Assignment 5.1.3
1.10 The Baptist Foundation of Arizona: The Conservatism Constrain
1. Consider the principles, assumptions, and constraints of GAAP (GAAP). Define the conservatism constraint and explain why it is important to users of financial statements.
Conservatism constraint is the “general concept of recognizing expenses and liabilities as soon as possible when there is uncertainty about an outcome, but to only recognize revenues and assets when they are incurred”. In other words, if there is doubt about incurring a loss, one should incline to record it. However, if there is doubt about a gain, one should not be inclined to recognize until it is incurred. Moreover, costs should be complemented with the revenue that generates the work.
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Based on the evidence, they failed to meet the accrual recognition requirements, in addition to the following:
a. down payment and periodic payments that demonstrates commitment
b. receivables is not subject to future reduction
Therefore they should not have recognized profit from the sale and thus violated the conservatism constraint.
3. Consult paragraph 2 and paragraph A5 (in Appendix A) of PCAOB Auditing Standard 5. Do you believe the BFA had established an effective system of internal control over financial reporting related to its significant year-end transactions? Why or why not?
According to PCAOB Auditing Standard 5 paragraph 2, “effective internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. If one or more material weaknesses exist, the company 's internal control over financial reporting cannot be considered
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BFA did not provide enough assurance that required the transaction to be recorded in accordance with GAAP. Thus is the case with BFA and the transaction that took place with ALO and New Church Ventures.
4. Consider the sale of the Santa Fe Trails Ranch II stock by foundation Investments to friends. Do you believe that the auditor should have completed any additional testing beyond vouching the payment received from friend? Provide the rationale for your
1. Accounting for R&D does not appear to be in compliance with SFAS No. 2. The work is of the nature described in SFAS No. 2, para. 9, and is not being conducted for others under contract.
Overall, the work performed to test the relevant financial statement assertions and the evidence gathered has led our audit team to conclude that the confirmation issues encountered may signify that a potential for material misstatement exists. For example, the existence of a line of credit in one of the Financial institutions indicates that we need to perform further investigation to assess the reliability of the findings.
10) Kieso, Donald E., Weygandt, Jerry J., Warfield, Terry D. Intermediate Accounting. Hoboken, NJ: Current Developments for Audit Committees 2002. Pricewaterhouse Coopers analysis on recognizing revenue. External
Richard Lott (1016). Investopedia. 12 Things You Need To Know About Financial Statements. Retrieved from http://www.investopedia.com/articles/basics/06/financialreporting.asp
His project manager, Oliver Freeman, changed the analysis. that Daniel submitted in order to get a clear opinion so that their firm may get an exclusive account. The. My decision was to report the incident so that the correct information would be supplied in the audit documents. The decision I chose may cost Baker Greenleaf to lose an important client and Oliver Freeman to lose his job, but it will uphold the integrity of the accounting profession and keep Daniel Potter safe from the liability of providing false information.
description as SAB101 is believed to be changing the requirements and not really interpretative of the GAAP standards. The three (3) fraud cases presented in this study is the results of company executives pushing the limit on interpretation gap related to revenue recognition, managing earnings for the purpose of evading material fact, along with dishonest intention will increased the likelihood that fraud is the
Warfield, T; Gribble, J; Lang, M; Lee, C. (1996) Response to the FASB Exposure Draft, “Proposed Statement of Financial Accounting Standards-Consolidated Financial Statements: Policy and Procedures:” Accounting Horizons 10.3 182-185. Retrieved from http://search.proquest.com.prx-keiser.lirn.net/docview/208901068/14335C45C80F4E580F/1?accountid=35796
The McKesson & Robbins scandal of 1938 was the first catalyst for auditing reform. It was found that McKesson & Robbins had “’fraudulently represented its assets’ and that its affairs were being ‘carelessly conducted and mismanaged’” (Baxter,1999, p.165). The SEC investigated the audit firm used by McKesson & Robbins, PW. During this investigation, SEC found PW had “failed to employ that degree of vigilance, inquisitiveness, and analysis of the evidence available that is necessary” (Baxter, 1999, p. 172). The PW retorted that they had conformed to standards then applicable. As a result, the American Institute of Certified Public Accountants (AICPA) issued a new set of standards. The first set issued by the Auditing Standards Board (ASB) were the Statements of Auditing Procedures, which lasted from 1939 until 1972. In addition
...alculate the values and provide evidence of the hidden assets. This findings of their analytical report and evidence presented were accepted by the judge and saved time fordecision-making.
In addition to learning these four improper practices, as a plaintiff, if he or she intends to file a legal action against audit firms, evidences to charge them have to be sufficient. PwC’s auditors might be reckless, but they were not added as defendants. Most of the charges to Campbell were rejected by the judge just because plaintiffs could not provide sufficient evidence and specifically point out facts. Also, this case shows us a red flag about unusual increasing sales near the end of accounting period.
FASAB faces many unique challenges when developing accounting standards for the federal government. The federal government's shear size, ability to manipulate the money supply, and complex issues such as accounting for social security all complicate the task of developing a single standard for representing the government's financial activity. In spite of these obstacles FASAB has managed to provide a standard requiring all agencies to provide similar reports, which can is then consolidated into an individual report. This allows the reader to analyze the whole as well as the contributions of the individual parts.
Auditors have a role to report an independent opinion regarding the truth and fairness of financial information presented to them by management which enhances the financial reporting system. The need for independence arises because, generally, users of financial statements do not have all the information necessary to judge the objectivity of the auditor. Auditors must not
By the end of this report we get to know more about the principles and assumptions used in preparing accounting statements. By using this assumption and principles of accounting we can be a good accountant who knows how to write a proper financial statement. Moreover using these assumptions are essential in preparing a financial statement of any company.
Cash should be accurately identified and classified in the financial statements. The auditors determine the correctness of the financial statement presentation from the evidence obtained from the previously mentioned audit procedures. The auditors should inquire about any evidence of restrictions on the availability of funds and make sure those restrictions are properly disclosed. In addition, the auditors should compare financial statement presentation with the applicable accounting standards. These procedures provide evidence to the presentation and disclosure assertion.
GAAP is exceptionally useful because it attempts to regulate and normalize accounting definitions, assumptions, and methods. Because of generally accepted accounting principles one is able to presuppose that there is uniformity from year to year in the methods that are used to prepare a company's financial statements. And even though variations might exist, one can make realistically confident conclusions when comparing one company to another, or when comparing one company's financial statistics to the statistics for the industry as a whole. Over the years the generally accepted accounting principles have become more multifaceted because financial transactions have become more intricate (Accounting Principles, 2011).