ACT 3900 Lecture Notes - Lecture 4: Deferral, Income Statement, Cash Flow Statement
Document Summary
Audit evidence identifies three ways that an auditor can select items for testing: W-i-r stands for weakness, implication of the weakness and a recommendation to address the weakness. Wir analysis technique can be used for many types of issues. The difference between the direct method and indirect method only impacts the cash flows from operating activities. The cash flows from investing and financing activities are the same under both methods. The advantage of the direct method is that it shows operating cash receipts and payments. This is considered more consistent with the objective of the cash flow statement to provide more information about cash receipts and cash payments. The supporters of the direct method also argue that specific sources of operating cash receipts and the purpose for which cash payments were made are useful in estimating future operating cash flows. Cash flows from operating activities - direct method.
