In normal circumstances, the audit approach for rental expense is to examine the rental agreement entered between both parties. The rental expense is stated clearly in the agreement.
Things to pay attention: if there are any other expenses stated in the agreement. Also, we could test vouched the monthly billing to check the monthly expense charged.
#29- Review of Legal Expenses
As an auditor, we would examine the nature of the legal expense even if it is not materil/ significant from the audit engagement point of view.
The rationale is to examine the nature of the expense incurred and to search for any outstanding litigation against the company, or the company is involving in any legal cases. As the damages for litigation could be tremendous, and needed to be disclosed to the financial statement users.
Hence, careful examination is required.
Alternatively, ' Legal Confirmation' could be sent to the client's lawyers to confirm if there is any on-going legal cases against the company.
The rationale is to examine the nature of the expense incurred and to search for any outstanding litigation against the company, or the company is involving in any legal cases. As the damages for litigation could be tremendous, and needed to be disclosed to the financial statement users.
Hence, careful examination is required.
Alternatively, ' Legal Confirmation' could be sent to the client's lawyers to confirm if there is any on-going legal cases against the company.
#28 Auditing audit fees
How do we conduct the auditing process for audit fees as an auditors? What do we have to do?
Firstly, we have to obtained the agreed/ proposed audit fees for current year. And we used the formula below to assess the sufficiency for recorded audit fees:
Agreed audit fees + Reversal of Overprovision (if any) - Additional Accrual for Underprovision (if any)+ Additional audit related charges incurred during the year
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Firstly, we have to obtained the agreed/ proposed audit fees for current year. And we used the formula below to assess the sufficiency for recorded audit fees:
Agreed audit fees + Reversal of Overprovision (if any) - Additional Accrual for Underprovision (if any)+ Additional audit related charges incurred during the year
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#27 Classification of Bad Debt Expense
Should the bad debt expense be net off from the gross profit? or should it be classified in other operating expense?
The answer is: bad debt expense should be classified as General & Administrative Expense in Profit & Loss.
The answer is: bad debt expense should be classified as General & Administrative Expense in Profit & Loss.
Product Pricing Issues and Strategies
Another good article on BNET (can you tell I like this website). A lot of it is common sense. The helpful thing about the BNET website is how they present the article. It has a very good layout which highlights the main points. This particular article talks about issues and strategies regarding product pricing.
#26 Bank Confirmation
In normal circumstances, auditor would send a bank confirmation to the client's bank to confirm the cash balances, loan confirmation, hire purchase & provide other client-related info as at year end date.
Bank confirmation does not only act as the confirmation of the client's cash balance, loan balances, hire purchase balance in the account, but also it other information that auditor might be interested in.
For instance, it will provide the information of corporate guarantee, which might have to be disclosed in the financial statement. Hence, receiving a bank confirmation is also critical in identifying unrecorded liabilities, if any.
Bank confirmation does not only act as the confirmation of the client's cash balance, loan balances, hire purchase balance in the account, but also it other information that auditor might be interested in.
For instance, it will provide the information of corporate guarantee, which might have to be disclosed in the financial statement. Hence, receiving a bank confirmation is also critical in identifying unrecorded liabilities, if any.
Another Free Office Suite of Products
I haven't looked at this new free office suite called IBM Lotus Symphony; but it looks like it could be pretty good. It appears to be an open suite of products (very universal) and they claim:
"With Lotus Symphony, you can import, edit and save a variety of file formats including Microsoft Office files. You can even export your documents to Adobe® Portable Document Format (PDF). The tools work with computers running both Microsoft Windows and Linux- environments, with support for Apple Macintosh planned for the future."The suite consists of three products:
- Lotus Symphony Documents (replacement for Word)
- Lotus Symphony Presentations (replacement for PowerPoint)
- Lotus Symphony Spreadsheets (replacement for Excel)
#25 Auditing Management Fees earned from Inter-company
In certain circumstances, the principal activities of the holding company is mainly investment holding. The transactions throughout the year might be minimal, and the expenses are minimal as well. The only revenue earned is the management fees earned from its subsidiaries. How do we verify the management fees earned is not materially misstated?
Firstly, we should read the details of the agreement between the holding company and the subsidiaries, with respect to the calculation of management income. For instance, 80% of total revenue or 100% of expenses. These terms are not uncommon in today business world.
If we are auditing the holding company accounts and issuing financial statement for the holding company. We must ensure that the subsidiaries, where the holding company earned management fee, get audited as well.
This is because the revenue of the holding company is totally dependent on the subsidiaries' revenue. These are the cases applicable for company level financial statement.
Firstly, we should read the details of the agreement between the holding company and the subsidiaries, with respect to the calculation of management income. For instance, 80% of total revenue or 100% of expenses. These terms are not uncommon in today business world.
If we are auditing the holding company accounts and issuing financial statement for the holding company. We must ensure that the subsidiaries, where the holding company earned management fee, get audited as well.
This is because the revenue of the holding company is totally dependent on the subsidiaries' revenue. These are the cases applicable for company level financial statement.
#24 Auditing for Directors Fee
How do we ensure the directors fee in the profit & loss is not materially stated?
In normal circumstances, directors fee charged to P&L is a provisional expense, which is subject to the approval of shareholders. In normal circumstances, the directors fee will only be approved after the financial statement have been presented and finalized. The approval for directors, to certain extent, based on the financial performance of the company ( i.e. information from financial statement).
Then, how do we assess the directors fee?
1. The proposed directors shouldn't be materially different from the prior year directors fee given the same number of directors. Hence, prior year fee is a good reference.
2. Refer to the resolution to check if prior year proposed directors' fees have been approved subsequently.
3. Assess other factors that could affect the directors fee provision.
In normal circumstances, directors fee charged to P&L is a provisional expense, which is subject to the approval of shareholders. In normal circumstances, the directors fee will only be approved after the financial statement have been presented and finalized. The approval for directors, to certain extent, based on the financial performance of the company ( i.e. information from financial statement).
Then, how do we assess the directors fee?
1. The proposed directors shouldn't be materially different from the prior year directors fee given the same number of directors. Hence, prior year fee is a good reference.
2. Refer to the resolution to check if prior year proposed directors' fees have been approved subsequently.
3. Assess other factors that could affect the directors fee provision.
Resume Writing Tip
Just happened to come across this article on MSN. Some interesting tips on resume writing. Includes a list of 'buzz words' you should avoid on your resume as well as a few what they call 'empty phrases' which should be avoided.
#23- Accounting for Accrual for Expense
In accordance with matching principle, we make provision for the expenses which have not been billed by our suppliers or the company has not paid out the expenses, if the underlying services are rendered in the corresponding period. Example for accrued expense, include:
1. Accruals for audit fees, tax agent fees
2. Accruals for Payroll, Bonus & CPF
3. Accruals for rental
etc.
The company can make the accruals based on the agreed quoting from the suppliers. The accruals for expense entry:
Dr. Expense ( P & L)
Cr. Accrulas (Balance Sheet- Liabilities)
1. Accruals for audit fees, tax agent fees
2. Accruals for Payroll, Bonus & CPF
3. Accruals for rental
etc.
The company can make the accruals based on the agreed quoting from the suppliers. The accruals for expense entry:
Dr. Expense ( P & L)
Cr. Accrulas (Balance Sheet- Liabilities)
Another Information Security Breach
Anyone holding such information on the internet should be required to have their systems independently tested on an annual basis. Many company's have audits of their financial records and internal controls. Why not audit the security controls of their network?
HIPAA: just something to read more about
Haven't really delved into this at all. Came across this article at the link below. Other than the form which I kind of gloss over at any new doctors office. I really don't know much about HIPAA. The author at the link below has a link to some more documentation on HIPAA. Just posting this as one of those things I'd like to read more on when I get a chance (Sarbanes-Oxley is another one).
#22- Search for Unrecorded Liabilities
How do we ensure that the Company has accounted for the expenses incurred before year end? ANd it should be recorded in the appropriate period if the expenses has not been billed by the suppliers?
1. Look through unpaid invoices - look at the description of the services provided, and invoices date, Delivery Order date
2. Look at payment voucher after year end to find out the expenses that should be recorded in prior period, if any
3. Sent confirmation to suppliers to confirm the amount outstanding as at year end
4. Look at the expenses account, for potential indication of services which should be accrued in current year Profit & Loss
5. Perform cut off test.
1. Look through unpaid invoices - look at the description of the services provided, and invoices date, Delivery Order date
2. Look at payment voucher after year end to find out the expenses that should be recorded in prior period, if any
3. Sent confirmation to suppliers to confirm the amount outstanding as at year end
4. Look at the expenses account, for potential indication of services which should be accrued in current year Profit & Loss
5. Perform cut off test.
Operating Lease vs. Capital Lease
Good article on Bnet identifying the differences between an operating lease and a capital lease. Includes accounting for each type of lease.
