II. IDENTIFY THE EFFECT OF THE FOLLOWING TRANSACTIONS TO THE RISK OF MATERIAL MISSTATEMENT TO FINANCIAL STATEMENTS. INCREASE DECREASE NO EFFECT The company has shown an ability to generate a positive cash flow from operations, while reporting earnings and earnings growth. The employees of the company are being paid on a weekly basis. The accounting department has experienced a low turnover rate of key personnel. The internal audit reports to the chairman of the board who is a minority stockholder. The company recently opened up

II. IDENTIFY THE EFFECT OF THE FOLLOWING TRANSACTIONS TO THE RISK OF MATERIAL MISSTATEMENT TO FINANCIAL STATEMENTS. INCREASE DECREASE NO EFFECT The company has shown an ability to generate a positive cash flow from operations, while reporting earnings and earnings growth. The employees of the company are being paid on a weekly basis. The accounting department has experienced a low turnover rate of key personnel. The internal audit reports to the chairman of the board who is a minority stockholder. The company recently opened up

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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2. A new manager of a retail company suggests that the company should prepare its Statement of Profit or Loss on the basis of cash receipts and cash expenditures (except for the acquisition of fixed assets, such as plant and equipment). He argues that managers, investors, creditors, and others are more interested in cash receipts and disbursements than in accrual-based accounting. Do you think he is correct? Explain.
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Assume you are the controller of a large corporation, and the chief executive officer (CEO) has requested that you explain to them why the net income that you are reporting for the year is so low, when the CEO knows for a fact that the cash accounts are much higher at the end of the year than they were at the beginning of the year. Write a memo to the CEO to offer some possible explanations for the disparity between financial statement net income and the change in cash during the year.
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Question: A new manager of a retail company suggests that the company should prepare its Statement of Profit or Loss on the basis of cash receipts and cash expenditures (except for the acquisition of fixed assets, such as plant and equipment). He argues that managers, investors, creditors, and others are more interested in cash receipts and disbursements than in accrual-based accounting. Do you think he is correct? Explain. Minimum of 500 words
You are the newly hired Auditor of a large distributor company. One day you are called by the Chairman of the Audit Committee and was directed to analyze and interpret the situations as presented below. 1. Two (2) delivery trucks full of inventory items were not allowed to be included in the actual count. As claimed by the warehouse supervisor, these are for delivery to the customers. 2. Accounts receivable without customers' subsidiary records. 3. Sales revenue growth shows an upward trend with minimal increase in cost of goods sold. 4. Significant discrepancies on physical count as compared with the inventory records. 5. Large percent of revenues booked in the fourth quarter of Year 1 and large percent of sales returns booked in the first quarter of Year 2. In each of the situation above, analyze and evaluate, then decide whether it is or not a symptom of a revenue or inventory fraud. Explain your answer BRIEFLY.