Noted In Their Critical Accounting Estimates Section Of

$8 mill needed to be deducted from net income on the income statement. They should have followed (Following) with disclosure notes to describe why this error occurred and how it impacted the statement and accounts that it touched. For instance, the notes would describe the presence of the correction on the current period of beginning inventory, and retainED earnings.

Moreover, ASC 250-10-45-17 presents that “A change in accounting estimate shall be accounted for in the period of change if the change affects that period only or in the period of change and future periods if the change affects both. A change in accounting estimate shall not be accounted for by restating or retrospectively adjusting amounts

The next step is to inspect the accounting estimates made by the company. It is another area in which misstatements can easily be occurred. In this area, we will also identify any potential trends that may be offsetting the financial

If, in the auditor's judgment, management has not adequately addressed the effects of estimation uncertainty on the accounting estimates that give rise to significant risks, the auditor shall, if considered necessary, develop a range with which to evaluate the reasonableness of the accounting estimate.

We believe that each set of data has its strengths and weakness. The balance sheet data available for Pinnacle Manufacturing is extremely helpful in evaluating whether certain income statement items could be misstated. As an example, to know the trend in the asset Accounts Receivable: Trade made evaluating the income statement item Bad Debt expense easier. As a result, the financial data for the parent Pinnacle could be cross-referenced more easily.

As a result, they demanded that the group add "below-the-line" items to reduce the amount of warranty liabilities that the company would have to report on its financial statements. The issue with this is that the additional items embedded into the calculation were not supported by any evidence. These items included anticipated engineering improvements that had no evidence of actually decreasing the amount of claims, and vendor reimbursements for warranty claims even though these arrangements were usually not specified in the contractual agreements with vendors.[4] With these new reductions to estimated warranty liabilities, the estimation no longer followed GAAP since it included potential reductions in future warranty costs that were not backed by any evidence.

To enhance a user’s ability to understand and compare an entity’s operating results, reporting entities are required to describe all significant accounting policies in their financial statements. As such to decide if an accounting principal is significant, is the management’s decision.

Income statements and balance sheets were reviewed to summarize the following key points that could

Financial statements are used to determine the business activities of a firm and the role of accounting analysis is to determine the accuracy and quality of the information provided. This analysis would look into the degree of its accounting figures captures its business reality through the policies used and its resulting noise, potential forecast errors and its impact on Myer’s profit.

The assessment of Pinnacle financial statements shows the company is a sound and emerging organization. After review, it was realized that Pinnacle’s numbers have improved overall since the previous year. This shows that Pinnacle is consistent and profitable. Looking specifically at the balance sheet, you can see the over improvement in total assets for the company:

Because of the complexities involved in financial accounting, errors do occur. Errors may result from a change in accounting principle, mathematical mistakes, changes in estimates not prepared in good faith, an oversight, a misuse of facts, or an incorrect classification. These errors can cause serious financial report misstatements. When errors are discovered, adjustments must be made to prior periods. These adjustments result in a change in the retained earnings balances for those periods. The company goes back to the earliest period affected by the error when calculating these adjustments (Kieso, Weygandt, & Warfield, 2007).

The changes in the above given accounting policies and estimates, affected the reported profits as follows:

Items that require estimates are uncollectible receivables, inventory obsolescence, useful lives and salvage values of assets and changes in depreciation methods to name a few. Such accounting estimates will alter as there are new events that occur, as they acquire more experience, or as it obtains further information on the events. Lastly, reporting a change in entity involves reporting the change by altering the financial statements of all prior periods presented. This allows the revised financials to reflect financial information for the newly developed entity for all periods. An example of a change in entity is presenting consolidated statements in place of statements of individual companies or changing the companies included in combined financial statements.

We have constructed pro forma financial statements based on the sales-driven estimates and interest and tax fixed burdens. The key determining factors to the accuracy of these projections are the assumptions made about revenue growth and the sales-driven accounts like cost of goods sold, current assets (viz., inventory). Also, assumptions about the company’s capital budgeting

II. Some entries in accounting involve an unavoidable degree of estimation, judgment and prediction. In some cases for example, in estimating life of an asset for calculating depreciation, these estimates are normally made inside the business and the creative accountant