Xerox Corporation was accused by the SEC in 2002 of using improper accounting maneuvers to deceive investors from 1997-2000 by prematurely recognizing revenue from copy machine leases. Xerox settled by paying a $10 million penalty and restating financials. In 2003, the SEC also accused Xerox's auditor, KPMG, of permitting the accounting fraud, and KPMG later paid a $22.48 million fine to settle.
This is a theoretical presentation describes the history of audit and assurance, definition, process of auditing, objectives, responsibilities, expectation gap, audit evidence and how to report the audit paper. This is mainly the vast knowledge about how an auditor performs audit and how the reporting of audit is done.
After a company issues stock, it may later purchase shares back from the open market to hold as treasury stock. Treasury stock provides some financial benefits to the company such as increasing earnings per share by reducing outstanding shares, but the shares do not pay distributions or carry voting rights. Companies have options for how to account for and use treasury stock on their balance sheet and for various corporate finance purposes like acquisitions or preventing takeovers.
This document discusses capital structure and leverage. It defines key terms like capital structure, financial leverage, operating leverage, degree of financial leverage (DFL), degree of operating leverage (DOL), and degree of total leverage (DTL). It explains how financial and operating leverage can both increase profits but also increase risk and variability in results. The optimal capital structure balances these risks and rewards to maximize stock price.
This document discusses methods for measuring and controlling assets employed in business units. It describes two main methods - return on investment (ROI) and economic value added (EVA). ROI is a ratio that compares income to assets employed, while EVA is a dollar amount that subtracts a capital charge from net operating profit. The document explores how different types of assets like cash, receivables, inventories, property/equipment should be treated in the calculation. It also addresses topics like how to treat leased assets, idle assets, intangible assets, and noncurrent liabilities. The goal of accurately measuring assets employed is to motivate managers and provide useful information for decision making.
Here are the key steps to calculate EVA:
1. Calculate net operating profit after tax (NOPAT) - the profit generated from operations after accounting for taxes.
2. Determine the operating capital employed - the net assets used to generate profits, including working capital and fixed assets.
3. Calculate the weighted average cost of capital (WACC) - the minimum return expected by providers of capital.
4. Compute the capital charge by multiplying the cost of capital by the operating capital.
5. Economic value added (EVA) is calculated as NOPAT minus the capital charge. EVA represents the profit generated above the minimum return required by providers of capital.
So in summary, EVA
Audit of the acquisition and payment cyclesellyhood
This document discusses the audit of the acquisition and payment cycle. It covers testing internal controls, performing substantive tests of transactions, and testing accounts payable. Key parts of the cycle include processing purchase orders and cash disbursements. Analytical procedures and tests of details are used to audit the accounts payable balance. E-commerce has increased electronic linkages between suppliers and customers.
- Accounting Standard 18 relates to related party disclosures in financial statements. It requires disclosure of relationships and transactions between a reporting company and its related parties.
- Related parties include entities that control or exercise significant influence over the reporting company, associates, joint ventures, key management personnel, and their relatives.
- Disclosures must include the names and relationships of related parties, as well as details of transactions like volume, amounts owed, and terms if they are not conducted at arm's length. The standard aims to provide transparency about transactions that could affect a company's financial position.
This document provides an overview of auditing, including:
- The objectives and evolution of auditing from detecting errors and frauds to ascertaining if accounts are true and fair.
- Key definitions including that auditing is a systematic and independent examination of data, statements, records, operations and performance for a stated purpose.
- The features and objectives of auditing including verifying financial statements exhibit a true and fair view, and expressing an opinion on the statements.
This is a theoretical presentation describes the history of audit and assurance, definition, process of auditing, objectives, responsibilities, expectation gap, audit evidence and how to report the audit paper. This is mainly the vast knowledge about how an auditor performs audit and how the reporting of audit is done.
After a company issues stock, it may later purchase shares back from the open market to hold as treasury stock. Treasury stock provides some financial benefits to the company such as increasing earnings per share by reducing outstanding shares, but the shares do not pay distributions or carry voting rights. Companies have options for how to account for and use treasury stock on their balance sheet and for various corporate finance purposes like acquisitions or preventing takeovers.
This document discusses capital structure and leverage. It defines key terms like capital structure, financial leverage, operating leverage, degree of financial leverage (DFL), degree of operating leverage (DOL), and degree of total leverage (DTL). It explains how financial and operating leverage can both increase profits but also increase risk and variability in results. The optimal capital structure balances these risks and rewards to maximize stock price.
