Need attached paper revised to be more in accordance with project instructions. Thanks Due Week 10 and worth 330 points Assume you are the partner in an accounting firm hired to perform the audit on
Running head: FINANCIAL AUDIT 0
Financial Audit
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1. The main reason why financial statements are supposed to generate involves information about then performance in the organization. There is different kind of financial and employees, external and internal issues in Accounting standards has to be prepared in the financial statements. The segregation and unavailability of information that needs to be written-down without overestimation of the amount of cash that might raise ethical issues in the operations. Investors areas supposed to overestimate the value of money that is obtained in the long run in as much the issues (Sandell et al., 2017). IRS offered transport which should reflect in the income statement and should not be affected by fraudulent. Evaluation of the damaging financial and ethical repercussions that can be affected by the financial cases in a company. In as much as the transaction can be covered up, they are always treated as fraud cases. Corporations have played a major role in reducing taxes and revenue. All inventory write-downs reduce the information involving financial statements and the operation costs that concern discretion about the management that results in earning a lot of money. Inventory plays a major role in reducing the number of cases that are involved with ethics. Omission and compromise might result in financial frauds. All the employees are enquired to be independent since they need assurance when it comes to assurance and financial statements and all of the materials being misstated. In cases of civil fraud, the offenders are supposed to pay taxes within the next 21 days.
In an effort to prevent the occurrence of fraud, it will be necessary for the management to undertake professional skepticism. It will be necessary for the auditoria teams to put in consideration all the possibilities of misstatement might lead to fraud. To reduce the chances of fraud occurring, it will be important for the team to assess the risks occurring especially when it comes to misstatements and misappropriation of assets (Larkin et al., 2018). Talking about fraud with the audit team and the management will help to curb such cases from occurring. Proper documentation also plays a major role in dealing with frauds.
2. When the Scientists cannot obtain financial statements where IRS audit will not generate additional tax which will not involve taxes and penalties. When the additional taxes and penalties from the three years have been included, negative outcomes and reduce the value of the stakeholders. When incomes obtained are not reflected in the financial statements, all the shareholders stand so much to lose. Besides penalties and additional tax that eat into the cash reserves and income of a corporation, the fact that IRS audit will automatically generate the financial statements where all the additional taxes and penalties will be audited too. When all the audits and penalties are served from reserve accounts, more than 10 % of inventory will reduce (Kubick et al., 2016). IRS will help to audit the punishments and those involved with financial statements and shareholders.
An IRS audit is designed to increase the penalties and taxes because the audits can affect the financial reports. When the organization pays out more penalties, the number of profits they receive will reduce by a big margin. The value at which the company is estimated at might reduce which will result in the lessening of the value of shareholders. In case the corporation is overstated because of omissions, the investors and shareholders will be misled because their incomes will be understated. Corporations that are involved in fraud incur more loses because the penalties might be paid from the company’s finances and make it bankrupt. The rest of the stakeholders who might be interested in financial statements like financial institutions will also be affected negatively. They might end up incurring further costs. If the inventory is reduced by 10% for the three years, the corporation will incur 10 percent of the returns to deal with the losses.
3. There are universal rules that have been set up and reviewed over the years with regards to accounting. These principles require that the company needs to give accurate information regarding the amount and category of inventory they acquire. Accounting for the inventory is important since the corporation will be able to know the purposes of tariffs. The guidelines also show that companies need to give information about the major categories of the directory. The value of the inventory will help the corporation to know the essential parts of the taxable income. Writing off of inventories which are damaged or acquired illegally will reduce the tax bill. The federal tax law agrees with writing off commodities that can be damaged or stolen (Lorenzitti 2015). The law also provides the steps that need to be followed when writing off inventory. If the inventory is lost or damaged due to theft or disasters, the corporation can use this loss to ensure that their taxes are reduced. When the value of the inventory is calculated, the insurance company that has insured the business should compensate.
4. over the years, stock options have become dominant in the world of business. Recent statistics have shown that over 90% of U.S companies and over 60% of compensations for executives in big corporations. Stock options are meant to give the stakeholders the right to buy shares and own the company for a specific duration of time, mostly within 10 years. The stock option has been controversial over the years because of the approach used needs to be accounted for in the financial reports. GAAP allows companies to have stock options in the income statement as one way of compensating the shareholders (Larkin, 2018).
When shares are given to the employees, the element of a bargain is their actual value. If payments are made, then the taxes should be based on the difference of what was paid and the market value at the given time. When there are changes in terms of filing and the sales made, taxes are usually paid as capital loses or gains and not considered as the usual income. If the stakeholders buy shares at a fair price, no charges will be incurred, this also implies that there are discounts that will not be charged either. The CFO’s should consider the stock options when they want to pay the stakeholders.