Accounting Basics: Public Accounting vs. Private Accounting
Next in my Accounting Basics Series: Public Accounting vs Private (Industrial) Accounting.
The old accounting text book defines public accounting as: offering accounting and related services for a fee to companies, other organizations and the general public. The other services can include auditing, tax services and consulting. The certification offered for this type of accountancy is a Certified Public Accountant. The exam is prepared and administered by the American Institute of Certified Public Accountants (AICPA).
Private (or industrial accounting) is the opposite. Instead of providing services to many clients, a private accountant provides services to a single business. In a business consisting of many accountants, the 'head accountant is typically called the controller. Private accountants may or may not be CPA's. The National Association of Accountants does offer a certificate for private accountants called a Certificate in Management Accounting (CMA). Private accountants are often much more specialized and have to adapt to the needs of their company (controlling costs, budgeting, accounting systems, etc.)
Target Follows Blockbuster and Goes Blu Ray
Follow up to my June 20, 2007 post. Looks like Target is following Blockbusters lead and supporting Blu Ray...
NEW YORK (Reuters) - Target plans to carry only Blu-ray high definition DVD players through the holiday shopping season, a move that boosts the Sony-backed technology and may deal a blow to rival HD-DVD.
In a statement on Thursday, Sony Corp. said that Target will exclusively carry Blu-ray players "at least through the holiday season" and will also expand its inventory of Blu-ray discs.
The move begins in October with Target's sale and promotion of Sony's BDP-S300 unit, which sells for about $500.
It was the second major retailer in as many months to throw its weight behind Blu-ray in the industry wide standards war reminiscent of VHS and Betamax. Blockbuster, the largest U.S. provider of home movie entertainment, in June set plans to line its shelves with Blu-ray DVDs, saying that Blu-ray rentals are "significantly outpacing HD DVD rentals."
HD DVD is developed by Toshiba Corp. and backed by Microsoft Corp. and film studios including Warner Bros.. It competes with Sony's Blu-ray which is built into its PlayStation 3 game console, and supported by companies such as Samsung Electronics Co., Apple and Dell.
Earlier this month, the HD DVD camp said its stand-alone video players have outsold rival Blu-ray players by a three-to-one margin in Europe's main markets so far this year.
Mass market acceptance of high-definition video is still some way off, due in part to the high price of the devices, and the fact that some movies and programs are available on one platform and not the other.
(Reporting by Franklin Paul)
#21 Is reimbursement to staff considered payroll cost?
It's common business practices to reimburse some of the expense incurred by the employee for business purposes. For instance, phone bill. The reimbursement will be credited into employee accounts in conjunction with its regular pay.
How should the accountant account for this reimbursement ?
Some of the HR manager would account reimbursement into its payroll costs, and included the amount as total payroll costs for the respective period. Hence, accountant should separate the payroll cost and the reimbursement, said Reimbursement for phone bill or etc.
This is to ensure that the account reflect the fair view of the business operation. To illustrate, if reimbursement has been included in the payroll costs. Outsider, who rely on the financial statement of the Company, might have the opinion that the payroll cost of the company is unnecessaily high. Whereas, other operational costs are below the industry average.
The implication for auditing in here is : be aware of any reimbursement while doing the payroll analysis and reclass the reimbursement out from payroll, if necessary.
How should the accountant account for this reimbursement ?
Some of the HR manager would account reimbursement into its payroll costs, and included the amount as total payroll costs for the respective period. Hence, accountant should separate the payroll cost and the reimbursement, said Reimbursement for phone bill or etc.
This is to ensure that the account reflect the fair view of the business operation. To illustrate, if reimbursement has been included in the payroll costs. Outsider, who rely on the financial statement of the Company, might have the opinion that the payroll cost of the company is unnecessaily high. Whereas, other operational costs are below the industry average.
The implication for auditing in here is : be aware of any reimbursement while doing the payroll analysis and reclass the reimbursement out from payroll, if necessary.
#20 Practical audit tips- Insurance Coverage
Insurane policies is a way of the company to mitigate/ minimize certain aspect of risks exposed by the company, for instance natural disasters, flood.
Auditors could check the amount insured by the insurance policies bought by the companies against the respective assets. For instance, the companies might have few fire insurance policies amounted to $2 million for its buildings.
Auditors could ensure that the fixed assets are while covered by examing the Net Book Value of the buildings. Assuming the NBV of the buildings are $3.5 million, and this signaled that additional insurance should be entered to ensure that the risk is monitored cautiously.
Auditors could check the amount insured by the insurance policies bought by the companies against the respective assets. For instance, the companies might have few fire insurance policies amounted to $2 million for its buildings.
Auditors could ensure that the fixed assets are while covered by examing the Net Book Value of the buildings. Assuming the NBV of the buildings are $3.5 million, and this signaled that additional insurance should be entered to ensure that the risk is monitored cautiously.
#19 Treatment of Prepaid Insurance
In accounting, we emphasize on ' Matching Principle': to match the expense incurred with the revenue generated in certain period. The idea behind is: there would be any direct or indirect cost incurred during the process of generating revenue within a specified period. The principle emphasize on matching the time frame of expense against the revenue, and the emphasis is on the recognition timing.
Assuming Company ABC entered a fire insurance contract for its building and stocks for a period of 2 years, starting from 1 Jan 07 ~ 31 Dec 08. Company ABC has paid the entire insurance cost of $200,000 in 1 Jan 07.
Apparently, the insurance cost incurred was expense over 2 years. Hence at the end of 31 Dec 07, we should only recognize $100,000 of insurance cost another $100,000 will be sitting in Prepayment account ( Asset). This is to match the expense incurred in the specified period.
To illustrate:
1) When the Company pay the insurance cost ( 1 Jan 2007):
Dr. Prepayment $200,000
Cr. Cash $200,000
2) At the end of 31 Dec 2007
Dr. Insurance Cost $100,000
Cr. Prepayment $100,000
3) At the end of 31 Dec 2008
Dr. Insurance Cost $100,000
Cr. Prepayment $100,000
Assuming Company ABC entered a fire insurance contract for its building and stocks for a period of 2 years, starting from 1 Jan 07 ~ 31 Dec 08. Company ABC has paid the entire insurance cost of $200,000 in 1 Jan 07.
Apparently, the insurance cost incurred was expense over 2 years. Hence at the end of 31 Dec 07, we should only recognize $100,000 of insurance cost another $100,000 will be sitting in Prepayment account ( Asset). This is to match the expense incurred in the specified period.
To illustrate:
1) When the Company pay the insurance cost ( 1 Jan 2007):
Dr. Prepayment $200,000
Cr. Cash $200,000
2) At the end of 31 Dec 2007
Dr. Insurance Cost $100,000
Cr. Prepayment $100,000
3) At the end of 31 Dec 2008
Dr. Insurance Cost $100,000
Cr. Prepayment $100,000
Interviewing Tips Continued...Questions to Ask
While were on the topic, I found this article (also on BNet) with a well organized list of questions to help you stage the interview...
The 7 Interview Questions You Must Ask
There are no magic bullets when it comes to job interview questions, but the way you structure your queries is important: It's the interviewer's job to create a framework for the discussion and prevent it from running off the rails. Every company's needs are different, but a good basic strategy is to ground the interview in questions about past job performance. Then throw in some situational questions to evaluate practical decision making, and learn a little bit about how the job fits in with a candidate's biography.
Question #1: "How about those Yankees?"
Purpose: Develop the rapport needed to get the interview off the ground.Every interview should begin with an icebreaker. It helps nervous applicants calm down and builds a sense of trust. If you have a 45-minute interview, you should spend at least the first five minutes trying to connect on a neutral topic. Make the person feel at ease and you'll solicit better information—and much more honest responses.
Alternate Version 1: "Did you go to the industry conference last week?"
Alternate Version 2: "Were you affected by the heat wave/cold snap?"
Alternate Version 3: "Did you have a good holiday?"
Question #2: "Talk about a time when you had to overcome major obstacles."
Purpose: Get a clear picture of the candidate's past performance.Variations on this question should actually comprise your next several questions. Don't hesitate to guide the candidate through the variety of tasks (both tangible and theoretical) necessary to perform the job, and listen carefully to how he or she has handled such challenges. Pay attention to intangibles: some people are better at performing in interviews than on the job. If your candidate continually plays the role of hero or victim, that's a red flag that you're probably not getting the whole story.
Alternate Version 1: "Tell me about a time when you wrote a report that was well received. Why do you think it was successful?"
Alternate Version 2: "Describe a time when you hired (or fired) the wrong person."
Alternate Version 3: "If you had to do that activity again, how would you do it differently?"
