BUS1 121A Lecture Notes - Lecture 2: Cash Flow Statement, Audit, Financial Statement
CHAPTER 2: Accrual Accounting Review
Income Statement (Statement of Operations)
Balance Sheet
Cash Flow Statement
Statement of Retained Earnings (Statement of Stockholders’ Equity or Comprehensive
Income)
Other Comprehensive Income
• Gains & losses
• Pensions, foreign currency transactions, derivatives
Comprehensive Income
= Net Income + Other Comprehensive Income
Cash Accounting
NOT GAAP (GAAP wants to include everything)
• Every transaction includes CASH
1. Company receives cash → Revenues
2. Company pays cash → Expenses (or Dividends)
Auditor
Reports
• Management is responsible for Financial Statement
Auditor
Is responsible for an options on the financial statements
Unqualified
Opinion
• The financial statements fairly present the financial position of the
company (subject to materiality)
• Must use GAAP
• (There’s no problem)
Qualified
Opinion
• The financial statements fairly present the financial position of the
company except for
• (There’s a problem)
• When there’s a problem, send to unqualified opinion to be fixed
• When CANNOT be fixed:
• Not using GAAP
• Unaudited opening numbers (starting # of beginning of the
year (Jan) that could be the #’s from end of last year, then
need to audit that year)
• Going concern issue
Adverse
Opinion
The financial statements DO NOT fairly present (“we don’t like these
statements”)
Disclaimer
No opinion (not enough data to complete audit)
CHAPTER 3&4: Income Statements & F/S Disclosure
Document Summary
Statement of retained earnings (statement of stockholders" equity or comprehensive. Other comprehensive income: gains & losses, pensions, foreign currency transactions, derivatives. Cash accounting not gaap (gaap wants to include everything: every transaction includes cash. Reports: company receives cash revenues, company pays cash expenses (or dividends, management is responsible for financial statement. Is responsible for an options on the financial statements. The financial statements do not fairly present ( we don"t like these statements ) No opinion (not enough data to complete audit) - tax expense (income from continuing op x tax rate) Income from continuing operations (# for future prediction to find next net income) +/- income from discontinued operations (net of tax) If actual loss < estimated loss (actual loss - estimated loss) (estimated loss - actual loss) Inventory valuation (lifo, fifo: revenue recognition methods, depreciation methods, amortization policy, accounting changes etc
