2.99 See Answer

Question: Describe the institutional process for establishing

Describe the institutional process for establishing generally accepted accounting principles for the federal government.

> Identify the management assertion and presentation and disclosure-related audit objective for the specific presentation and disclosure-related audit objective: Read the fixed asset footnote disclosure to determine that the types of fixed assets, deprecia

> Explain how management assertions, general balance-related audit objectives, and specific balance-related audit objectives are developed for an account balance such as accounts receivable.

> What are specific audit objectives? Explain their relationship to the general audit objectives.

> Distinguish between the existence and completeness balance-related audit objectives. State the effect on the financial statements (overstatement or understatement) of a violation of each in the audit of accounts receivable.

> An acquisition of a fixed-asset repair by a construction company is recorded on the wrong date. Which transaction-related audit objective has been violated? Which transaction-related audit objective has been violated if the acquisition had been capitaliz

> Distinguish between the general audit objectives and management assertions. Why are the general audit objectives more useful to auditors?

> Explain why CPAs need to be knowledgeable about information technology, including e-commerce technologies.

> Define what is meant by a management assertion about financial statements. Identify the three broad categories of management assertions.

> Why are sales, sales returns and allowances, bad debts, cash discounts, accounts receivable, and allowance for uncollectible accounts all included in the same cycle?

> Identify the cycle to which each of the following general ledger accounts will ordinarily be assigned: sales, accounts payable, retained earnings, accounts receivable, inventory, and repairs and maintenance.

> Describe what is meant by the cycle approach to auditing. What are the advantages of dividing the audit into different cycles?

> List two major characteristics that are useful in predicting the likelihood of fraudulent financial reporting in an audit. For each of the characteristics, state two things that the auditor can do to evaluate its significance in the engagement.

> Because management operates the business on a daily basis, they know more about the company's transactions and related assets, liabilities, and equity than the auditor. For example, it is extremely difficult, if not impossible, for the auditor to evaluat

> Distinguish between fraudulent financial reporting and misappropriation of assets. Discuss the likely difference between these two types of fraud on the fair presentation of financial statements.

> Distinguish between the terms errors and fraud. What is the auditor's responsibility for finding each?

> Distinguish between management's and the auditor's responsibility for the financial statements being audited.

> This problem requires you to access authoritative standards to compare the objective of an audit as defined by GAAS (www.aicpa.org) and International Standards on Auditing (ISA 200) (www.iaasb.org) and the objective of an audit of internal control over f

> International Standards on Auditing (ISAs) are issued by the International Auditing and Assurance Standards Board (IAASB). Use the IAASB web site (http://www.ifac.org/IAASB/) to learn more about the IAASB and its standard-setting activities. Required a.

> Jackson is a sophisticated investor. As such, she was initially a member of a small group that was going to participate in a private placement of $1 million of common stock of Clarion Corporation. Numerous meetings were held between management and the in

> Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlow's CPAs, performed the annual audit for

> Sarah Robertson, CPA, had been the auditor of Majestic Co. for several years. As she and her staff prepared for the audit for the year ended December 31, 2010, Herb Majestic told her that he needed a large bank loan to "tide him over" until sales picked

> Groton, CPAs, were the auditors of Bank & Company, a brokerage firm and member of a national stock exchange. Gordon & Groton audited and reported on the financial statements of Bank, which were filed with the Securities and Exchange Commission. Several o

> Under Section 11 of the Securities Act of 1933 and Section 10(b), Rule 10b-5, of the Securities Exchange Act of 1934, a CPA may be sued by a purchaser of registered securities. The following items relate to what a plaintiff who purchased securities must

> Chen, CPA, is the auditor for Greenleaf Manufacturing Corporation, a privately owned company that has a June 30 fiscal year. Greenleaf arranged for a substantial bank loan that was dependent on the bank's receiving, by September 30, audited financial sta

> In order to expand its operations, Barton Corp. raised $5 million in a public offering of common stock, and also negotiated a $2 million loan from First National Bank. In connection with this financing, Barton engaged Hanover & Co., CPAs to audit Barton'