Question #3: "What interests you about this position?"
Purpose: Find out how the candidate feels about the job and the company.People apply for jobs for plenty reasons besides the obvious ones. Asking a candidate why he or she wants the position gives insight into their motivation. The answer may be personal (such as a narrative about what spurred them to seek a new job), or it may connect the candidate to the company: her experience with the brand, the mission statement, or the organization's role in the community. Any of these answers (or some combination) are acceptable—a personal answer can communicate trust, and a connection to the business indicates loyalty and a sense of ownership.
Alternate Version 1: "Where does this job fit into your career path?"
Alternate Version 2: "If you had to convince a friend or colleague to apply for this job, what might you tell them?"
Alternate Version 3: "What motivated you to apply for this job?"
Question #4: "Is there intelligent life in outer space?"
Purpose: Find out what kind of thinker the candidate is and how he deals with surprises.This is your curveball, designed to make the candidate ad-lib instead of just reciting well-rehearsed answers. How much will he or she play along? As long as it's not too short or too long, virtually any response is a good one. But pay attention to attitude, the way the candidate approaches the problem, and the ease or difficulty they have in coming up with a response.
Alternate Version 1: "How many phone books are there in New York City?"
Alternate Version 2: "How do they get the cream filling inside a Twinkie?"
Alternate Version 3: "Why do people climb mountains?"
Question #5: "Imagine we've just hired you. What's the most important thing on your to-do list on the first day of work?"
Purpose: Learn about the candidate's judgment and decision-making skills.This is an example of a situational question, which is like a behavioral question in that it's designed to assess judgment, but it's also like a curveball question because it illuminates the candidate's thought process. You want to see whether he demonstrates the competencies and priorities that are important to the job.
Alternate Version 1: "Say a coworker tells you that he submitted phony expense account receipts. Do you tell your boss?"
Alternate Version 2: "How would you handle an employee whose performance is fine but who you know has the potential to do better?"
Alternate Version 3: "What would you do if you got behind schedule with your part of a project?"
Question #6: "Why did you get into this line of work?"
Purpose: Measure the fit between the candidate's values and the culture of your company.It risks a long, drawn-out answer, but this type of question will help you select candidates that fit your company's culture. It's not about finding people like you, or people with similar backgrounds that led them to your company, but about getting a sense of their values and motivations. Concepts like values and culture can be subjective and difficult to define, but you should be looking for someone whose work ethic, motivations, and methods match the company's. This isn't a quantitative measurement so much as a qualitative one. Coke and Pepsi may seem the same to people outside the soft-drink industry, but each houses people with different approaches to making cola and running a business.
Alternate Version 1: "What do you like best about your current job?"
Alternate Version 2: "When did you realize this would be your career?"
Alternate Version 3: "What keeps you coming to work besides the paycheck?"
Question #7: "But enough about you. What about us?"
Purpose: Find out if the candidate has done his or her homework.It's a cliché to end an interview with the standard, 'So, any questions?' But the fact remains that you really do want to let the candidate ask a few things of you. Reversing roles communicates that the company seeks an open a dialogue, and it helps you ascertain just how curious and knowledgeable a candidate is about your company. If he doesn't ask any questions about the job or the business, it's a safe bet his heart isn't in it. Listen for insightful questions that demonstrate a sophisticated understanding of the circumstances of the job, the company, the competitive landscape, or the industry.
Alternate Version 1: "Where do you think the company should be in ten years?"
Alternate Version 2: "What's your opinion of our new product?"
Alternate Version 3: "Have you seen the company's new ad campaign?"
Interviewing Tips (From Managements Side)
I haven't had to do it very often, but I have told people that interviewing someone for a job is almost as nerve racking as being interviewed. This article I came across on BNet has some very useful tips...
10 Mistakes Managers Make During Job Interviews
1. You Talk Too Much
When giving company background, watch out for the tendency to prattle on about your own job, personal feelings about the company, or life story. At the end of the conversation, you'll be aflutter with self-satisfaction, and you'll see the candidate in a rosy light—but you still won't know anything about her ability to do the job.2. You Gossip or Swap War Stories
Curb your desire to ask for dirt on the candidate's current employer or trash talk other people in the industry. Not only does it cast a bad light on you and your company, but it's a waste of time.3. You're Afraid to Ask Tough Questions
Interviews are awkward for everyone, and it's easy to over-empathize with a nervous candidate. It's also common to throw softball questions at someone whom you like or who makes you feel comfortable. You're better off asking everyone the same set of challenging questions—you might be surprised what they reveal. Often a Nervous Nellie will spring to life when given the chance to solve a problem or elaborate on a past success.4. You Fall Prey to the Halo Effect (or the Horns Effect)
If a candidate arrives dressed to kill, gives a firm handshake, and answers the first question perfectly, you might be tempted to check the imaginary "Hired!" box in your mind. But make sure you pay attention to all his answers, and don't be swayed by a first impression. Ditto for the reverse: the mumbler with the tattoos might have super powers that go undetected at first glance.5. You Ask Leading Questions
Watch out for questions that telegraph to the applicant the answer you're looking for. You won't get honest responses from questions like, "You are familiar with Excel macros, aren't you?"6. You Invade Their Privacy
First of all, it's illegal to delve too deeply into personal or lifestyle details. Secondly, it doesn't help you find the best person for the job. Nix all questions about home life ("Do you have children?" "Do you think you'd quit if you got married?"), gender bias or sexual preference ("Do you get along well with other men?"), ethnic background ("That's an unusual name, what nationality are you?"), age ("What year did you graduate from high school?"), and financials ("Do you own your home?")7. You Stress the Candidate Out
Some interviewers use high-pressure techniques designed to trap or fluster the applicant. While you do want to know how a candidate performs in a pinch, it's almost impossible to recreate the same type of stressors that an employee will encounter in the workplace. Moreover, if you do hire the person, they may not trust you because you launched the relationship on a rocky foundation.8. You Cut It Short
A series of interviews can eat up your whole day, so it's tempting to keep them brief. But a quick meeting just doesn't give you enough time to gauge a candidate's responses and behavior. Judging candidates is nuanced work, and it relies on tracking lots of subtle inputs. An interview that runs 45 minutes to an hour increases your chances of getting a meaningful sample.9. You Gravitate Toward the Center
If everyone you talk to feels like a "maybe," that probably means you aren't getting enough useful information—or you're not assessing candidates honestly enough. Most "maybes" are really "no, thank yous." (Face it: He or she didn't knock your socks off.) Likewise, if you think the person might be good for some role at some point in the future, then they're really a "no."10. You Rate Candidates Against Each Other
A mediocre candidate looks like a superstar when he follows a dud, but that doesn't mean he's the best person for the job. The person who comes in tomorrow may smoke both of them, but you won't be able to tell if you rated Mr. Mediocre too highly in your notes. Evaluate each applicant on your established criteria—don't grade on a curve.
Accounting Basics: Accounting and The Accounting Cycle
What is accounting? My old accounting text book defines it as: "the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by the users of the information." The text distinguishes between accounting and bookkeeping. Whereas bookkeeping involves the mechanical process of recording economic activities, accounting expands on that to include analysis and interpretation of financial information as well as preparing financial statements, conducting audits, designing accounting systems, etc.
Since this is a web based forum, lets look at Wikipedia's definition: the measurement, disclosure or provision of assurance about financial information primarily used by managers, investors, tax authorities and other decision makers to make resource allocation decisions within companies, organizations, and public agencies. The terms derive from the use of financial accounts. Accounting is the art of measuring, communicating and interpreting financial activity. Accounting is also widely referred to as the "language of business".
Any way you look at it, accounting is a process. It is a process of identifying economic events related to a business activity, recording these events, and subsequently reporting on this business activity with some means of financial representation (financial statements or other reports).
Accounting can be represented as a cycle:
- Observe events.
- Identify those events which are economic events.
- Measure the economic events.
- Record measurements.
- Classify measurements.
- Summarize measurements.
- Report business activity in financial statements or other reports.
- Interpret the contents of financial statements and other reports.
What really adds value to an accountants services is the ability to supply items #7 and #8.
#18 Deferred Tax Asset from Unearned Income
A deferred tax asset can arise from differences in recognition of income. In this thread we're talking about the deferred tax asset arise from unearned income.
For instance, a financial company is a lessor and receives advance mortgage payments for a building it leases, the tax and book accounting purposes of the payments may differ. The tax laws, under certain circumstances, require the financial company to take into income the entire amount of the payment, even though the payments include monthly payments for the period occurring after the close of the tax year.
For book purposes, this income is not included into income until the payment is actually "earned," that is to say, as each month passes. This is also a deferred tax asset because the item causes a greater amount of income in the current period for tax purposes than it does for book purposes. Why? Because in subsequent years, the corporation will recognize book income when there is not a corresponding recognition of taxable income. Thus, where income is recognized in the current year for tax purposes and will be recognized in subsequent years for book purposes, a deferred tax asset arises.
