You are the company controller and you just finished meeting with the president. At this meeting, he raised several accounting questions:
a)Why do you prepare so many financial statements? You have a balance sheet, an income statement, a statement of change in owner's equity and a cash flow statement. why don't you prepare the statement that is the most important one and eliminate the others?
b)do you think you will ever change from the historical cost model to fair value model for preparing the balance sheet? It makes more sense to me to report the assets at their true values?
c)you accountants rely on materiality a lot in developing the financial statements. what does materiality mean and how do you apply it? I think sometimes you use materiality as an excuse for not following the rules.
d)Let's talk about this historical cost model again. every year you insist on adjusting the inventories to market values so inventory is valued" at the lower of cost of market" Isn't this inconsistent with your generally accepted cost valuation principle?
e)somebody told me that you follow a consistency rule when developing the financial information and when I asked what that means, I was told "consistency means you can't change anything" When I asked why couldn't you change if there is a better way of doing something, nobody could give me an answer-what do you think about that?
please think about that carefully, give me the answers for each one.
thank you for helping me. by the way, you could give me the Chinese vision or English vision either way.
thank you again @@
- 1 0 年前最佳解答
a) The reason for preparing the financial statements is so that each one lead to another and therefore provide for the managers a clear and procise situation which the company undergoes. The income statement is to generate the net income, which is needed in order to prepare the statement of change in owner's equity. The statement of change in owner's equity provides states the owner's equity at the end of the month, which is needed for the balance sheet. The balance sheet is to check the equality of the accounting equation (assets = liabilities OE). And finally the cash flow statement tells the managers how much cash is available on hand after the activities being performed during the period. If any of the financial statements is eliminated, then the accountant wouldn't be able to come up with the accurate amount in order to prepare the next financial statement, and so the managers would not be able to tell how the company is doing financially.
b) Cost has an important advantage over other valuations since it is reliable. If we were to select current selling price, we might have a difficult time establishing a sales value for something without selling it. Not all business officers would have the same opinion regarding an asset’s value, and the auditors might desire another amount. If the sales value were a recognition basis, a sales value on every asset would need to be determined every time a financial statement is prepared. This would create a labor intensive task resulting in a change in fund balance or net assets materially affected by opinion. Similar objections have been leveled by the accounting profession against current cost and any other valuation basis.
2007-04-25 14:31:47 補充：
c) The consideration of materiality affects the work of financial statement preparers and auditors.
2007-04-25 14:32:23 補充：
Materiality is the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.
2007-04-25 14:32:38 補充：
The concept of materiality recognizes that some matters, either individually or in the aggregate, are important for fair presentation of financial statements in conformity with generally accepted accounting principles, while other matters are not important.
2007-04-25 14:32:53 補充：
The accountant should read the compiled financial statements and consider whether such financial statements appear to be appropriate in form and free from obvious material errors.
2007-04-25 14:33:03 補充：
It is to make the auditor's work easier and more comprehensive if we follow the SSARS, so that we as accountants do not make unnecessary arithmetical or clerical mistakes.
2007-04-25 14:33:18 補充：
d) It is not inconsistent, because with this adjustment we know how much profit the company needs to make in order to cover all expenses and cost of merchandise inventory and STILL make a profit out of the sale.
2007-04-25 14:33:28 補充：
In addition, it is best to follow along how the market price is fluctuating than to stick with the historical cost principle, because we are making the money NOW and not with the past.
2007-04-25 14:37:02 補充：
e) consistency does not mean you cannot change ANYTHING. It is not wrong to make changes for the company's best interest.
2007-04-25 14:37:10 補充：
Consistency simply means that whichever accounting method you use for the period, you need to be CONSISTENT with that certain method, just so that you are consistent with the numbers generated through that method.
2007-04-25 14:37:19 補充：
It is not only easier but also more clear for the auditor and the preparer.
2007-04-25 14:37:52 補充：
不好意思 補ㄌ好多遍 = = 因為位置不夠我寫
哈哈 ^^參考資料： 自己 + 書, 自己 + 書