This document discusses methods for measuring and controlling assets employed in business units. It describes two main methods - return on investment (ROI) and economic value added (EVA). ROI is a ratio that compares income to assets employed, while EVA is a dollar amount that subtracts a capital charge from net operating profit. The document explores how different types of assets like cash, receivables, inventories, property/equipment should be treated in the calculation. It also addresses topics like how to treat leased assets, idle assets, intangible assets, and noncurrent liabilities. The goal of accurately measuring assets employed is to motivate managers and provide useful information for decision making.
Here are the key steps to calculate EVA:
1. Calculate net operating profit after tax (NOPAT) - the profit generated from operations after accounting for taxes.
2. Determine the operating capital employed - the net assets used to generate profits, including working capital and fixed assets.
3. Calculate the weighted average cost of capital (WACC) - the minimum return expected by providers of capital.
4. Compute the capital charge by multiplying the cost of capital by the operating capital.
5. Economic value added (EVA) is calculated as NOPAT minus the capital charge. EVA represents the profit generated above the minimum return required by providers of capital.
So in summary, EVA
Audit of the acquisition and payment cyclesellyhood
This document discusses the audit of the acquisition and payment cycle. It covers testing internal controls, performing substantive tests of transactions, and testing accounts payable. Key parts of the cycle include processing purchase orders and cash disbursements. Analytical procedures and tests of details are used to audit the accounts payable balance. E-commerce has increased electronic linkages between suppliers and customers.
- Accounting Standard 18 relates to related party disclosures in financial statements. It requires disclosure of relationships and transactions between a reporting company and its related parties.
- Related parties include entities that control or exercise significant influence over the reporting company, associates, joint ventures, key management personnel, and their relatives.
- Disclosures must include the names and relationships of related parties, as well as details of transactions like volume, amounts owed, and terms if they are not conducted at arm's length. The standard aims to provide transparency about transactions that could affect a company's financial position.
This document provides an overview of auditing, including:
- The objectives and evolution of auditing from detecting errors and frauds to ascertaining if accounts are true and fair.
- Key definitions including that auditing is a systematic and independent examination of data, statements, records, operations and performance for a stated purpose.
- The features and objectives of auditing including verifying financial statements exhibit a true and fair view, and expressing an opinion on the statements.
The document discusses the audit risk model, which states that audit risk (AR) is equal to inherent risk (IR) multiplied by control risk (CR) multiplied by detection risk (DR). It defines each component of the model. It also discusses how the different risk components are assessed and interrelated, how internal controls objectives are designed to prevent and detect misstatements, and the importance of risk assessment in an organization's internal controls.
Valuation of shares, nature of shares, factors affecting shares, need for valuation of shares, method of valuation of shares, net asset based method, yield based method, fair value method
The document defines key terms related to group accounts and consolidated financial statements. It discusses how a group is defined as a set of companies controlled by the same parent company. Control is defined as having over 50% of voting rights or the power to govern financial/operating policies. The document outlines the accounting treatment for subsidiaries, associates, joint ventures, and different group structures. It discusses the legal requirements for consolidated financial statements and the consolidation process according to IFRS standards.
Intercompany transfers of services and noncurrent assets part 2Arthik Davianti
These slides are the second part of intercompany transfer of services and noncurrent assets which discuss transfer of depreciable assets both in down stream and up stream transfers.
The document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions like hiring, timekeeping, payroll preparation, payment, and tax filings. It outlines the objectives of understanding internal controls, assessing risks, and designing tests of controls and substantive procedures to audit the payroll accounts and transactions.
The document discusses dividend policy and its implications. It covers several key points:
1) Dividends are discretionary decisions made by the board of directors that balance returning cash to shareholders with retaining earnings for reinvestment.
2) There is a controversy around whether dividend policy impacts stock price, with some arguing it is irrelevant due to offsetting factors.
3) Other theories explore preferences for dividends versus capital gains and how signaling effects can influence perceptions.
The document discusses the differences between fixed and fluctuating capital accounts in partnerships. With fixed capital accounts, daily transactions are recorded in partners' current accounts instead of their capital accounts, which remain steady. Fluctuating capital accounts record all transactions directly to partners' capital accounts, so balances change regularly. The document also explains how partnerships allocate profit among partners, including accounting for salaries, commissions, interest on capital, etc. through a profit and loss appropriation account. Two examples illustrate the different capital and current accounts for a partnership under both fixed and fluctuating capital scenarios.
The document provides a summary of key aspects of various Indian Accounting Standards (Ind AS). It discusses the objectives, requirements and differences compared to previous Indian GAAP/ IFRS of various Ind AS like Ind AS 1 on presentation of financial statements, Ind AS 2 on inventories, Ind AS 7 on statement of cash flows, Ind AS 8 on accounting policies etc. For each Ind AS, it highlights important principles, disclosure requirements, and carve outs or differences between Ind AS and corresponding IFRS.