For instance, a financial company is a lessor and receives advance mortgage payments for a building it leases, the tax and book accounting purposes of the payments may differ. The tax laws, under certain circumstances, require the financial company to take into income the entire amount of the payment, even though the payments include monthly payments for the period occurring after the close of the tax year.
For book purposes, this income is not included into income until the payment is actually "earned," that is to say, as each month passes. This is also a deferred tax asset because the item causes a greater amount of income in the current period for tax purposes than it does for book purposes. Why? Because in subsequent years, the corporation will recognize book income when there is not a corresponding recognition of taxable income. Thus, where income is recognized in the current year for tax purposes and will be recognized in subsequent years for book purposes, a deferred tax asset arises.
Small Business Advice - Vacation Policies
Good article with tips on establishing a vacation policy to keep your small business running smoothly:
AP Online via NewsEdge Corporation : NEW YORK_Holiday weeks and peak vacation periods can be a trying time for small business owners, especially if they haven't formulated a policy about employee time off. This scenario will probably sound painfully familiar to many company owners: Several staffers all want the same day or week off, and when the boss says yes to some and no to others, there are hard feelings, complaints of favoritism, maybe even someone calling out sick in protest. Human resources consultants say there are ways to resolve this kind of crisis _ although as in many other situations small business owners must contend with, it's best to plan in advance and prevent such a predicament in the first place. Rob Wilson, president of Employco, a Chicago-based human resources firm, said that if too many people want the same time off, an owner might consider negotiating with one or more, asking workers if they'd be willing to forgo the day or week in return for something else. "Maybe you can throw in something extra ... let them come in late or take a half a day off, something that everyone in the office doesn't have to know about _ a thanks for helping me out," he said. Leigh Branham, owner of Keeping The People Inc., an Overland Park, Kan., human resources consulting firm, suggests drawing employees into the problem-solving process. "Have a meeting with them, and ask how is the work going to get done?" Branham said. "Create a sense of ownership among the employees. Each person has a responsibility." He also suggested, where possible, hiring temporary workers to fill in. Or, if it's not entirely necessary for an employee to be physically present in the office, if one or more of the vacationing staffers will agree to be available by cell phone for help or consultations. This kind of approach to the problem can help employees feel more valued, Branham said. "It's a chance to be more a part of the team." But the bigger question is how to make sure vacation conflicts are kept to a minimum. HR consultants uniformly advocate creating a written vacation policy, one that ideally is part of a broader employee handbook. Policies and handbooks serve an important purpose _ the more that staffers understand what's expected of them, and what they can expect to do, the better off the workplace will be. A vacation policy needs to spell out not only how many days an employee is entitled to take and at what point in the staffer's tenure they can be taken _ for example, how many days a new employee can expect to have in the first six months or year, and at what point is he or she entitled to a full week, two weeks, three weeks, etc. It also needs to specify how far in advance time off needs to be scheduled and how conflicts will be resolved, whether by seniority or on a first-come, first-served basis, or a mixture of both. An owner also needs to consider whether time off includes sick days as well as vacation time and personal days. Owners who need help in putting a policy together might talk to other business owners in the same industry or the same geographic area, to see what the norm is. Branham also suggested, "Get a good benefits person to give you some guidelines." As they formulate a policy, owners need to remember that vacation and time off policies can help make companies more competitive in a tight labor market. Businesses that can't afford benefits like health insurance might want to consider more flexible time-off policies _ keeping in mind that increasingly, workers are looking for a better work-life balance. A good candidate for a job might be turned off by a vacation policy that's too stingy or too rigid. Still, there are some businesses that have to hold the line on vacations _ for example, restaurants in popular beach or resort areas. In such cases, employees need to know even before they're hired that time off is likely to be limited at certain points in the year. Wilson noted that his company found as it grew that the last week of the year was one of the busiest because of tax law changes that were taking effect Jan. 1. So Employco's vacation policy had to be adjusted to let workers know that no one could take time off that week. < |
Summary of Health Spending Accounts
I found this article which gives a good little summary of available options for health care spending accounts (at the very least, it defines the acronyms):
Biotech Week via NewsEdge Corporation : 2007 JUL 11 - (NewsRx.com) -- Health insurance is confusing enough. And then we're expected to understand all of those acronyms. What's an FSA? An HRA? An HSA? David Ewers, Boise district manager for PacificSource Health Plans, thinks it's important to talk to people in plain English. "How can you make good choices if you don't understand your options?" he asks. Today, many employers are encouraging their employees to take a more active role in managing their own health care -- and their own health care costs. That trend has led to a whole new array of health care plan options, along with a new set of acronyms. Such consumer-directed plans help employers control healthcare costs while giving employees more control over how their healthcare dollars are spent. Plans vary but all consumer-directed plans include a low cost, high deductible Preferred Provider Organization (PPO) plan plus a healthcare spending account. Among these spending account options are Flexible Spending Accounts (FSAs). FSAs let employees make pre-tax contributions to pay for dependent health insurance premiums and such foreseeable out-of-pocket healthcare expenses as unreimbursed medical expenses, dental and vision care and prescriptions. These plans offer tax savings for both employees and for employers. Health Reimbursement Arrangements (HRAs) are similar to FSAs but employer contributions to employee accounts are not taxable and funds may be rolled over from year to year. Health Savings Accounts (HSAs) may be funded by either or both employers and employees and, again, there are tax advantages for both. Ewers says it's worth wading through the sea of acronyms to get the most out of your health insurance. Don't be afraid to ask questions and you'll enjoy all the benefits your insurance plan has to offer. < |
Information / Data Security
I hope that a person that commits a theft such as this is punished as severely as a criminal would be for bank theft or robbing a convenience store at gun point. I'd like to gather some of these articles and track what the outcomes are (don't know if time will permit). This is a big issue today whether you work in accounting, medical, retail... All company's really need to do is apply some basic accounting controls to their data (separation of duties, access to assets vs. access to records, etc.), follow through with some physical controls, then let the technology experts advise on data security techniques. Probably more complicated then I'm making it out to be, but if a company can keep its valuable trade secrets then they can protect their valuable customer data.
Miami Herald via NewsEdge Corporation : Certegy Check Services, a Fidelity unit which helps businesses clear checks, sued "We don't anticipate losing any business as a result of this situation," Renz Nichols, president of Certegy, said on a conference call. "We have seen no evidence that any credit card or bank account information was used for anything other than marketing." Banks, financial firms and retailers are focusing on data security after system breaches led to consumer lawsuits and losses. Retailer Certegy also sued Sullivan, formerly a senior database administrator, for misappropriation of trade secrets, breach of fiduciary duty and breach of confidentiality agreements. The complaint didn't specify the amount of damages sought by the company. Certegy fired Sullivan after it discovered that the information was sold, Lawyers for the firm said they didn't have an address or telephone number for Sullivan, who couldn't be reached by Bloomberg News for comment through directory assistance or computer searches. The stolen data included names, addresses, telephone numbers, birth dates, as well as bank account and credit card information, the company said. After receiving the information, the data broker sold names and addresses, but not customers' entire bank account numbers, to the marketing firms, Nichols said. The Secret Service, a branch of the Shares of "It's the responsibility of institutions like Fidelity to strictly limit access to data, to make sure the people handling the data are people we can trust," said Certegy, which employs about 1,000 people, is notifying consumers about the data theft, and has alerted credit reporting agencies as well as the Visa and < |
Disappointing state of affairs for the U.S.
I hate to say it right after the 4th of July festivities, but this disappoints me to no end. Have we priced ourselves right out of the US car market. It is hard to find a decent American made new car for under $25,000. If China is able to cost effectively build a quality auto and sell it here for $10,000-$20,000 this could be the beginning of the end for US auto manufacturing (actually may have passed the beginning already). Quality issues including numerous recalls plague US auto manufacturing. Sadly, one of my last two auto purchases happened to be my first foreign auto purchase. I was looking for a low cost, quality, gas miser car. The model I was looking at from Ford was riddled with recalls, Chevy's option was poor all around, I ended up with Hyundai and it has given me 135,000 almost trouble free miles. Chrysler, Ford, GM lets step it up a bit...I want to buy American but with limited money, I have to get the most bang for my buck.
Anyways, read this article and comment...
