ACCT 200 Lecture 2: A Further Look at Financial Statements

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mauvecricket694

26 Aug 2016

School

University of Arizona

Department

Accounting

Course

ACCT 200

Professor

Silverberg

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Document Summary

Elements of an annual report and a further look at financial statements. U. s. companies that are publicly traded must provide shareholders with an annual report. Management discussion and analysis (md&a) presents management"s view on the company"s ability to pay near-term obligations, its ability to fund operations and expansion, and its results of operations. Must highlight favorable or unfavorable trends and identify significant events and uncertainties that affect these three factors. Are essential to understanding a company"s operating performance and financial position. Auditor"s opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with generally accepted accounting principles. Only certified public accountants (cpa) may perform audits. Identify the sections of a classified balance sheet. Presents a snapshot at a point in time. To improve understanding companies group similar assets and similar liabilities together. Assets that a company expects to convert to cash or use up within one year.

Related Questions

Various Reporting Situations [CLOs: 1, 2, 5]

Assume that Stanford CPAs encountered the following issues duringvarious audit engagements in 2014:

Stanford conducted the audit of Luck, a new client this pastyear. Last year, Luck was audited by another CPA, who issued anunmodified opinion on its financial statements. Luck is presentingfinancial statements for 2013 and 2014 in comparative form.

One of Stanfordâs clients is RealCo, a real estate holdingcompany. Assume that RealCo experienced a significant decline inthe value of its investment properties during the past year becauseof the downturn in the economy and has appropriately recognizedthat decline in market value under GAAP. Stanford wished toemphasize the decline in the economy and its impact on RealCoâsfinancial position and results of operations for 2014 in its auditreport.

For the past five years, Stanford has conducted the audits ofTechTime, a company that provides technology consulting services,and has always issued unmodified opinions on its financialstatements. Based on its 2014 audit, Stanford believes that anunmodified opinion is appropriate; however, Stanford did note thatTechTime reported its third consecutive operating loss and hasexperienced negative cash flows because of the inability of some ofits customers to promptly pay for services received.

Stanford has assisted Cardinal Inc. with the preparation of itsfinancial statements but has not audited, compiled, or reviewedthose financial statements. Cardinal wished to include thesefinancial statements in a communication that would describeStanfordâs involvement in the preparation of the financialstatements. Stanford believes that Cardinalâs communication isadequate and appropriately describes Stanfordâs limited role in thepreparation of the financial statements.

Trees Inc. presents summary financial information along with itsfinancial statements. The summary financial information has beenderived from the complete set of financial statements that Stanfordhas audited (and issued an unmodified opinion on the completefinancial statements). A lender has engaged Stanford to evaluateand report on Treesâ summary financial information. Stanfordbelieves that summary financial information is fairly stated inrelation to Treesâ complete financial statements.

Stanford believes that some of the verbiage in PlunkettâsManagement Discussion & Analysis section is inconsistent withthe firmâs financial statements. Stanford has concluded thatPlunkettâs financial statements present its financial position,results of operations, and cash flows in accordance with GAAP andhas decided to issue an unmodified opinion on Plunkettâs financialstatements.

Oil Patch is a client in the energy industry that is required topresent supplementary oil and gas reserve information. Stanford hasperformed certain procedures regarding this information andconcluded that it is presented in accordance with the FinancialAccounting Standards Board (FASB) presentation guidelines and doesnot appear to depart from GAAP. Based on the audit, Stanford plansto issue an unmodified opinion on Oil Patchâs financialstatements

I am trying to find NOT unqualified opinion. Some reports do not say "unqaulified." Does it mean that they are NOT UNQUALIFIED? Here is a report. If it is not unqualified, please explain me why it is not unqualified. In other words, it is qualified or adverse.

To the Board of Directors and Stockholders

Duonas Corp.

We have audited the accompanying balance sheets of Duonas Corp. as of June 30, 2017 and 2016, and the related statement of operations, changes in stockholdersâ equity and cash flows for the years then ended. These financial statements are the responsibility of the Companyâs management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also include assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Duonas Corp. as of June 30, 2017 and 2016 and the related statement of operations, changes in stockholdersâ equity and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has had no revenues and earnings since inception. These conditions, among others, raise substantial doubt about the Companyâs ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2, which includes achieving profitable operations and raising additional funds. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ TAAD, LLP

Diamond Bar, CA

September 1, 2017

copperwombat680

2â31. Simulation
Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an
audit of the fi nancial statements for the current year. Howard Smythe, the partner in charge of
the audit, drafted the following unmodifi ed report:

To the Management of Casa Royale, Inc.:
We have examined the accompanying consolidated balance sheet of Casa Royale, Inc., and
its subsidiaries, as of December 31, 20X1, and the related consolidated statements of income,
retained earnings, and cash fl ows for the years then ended.
Managementâs Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated
fi nancial statements in accordance with accounting principles generally accepted in the United
States of America; this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of consolidated fi nancial statements that are
free from material misstatement, whether due to fraud or error.
Auditorâs Responsibility
Our responsibility is to express an opinion on these fi nancial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated fi nancial statements are free of material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the consolidated fi nancial statements. The procedures selected depend on the auditorâs
judgment, including the assessment of the risks of material misstatement of the consolidated
fi nancial statements, whether due to fraud or illegal acts. In making those risk assessments, the
auditor considers internal control relevant to the entityâs preparation and fair presentation of
the consolidated fi nancial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entityâs internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of signifi cant accounting estimates made by management,
as well as evaluating the overall presentation of the consolidated fi nancial statements.
We believe that the audit evidence we have obtained is adequate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated fi nancial statements referred to above present fairly, in all material
respects, the fi nancial position of Casa Royale, Inc., and its subsidiaries as of December 31,
20X1, and the results of their operations and their cash fl ows for the years then ended in accordance
with auditing standards generally accepted in the United States of America.
Howard Smythe , Partner
Phoenix, Arizona
February 12, 20X2
Reviewerâs Comments
Comment Is
Correct (yes or no)
a. The report should not be addressed to management.
b. The report should indicate that we have âaudited,â rather than âexamined,â
the fi nancial statements (fi rst paragraph after introduction).
c. The report should not indicate anything concerning managementâs
responsibility for internal control.
d. The report should state that the auditorsâ responsibility is to express
âreasonable assurance,â not an opinion (fi rst paragraph under âauditorâsâ
responsibility).
e. The audit is designed to assess risks of material misstatements due to
errors or fraud; the term âillegal actsâ is incorrect (second paragraph
under auditorâs responsibility).
f. The report should not refer to the auditors âevaluating the appropriateness
of accounting policies,â since those are the responsibility of management.
g. The evidence should be suffi cient and appropriate rather than âadequateâ
(third paragraph under auditorâs responsibility).

Reviewerâs Comments
Comment Is
Correct (yes or no)
h. The opinion should not include âin all material respectsâ since the auditors
are providing an opinion on the accuracy of the fi nancial statements
(opinion paragraph).
i. The opinion should be on âaccounting principles generally accepted in the
United States of America,â not on auditing standards (opinion paragraph).
j. The signature on the report should be that of the CPA fi rm, not that of
the partner.

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ACCT 200 Lecture 2: A Further Look at Financial Statements

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