Internal control is a process designed to provide reasonable assurance that an organization achieves its objectives relating to operational effectiveness and efficiency, reliable financial reporting, and compliance with laws and regulations. It involves establishing policies and procedures to direct operations and monitor activities. Internal control aims to protect resources, detect and prevent fraud, and ensure accurate financial reporting. It includes internal checks, internal auditing, and other controls implemented by management. The objectives of internal control are reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations.
The document discusses corporate governance in Pakistan. It covers several topics related to corporate governance including government ownership, conflicts of interest, related party transactions, and lack of enforcement. It also discusses the main provisions of Pakistan's corporate governance code including board matters, remuneration matters, accountability and audit, and communication with shareholders. Key items from the code are also highlighted such as integrity, wisdom, ability to understand financial statements, business expertise, and devotion of sufficient time to director duties.
Corporate restructuring refers to changes in a company's ownership, business model, assets, or alliances to improve shareholder value. It can involve reorganizing ownership, business operations, or assets. Common types of restructuring include mergers, acquisitions, divestitures, spin-offs, and joint ventures. Mergers are done horizontally within an industry, vertically with suppliers or customers, concentrically to share expertise, or conglomerately across industries. The goal is often to gain competitive advantages through economies of scale, expanded resources or markets, or reduced costs. Regulatory approval and shareholder approval are typically required for major restructuring transactions.
This document provides an overview of Ind AS 116 on leases. It discusses the scope of leases covered, how to identify a lease by determining if a contract conveys the right to control the use of an identified asset. It provides examples of lease vs non-lease contracts and how to identify embedded leases. It also covers determining the lease term by considering non-cancellable periods and periods covered by options to extend or terminate the lease.
1. A liquidator is appointed to oversee the liquidation or winding up of a company. Their responsibilities include realizing company assets, collecting money from shareholders, and distributing funds according to legal order of preference.
2. Liquidation terminates a company's legal existence by disposing of assets and paying debts. Types of winding up include compulsory by court order, members' voluntary, creditors' voluntary, and voluntary under court supervision.
3. The liquidator prepares a final statement of accounts showing all asset realizations and payments to creditors and shareholders to fully settle the company's affairs.
Ratio - Classification , Advantages and LimitationsRajaKrishnan M
This document discusses various types of financial ratios used in ratio analysis including liquidity, solvency, activity, and profitability ratios. It provides examples of specific ratios under each type such as current ratio, debt-to-equity ratio, inventory turnover ratio, and net profit margin. The document also discusses limitations of ratio analysis including its use of historical data and different accounting methods between companies. Finally, it outlines advantages like simplifying comparisons and highlighting weak spots as well as uses of ratio analysis in areas like forecasting, decision making, and investment decisions.
1. The document discusses accounting for income taxes and defines key concepts like temporary differences, deferred tax assets and liabilities, valuation allowances, and the asset-liability method.
2. It provides examples of temporary differences that result in future taxable or deductible amounts and discusses the treatment of permanent differences.
3. The presentation of income taxes in financial statements is also summarized, including how deferred tax amounts are classified and reported in the balance sheet and income statement.
Financial distress occurs when a company cannot meet or has difficulty paying off its financial obligations to creditors. There are several outcomes for financially distressed companies, including private liquidation, financial restructuring, operations restructuring, and asset restructuring. Operations restructuring involves growing revenues and cutting costs to improve operating cash flows and meet debt obligations. Asset restructuring sells off fixed assets or improves working capital relationships. Financial restructuring changes the terms of existing debt obligations or the composition of debt claims.
The document provides a history of auditing from ancient times to the present day. It discusses how auditing evolved from simple transaction verification to a more risk-based approach focused on evaluating internal controls and sampling. Key developments include the emergence of statutory audits in the 1800s, a shift to the US in the 1920s-1960s, the introduction of materiality and sampling in the mid-1900s, and recent reforms regarding auditor independence and non-audit services. The objectives and role of auditors have changed over time in response to economic conditions and expectations.
The document discusses assurance services and audits. It defines assurance services as independent, professional services that improve the quality of information for decision makers. It outlines the key elements of an assurance engagement as having a three party relationship between the practitioner, responsible party, and intended users, a suitable subject matter, criteria to evaluate the subject matter, sufficient evidence to support the assurance opinion, and a written report. The document also discusses the differences between reasonable and limited assurance engagements.