Associated Press WorldStream via NewsEdge Corporation : BEIJING_The next Made-in-China export bound for the United States: cars. Chrysler Group signed a deal Wednesday with China's biggest automaker, Chery, to launch a low-cost production venture that could export the first Chinese-made cars to the United States. The first cars will reach Latin America or Eastern Europe within a year and models should be exported to North America and Western Europe in 2 1/2 years, said Chrysler CEO Tom LaSorda. "As part of the Chrysler Group's global transformation, we are finding new ways to bring vehicles to market faster, more efficiently and with less cost," LaSorda said at a signing ceremony. The alliance offers 10-year-old Chery Automobile Co., based in the eastern Chinese city of Wuhu, an opportunity to realize its longtime ambition of entering the U.S. market. Chinese automakers already export, mostly low-priced trucks and buses shipped to Africa and other developing markets. But analysts say they lack the technology to meet U.S. and European safety and pollution standards on their own. Chery CEO and Chairman Yin Tongyao said the deal will help Chery improve its skills as it tries to expand foreign sales of its own models. "Chery is still young, so we should learn from Chrysler and improve our own competitive edge in the near future," he said, calling LaSorda "my teacher in the automotive business." The first Chrysler-Chery export will be based on Chery's A1 compact and sold under the Dodge brand, LaSorda said. A 1.3-liter version of the A1 retails in China for 53,800-59,800 yuan (US$7,100-US$7,900; €5,200-5,800). Export prices have not been announced. The companies will jointly develop future models, probably with Chrysler styling on a Chery platform, LaSorda and LaSorda said he had "no concerns at all" about convincing U.S. consumers that Chinese-made cars are safe at a time of warnings about seafood, tires and other goods imported from China. Chrysler will work closely with Chery to ensure the cars meet U.S. and European safety and emissions standards, he said. The agreement follows DaimlerChrysler AG's agreement in May to sell 80.1 percent of money-losing Chrysler to U.S. private equity group Cerberus Capital Management, freeing the parent company to focus on its truck and Mercedes luxury car lines. Major automakers have been aggressively expanding production in China, which overtook Japan last year to become the world's No. 2 vehicle market after the United States. But until now, most has focused on meeting red-hot local demand, which has made China a bright spot for U.S. automakers amid lackluster sales at home. Others also have announced plans to export Chinese-made cars to the United States but none has yet made it to market. A Chinese automaker, Changfeng Motor Co., said in January it hoped to sell sport-utility vehicles in the United States within two years but has given no details. Chery had a deal with American entrepreneur Malcolm Bricklin to sell cars in the U.S. market but that fell through. Japan's Honda Motor Co. has exported Chinese-built Jazz subcompacts to Europe since 2005. Last year, Chery reported sales of about 310,000 cars, with 40,000 of those exported. Its target this year is 390,000 cars, including 70,000 units sold abroad. The company assembles vehicles with partners in Iran, Malaysia, Russia, Ukraine, Brazil and Egypt. It announced plans in March to open a factory in Uruguay _ its first in Latin America _ with an Argentine partner. Total Chinese passenger car sales rose 37 percent last year to 3.8 million, while total vehicle sales rose 25.1 percent to 7.2 million, according to the China Association of Automobile Manufacturers. LaSorda said Chrysler picked Chery after looking at potential partners in Europe and Asia. "We researched the world and found they were the best," he said. Asked whether Chrysler was worried that the alliance might help Chery develop into a competitor that might threaten its U.S. partner, LaSorda told The Associated Press, "No, we're not. With us or without us, they're going to grow. So the question is, 'Are you going to go with a winner?'" The venture's production could reach several hundred thousand units a year, LaSorda said. "This is the start of a very long relationship between Chrysler and Chery," he said. ___ On the 'Net: Chery Automobile Co. (in Chinese): http://www.chery.com.cn Chrysler Group: http://www.chrysler.com < |
#17 Risk-Based Internal Control assessment
Risk based auditing is an innovative approach focus on the key risks the firms are facing in specified industry on the way to achieve its target. For instance, Revenue Recognition while be the key risk for the Airline companies, Provision for Doubtful debts might be a significant risk for a trading company. It aims to minimize to an acceptable level, which is manageable
In this thread, we intend to at the assessment of internal control over financial reporting. It generally involved a step-by-step assessment:
1. Plan and scope the evaluation: establish assessment process. Identify significant financial reports. Define materiality. Identify significant accounts, relevant financial report assertions, and major transaction cycles. Link the accounts and cycles. Determine organizational approach.
2. Document Control: document and obtain understanding of controls for all significant accounts, groups of accounts, and transactions .
3. Evaluate design and operating effectiveness: evaluate design and operating effectiveness of internal control over financial reporting and documents results of the evaluation.
4. Identify and Correct Deficiencies: identify, accumulate , and evaluate design and operating control deficiencies ; communicate findings and correct deficiencies
5. Report on Internal Control: prepare management's written assurance on the effectiveness of internal control over financial reporting.
In this thread, we intend to at the assessment of internal control over financial reporting. It generally involved a step-by-step assessment:
1. Plan and scope the evaluation: establish assessment process. Identify significant financial reports. Define materiality. Identify significant accounts, relevant financial report assertions, and major transaction cycles. Link the accounts and cycles. Determine organizational approach.
2. Document Control: document and obtain understanding of controls for all significant accounts, groups of accounts, and transactions .
3. Evaluate design and operating effectiveness: evaluate design and operating effectiveness of internal control over financial reporting and documents results of the evaluation.
4. Identify and Correct Deficiencies: identify, accumulate , and evaluate design and operating control deficiencies ; communicate findings and correct deficiencies
5. Report on Internal Control: prepare management's written assurance on the effectiveness of internal control over financial reporting.
#16 No Material Misstatement vs Accurate
To emphasize:
What auditors do is to ensure that there is no material misstatement in the financial statement. Auditors are not confirming that the financial statement is accurate.
No material misstatement vs Accurate
The key word " No material misstate" allowed a certain level of tolerable error in the financial statements. (i.e. a certain level amount of acceptable errors, which are not going to affect financial statements users' decision-making)
The key word " accurate" required one to ensure that the financial statements are 100% or 99% correct. Higher level of responsibility and associated risk would be exposed by the auditors, if they are using the word, " accurate".
What auditors do is to ensure that there is no material misstatement in the financial statement. Auditors are not confirming that the financial statement is accurate.
No material misstatement vs Accurate
The key word " No material misstate" allowed a certain level of tolerable error in the financial statements. (i.e. a certain level amount of acceptable errors, which are not going to affect financial statements users' decision-making)
The key word " accurate" required one to ensure that the financial statements are 100% or 99% correct. Higher level of responsibility and associated risk would be exposed by the auditors, if they are using the word, " accurate".
#15- Can auditors draft Financial Statements for client?
Can auditors draft (i.e. prepare) the financial statements for clients ?
The answer is No.
As mentioned in post #10, the nature & the responsibility of an auditor is to check, to scrutinize the financial statement prepared by the clients is not materially misstated. Auditors are the investigators.
Self-review threat to auditors' independency would be created if auditors are checking on what the auditors themselves are preparing. Auditors are supposingly to exercise its professional due care ( in ensuring integrity) & competence to ensure the accuracy of the Financial Statements.
The answer is No.
As mentioned in post #10, the nature & the responsibility of an auditor is to check, to scrutinize the financial statement prepared by the clients is not materially misstated. Auditors are the investigators.
Self-review threat to auditors' independency would be created if auditors are checking on what the auditors themselves are preparing. Auditors are supposingly to exercise its professional due care ( in ensuring integrity) & competence to ensure the accuracy of the Financial Statements.
#Joke-Accountants don't read novels
Why do accountants make good lovers?
They're great with figures.
Why accountants don't read novels?
Because the only numbers in them are page numbers.
They're great with figures.
Why accountants don't read novels?
Because the only numbers in them are page numbers.
#14 Foreign Currency Translation Reserve
In this thread, let's look at the accounting for unrealized exchange differences.
Assuming, XYZ Co. ( a China based company) hold 100 US$ balance on hand ( and assuming foreign exchange rate is: 1 USD= 1.5 RMB)... In XYZ Co. the Cash account balance at this time would be:
US$ denominated cash = RMB 150
One month later, China's currency has appreciated to 1USD= 1.2 RMB, the XYZ Co. have to make the following adjustments:
Dr. Unrealized exchange difference loss 30
Cr. Cash 30
<>
The term unrealized is used in this case is because there wasn't any transactions took place, it's merely a mark-to market exchange rate practice. Hence, we called it unrealized forex losses.
Assuming, XYZ Co. ( a China based company) hold 100 US$ balance on hand ( and assuming foreign exchange rate is: 1 USD= 1.5 RMB)... In XYZ Co. the Cash account balance at this time would be:
US$ denominated cash = RMB 150
One month later, China's currency has appreciated to 1USD= 1.2 RMB, the XYZ Co. have to make the following adjustments:
Dr. Unrealized exchange difference loss 30
Cr. Cash 30
<>
The term unrealized is used in this case is because there wasn't any transactions took place, it's merely a mark-to market exchange rate practice. Hence, we called it unrealized forex losses.
