Careers in financial accounting can include but are limited to preparing the financial statements, analyzing the financial statements, auditing the financial statements, or supporting the the technology/systems that produce financial statements.
Financial Accounting 2 Pdf Notes
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Public companies are required to perform financial accounting as part of the preparation of its financial statement reporting. Small or private companies may also use financial accounting, but they often operate with different reporting requirements. Financial statements prepared using financial accounting are used by many parties outside of a company such as lenders, government agencies, auditors, insurance agencies, or investors.
Amendments to paragraphs .12e and .18 have been adopted by the PCAOB and approved by the U.S. Securities and Exchange Commission. The standard as amended will be effective for audits of financial statements for fiscal years ending on or after December 15, 2024.See PCAOB Release No. 2022-002, SEC Release No. 34-95488. View the standard as amended.
.01 The auditor's report contains either an expression of opinion on the financial statements,1 taken as a whole,2 or an assertion that an opinion cannot be expressed. This standard establishes requirements regarding the content of the auditor's written report when the auditor expresses an unqualified opinion on the financial statements (the "auditor's unqualified report").3
.02 The auditor is in a position to express an unqualified opinion on the financial statements when the auditor conducted an audit in accordance with the standards of the Public Company Accounting Oversight Board ("PCAOB") and concludes that the financial statements, taken as a whole, are presented fairly, in all material respects,4 in conformity with the applicable financial reporting framework. 5
.03 When the auditor conducts an audit of financial statements in accordance with the standards of the PCAOB, some circumstances require that the auditor express a qualified opinion, adverse opinion, or disclaimer of opinion on the financial statements and state the reasons for the departure from the unqualified opinion. AS 3105, Departures from Unqualified Opinions and Other Reporting Circumstances, describes reporting requirements related to departures from unqualified opinions and other reporting circumstances.
.11 The auditor must determine whether there are any critical audit matters in the audit of the current period's financial statements. A critical audit matter is any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex auditor judgment. Critical audit matters are not a substitute for the auditor's departure from an unqualified opinion (i.e., a qualified opinion, adverse opinion, or disclaimer of opinion on the financial statements as described in AS 3105).
.13 The auditor must communicate in the auditor's report critical audit matters21 relating to the audit of the current period's financial statements or state that the auditor determined that there are no critical audit matters.
.18 Other standards of the PCAOB require that, in certain circumstances, the auditor include explanatory language (or an explanatory paragraph) in the auditor's report, while not affecting the auditor's opinion on the financial statements. These circumstances include when:
.19 The auditor may emphasize a matter regarding the financial statements in the auditor's report ("emphasis paragraph").36 The following are examples of matters, among others, that might be emphasized in the auditor's report:37
.20 The auditor may include in the auditor's report information regarding the engagement partner and/or other accounting firms participating in the audit that is required to be reported on PCAOB Form AP, Auditor Reporting of Certain Audit Participants. 38 If the auditor decides to provide information about the engagement partner, other accounting firms participating in the audit, or both, the auditor must disclose the following:
We have audited the accompanying balance sheets of X Company (the "Company") as of December 31, 20X2 and 20X1, the related statements of [titles of the financial statements, e.g., income, comprehensive income, stockholders' equity, and cash flows], for each of the three years in the period ended December 31, 20X2, and the related notes [and schedules] (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of [at] December 31, 20X2 and 20X1, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20X2, in conformity with [the applicable financial reporting framework].
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
1This standard uses the term "financial statements" as used by the U.S. Securities and Exchange Commission ("SEC") to include all notes to the statements and all related schedules. See Regulation S-X Rule 1-01(b), 17 CFR 210.1-01(b). This and other PCAOB standards often refer to the notes as disclosures; see, e.g., AS 2110, Identifying and Assessing Risks of Material Misstatement.
4 AS 2815, The Meaning of "Present Fairly in Conformity with Generally Accepted Accounting Principles," describes the basis for an auditor's responsibility for forming an opinion on whether the company's financial statements are presented fairly in conformity with the applicable financial reporting framework.
8Laws, rules, and forms may contain requirements for auditor's reports of different types of companies. See, e.g., Sections 30(g) and 32(a)(4) of the Investment Company Act; Regulation S-X Rule 2-02, 17 CFR 210.2-02; and Securities Exchange Act of 1934 ("Exchange Act") Rule 17a-5, 17 CFR 240.17a-5. Auditor's reports on financial statements filed with the SEC are subject to all such applicable requirements.
15Various SEC rules and forms require that companies file schedules of information and that those schedules be audited if the company's financial statements are audited. See, e.g., Regulation S-X Rules 5-04, 6-10, 6A-05, and 7-05, 17 CFR 210.5-04, 210.6-10, 210.6A-05, 210.7-05. See generally, Regulation S-X Rule 12-01, 17 CFR 210.12-01, et seq., which address the form and content of certain SEC-required schedules.
16 The terms used in the Opinion on the Financial Statements section, such as financial position, results of operations and cash flows, should be modified, as appropriate, depending on the type of company and financial statements being audited.
28See AS 2201.88. AS 2201 provides additional circumstances in which the auditor includes an explanatory paragraph. If the combined report is issued, AS 2201 notes that the auditor should consider those circumstances as well.
Bonds are long-term debt instruments that are traded on the securities market. The sale of bonds creates a relationship between the bond issuer as the debtor and the bond buyer who is commonly called a bond investor. Companies often hold affiliate debt instruments and justify inter-company lending and borrowing on the basis of convenience, efficiency and flexibility. Even though each affiliate is a separate legal entity, the parent is in a position to negotiate all loans between affiliates and the decision to borrow or lend directly to affiliates is really just a decision to transfer funds between affiliates. Direct loans between affiliates create reciprocal interest receivable and payable accounts and reciprocal income and expense accounts. Companies eliminate these reciprocal accounts in preparing consolidated financial statements because the intercompany receivables and payables do not reflect the assets or liabilities of the consolidated entity. However, the consolidated statements show the financial position and results as if the issuing company had purchased and paid off its own debt. Special problems of accounting for bonds and intercompany notes arise when a company purchases affiliated debt instruments from outside entities. Although each affiliate is an independent legal entity, the management of the holding company has a position to negotiate all loans incurred between affiliated companies and the decision to borrow from or lend directly to an affiliate company is really a decision to transfer funds between affiliated companies. . Direct lending and borrowing between affiliated companies generates reciprocal accounts of receivables and payables, both principal and interest, as well as reciprocal accounts of income and expenses. These reciprocal accounts were eliminated in the preparation of the consolidated financial statements because intercompany receivables and payables do not reflect the assets or liabilities of the entities being consolidated. Special problems in accounting for intercompany bonds and notes arise when a company purchases an affiliated debt instrument from an outsider. Transactions in which a company acquires an affiliate's outstanding bonds on the open market result in constructive gains and losses unless the affiliate purchases the bonds at book value. Constructive gains and losses should be reflected in the parent company's revenue (under the equity method) and consolidated net income in the year of purchase. 2ff7e9595c
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