Accounting Notes

E. Why does the auditor not use the same tolerable misstatement or percentage of account balance for all financial statement accounts?

5.    Prepare any necessary adjusting entries to reflect the Inventory count at year end. These must be hand written.

Although gross uncollectible accounts are a combination of charity care and uncollectible debt, implications generally occur when recording on a healthcare institutions bottom line, further, charity care and bad debt uncollectible must be recorded and documented independently. Implications stem from recording and classification of uncompensated care. Improper classification of charity care is often mistaken for as bad debt in turn leads to bad debt amounts being over the profit amount when recorded on financial

1. The implication of this factor is there may be an increased risk of misstatement of bad debt expense and the allowance for bad debts. The auditors may decide to assign a more experienced auditor to this audit area. In addition, the auditors will decide to increase the evidence related to the adequacy of the

| Implication: Increased risk of misstatement of bad debt expense and allowance for bad debts. Response: Assign more experienced auditors to this area. Increase evidence.

The purpose of the Sarbanes-Oxley Act is to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities law, and for other purposes. (Lander, 2004) The Act created new standards for public companies and accounting firms to abide by. After multiple business failures due to fraudulent activities and embezzlement at companies such as Enron Sarbanes and Oxley recognized a need for the revamping of our financial systems laws, rules and regulations. Thus, the Sarbanes-Oxley Act was born.

The biggest difference between these two accounts is the balances; what accounts balances are carry over and what is not at the end of the accounting year.

Compared to the current estimation method of the Allowance for Doubtful Accounts of Bradmark, this method

Accruals. This occurs when sales and expenses are recorded when they incur, not when they are paid out or the payment is received. In other words, the record should be made immediately no matter if the payment was received or not, paid out or not yet. Accruals can be called unpaid bills, sales on credit and other expenses over due.

The allowance for doubtful accounts is lower than last year even though the receivables and the revenue are higher. This does not follow any form of consistency in that case. GAAP only allows the establishment of the allowance for doubtful accounts that are supported by appropriate analyses and that the policy is well documented and applied consistently from period to period. Again, without additional information the consistency item is an issue here.

After major corporate and accounting scandals like those that affected Tyco, Worldcom and Enron the Federal government passed a law known as the Sarbanes-Oxley Act of 2002 also known as the Public Company Accounting Reform and Investor Protection Act. This law was passed in hopes of thwarting illegal and misleading acts by financial reporters and putting a stop to the decline of public trust in accounting and reporting practices. Two important topics covered in Sarbanes-Oxley are auditor independence and the reporting and assessment of internal controls under section 404.

When an account receivable is determined to be uncollectable it is no longer qualified as an asset and should be written off. A write off reduced the balance of the customers

Account receivables accounts for purchases which consumers have not yet aid for. This takes cares of any losses that the firm might incur due to allowing credit to certain clients. Bad debts are recorded in the income statement and they represent the des which the company doesn’t expect to be paid back. The account

Support: The Company’s revenues increased considerably (19%). However, the Accounts receivables also increased significantly (38%). Increase in revenues are generally associated with a proportional increase in the allowance for doubtful debts. By not reporting a significant ‘allowable for bad debt accounts’, the company is able to overstate its profits and could be a cause for concern in the long run, if the receivables turn out to be bad.

The purpose of analyzing subsequent collections because it a way to check and make sure that the existence of the action took place. Also checking subsequent collections allows the auditors to check the adequacy of the allowance for uncollectible accounts. This helps the auditor to better calculate the amount that is uncollectible from customers