Auditing a Publicly Traded Company
Darren Bruneck, Andrew Green, Shalatikka Smith
October 20, 2014
MEMORANDUM TO: Christine Errico, Manager FROM: Darren Bruneck, Andrew Green, Shalatikka Smith
DATE: October 20, 2014
SUBJECT: Auditing a Publicly Traded Company
The goal of any publicly traded company is to make a profit. Many factors come contribute to the equation to achieve this goal. The most important factor is compliance with the Accounting governing bodies, such as GAAP (Generally Accepted Accounting Principles). As an accounting firm it is essential to review your financial statements for consistency regarding the accounting treatment of share-based payment and accounting…show more content… Second, such arrangements protect the sponsor from possible financial failure by its SPEs (Soroosh, 2004). The protection from the possible failure means that if the SPE cannot pay its debt the company that transferred the assets is only liable for what it put into the SPE. There is a drawback to the off-balance sheet arrangements. The assets that are transferred to the SPE have to be removed from the company’s balance sheet. If an SPE is created to finance a certain capital asset or project neither the asset nor liability will be included in the company’s balance sheet.
Consolidation is presenting one set of financial statements of a reporting entity (the parent company) and its subsidiaries. Consolidation is required when one business entity has a controlling financial interest in one or more other business entities. (Schroeder, Clark, Cathey; 2011) Discussed are the two prominent theories of consolidation, entity theory and parent company theory. Covered will be the basics of each theory and any complex issues will be discussed upon necessity.
Entity theory is where the consolidated group is an entity separate from its owners. Emphasis is on the control of the group of legal entities operating as a single unit. Consolidated assets belong to the consolidate entity, and he income earned by investing in those assets is income to the consolidated entity, not the parent company stockholders. Reference SFAS No 14 for more details. (Schroeder,