5. Elimination of operating leases will help the companies to reduce the number of finances spent after the term ends. Lease transactions do not affect the values on the balance sheet. This proposal will ensure that all leases should be included in the balance sheet as assets and can, therefore, be paid for in the future. During the lease term, these assets should be allocated for and reduce the liability through monthly payments. In as much as there is no pretax cash effect from the proposal, the suggested changes would increase the debts by over 13% and reduce income by 2.4%. capital leases affect the financial statements and influence the interest expense but this is not the case for operating leases. In order to qualify for capital leases, the contract has to comply with the criteria in place.
6. With regards to all the activities carried out by investors, lending companies have gone global. The commission has increased its participation to ensure that the terms are acceptable and ensure that the financial reporting is of higher quality. On different levels, international accounting standards ensure that there is fairness and the capital markets provide investors with reliable data. The rules that guide the leasing of assets, especially for companies in the United States, are required to get into contracts that have leased to improve the nature of operation in their businesses. This move will help companies to become more accountable when dealing with finances and assets. When looking at the risks and benefits it is important to understand that the company needs to work towards global acceptance. It is also necessary to ensure that the decisions and activities that are carried out in the company need to be guided by the Generally Acceptable accounting principles (Larkin, 2018). The information contained in the financial reports helps investors to understand the capital market better and can compare and contrast the data. All the stakeholders in the businesses are, therefore, required to provide honest and reliable information in their financial reports and leases.
7. Fraud in businesses can be carried out when the inventories are invaded. Since most of the business people invest a lot of their time and money, the taxes must be net and the regulations should be followed. Auditors need to detect all forms of fraud as they put SAS no. 99 to place. The main reason why this is important is that fraud has been incorporated into the audits. SAS no. 99gives out the guideline that should be followed when carrying out audits. The audit committee needs to single out all the risks that may be involved and the extent of the effect of material misstatement caused by fraud. The team also needs to assess and analyze the programs in place and the controls that might affect the results.
SAS no. 99 helps the audit team to be independent and reduce the cases of overreliance on the data that the clients offer to them. Biasness will also be reduced because the committee will have a questioning mind and skeptical views when carrying out their roles (Sandell et al., 2017). SAS no. 99 also helps the auditors to be more creative and critical when carrying out their roles, especially when analyzing the audit evidence. SAS no. 99 also demands that the auditors should know whether there are chances for material misstatement in the financial reports caused by frauds when collecting data.
8. the audit team needs to know the risks of material misstatement and how the errors can result in fraud. The risk of material misstatement emerge from several sources and external factors are inclusive in this case. The condition of the corporation and the surroundings and the kind of activities they engage in can also be a bigger risk. How the company treats the financial report system can also affect material misstatement. The incompetence of the team can also result in such cases and lead to fraud. This can be visible when the transactions are not recorded properly by the finance employees. The procedures that are usually followed during the audit should understand the risks and consider all the factors that may contribute to material misstatement (Kubick et al., 2016).
The accounting standards require that financial statements can be restated on grounds that there has been a material misstatement. This should only be done if the misstatements are not material. It is recommended that financial reports should include restatement. Since the corporations have to give information when they involve different auditors, the investors get a chance to know the changes. The number of times, the changes are made can result in more issues. Failure to issue financial restated reports can also lead to penalties if the audit team finds out.
9. All the stakeholder interested in the financial statements because it helps them to make decisions. Financial reports are used to predict the future of the firm and determine the profitability of the company. When individuals present data that is unreliable, it becomes harder for the stakeholders to make decisions that may affect the performance of the company. Every corporation is required to hold a high-quality financial reporting system that is guided by either the General Acceptable Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS) (Larkin, 2018). These stakeholders depend on the information provided in the statements in order to make future plans that will positively affect the performance of the company. Good financial statements also essential to the customers and the company. The stakeholders who are not part of the company, like the government and financial institution use this information to analyze the performance of the company.
References
Kassem, R., & Higson, A. W. (2016). External auditors and corporate corruption: Implications for external audit regulators. Current Issues in Auditing, 10(1), P1-P10.
Kubick, T. R., Lynch, D. P., Mayberry, M. A., & Omer, T. C. (2016). The effects of regulatory scrutiny on tax avoidance: An examination of SEC comment letters. The Accounting Review, 91(6), 1751-1780.
Larkin, R. F., & DiTommaso, M. (2018). Wiley Not-for-profit GAAP 2018: Interpretation and Application of Generally Accepted Accounting Principles. John Wiley & Sons.
Lorenzetti, M. (2015). Tax Regulation on the Banking System. In Italian Banking and Financial Law (pp. 195-225). Palgrave Macmillan, London.
Sandell, N., & Svensson, P. (2017). Writing write-downs: The rhetoric of goodwill impairment. Qualitative Research in Accounting & Management, 14(1), 81-102.