> The CPA firm of Bigelow, Barton, and Brown was expanding rapidly. Consequently, it hired several junior accountants, including a man named Small. The partners of the firm eventually became dissatisfied with Small's production and warned him they would be

> Lauren Yost & Co., a medium-sized CPA firm, was engaged to audit Stuart Supply Company. Several staff were involved in the audit, all of whom had attended the firm's in-house training program on effective auditing methods. Throughout the audit, Yost spen

> Following are 8 statements with missing terms involving auditor legal liability. 1. Under the Ultramares Doctrine, an auditor is generally not liability for _____ to third parties lacking _____. 2. The auditor will use a defense of _____ in a suit brough

> What are the major differences in the scope of the audit responsibilities for CPAs, GAO auditors, IRS agents, and internal auditors?

> The following questions deal with liability under the 1933 and 1934 securities acts. Choose the best response. a. Major, Major, & Sharpe, CPAs, are the auditors of MacLain Technologies. In connection with the public offering of $10 million of MacLain

> State several factors that have affected the incidence of lawsuits against CPAs in recent years.

> In what ways can the profession positively respond to and reduce liability in auditing?

> What potential sanctions does the SEC have against a CPA firm?

> Distinguish between the auditor's potential liability to the client, liability to third parties under common law, civil liability under the securities laws, and criminal liability. Describe one situation for each type of liability in which the auditor ca

> Contrast the auditor's liability under the Securities Act of 1933 with that under the Securities Exchange Act of 1934.

> Is the auditor's liability affected if the third party was unknown rather than known? Explain.

> Compare and contrast traditional auditors' legal responsibilities to clients and third-party users under common law. How has that law changed in recent years?

> Explain how an engagement letter might affect an auditor's liability to clients under common law.

> What is meant by contributory negligence? Under what conditions will this likely be a successful defense?

> What knowledge does the auditor need about the client's business in an audit of historical financial statements? Explain how this knowledge may be useful in performing other assurance or consulting services for the client.

> Individuals are licensed as CPAs by individual states. Information on the requirements for each state can be found on the National Association of State Boards of Accountancy (NASBA) web site (www.nasba.org). The Uniform CPA Examination is administered by

> Describe financial reporting of the consolidated activities of the U.S. government. Has the federal government received an unqualified audit opinion on its consolidated financial statements? If not, provide some reasons why it has not.

> “The FASAB sets standards for federal agencies that relate to external financial reporting, much like the GASB sets standards for state and local governments for external financial reporting.” Do you agree or disagree with this statement? Explain

> “Net position for a federal agency is similar to net assets of a state or local government.” Do you agree or disagree? Explain.

> Explain the differences among these accounts: (1) Estimated Revenues used by state and local governments, (2) Other Appropriations Realized used by federal agencies in their budgetary track, and (3) Fund Balance with Treasury used by federal agencies

> Discuss the conceptual framework of accounting for federal agencies and compare it to the conceptual framework established by the GASB for state and local governments.

> Identify the principals of the Joint Financial Management and Improvement Program (JFMIP) and identify in which branch of the federal government each operates. What role does each one play in the federal accounting standard setting process?

> Name the financial statements that should be prepared for each federal agency in conformity with OMB Circular A–136.

> Identify the budgetary accounts used in federal agency accounting and explain the sequential flow of budgetary authority through the accounts in your own words.

> The trial balance of the Federal Science Administration, as of August 31, 2011, follows: Required Prepare a statement of budgetary resources for the 11 months ended August 31, 2011, assuming that goods on order at the end of the prior year amounted to

> The Rural Assistance Agency operates three major programs as responsibility centers—the Food Bank, Housing Services, and Credit Counseling. Clients pay a fee for services on a sliding scale based on income. The following information is drawn from the acc

> Using the data from Problem 11–2, In Problem 11-2 Prepare the following: a. In general journal form, entries to close the budgetary accounts as needed and to close the operating statement proprietary accounts. b. In good form, a bal

