Discussion and Research Question 15-48 Who Signs Who Receives Required/Optional When Sent Purpose a) Client 's Lawyers Auditor Required By the completion of the audit Obtain corroborative verification relating to contingent liabilities b) CEO & CFO Auditor Required By the completion of the audit Remind management regarding reporting responsibilities and get written responses to prior inquiries c) Auditor Client Optional After audit Provide management with productive suggestions on way to develop their organization. Discussion and Research Question 15-50 1. The estimated loss of $30,000 was accrued in the 2011 financial statements but the actual loss is recognized as $50,000. The financial statements should be adjusted and disclosed to reflect the total loss of $50,000. 2. The event should be disclosed because the accident happened after the balance sheet date. 3. The auditor should decide what incurred the loss. Was the auditor 's decision adverse of court decision as event occurred after the date of the balance sheet or the product sold and lawsuit filed previous to year-end? The condition did present at the balance sheet. It would probably be decided by the auditors because the product sale and lawsuit filing occurred before the balance sheet date. The loss reserve loan has to be adjusted to compensate for this loss. 4. The estimated cost of the purchase requires to be adjusted without any disclosure. 5. On February 2, 2012, the board of directors took the
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The company should report the change in the contingency accrual as a 2009 event due change in estimate. ASC 250-10-45-17 specifies that “a change in accounting estimate shall not be accounted for by restating or retrospectively adjusting amounts reported in financial statements of prior periods.” Additionally, ASC 450-20-25-7 indicates that “all estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments”.
1. For the year-end December 31, 2007, financial statements, M should record $17 million as a liability.
Compare the primary auditor objectives in auditing historical financial statements to auditing internal controls over financial reporting. Identify at least two (2) objectives that are the most significant in reducing the risk of reporting errors or misstatements in financial statements. Provide a rationale for your response.
An accrual is not made for a loss contingency because any of the conditions in paragraph 450-20-25-2 are not met., b. An exposure to loss exists in excess of the amount accrued pursuant to the provisions of paragraph 450-20-30-1.” Therefore, they also need to disclose the range of the possible loss with some explanation.
1. Should the information pertaining to actual claims incurred as of the balance sheet date that became available after the balance sheet date be considered in determining management’s best estimate of the medical benefits payable? If so, how does this information impact the amount recognized or disclosed?
In accordance with ASC 855-10-25-3, An entity shall not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date but before financial statements are issued or are available to be issued. See paragraph 855-10-55-2 for examples of non-recognized subsequent events.
a. Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss.
When starting a new budget a teacher should first make a list of all the essential items that they will need like music, music folders and music filing supplies. The teacher should then create an estimated total for this section. Next, the teacher should make a list of desired items like new filing cabinets or extra classroom chairs. Last, the teacher should create a wish list and this should include items that would greatly benefit the program like new risers. Purchasing music will be a choral director’s biggest expense and not all new music can be performed every year. It is important for the school to have a choral library from which the choral director can choose music from. Each year the teacher should request an increase of five to ten percent for the purchase of music. If a teachers list is updated yearly then the items on the second and third list will likely be approved when funds become available. Usually a written justification is needed for larger-ticket items to prove educational value (Phillips, 89). Another way a teacher can organize these lists is into operating expenses and nonrecurring expenses. This can help the teacher see which expenses will happen yearly and which are a one-time fee.
Considering real world practices, as well as in accordance with the conceptual framework from the textbook, accrual of a loss from ongoing litigation is rare. Companies usually do not record a loss until after the ultimate settlement has been reached. For example, the Las Vegas Sands Corporation, in a recent quarterly report, disclosed but did not accrue damages from a lawsuit it lost, even after the award was affirmed by the trial court, because the company believe that it has valid bases in law and fact to overturn or appeal the verdict. Consequently, M corporation should not accrue the contingency loss but continually disclose the matter even when a judgment was reached against the corporation to pay $18.5 million in 2009, given that the
The work being done by the EITF with company’s accounting and financial reporting is likely to be impacted by the work being done by the EITF on Issue No. 13-C, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carry forward, a Similar Tax Loss, or a Tax Credit Carry forward Exists." A company's accounting and financial reporting will be impacted by the work being done by the EITF in two ways. First, if the liability for an unrecognized tax benefit is directly associated with a tax position taken in a tax year that results in the recognition of Net Operating Loss carry-forward for that year and that Net Operating Loss carry-forward has not been used, the unrecognized tax benefit will be presented as a reduction to the Net Operating Loss. In this case the Income Statement is impacted and the Net Operating Loss is reduced. Second, in all other case the Net Operating Loss carry-forward or the Tax Credit Carry-forward should be presented as a liability. In this case the Balance Sheet of the company will be impacted. (www.fasb.org)
balance sheet reported an operating loss of $301m (for the first time since 1998) while warning
The main weakness in the current accounting standards was the delayed recognition of credit losses on loans. The existing model called the incurred model lead to delay in recognition of loss