#13 Is Unutilized Investment Allowances DTA?
Should untilized investment allowances be recognized as Deferred Tax Assets?
It is now generally agreed that unutilized investment allowances should be recognized as Deferred Tax Assets. The unutilized investment allowancs may come under IAS 12 paragraph 34, depends on the fact and circumstances.
Companies that have not been recognising DTA in respect of unutilised investment allowances in the past may need to do so (subject of course to the probable future taxable profit test). This would be a change in accounting policy.
It is now generally agreed that unutilized investment allowances should be recognized as Deferred Tax Assets. The unutilized investment allowancs may come under IAS 12 paragraph 34, depends on the fact and circumstances.
Companies that have not been recognising DTA in respect of unutilised investment allowances in the past may need to do so (subject of course to the probable future taxable profit test). This would be a change in accounting policy.
Microsoft Coffee Table PC
Is there really a market for this thing; I can't imagine having such an intrusive thing in my living room...
Microsoft to unveil 30-inch touch screen computer - May. 30, 2007
Microsoft to unveil 30-inch touch screen computer - May. 30, 2007
Microsoft unveils coffee table 'surface computer'
Software maker will introduce a coffee-table-shaped computer that has a 30-inch display, allowing people to touch and move objects on the screen.
May 30 2007: 2:42 PM EDT
SEATTLE (Reuters) -- Microsoft Corp. will unveil a coffee-table-shaped "surface computer" Wednesday in a major step towards co-founder Bill Gates's view of a future where the mouse and keyboard are replaced by more natural interaction using voice, pen and touch.
Microsoft Surface, which has a 30-inch display under a hard-plastic tabletop, allows people to touch and move objects on screen for everything from digital finger painting and jigsaw puzzles to ordering off a virtual menu in a restaurant.
surface.03.jpg
Microsoft's coffee-table-shaped "surface computer" hopes to one day replace the mouse and keyboard with voice recognition, pen and touch.
It also recognizes and interacts with devices placed on its surface, so cell phone users can easily buy ringtones or change payment plans by placing their handsets on in-store displays, or a group of people gathered round the table can check out the photos on a digital camera placed on top.
Microsoft (Charts, Fortune 500), the world's largest software maker, said it will manufacture the machine itself and sell it initially to corporate customers, deploying the first units in November in Sheraton hotels, Harrah's casinos, T-Mobile stores, and restaurants.
Microsoft's 150-lb computer: What's the point?
#12 Job Advertisement Analysis ( Singapore)
Seniors/Assistant Managers/Managers, Audit Department
The incumbent will work with a team of audit professionals in the Audit Department, providing audit services to a portfolio of diversified clients comprising public listed companies, MNCs, and local conglomerates. The successful candidate can also look forward to other challenges including initial public offerings related work, due diligence and special investigations work.
The above positions in the Assurance & Advisory Services call for candidates with an accounting degree/professional qualification recognised by the Institute of Certified Public Accountants of Singapore (ICPAS). You should have at least 3 years of relevant audit experience in a professional practice. The level of appointment will commensurate with experience.
< Note: Ｔｈｅ ｐａｒａｇｒａｐｈs ｉｎ ｂｌｕｅ ａｂｏｖｅ ｉｓ ｅｘｔｒａｃｔｅｄ ｆｒｏｍ ｅＦｉｎａｎｃｉａｌ Ｃａｒｅｅｒs ｓｉｔｅ＞
This blog entry is intended to provide some snapshot about career opportunities in Big 4 Singapore, audit deparment in particular.
One would realize that the door is always open for highly calibre individual to join the audit firms, especially in Singapore, where demand for auditors are definitely much more than the supply of auditors in Singapore. Big 4 are dominating the auditing services of the SGX-listed ( Singapore Stock Exchange) clients, and this in term imply an endless demand for auditors. The shortage of qualified auditors is intensified by the high turnover rate in the industy, where the working hours could be very long.
One could easily switch among the Big 4 once he/she reached the senior level, as supported by the advertisement above. Besides, Big 4 are happily to accept the Big 4 from medium firm, such as: RSM due to the shortage of seniors in the firm. In short, experience really counts.
The incumbent will work with a team of audit professionals in the Audit Department, providing audit services to a portfolio of diversified clients comprising public listed companies, MNCs, and local conglomerates. The successful candidate can also look forward to other challenges including initial public offerings related work, due diligence and special investigations work.
The above positions in the Assurance & Advisory Services call for candidates with an accounting degree/professional qualification recognised by the Institute of Certified Public Accountants of Singapore (ICPAS). You should have at least 3 years of relevant audit experience in a professional practice. The level of appointment will commensurate with experience.
< Note: Ｔｈｅ ｐａｒａｇｒａｐｈs ｉｎ ｂｌｕｅ ａｂｏｖｅ ｉｓ ｅｘｔｒａｃｔｅｄ ｆｒｏｍ ｅＦｉｎａｎｃｉａｌ Ｃａｒｅｅｒs ｓｉｔｅ＞
This blog entry is intended to provide some snapshot about career opportunities in Big 4 Singapore, audit deparment in particular.
One would realize that the door is always open for highly calibre individual to join the audit firms, especially in Singapore, where demand for auditors are definitely much more than the supply of auditors in Singapore. Big 4 are dominating the auditing services of the SGX-listed ( Singapore Stock Exchange) clients, and this in term imply an endless demand for auditors. The shortage of qualified auditors is intensified by the high turnover rate in the industy, where the working hours could be very long.
One could easily switch among the Big 4 once he/she reached the senior level, as supported by the advertisement above. Besides, Big 4 are happily to accept the Big 4 from medium firm, such as: RSM due to the shortage of seniors in the firm. In short, experience really counts.
#11 Is computer software intangible assets or PPE?
Should computer software be classified as intangible assets or Property, Plant & Equipment?
IAS 38 clarifies that computer software for a computer controlled machine tool that cannot operate without the specific software is an integral part of the related hardware and it is classified as Property, Plant & Equipment.
The same applies to the operating system of a computer and operating systems software. Where the software is not an integral part of the related hardware, computer software is treated as an intangible asset, e.g. application software. For instance, accounting software used for bookkeeping system.
IAS 38 clarifies that computer software for a computer controlled machine tool that cannot operate without the specific software is an integral part of the related hardware and it is classified as Property, Plant & Equipment.
The same applies to the operating system of a computer and operating systems software. Where the software is not an integral part of the related hardware, computer software is treated as an intangible asset, e.g. application software. For instance, accounting software used for bookkeeping system.
Mistakes that Kill Small Business
Another interesting list I found on bottomlinesecrets.com. As an accountant, I'll try not to be offended by Mistake #3...just kidding...accounting controls are the key.
Bottom Line's Business Secrets
Bottom Line's Business Secrets
Dumb Mistakes that Kill Small Businesses And what you can do instead Ruth King BusinessTVChannel.com Published: July 1, 2007 Y ou have a strong work ethic, a solid business plan and a great reputation in your field. Your small business ought to be a success. Yet a single seemingly minor mistake might be all it takes to make a thriving young company go belly up. Fatal small business mistakes often can be avoided, but only by business owners who recognize the danger in time. Common errors that can doom small companies...
Mistake 1: Relying too much on one customer. New businesses sometimes start out with just one or two clients. When these clients provide all the work the business can handle, the customer list doesn’t expand. After all, why search for new clients when the dance card is already full? However, short client lists increase the odds of disaster. Small companies often collapse when a customer that accounts for 50% to 100% of their income decides to use another supplier... eliminate a product line... or handle a previously outsourced function in-house. What to do: Continue to search for additional customers even if one or two big clients already give you all the work your business can handle. If necessary, add an employee. Avoid letting any customer make up more than 25% of your revenue.
Mistake 2: Losing key employees to competitors. A small business might have only a few employees. It can be a crippling blow if one or two of the best quit to join a rival. Not only are the company’s most productive people now working for the other team, but the owner often must do the work that these former employees would have done. On top of that, he/she has to hire and train replacements, all of which can distract him from leading the company. The departed employees even might take some of the company’s best customers with them. Example: Several top-producing employees of a small Nevada mortgage brokerage company were hired away by a new rival that was attempting to enter the sector. The mortgage brokerage owner could not find adequate replacements and was forced to scale back his operations despite surging demand. What to do: To keep your employees loyal, do everything in your power to keep them happy. Remember to praise employees and thank them for their efforts. Keep the attitude of the office upbeat. An enjoyable working environment is at least as important for employee retention as hefty salaries.
