this are the bill-and-hold transaction and a long list of sham transactions involving shipping, billing and/or related-party involvements. Both the SEC and the AICPA seek to increase independent auditors' awareness of problems associated with these practices. Public companies feel pressure to report quarterly earnings that meet or exceed analysts' expectations-after all, failure to meet those expectations can hurt companies' stock prices. This pressure can lead to practices that sometimes include fraudulent overstatement of quarterly revenue. Any of the improper and unusual revenue-transaction methods used to misstate quarterly revenue also can be used to change annual results. Auditors need to...
Words: 2337 - Pages: 10
...and Corporate Governance Committee of Home Depot, which is composed of independent directors, reviews all related-party transactions and relationships involving a Board member or officer of the Company subject to Section 16 of the Exchange Act. To help identify related-party transactions and relationships, each director and executive officer completes a questionnaire that requires the disclosure of any transaction or relationship that the person, or any member of his or her immediate family, has or will have with the Company. Their General Counsel also conducts an independent investigation by reviewing the Company’s financial systems to determine if a director or executive officer, or a company with which he or she is affiliated, engaged in transactions or had a relationship with the Company during the fiscal year. The Nominating and Corporate Governance Committee’s responsibility for the review and approval or ratification of related-party transactions is set forth in its...
Words: 873 - Pages: 4
...account balances, (2) transactions, and (3) disclosures). Should be able to describe in own words, give own examples and relate to examples given in the exercises. * 1) Account Balances Existence – assets, liabilities, and equity interests exist. Rights and obligations – the entity holds or controls the rights to assets, and liabilities are the obligations of the entity Completeness – all assets, liabilities and equity interests that should have been recorded have been recorded. Valuation and allocation – assets, liabilities, and equity interests are included in the financial statements at appropriate amounts, and any resulting valuation or allocation adjustments are appropriately recorded. * 2) Transactions Occurrence – transactions and events that have been recorded have occurred and pertain to the entity (sometimes referred to as validity) Completeness – all transactions and events that should have been recorded have been recorded. Authorization – all transactions and events have been properly authorized. Accuracy – amounts and other data relating to recorded transactions and events have been recorded appropriately and properly accumulated from journals and ledgers. Cutoff – transactions and events have been recorded in the correct accounting period. Classification – transactions and events have been recorded in the proper format * 3) Presentation and Disclosure Occurrence and rights and obligations – disclosed events, transactions ad other matters have...
Words: 1941 - Pages: 8
...Access the PCAOB Website ( www.pcaob.org) and list two new or proposed auditing standards issued by the PCAOB. Auditing Standard no .18: Related Parties The Securities and Exchange Commission (SEC) approved a new Public Company Accounting Oversight Board (PCAOB) standard on auditing transactions with related parties and amendments to PCAOB standards on significant unusual transactions and a company’s transactions and financial relationships with its executive officers. The standard includes new requirements for evaluating how a company identifies, accounts for and discloses its transactions and relationships with related parties. The amendments also require auditors to perform procedures to (1) help them identify and evaluate the business purpose of the significant unusual transaction (2) Obtain understanding of a company’s financial relationship with its executive officers and also understanding their employment contracts. The PCAOB developed this standard and amendment to focus on the auditor’s areas that have been associated with risks and fraudulent financial reporting errors, the PCAOB hopes the new standard will increase the auditors like hood to identify material misstatement on financial statements. Auditing Standard (AS) No.18, Related Parties, will supersede an interim auditing standard and is effective for fiscal year beginning on or after December 15, 2014. The PCAOB noticed the existing standard provided example of procedures an auditor could perform but...
Words: 564 - Pages: 3
...Opportunities - Pinnacle engages in a number of related party transactions. (Part I) - Realizable value issues exist with inventory and receivables (Part I and II) - There has been turnover in internal audit personnel (Part II) Attitudes/Rationalizations - Pinnacle has had disputes with the IRS (Part II). b. The company is in the engine manufacturing business, and has recently expanded into solar engines. The engine manufacturing business is competitive and increasingly outsourced. The solar business depends on developing technology. These characteristics are most likely to affect Inventory to a lesser extent , and accounts receivable fixed assets. and c. Pinnacle could overstate revenues in several ways. The auditor would especially focus on the Machine-Tech division because of the incentives identified in part a. d. There is a major change in perating expenses O and Income from operations this . If change was not expected, it could suggest revenue recognition fraud. The decline in bad debt expense and increase in depreciation expense, which are management estimates, could suggest the use of estimates to overstate income . e. Fraud Risk 1 2 3 4 5 6 7 8 9 10 11 Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes Fraud Triangle Element (if yes) Motivation (Justify commitment to solar) Opportunity Opportunity (related party transaction) Opportunity (related party transaction) Incentives Opportunity (related party transaction) Attitude/Rationalization Opportunity...
Words: 281 - Pages: 2
...GLOBAL TRANSFER PRICING SERVICES Global Transfer Pricing Review kpmg.com TAX © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. Contents Introduction Country Snapshots Country Overviews Glossary of Terms Find out more 2 4 10 255 256 © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. 2 | Global Transfer Pricing Review Introduction © 2012 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved. Introduction | 3 As multinational companies continue to globalize their supply chains, transfer pricing is increasingly at the forefront of business transformation initiatives. Organizations recognize that transfer pricing strategies can add significant value to business projects and help fund future growth as they look to maximize efficiencies and minimize their global tax liabilities. The transfer pricing environment is constantly changing, in terms of both risks and opportunities. Multinational companies...
