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Accounting ACCT 2610 Chapter Notes - Chapter 5: Public Company Accounting Oversight Board, Financial Accounting Standards Board, Financial Statement

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oliveleopard31
2 Oct 2016
School
WUSTL
Department
Accounting
Course
Accounting ACCT 2610
Professor
Charles Ham

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Document Summary

Disclosed any fraud: the accounting staff prepare the details of the reports, the board of directors is elected by the stockholders to represent their interests. Small amounts do not have to be reported separately (immaterial: material amounts are amounts that are large enough to influence a user"s decision. The disclosure process: a press release is a written public news announcement normally distributed to major news sources. Followed by a conference call during which senior managers answer analysis" questions about the quarterly results: for privately held companies, they provide annual reports comprised of: Report of independent accountings if the statements are audited: form 10-k is the annual report that publicly traded companies must file with the. Sec: business: description of business operations and company strategy. 2: management"s discussion and analysis of financial condition and results. Selected financial data: summarized financial data for a 5-year period.

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Related Questions

Chapter 1 Financial Accounting and Accounting Standards

Other means of financial reporting that are not financialstatements include the president’s letter or supplementaryschedules in the corporate annual report, prospectuses, reportsfiled with government agencies, news releases, managementforecasts, and social or environmental impact statements.

a) The objectives of Financial Reporting The objective:

The objective is to prepare financial information that is usefulto present and potential equity investors, lenders and otherstakeholders in taking decision

b) General-purpose financialstatements_______________________________________________________________________________________________________________________________________________________________.

c) Entity perspective____________________________________________________________________

d)Provide decision-useful_________________________________________________________________________________________________________________________________________________.

e) The accounting profession has developed a set of standardsand procedures called _________________________________________________________

LO 1.2 Identify the major policy-setting bodies and their rolein the standard-setting process.

Three organizations: Securities and Exchange Commission (SEC):______________________________

American Institute of Certified Public Accountants (AICPA):_______________________________________________________________

Financial Accounting Standards Board (FASB):____________________________

The federal government established the SEC to help develop andstandardize financial information presented to stockholders. Mostcompanies that issue securities to the public or are listed on astock exchange are required to file audited financial statementswith the SEC._____________________________________________________________________________________________________________________________________.

Under the direction of the SEC the__________________________________ was created by the AICPA in_______. It was the first private sector organization that had thetask of setting accounting standards in the United States.

 ___________________________________________________ thatnarrowed the wide range of alternative accounting practices then inexistence.

In _______. the __________________________________ was formed tomeet the demand for more structured accounting standards. The APBissued pronouncements on accounting principles until _______. thepronouncements where known as _________________, when it wasreplaced by the __________________________________ .WheatCommittee’s recommendations resulted in creation of FASB. The FASBrepresents the current rule-making body within the accountingprofession. The mission of the FASB is to establish and improvestandards of financial accounting and reporting for the guidanceand education of the public, which includes issuers, auditors, andusers of financial information.

The FASB differs from the predecessor APB in the following ways:a. __________________________________ b.__________________________________ c.__________________________________ d.__________________________________ e.__________________________________

In 1984, the FASB created the __________________________________.The purpose of the Task Force is to reach a consensus on how toaccount for new and unusual financial transactions that have thepotential for creating differing financial reporting practices.

The FASB issues two major types of pronouncements:

a. When the FASB issues a new standard it is refers as_________________________________to communicate changes to the FASBCodification. They are considered GAAP and must be followed inpractice. o How the FASB has changed US GAAP, including eachspecific amendment to the FASB Codification o Why the FASB decidedto change US GAAP and background information related to the changeo When the changes will be effective and the transition method.

b. __________________________________ The SFACs represent anattempt to move away from the problem-by-problem approach tostandard setting that has been characteristic of the accountingprofession. The Concept Statements are intended to form a cohesiveset of interrelated concepts, a conceptual framework that willserve as tools for solving existing and emerging problems in aconsistent manner. Unlike FASB statements, the Concept Statementsdo not establish GAAP.

Prior to 2009 the FASB issued several type of pronouncementswhich had different levels of authority. The type of pronouncementsare listed in descending order of relative weight of authority theyhad within GAAP

 __________________________________

 ______________ : these pronouncements refined GAAP byclarifying conflicting or unclear issues relating to previouslyissued standards

 ______________ FASB staff issued pronouncements to providemore timely and consistent application guidance and to make narrowand limited revision of standards.

 ______________: FASB staff issue these pronouncements toclarify and explain, or elaborate on accounting and reportingproblems.