Mistake 3: Trusting a bookkeeper too much. Even an honest-seeming bookkeeper could be an embezzler. Example: A Georgia contracting company hired a grandmotherly bookkeeper whom everyone loved -- until they learned that she had cooked the books and forged $100,000 in checks. What to do: Maintain personal control over your company’s money whenever possible. Do not give a bookkeeper check-signing privileges. Have bank statements sent to your home so you see them before your employees do. Each quarter, print out lists of receivables and payables and scan them for unusual entries. Divide any financial tasks that you can’t handle yourself among several employees so no one employee can steal without another noticing a problem.
Mistake 4: Turning a hobby into a business without understanding what’s involved. Coin collectors often dream of owning coin shops... skilled amateur photographers hope to open their own studios. Unfortunately, many people turn their hobbies into small businesses without first considering the time and money required, the risks and their lack of practical business skills. Example: A woman interested in Native American jewelry opened two jewelry stores -- one in Colorado, the other in Arizona. She had a great eye for jewelry, but she had no knowledge of the local markets... didn’t know how to write a business plan... and had never worked in retail. Both shops failed. What to do: Before launching your business, work for someone who has a comparable business so you can learn about the field. (This business either should be a few towns removed from where you intend to start your business or have a slightly different focus so that you won’t later be in direct competition.) Try to master mundane back-office tasks that are unfamiliar to you, such as balancing the books and negotiating with distributors and suppliers. To reduce your risk, try to launch your business part-time before leaving your current job. This means working very hard for a while, but it’s better than taking the leap without a safety net.
Mistake 5: Having a relationship with just one bank. Most small businesses depend on loans and lines of credit to get them off the ground and avoid cash-flow shortfalls. When a business builds a relationship with only one bank, that credit can dry up if the bank’s policies or management change. What to do: Try to do business with at least two local banks so they get to know you and believe in your company.
Mistake 6: Thinking you’ll never get sick. A long-term health problem, even if it is not life-threatening, could mean the demise of your business, particularly if it is a sole proprietorship. Example: A Georgia hairdresser broke his arm in a motorcycle accident and could not cut hair for more than a month. He contracted with another hairdresser to cut his clients’ hair for the time his arm was in a cast. Had his customers gone elsewhere, his business might not have recovered. What to do: Do not work yourself so hard that your health deteriorates. Quit any risky hobbies. Consider signing an agreement with a friendly, respected competitor to look after each other’s businesses in the event of extended health problems. Make sure this agreement includes a promise not to poach customers. If you can afford it, buy disability insurance.
Mistake 7: Failing to share the workload with employees or partners. Some small business owners find it psychologically difficult to give anyone but themselves important assignments. Their unwillingness to accept assistance limits their companies’ growth, and eventually they burn out. What to do: If your current employees can’t handle the work, hire or train employees who can.
Mistake 8: Working with unstable suppliers or distributors. When a small business’s supplier or distributor has problems, the small business itself has problems. Example: A California writer lost her stream of income and her entire inventory of books when her book distributor went bankrupt. What to do: Work with multiple suppliers and distributors whenever possible. Watch for signs of financial problems in these companies, such as bounced checks or slow-to-arrive payments. Ask your lawyer to look over your contracts with distributors to make sure that you will still own your products if the distributor goes bankrupt. For more information about protecting your small business: www.smallbusinessadvocate.com... www.sbresources.com... www.startupnation.com
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#10 Difference between Accounting and Auditing ( from Financial Perspective)
Back to a fundamental question, what is the difference between accounting and auditing from a financial perspective?
A quick answer is: Accounting is a process of preparing the works, Auditing is a process of evaluating & scrutinizing of the work prepared.
In other words, accountants are in charged of the day-to-day duties of maintaing the accounts, implementing the board financial strategy, if any. At the end of the period, accountant would produce Financial Statement, a summary report of the financial performance throughout the period. Whereas, auditor conduct a check on the accuracy of the financial statements, to ensure that there is no material misstatement of the financial statement prepared.
A quick answer is: Accounting is a process of preparing the works, Auditing is a process of evaluating & scrutinizing of the work prepared.
In other words, accountants are in charged of the day-to-day duties of maintaing the accounts, implementing the board financial strategy, if any. At the end of the period, accountant would produce Financial Statement, a summary report of the financial performance throughout the period. Whereas, auditor conduct a check on the accuracy of the financial statements, to ensure that there is no material misstatement of the financial statement prepared.
#Joke- The accountant couldn't sleep ( stock take implication)
Kenny, an accountant, who just joined the big 4, was having a hard time sleeping and goes to see his private doctor. "Doctor, I just can't get to sleep at night."
"Have you tried counting sheep?"
"That's the problem - I make a mistake and then spend three hours trying to find it."
( Note: This is a common profession behavior while accountants are doing stock take! Haha!)
"Have you tried counting sheep?"
"That's the problem - I make a mistake and then spend three hours trying to find it."
( Note: This is a common profession behavior while accountants are doing stock take! Haha!)
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If you require any more information or have any questions about our privacy policy, please feel free to contact us by email at iismazidah@gmail.com.
At http://myauditingaccounting.blogspot.com/, the privacy of our visitors is of extreme importance to us. This privacy policy document outlines the types of personal information is received and collected by http://myauditingaccounting.blogspot.com/ and how it is used.
Log Files
Like many other Web sites, http://myauditingaccounting.blogspot.com/ makes use of log files. The information inside the log files includes internet protocol ( IP ) addresses, type of browser, Internet Service Provider ( ISP ), date/time stamp, referring/exit pages, and number of clicks to analyze trends, administer the site, track user’s movement around the site, and gather demographic information. IP addresses, and other such information are not linked to any information that is personally identifiable.
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.:: Google, as a third party vendor, uses cookies to serve ads on http://myauditingaccounting.blogspot.com/.
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#9 Is banker's guarantee a contingent liability?
Companies sometimes have outstanding banker's guarantee such as those given in lieu of deposits, performance guarantees given to customers etc. Such banker's guarantees do not meet the definition of contingent liabilities under FRS 37.
The events that may trigger payment by the banks are within the control of the Company and are not uncertain future events. The Company does not have any present obligation until it defaults on payment of lease or fails to perform the contracts. These banker's guarantees should not be described as contingent liabilities of the Company in the financial statements.
The events that may trigger payment by the banks are within the control of the Company and are not uncertain future events. The Company does not have any present obligation until it defaults on payment of lease or fails to perform the contracts. These banker's guarantees should not be described as contingent liabilities of the Company in the financial statements.
#8 Impact of IAS 39/FRS 39 on Staff Loan & Inter-co Loan
After the implementation of FRS 39, inter-company loans & staff loans borrowed at preferential rates, the fair value of the consideration given would not be the same as the actual amount (cash) given. In fact, the fair value of such loans is the present value (NPV) of all expected future cash receipts discounted at market interest rate ( estimated at the time of disbursement) for a similar loan.
After the discounting process with market interest rate, the present value will be lower than its actual amount given; the difference is not a financial asset unless it qualifies for recognition as an asset under another applicable standard (e.g. FRS 38 Intangible Assets)
After the discounting process with market interest rate, the present value will be lower than its actual amount given; the difference is not a financial asset unless it qualifies for recognition as an asset under another applicable standard (e.g. FRS 38 Intangible Assets)
#7 Risk-based vs Control-based audit approach
The collapse of enron had not only posted auditors' works under the spot light , but also increased the work load of the auditors. Auditors are struggling hard to gain market confidence on their works, follwing the demise of Enron, HIH ...
There are emerging trend that the audit firm starts to move away from risk-based audit approach, and switching towards control-based approach. This has made the works more cumbersome & more tedious.
There are emerging trend that the audit firm starts to move away from risk-based audit approach, and switching towards control-based approach. This has made the works more cumbersome & more tedious.
#6 Unused Tax Losses & Unused Tax Credits (Deferred Tax Assets Implications)
IFRS 12:
“A deferred tax asset should be recognized for the carry-forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and used tax credits can be utilized”
If a company has unused tax losses carried forward from previous year (years), some of the companies tend not to recognize the deferred tax asset in its balance sheet. As stated in IFRS 12: “… to the extent that it is probable that future taxable profit will be available against which the unused tax losses …can be utilized”. Assuming XYZ co has been making Net Losses for 2 consecutive years, and the current losses position is strong evidence that XYZ co’s businesses are not doing well, and future profitability is in doubt.
In order to “utilize” the unused tax losses carried forward, XYZ co. has to make a profit in next financial year. Unless there are strong reasonable grounds to believe that ‘it is probable that future taxable profit will be available’, such as: entering an agreement with customers for next 12 month orders, the company should not recognize the Deferred Tax Assets, based on ground of prudence.
The second issue involved in recognizing deferred tax assets for unused tax losses and unused tax credits is: the unused tax losses are subject to Inland Revenue Authority of respective countries, and compliance with certain underlying provisions. Due to these reasons, the market tends not to recognize DTA, even if they are likely in a net profit position in next financial year.
