An Analysis of Instructional Case Focusing on Ethical Issues Involving Financial Accountants and Independent Auditors

1583 Words Apr 27th, 2013 7 Pages
THE NORTH FACE, INC.: An analysis of Instructional Case Focusing on Ethical Issues Involving Financial Accountants and Independent Auditors

Questions
1. Should auditors insist that their clients accept all proposed audit adjustments, even those that have an “immaterial” effect on the given set of financial statements? Defend your answer.

To confirm that materiality is a pervasive concept in auditing, simply refer to the index of the professional auditing standards and identify the large number of “materiality” entries—approximately fifty, if you are curious. In addition to being an important topic, materiality is easily among the most controversial
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3. Identify the general principles or guidelines that dictate when companies are entitled to record revenue. How were these principles or guidelines violated by the $7.8 million barter transaction and the two consignment sales discussed in this case?

3. Statement of Financial Accounting Concepts No. 5, “Recognition and Measurement in Financial Statements of Business Enterprises,” established a two-part revenue recognition rule for accountants to follow in deciding when to record revenues. Before revenue is recognized (recorded) in an entity’s accounting records, it should be both realized and earned, according to the following excerpt from SFAC No. 5. Revenues and gains are realized when products (goods or services), merchandise, or other assets are exchanged for cash or claims to cash. . . . revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues. The “Suggestions for Use” section identifies the specific accounting standards that apply most directly to

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