 __________________________________

The FASB board members were CPAs. GAAP The FASB developed theFinancial Accounting Standards Board Accounting StandardsCodification _____________________________ to provide in one placeall the authoritative literature related to a particulartopic._________________________________________________________________________________________________________________

Major sources of GAAP:  _______________________________________ _______________________________________ _______________________________________

Most countries have recognized the need for more globalstandards. _____________________________________________ and U.S.rule-making bodies are working together to reconcile U.S. GAAP withthe IASB _________________________________________

Major challenges in the financial reporting environment. ____________________________________________________________________________________________________________________________________________

1–28. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and
attest services?
(1) While attest services involve fi nancial data, assurance services involve nonfi nancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.
b. Which of the following has primary responsibility for the fairness of the representations
made in fi nancial statements?
(1) Client’s management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.
c. The most important benefi t of having an annual audit by a public accounting fi rm is to:
(1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable.
(2) Enable offi cers and directors to avoid personal responsibility for any misstatements in
the fi nancial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.
d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board
(PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review fi nancial reports fi led with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit fi rms.
e. Which of these organizations has the responsibility to perform inspections of auditors of
public companies?
(1) American Institute of Certifi ed Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.
f. Governmental auditing, in addition to including audits of fi nancial statements, often
includes audits of effi ciency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.
g. In general, internal auditors’ independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive offi cer.
h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002
to regulate public accounting fi rms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of fi nancial statements by a number of public companies.

(3) Conviction of the accounting fi rm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.
i. Which of the following organizations establishes accounting standards for U.S. government
agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.
j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is
suspected.
k. What best describes the purpose of the auditors’ consideration of internal control in a
fi nancial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the client’s operations.
l. Which of the following is an example of a compliance audit?
(1) An audit of fi nancial statements.
(2) An audit of a company’s policies and procedures for adhering to environmental laws
and regulations.
(3) An audit of a company’s internal control over fi nancial reporting.
(4) An audit of the effi ciency and effectiveness of a company’s legal department.

Required: After reading the Bye, Bye SOX? Article comment on the issue of small business compliance with Section 404 of SOX

Bye, Bye, SOX?
The Sarbanes-Oxley Act (SOX) SOX compliance has been extended
may be declawed by upcoming four times, but they won’t need to
U.S. Congress and comply at all if the Garrett-Adler
Supreme Court decisions. amendment makes it to the Senate
The House of Representatives floor as a standalone bill.
recently voted to approve the SOX also established the
Garrett-Adler amendment, which PCAOB to oversee and regulate
would exempt small companies audit firms. PCAOB operates under
from SOX Section 404 provisions, the supervision of the Securities
while the Supreme Court is considering and Exchange Commission (SEC),
the constitutionality of the which also appoints PCAOB members.
Public Company Accounting Oversight It is funded by fees charged to
Board (PCAOB). audited firms. When it was established,
These developments may have Congress wanted the board
long-term implications for SOX, the to be separate, with its own funding
2002 legislation passed in the wake stream, and outside normal civil
of the Enron, WorldCom, and Tyco service laws so it could attract
scandals. The outcomes may also highly qualified specialists. PCAOB
have implications for records managers, members’ salaries are more than
information technology specialists, $500,000 and are reviewed by the
and compliance officers SEC.
who devise and implement company Pro-business advocates, represented
controls. by the Free Enterprise
Section 404 of SOX requires Fund, argue that the PCAOB’s governance
company auditors to attest to the structure is unconstitutional
soundness of the firm’s internal because it is an independent
controls and financial statements. agency that does not allow for the
Internal controls may include anything president to appoint members. Additionally,
from transaction approval authorizations because only the president
to records retention can remove SEC commissioners
programs. This provision is widely for cause, and because
blamed for an increase in auditors’ the SEC can only remove PCAOB
fees, as well as increased expenditures members for cause, some court
to ensure that proper internal members believe this is a formerly
controls are in place. unrecognized limit of the president’s
Small firms – those with powers that may contradict
less than $75 million in the constitution.
market capitalization The Supreme Court will take up
– have protested that the issue soon, and some legal experts
compliance with SOX 404 would believe that SOX could be
cost them a disproportionate share abolished completely if the court
of their earnings. The complaint is rules the PCAOB unconstitutional.
supported by an independent study
conducted at Pennsylvania State
University, which showed that
firms just over the $75 million
mark paid nearly $700,000 more in
audit fees and had average earnings
of negative $1.4 million in 2004