3 1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements Principles of Accounting, Volume 1: Financial Accounting
Matos stays up to date on changes in the accounting industry through educational courses. Accounting is the process of tracking and recording financial activity. People and businesses use the principles of accounting to assess their financial health and performance. Accounting also serves as a useful way for people and companies to honor their tax obligations. GAAP helps govern the world of accounting according to general rules and guidelines. It attempts to standardize and regulate the definitions, assumptions, and methods used in accounting across all industries.
Investigation and enforcement of registered public accounting firms for violations of specified laws or professional standards. As the basis for the auditor’s opinion, US GAAS require the auditor to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. All of the following are true about the concept of reasonable assurance except A.
Which Of The Following Statements Best Describes The SEC Rules Relating To Bookkeeping Services? A..
During a F/S audit, an auditor is required to communicate some important matters to those charged with governance. A and B are incorrect because these are matters internal to the audit firm and need not be disclosed. C is incorrect because the nature and timing of detailed audit procedures should not be discussed with either the mgmt or with those charged with governance, as it may reduce the effectiveness of the audit. Which of the following is not a documentation requirement for an engagement conducted pursuant to the standards of the PCAOB? A. The auditor must identify all significant findings or issues in an engagement completion document. The auditor must retain audit documentation for at least seven years from the report release date.
- For an existing audit client for whom the auditor performed the preceding audit.
- If the net profit is a negative number, it is called net loss.
- Neither Sarah nor the
San Francisco office is involved in the audit of Line Electronics.
- The two standards treat inventories, investments, long-lived assets, extraordinary items, and discontinued operations, among others.
- There also does not have to be a correlation between when cash is collected and when revenue is recognized.
- The chair of the board of directors (BOD) is not necessarily a person with a financial reporting oversight role whereas the CEO always has a financial reporting oversight role.
By comparison, fixed costs remain the same regardless of production output or sales volume. Examples of fixed costs include rent, wages, and salaries. Accountants calculate ROI by dividing the net profit of an investment by its cost, then multiplying by 100 to generate a percentage. For example, consider a person who invests $10,000 in a company’s stock, then sells that stock for $12,000.
If significant, the documentation should include a description of the safeguards applied to reduce any significant threat(s) to an acceptable level. If so, the auditor would not be independent of the firm. According to the PCAOB, which bookkeeping services of the following tax services may be provided jointly with the audit of an issuer’s financial statements without impairing independence? Planning and issuing an opinion in favor of the tax treatment of an aggressive tax position; B.
Perform fewer substantive test of details (should be more, not fewer) B. Perform more test of control (如果control risk风险设定为高，证明internal control不完善，所以不用花时间再去做test of control,而是应该留时间来做substantive test) C. How the results of various auditing procedures performed by the assistants should be evaluated. C. All control deficiencies detected during the course of the audit; The auditor would never bring up all control deficiencies detected during the audit. However, if there is a pattern of control deficiencies that are significant deficiencies or material weaknesses, the auditor would bring that forwarded. D. Include abstracts or copies of those contracts or agreements in the audit documentation.
Businesses and organizations use a system of accounts known as ledgers to record their transactions. The general ledger (GL or G/L) is the master account containing all ledger accounts. It holds a complete record of all transactions taking place within a specified accounting period.Major examples of individual accounts in a general ledger include asset accounts, liability accounts, and equity accounts.
- The CPA fails to obtain a written understanding from the client concerning the scope of the engagement.
- Bob believes there is a strong possibility that management will
proceed with the litigation.
- 101-14—The effect of alternative practice structures on the applicability of independence rules.
- Debt capital covers money obtained through credit instruments such as loans.
- We strongly recommend that the member obtain an engagement letter from the auditor outlining the services to be provided and the respective responsibilities of both parties.
Debits are accounting entries that function to increase assets or decrease liabilities. They are the functional opposite of credits and are positioned to the left side in accounting documents. Credits are accounting entries that increase liabilities or decrease assets. They are the functional opposite of debits and are positioned to the right side in accounting documents.
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These disclosures are usually recorded in footnotes on the statements, or in addenda to the statements. Over the last several years, stakeholders (e.g., audit committees, executive management and others within the organization) have been asking more of internal audit. In addition to assurance, they expect internal audit to provide business insights and strategic advice. These increased and evolving demands drive a need for knowledge, skills, and technical experience that is extensive and varied, and can be difficult to maintain in-house.
How does the SEC regulate accounting?
Instead of issuing standards itself, the SEC is primarily concerned with enforcing accounting and auditing standards in the context of financial statements it receives from public companies under the federal securities laws. It also oversees the Public Company Accounting Oversight Board.
In common usage, capital (abbreviated “CAP.”) refers to any asset or resource a business can use to generate revenue. A second definition considers capital the level of owner investment in the business. The latter sense of the term adjusts these investments for any gains or losses the owner(s) have already realized.Accountants recognize various subcategories of capital. Working capital defines the sum that remains after subtracting current liabilities from current assets.
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Real estate, equipment, and machinery are common examples. Accountants record those declines as depreciation. To obtain CPA licensure, a candidate must meet eligibility criteria and pass a demanding four-part standardized exam. Eligibility standards include at least 150 hours of higher education covering related coursework.
- For example, a manufacturer would incur higher costs if it doubled its product output.
- Management’s disregard of its responsibility to maintain an adequate internal control environment.
- Auditors and forensic accountants are another important branch of the field.
- All of the following are true about the concept of reasonable assurance except A.
- Though there are many similarities between the conceptual framework under US GAAP and IFRS, these similar foundations result in different standards and/or different interpretations.
Auditors performing engagements under generally accepted government auditing standards (GAGAS) are subject to new rules reinforcing the principles of transparency and accountability under revisions published by the U.S. Government Accountability Office (GAO) in July 2018. In Introduction to Financial Statements, we addressed the owner’s value in the firm as capital or owner’s equity.
The term is sometimes used alongside “operating cost” or “operating expense” (OPEX). OPEXs describe costs that arise from a company’s daily operations. Variable costs change as output or revenues change.
When an investor incurs a loss, the ROI is expressed as a negative number. Accountants track partial payments on debts and liabilities using the term “on credit” (or “on account”). Both versions of the term describe products or services sold to customers without receiving upfront payment. https://www.bookstime.com/articles/saas-accounting In accounting, liquidity describes the relative ease with which an asset can be sold for cash. Assets that can easily be converted into cash are known as liquid assets. Accounts receivable, securities, and money market instruments are all common examples of liquid assets.