Acca P7 Notes

The following annotated chapter outline will help you review the major topics covered in this chapter.

The audit committee’s role in financial reporting is to ensure that accurate and transparent disclosure is being presented to the public, investors, and shareholders. The role of top management in financial reporting is to make sure that the financial statements and disclosures are in accordance to GAAP, and that everything disclosed is truthful, while not hurting the business. The

In the Sarbanes-Oxley Act of 2002, the audit committee is responsible for adequate supervision and reporting and for responding to:

Any act of theft of money or property, or use of money or property, without the person 's consent, or without the appropriate legal authority; the misuse of money intended for, or belonging to, an adult by someone who has been trusted to handle their finances, or who has assumed control of their finances by default.

Money Laundering is the act of placing illegally acquired money in a legitimate business cash flow. This is done in order to be able to use that currency without law enforcement and the IRS questioning cash flow pertaining to a certain individual or corporation in question. This also considered a form of

1) Add exemption amounts and the standard deduction (if deducted it for regular tax purposes) back to regular taxable income in determining AMTI.

The process of allocating to expense the cost of a plant asset over its useful life in a rational and systematic manner.

Embezzlement usually is a premeditated crime performed methodically, with the embezzler taking precautions to conceal his or her activities of the criminal conversion of the property of another person (Ponzi,2016), because the embezzlement is occurring without the knowledge

The PCAOB gives a new meaning to the public accounting industry. The board must be composed of five members, appointed for a 5-year term, two of which are Certified Public Accountants (CPAs) or have previously been CPAs, and three of which have never been CPAs. The chair of the PCAOB may be a CPA, but only if he has been out of practice for at least five years. "The members must be independent of the accounting profession as no member may, concurrent with service on the board, share in any of the profits of, or receive payments from, a public accounting firm, other than fixed payment such as retirement payments" (4). All members of the PCAOB must be appointed by the Securities and Exchange Commission (SEC). The board performs various jobs which include: "oversee the audit of public companies, establish audit report standards and rules, inspect, investigate and enforce compliance on the part of registered public accounting firms and those associated with the firms" (4). Not only do public accounting firms who audit the financial reports of public companies have to register with the PCAOB, but foreign public accounting firms must register as well. The standards of auditing include:

The Audit Committee is comprised of the following five members from the Board; F. Duane Ackerman, Ari Bousbib, J. Frank Brown, Karen L. Katen, and Mark Vadon. This group is tasked with assisting the Board with the oversight of The Home Depot’s financial statements, ensuring that they are in compliance with legal and regulatory requirements. They also review and monitor the Company’s Compliance program, making changes when appropriate to ensure that the Company remains compliant. This committee must be comprised of three or more independent directors from the Board and they cannot receive any compensation other than directors’ fees from Home Depot. A requirement for this committee is to have a basic understanding of

The audit committee is responsible for the following. It is responsible for reviewing the financial statements, for reviewing the company's compliance and control systems, for monitoring the effectiveness of the internal audit function, assessing the independence and objectivity of the external auditors, and ensuring the employees have the opportunity to raise concerns about matters of financial reporting. The audit committee supports the Board. Ultimately, because the audit committee is comprised of members of the Board, they are elected by the shareholders. Should the shareholders decide, they can replace these members at the annual meetings.

The audit committee’s responsibility was to look over the accounting and financial reporting process as well as the financial statement audits; appoint, compensate and oversee the external auditor; and to ensure that the company has a whistleblower program. (p. 52) At first glance the committee could notice that something was not right with the company’s financial records. But nothing was done and nothing was said.

The Board also has sub-committees which deal with specific issues. These include Audit Committee, Compensation Committee, Corporate Governance and Nominating

Does the Board or audit committee understands and exercises oversight responsibility over financial reporting and internal control?

U.S. Securities and Exchange Commission. Audit Committees and Auditor Independence. Retrieve from: http://www.sec.gov/info/accountants/audit042707.htm. October 27, 2014.