Words: 144636 - Pages: 579
...states that the true economic nature of a transaction should determine how it is reported on a company’s accounting records, rather than its legal form (Donaldson, 1964). This concept aims to undercut certain transactions such as related party transactions that are solely to distort profitability, rather than a true economic transaction between two parties. The auditor is responsible for the review and testing of the client’s accounting records to see that the substance of their transactions are reflected in their records. If the substance-over-form concept is violated and the financial statements are materially misstated as a consequence, the auditor is required to issue an opinion on the client’s financial statements. 2. In accepting large, high-risk audit clients for relatively high audit fees, an audit firm may become overly dependent on this client and revenue stream. The loss of such a client may be so detrimental to the audit firm itself that the behavior of auditors may change completely. Auditors know the risk of losing this client, and may become more flexible during audit engagements. The only way to figure out if such prospective clients be avoided is to process each unique situation, and use professional judgment in deciding whether to take on a client or not. 3. This issues goes back to the substance-over-form concept. The audit should consider whether economic substance was used in accounting for these transactions. They should also consider the disclosure...
Words: 832 - Pages: 4
...Transaction exposure – the degree to which the value of future short and medium-term cash flows can be affected by exchange rate fluctuations. Two main cash flow types are: inflows, outflows The group did not have material transactions or transactions of an unusual nature with, and did not make loans to, related parties. Economic exposure – the degree to which the value of future long-term cash flows can be affected by exchange rate fluctuations. The countries where significant hydrocarbon basins are located will predominately impact BP’s future hydrocarbon production. Translation exposure – the degree to which the MNC’s consolidated financial statements can be affected by exchange rate fluctuations.Translation exposure does not directly affect cash flows, but some firms are concerned about it because of its potential impact on reported consolidated earnings. In 2010, most items related to translation are negative. Transaction exposure – the degree to which the value of future short and medium-term cash flows can be affected by exchange rate fluctuations. Two main cash flow types are: inflows, outflows The group did not have material transactions or transactions of an unusual nature with, and did not make loans to, related parties. Economic exposure – the degree to which the value of future long-term cash flows can be affected by exchange rate fluctuations. The countries where significant hydrocarbon basins are located will predominately impact BP’s future hydrocarbon...
Words: 427 - Pages: 2
...Introduction Transfer pricing has long been an important cost management topic for transactions among domestic subsidiaries. The concern is to promote actions and behaviors that seek to maximize the corporate performance and profitability rather than the subsidiary performance. Unlike transfer pricing between two divisions of the same company, this transactions between subsidiaries cross international boundaries, involve tax issues concerning the determination, analysis and adjustment of prices between this related entities. I. Transfer price 1. Transfer price definition The transfer prices are the prices at which an enterprise transfers physical goods and intangible property or provides services to associate enterprises. They are the prices charged for any transaction between affiliates entities. This transfer may be commercial, financial or technical. According to the OECD, two companies are associated if one of the enterprises participates directly or indirectly in the governance, management, control or the capital of the other or if the same persons participate directly or indirectly to the management, control or the capital of both enterprises. They can be defined simply as transactions prices between companies of the same group and resident in different states. This type of transactions involves intra-group transactions crossing borders. Example: Within a MNE group, a subsidiary A established in France sells computers to another subsidiary B established...
Words: 2245 - Pages: 9
...Lecture 1 Chapter 1- Demand for audit and assurance services. Assurance services * Independent professional services that improve the quality of information for decision makers. 1. Attestation services * A type of assurance services in which the public accounting firm issues a written communication that express a conclusion about the liability of a written assertion of another party. * Three categories of Attestation services: a. Audit historical financial statements A form of attestation services in which the auditor issues a written report expressing an opinion about whether the financial statement are in material conformity which accounting standard. b. Review of financial statement: A type of attestation service performed by public accountants. Many entities want to provide assurance on their financial statement, without incurring the cost of an audit. c. Other attestation services Such as a natural extension of audit of historical financial statement, as users seek independent assurance about other types of information. For example: banks often require debtors to engage public accountants to provide assurance about the debtor’s compliance with certain financial covenant provision stated in the loan agreement. 2. Other assurance services, They are similar to attestation services in that public accountant must be independent and must provide assurance about information used by decision maker, but differ in that the public...
Words: 6029 - Pages: 25
...years 4 2.1 IAS 1 Presentation of Items of Other Comprehensive Income (OCI) — Amendments to IAS 1………. … 5 2.2 IAS 12 Income Taxes (Amendment) — Deferred Taxes: Recovery of Underlying Assets.. 6 2.3 IAS 24 Related Party Disclosures (Revised).. 7 2.4 Annual improvements adopted by the IASB 8 2.5 IAS 27 Consolidated and Separate Financial Statements . 8 4 References 10 Basics of financial accounting Financial accounting can be defined as: The process of preparing financial statements for a business. The three key financial statements are: 1. Income statement. 2. Balance sheet. 3. Statement of cash flows. They serve two main purposes: a. To report on the current financial position of the company. b. To show how well a company performs over a period of time. Financial statements are used by shareholders. These are investors, creditors and other interested parties who rely on such information to find out whether a business is making or losing money, and they depend on financial accountants to ensure that these statements are materially correct and understandable. Financial accounting is a specialised branch of accounting that keeps tract of a company’s financial transactions. Using standardises guidelines, the transactions are recorded, summarised, and presented in a financial report or financial statement such as an income statement or a balance sheet. It is important to point out that the purpose of financial accounting is not...
Words: 1926 - Pages: 8