> One amount is missing in the following trial balance of proprietary accounts, and another is missing from the trial balance of budgetary accounts of a certain agency of the federal government. This trial balance was prepared before budgetary accounts wer

> Choose the best answer. 1. Federal statutes assign responsibility for establishing and maintaining a sound financial structure for the federal government to which of the following: a. Comptroller General of the United States. b. Comptroller General, Secr

> The following excerpt is from the Inspector General’s transmittal letter to the Secretary of the Department of Transportation (DOT). U.S. Department of Transportation Office of the Secretary of Transportation Office of Inspector General Date: November 13

> Congress authorized the Flood Control Commission to start operations on October 1, 2011. Required a. Record the following transactions in general journal form as they should appear in the accounts of the Flood Control Commission. Record all expenses in

> A not-for-profit organization has hired you to conduct an audit. The audit has been requested by the organization’s board of directors. A mission of the organization is to provide for the education of children in the economically distre

> A city has approached you concerning the audit of its 2011 financial statements. State law requires the city to have an audit and submit the audited financial report to the state. New elections at the beginning of the fiscal year resulted in a change in

> Mountain Lake Mental Health Affiliates, a nongovernmental not-for-profit organization, has contacted Bill Wise, CPA, about conducting an annual audit for its first year of operations. The governing board wishes to obtain an audit of the financial stateme

> Your firm recently signed a letter of engagement to audit CitCo, the local city and county government. Over your morning cup of coffee, you open the local newspaper and read the following: Police are investigating how two computer servers belonging to Ci

> Explain the importance of diagnosis-related groups (DRGs) in the cost accounting systems of a health care provider.

> The city council members of Laurel City are considering establishing an audit committee as a subset of the council. Several members work for commercial businesses that have recently established such committees in response to the Sarbanes-Oxley Act of 200

> In this chapter, information was provided on the report of the National Single Audit Sampling project. The project was the outgrowth of concern over the quality of single audits. Based on the project’s results, it would appear that there is reason for co

> The City of Belleview receives pass-through funds from the state’s Department of Housing to assist in administering the federally funded Supportive Housing Program for the elderly. At the request of the state’s Department of Housing, the city has engaged

> A local exempt organization that trains at-risk youth for employment has an annual operating budget of $300,000, which includes revenue from operating a gift shop in a nearby hotel lobby. Gift shop sales result in a profit of $15,000. The organization ha

> The Silverton Symphony Orchestra Hall is a well-established not-for-profit organization exempt under IRC Sec. 501(c)(3) that owns a facility that is home to the local symphony orchestra. Its mission is to increase access to the arts for the community of

> EarthFriendly, Inc., an IRC Sec. 501(c)(3) organization, incurred lobbying expenses of $150,000 and exempt purpose expenditures of $1.2 million in carrying out its exempt mission. Required a. What are the tax consequences if the organization does not el

> The Kids Club of Clare County is a public charity under IRC Sec. 501(c)(3). It had total support last year of the following: Of the $350,000 received from contributors, $250,000 came from five contributors, each of whom gave more than $5,000; the other

> Choose the best answer. 1. State regulation of not-for-profit organizations derives from the state’s power to: a. Grant exemption from income taxes. b. Give legal life to a not-for-profit corporation. c. Grant exemption from sales taxes. d. Grant license

> Information from the Form 990 for the American Heart Association for the fiscal year ending June 30, 2007, follows. The full text of the Form 990 is available at www.americanheart.org or www.guidestar.org. Required a. Compute the following performance m

> Crossroads University is a tax-exempt, private university. An excerpt from Note 5 “Endowment Fund” of its 2007 audited financial statements is as follows: State law allows the board to appropriate investment income and as much of the net appreciation as

> What are assets limited as to use and how do they differ from restricted assets?

