ACCT 1209 Chapter Notes - Chapter 5: Public Company Accounting Oversight Board, Financial Accounting Standards Board, Chief Executive Officer

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redmanatee539

16 Dec 2016

School

Northeastern University

Department

Accounting

Course

ACCT 1209

Professor

Ganesh Krishnamoorthy

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Chapter 5: Communicating and interpreting accounting information

Players in the Accounting Communication Process

Corporate governance: procedures designed to ensure that the company is managed in the interests of the shareholders

Sarbanes-Oxley Act: law which strengthen US financial reporting and corporate governance regulations

Regulators (SEC,FASB, PCAOB, Stock Exchanges)

• Securities and Exchange Commission (SEC): US gov. agency tat determines the financial statements that

companies must provide to stockholders and then measurement rules in producing them

• Financial Accounting Standards Board (FASB): private sector that sets Generally Accepted Accounting Principles

(GAAP)

• Public Company Accounting Oversight Board (PCAOB): Sets auditing standards for independent auditors (CPAs) of

public companies

Managers (CEO, CFO, and Accounting Staff)

• Chief Executive Officer (CEO) & Chief Financial Officer (CFO): responsible for providing accurate financial reports

• Accounting Staff: prepare details of reports

• Board of Directors: elected by the stockholders to represent their interests

• Board of Directors (Audit Committee): responsible for maintaining the integrity of the company’s financial reports

• Independent Auditors: Follow established auditing standards to assess the fairness of the financial statements and

related presentations. Issue an unqualified, or clean, opinion states that the financial statements are fair

presentations in all material respects in conformity with GAAP.

Users: Institution and private investors, creditors, and others

• Institutional investors: managers of pension, mutual endowment and other funds that invest on behalf of others

• Private investors: individuals who purchase shares in companies (venture capitalists)

• cost-effectiveness: requires benefits for accounting and reporting info. to outweigh the cost

• material amounts: amounts large enough to influence a user’s decision

•

Information Intermediaries

1. Most investors rely on company websites, information services, and financial analysts to gather and analyze

information

2. Companies actually file their SEC forms electronically through the EDGAR (Electronic Data Gathering and

Retrieval) Service, which is sponsored by the SEC.

3. Financial analysts - Make earning forecasts to assist investment decisions

The Disclosure Process: SEC Regulation Fair Disclosure (FD): requires that companies provide all investors equal

access to all important company news. Managers and other insiders are also prohibited from insider trading, trading their

company’s shares based on nonpublic (insider) information so that no party benefits from early access.

Press Releases: A press release is a written public news announcement normally distributed to major news services.

• conference call: senior managers answer analyst’s questions about quarterly results

• unexpected earnings: difference between expected earning and actual earnings

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Document Summary

Corporate governance: procedures designed to ensure that the company is managed in the interests of the shareholders. Sarbanes-oxley act: law which strengthen us financial reporting and corporate governance regulations. Independent auditors: follow established auditing standards to assess the fairness of the financial statements and related presentations. Issue an unqualified, or clean, opinion states that the financial statements are fair presentations in all material respects in conformity with gaap. Users: institution and private investors, creditors, and others. Information intermediaries information: companies actually file their sec forms electronically through the edgar (electronic data gathering and. Retrieval) service, which is sponsored by the sec: financial analysts - make earning forecasts to assist investment decisions. The disclosure process: sec regulation fair disclosure (fd): requires that companies provide all investors equal access to all important company news. Managers and other insiders are also prohibited from insider trading, trading their company"s shares based on nonpublic (insider) information so that no party benefits from early access.

Related Questions

1â28. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and
attest services?
(1) While attest services involve fi nancial data, assurance services involve nonfi nancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.
b. Which of the following has primary responsibility for the fairness of the representations
made in fi nancial statements?
(1) Clientâs management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.
c. The most important benefi t of having an annual audit by a public accounting fi rm is to:
(1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable.
(2) Enable offi cers and directors to avoid personal responsibility for any misstatements in
the fi nancial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.
d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board
(PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review fi nancial reports fi led with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit fi rms.
e. Which of these organizations has the responsibility to perform inspections of auditors of
public companies?
(1) American Institute of Certifi ed Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.
f. Governmental auditing, in addition to including audits of fi nancial statements, often
includes audits of effi ciency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.
g. In general, internal auditorsâ independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive offi cer.
h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002
to regulate public accounting fi rms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of fi nancial statements by a number of public companies.

(3) Conviction of the accounting fi rm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.
i. Which of the following organizations establishes accounting standards for U.S. government
agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.
j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is
suspected.
k. What best describes the purpose of the auditorsâ consideration of internal control in a
fi nancial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the clientâs operations.
l. Which of the following is an example of a compliance audit?
(1) An audit of fi nancial statements.
(2) An audit of a companyâs policies and procedures for adhering to environmental laws
and regulations.
(3) An audit of a companyâs internal control over fi nancial reporting.
(4) An audit of the effi ciency and effectiveness of a companyâs legal department.

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ACCT 1209 Chapter Notes - Chapter 5: Public Company Accounting Oversight Board, Financial Accounting Standards Board, Chief Executive Officer

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