However, one could disclosed unutilized tax losses or unutilized tax credits in the form of notes to financial statement, as an information to financial statements users.
“A deferred tax asset should be recognized for the carry-forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and used tax credits can be utilized”
If a company has unused tax losses carried forward from previous year (years), some of the companies tend not to recognize the deferred tax asset in its balance sheet. As stated in IFRS 12: “… to the extent that it is probable that future taxable profit will be available against which the unused tax losses …can be utilized”. Assuming XYZ co has been making Net Losses for 2 consecutive years, and the current losses position is strong evidence that XYZ co’s businesses are not doing well, and future profitability is in doubt.
In order to “utilize” the unused tax losses carried forward, XYZ co. has to make a profit in next financial year. Unless there are strong reasonable grounds to believe that ‘it is probable that future taxable profit will be available’, such as: entering an agreement with customers for next 12 month orders, the company should not recognize the Deferred Tax Assets, based on ground of prudence.
The second issue involved in recognizing deferred tax assets for unused tax losses and unused tax credits is: the unused tax losses are subject to Inland Revenue Authority of respective countries, and compliance with certain underlying provisions. Due to these reasons, the market tends not to recognize DTA, even if they are likely in a net profit position in next financial year.
However, one could disclosed unutilized tax losses or unutilized tax credits in the form of notes to financial statement, as an information to financial statements users.
#Joke - Tax advisor
John, the tax advisor had just reached home and read the story of Cinderella to his five-year-old daughter for the first time.
The little girl was fascinated by the story, especially the part where the pumpkin turns into a golden coach. Suddenly she piped up, "Daddy, when the pumpkin turned into a golden coach, would that be classed as income or a long-term capital gain?"
The little girl was fascinated by the story, especially the part where the pumpkin turns into a golden coach. Suddenly she piped up, "Daddy, when the pumpkin turned into a golden coach, would that be classed as income or a long-term capital gain?"
#5 Practical Audit Tips- Lesson 1: Cash & Bank
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Cash & Bank balance stands as an asset of the company, and is one of the important element of balance sheet. The primary assertions we concerned are: valuation, existence, right & obligations. From the assertions listed, we are more concerned about the overstatement of the asset.
Generally, the audit works involved, including:
1. Analytical Procedure (compared the difference between prior year figure to current year figure)
2. Cash Book Review
3. Obtaining confirmation from respective banks
4. Bank Reconciliation Review
5. Petty Cash count
1. Analytical Procedure
Knowing the fluctuations of the cash balances, one would be able to gauge a general idea of
what had happen during the year. For instance, a purchase of machine would probably incur
a general layout ( assumption: XYZ company paid by cash), a sales of its equity shares, so on
and so forth.
As a starting ground, we would like to know the profit incurred during the year, adjusted for
non-cash items, such as: depreciation. Then, we start to taken in other cash effect
transactions. In short, analytical procedure give you a general idea about what you would
expect during the rest of the course of audit.
2. Cash Book Review
Obtaining a cash book transactions listing ( cash-in and cash-out), to examine the nature of
the transactions. The objective is to ensure that the cash transactions are within the ordinary
course of business.
3. Obtaining bank confirmation
External evidence, in this case, are more reliable than internally-generated sources. Send a
a bank confirmation to the respective banks to confirm the balance.
4. Bank Reconciliation Review
Sometimes, the company might have long outstanding reconciling items, which might
signals the issues of blank cheque. Hence, bank reconciliation review would help you to
be aware of those long reconciling items.
5. Petty Cash count
Restaurants, hotel might maintain a huge amount of petty cash on hand. A petty cash count
is essential to ensure the correctness of the balances.
Cash & Bank balance stands as an asset of the company, and is one of the important element of balance sheet. The primary assertions we concerned are: valuation, existence, right & obligations. From the assertions listed, we are more concerned about the overstatement of the asset.
Generally, the audit works involved, including:
1. Analytical Procedure (compared the difference between prior year figure to current year figure)
2. Cash Book Review
3. Obtaining confirmation from respective banks
4. Bank Reconciliation Review
5. Petty Cash count
1. Analytical Procedure
Knowing the fluctuations of the cash balances, one would be able to gauge a general idea of
what had happen during the year. For instance, a purchase of machine would probably incur
a general layout ( assumption: XYZ company paid by cash), a sales of its equity shares, so on
and so forth.
As a starting ground, we would like to know the profit incurred during the year, adjusted for
non-cash items, such as: depreciation. Then, we start to taken in other cash effect
transactions. In short, analytical procedure give you a general idea about what you would
expect during the rest of the course of audit.
2. Cash Book Review
Obtaining a cash book transactions listing ( cash-in and cash-out), to examine the nature of
the transactions. The objective is to ensure that the cash transactions are within the ordinary
course of business.
3. Obtaining bank confirmation
External evidence, in this case, are more reliable than internally-generated sources. Send a
a bank confirmation to the respective banks to confirm the balance.
4. Bank Reconciliation Review
Sometimes, the company might have long outstanding reconciling items, which might
signals the issues of blank cheque. Hence, bank reconciliation review would help you to
be aware of those long reconciling items.
5. Petty Cash count
Restaurants, hotel might maintain a huge amount of petty cash on hand. A petty cash count
is essential to ensure the correctness of the balances.
#4 Economist comments on Sarbanes-Oxley Act
Found an article related to the Sarbanex- Oxley Act (sox), which could trigger our thinking about the time & resources we spent on implementing a desired procedures
Was is Worth it?
The Economist wonders whether the benefits of Sarbanes-Oxley exceed its costs.
Was is Worth it?
The Economist wonders whether the benefits of Sarbanes-Oxley exceed its costs.
Alan Greenspan, chairman of the Federal Reserve, spoke up in defence of the statute this week. It was faint praise. He said he was surprised that a law which had been passed so rapidly had worked as well as it has less of an endorsement than it first seemed, since laws dealing with issues as complex as these and passed as rapidly as was Sarbanes-Oxley can normally be expected to fail abjectly.
#3 What is big 4
Big 4 is a short abbreviation for 4 of the audit companies who are dominating the supply of auditing services worldwide. Big 4, namely Price Waterhouse Coopers, Ernst & Young, Deloitte and KPMG have their offices across the different regions in the world.
The services provided by Big 4 could be categorized into three main areas: advisory, taxation & audit. There would be different sub-categories within each area. For instance, there are financial service audit, commercial audit (including audit across different industry, e.g. manufacturing), small to medium enterprise audit, US GAAP audit, and others. Each specialization would have a target group (by industry, by region, by accounting standard).
Recruitment processes in Big 4 are considered competitive and selective. Since their main focus are corporate client, including the big conglomerate group, they prefer high fliers in the University.
The services provided by Big 4 could be categorized into three main areas: advisory, taxation & audit. There would be different sub-categories within each area. For instance, there are financial service audit, commercial audit (including audit across different industry, e.g. manufacturing), small to medium enterprise audit, US GAAP audit, and others. Each specialization would have a target group (by industry, by region, by accounting standard).
Recruitment processes in Big 4 are considered competitive and selective. Since their main focus are corporate client, including the big conglomerate group, they prefer high fliers in the University.
#2 Accounting Treatment for Bad Debt Recovered
Assuming a manufacturer, XYZ Ltd who has a number of regular customers ( debtors), who purchased on credit term. However, one of the customer, said ABC Co. has long outstanding debt due to XYZ Ltd. The outstanding position is significantly longer than industry average. Hence, the XYZ Ltd would make a provision of doubtful debt for the amount due for the outstanding debt due from ABC Co.:
Dr. Bad Debt Expense XXX
Cr. Provision for Doubtful Debt XXX
Due to unexpected cash in-flow to ABC Co, and ABC Co. pay off the debt due to XYZ Ltd; hence, in XYZ accounting book, they would reverse the provision made:
Dr. Provision for Doubtful Debt XXX
Cr. Bad Debt Recovered (P&L) XXX
Dr. Bad Debt Expense XXX
Cr. Provision for Doubtful Debt XXX
Due to unexpected cash in-flow to ABC Co, and ABC Co. pay off the debt due to XYZ Ltd; hence, in XYZ accounting book, they would reverse the provision made:
Dr. Provision for Doubtful Debt XXX
Cr. Bad Debt Recovered (P&L) XXX
#1 Introduction to "Auditing & Accounting Blog"
This blog is dedicated to describe normal accounting & auditing practices in place on:
1. accounting treatments of certain issues (e.g. prepayment)
2. common audit issues
3. any other accounting & auditing related topics.
4. auditing & accounting career
1. accounting treatments of certain issues (e.g. prepayment)
2. common audit issues
3. any other accounting & auditing related topics.
4. auditing & accounting career
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