> For each of the following independent situations, determine whether the organization is at risk for receiving intermediate sanctions from the Internal Revenue Service for conferring excess economic benefits on disqualified persons. If so, indicate how th

> The following items are taken from the financial statements of the Kids Clubs of America for the years ending December 31, 2011, and 2010, with related notes. Required a. Explain what the term board-designated, unrestricted net assets means. What does

> The Atkins Museum recently hired a new controller. His experience with managerial accounting and strong communication skills were extremely attractive. The new controller sent each member of the Board of Trustees’ Finance Committee a se

> The balance sheet and statement of activities for the Central Area Disadvantaged Youth Center for fiscal year 2011, prepared by a volunteer accountant with business experience, are presented on the following page. Required a. Assume that you are the i

> Consider the following scenarios relating to activities that include a fund-raising appeal: 1. The Green Group’s mission is to protect the environment by increasing the portion of waste recycled by the public. The group conducts a door-to-door canvass of

> The Children’s Counseling Center was incorporated as a not-for-profit voluntary health and welfare organization 10 years ago. Its adjusted trial balance as of June 30, 2011, follows. 1. Salaries and fringe benefits were allocated to p

> Obtain the most recent audited annual financial report of the U.S. government. It is available from the Government Accountability Office (GAO). Required a. Did the U.S. Government have a surplus or deficit for this year? b. Was there an increase or decr

> How does support differ from revenues from exchange transactions? How do gains differ from revenues?

> Why is a statement of functional expenses considered an important financial statement for a voluntary health and welfare organization? How does a statement of functional expenses differ from the expense section of a statement of activities?

> What are the three categories into which NPOs must classify their net assets? Describe which net assets are included in each category. Would board-designated net assets be reported as temporarily restricted net assets? Explain your answer.

> Go to the Internet Web sites of five of the largest charitable organizations listed in Illustration 15–7 and search for financial information and performance measures they may disclose on their Web sites. Illustration 15-7 Required a

> What financial statements does FASB Statement No. 117 require NPOs to present? How do these financial statements compare to those typically prepared prior to SFAS 117?

> Which standards-setting bodies are assigned responsibility for establishing accounting and financial reporting standards for not-for-profit organizations? What issues remain unfinished on the FASB’s technical agenda for not-for-profit organizations (NPOs

> Explain how organizations in the not-for-profit sector differ from organizations in the public sector or for-profit business sector. Provide an example of an entity in each sector.

> How does a not-for-profit fund-raising foundation account for a gift intended for the benefit of a particular charity when the donor stipulates that the fundraising foundation may use its discretion to make the gift available to a different charity?

> What are special events? Give a few examples. Are special events conducted by the NPO reported differently on the statement of activities than special events conducted by an organization that is independent of the NPO?

> What criteria must be met before donated services can be recorded as contribution revenue and an expense? Give an example of a service that might qualify as a donated service for accounting purposes.

> Distinguish between program services expenses and supporting services expenses. Why is it important that NPOs report expenses for program services separately from those for supporting services?

> Discussion at a local meeting of government financial officers centered on using a balanced scorecard to present information to the public on the government’s Web site. Describe the components of a balanced scorecard and its advantages in communicating p

> What advantages does total quality management (TQM) offer a government? Is it fundamentally a budget approach?

> Identify some essential components of an annual budget process for a state or local government.

> As a certified public accountant, you have been asked by a group of local citizens to assist in establishing a not-for-profit organization for the purpose of raising funds to keep their neighborhood safe and clean. These people are concerned about the gr

> Describe the advantages of performance budgeting and program budgeting over incremental budgeting in a governmental entity.

> What is the difference between two types of line-item budgeting approaches—incremental budgeting and zero-based budgeting? Which of the two approaches is more widely used by governments?

> Explain how strategic planning, budgeting, and performance measurement can be integrated in a government and why this integration is desirable.

> “The sole objective of budgeting in a governmental entity is to demonstrate compliance with appropriation legislation.” Do you agree or disagree? Explain.

> The finance officer of a small city has heard that certain items of cost may be allowable under federal grants, even though they were not incurred specifically for the grant. To what source could the finance officer go to determine what costs are allowab

> Explain why conventional cost accounting systems have become less useful in both business and government settings. How does activity-based costing (ABC) reduce the problems created by conventional cost accounting systems?


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