Effective Financial closing & Management reporting is one of the must have Capabilities of a Finance professional and CFO which is very important for "Optimizing Finance Operation" to lead the Finance head and company to a world Class Finance Performance
1. The document discusses accounting principles and concepts from Accounting Principles, 7th Edition. It covers generally accepted accounting principles, the conceptual framework developed by the Financial Accounting Standards Board, objectives of financial reporting, qualitative characteristics of accounting information, and key assumptions and principles used in accounting.
2. The conceptual framework consists of objectives of financial reporting, qualitative characteristics of useful information, elements of financial statements, and operating guidelines including assumptions, principles, and constraints. The primary objective of financial reporting is to provide decision-useful information to investors and creditors.
3. Qualitative characteristics that make information useful include relevance, reliability, comparability, consistency, and understandability. Key principles discussed include revenue recognition using the percentage
The document discusses Indian Accounting Standards (IAS) and their objectives. It notes that IAS are issued by the Institute of Chartered Accountants of India (ICAI) to standardize accounting policies and practices. This helps eliminate non-comparability between financial statements and ensures their reliability. Currently there are 31 IAS issued by ICAI. The document provides a brief overview of some of the key IAS such as those relating to cash flow statements, revenue recognition, fixed assets, taxes on income, and consolidated financial statements. It explains that compliance with IAS issued by ICAI is mandatory for companies in India.
The document discusses the audit risk model, which states that audit risk (AR) is equal to inherent risk (IR) multiplied by control risk (CR) multiplied by detection risk (DR). It defines each component of the model. It also discusses how the different risk components are assessed and interrelated, how internal controls objectives are designed to prevent and detect misstatements, and the importance of risk assessment in an organization's internal controls.
Valuation of shares, nature of shares, factors affecting shares, need for valuation of shares, method of valuation of shares, net asset based method, yield based method, fair value method
The document defines key terms related to group accounts and consolidated financial statements. It discusses how a group is defined as a set of companies controlled by the same parent company. Control is defined as having over 50% of voting rights or the power to govern financial/operating policies. The document outlines the accounting treatment for subsidiaries, associates, joint ventures, and different group structures. It discusses the legal requirements for consolidated financial statements and the consolidation process according to IFRS standards.
Intercompany transfers of services and noncurrent assets part 2Arthik Davianti
These slides are the second part of intercompany transfer of services and noncurrent assets which discuss transfer of depreciable assets both in down stream and up stream transfers.
The document discusses the audit of the payroll and personnel cycle. It identifies key accounts and transactions such as wages payable, payroll taxes payable, and cash. It describes the related business functions like hiring, timekeeping, payroll preparation, payment, and tax filings. It outlines the objectives of understanding internal controls, assessing risks, and designing tests of controls and substantive procedures to audit the payroll accounts and transactions.
The document discusses dividend policy and its implications. It covers several key points:
1) Dividends are discretionary decisions made by the board of directors that balance returning cash to shareholders with retaining earnings for reinvestment.
2) There is a controversy around whether dividend policy impacts stock price, with some arguing it is irrelevant due to offsetting factors.
3) Other theories explore preferences for dividends versus capital gains and how signaling effects can influence perceptions.
The document discusses the differences between fixed and fluctuating capital accounts in partnerships. With fixed capital accounts, daily transactions are recorded in partners' current accounts instead of their capital accounts, which remain steady. Fluctuating capital accounts record all transactions directly to partners' capital accounts, so balances change regularly. The document also explains how partnerships allocate profit among partners, including accounting for salaries, commissions, interest on capital, etc. through a profit and loss appropriation account. Two examples illustrate the different capital and current accounts for a partnership under both fixed and fluctuating capital scenarios.
The document provides a summary of key aspects of various Indian Accounting Standards (Ind AS). It discusses the objectives, requirements and differences compared to previous Indian GAAP/ IFRS of various Ind AS like Ind AS 1 on presentation of financial statements, Ind AS 2 on inventories, Ind AS 7 on statement of cash flows, Ind AS 8 on accounting policies etc. For each Ind AS, it highlights important principles, disclosure requirements, and carve outs or differences between Ind AS and corresponding IFRS.
Internal control is a process designed to provide reasonable assurance that an organization achieves its objectives relating to operational effectiveness and efficiency, reliable financial reporting, and compliance with laws and regulations. It involves establishing policies and procedures to direct operations and monitor activities. Internal control aims to protect resources, detect and prevent fraud, and ensure accurate financial reporting. It includes internal checks, internal auditing, and other controls implemented by management. The objectives of internal control are reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations.
The document discusses corporate governance in Pakistan. It covers several topics related to corporate governance including government ownership, conflicts of interest, related party transactions, and lack of enforcement. It also discusses the main provisions of Pakistan's corporate governance code including board matters, remuneration matters, accountability and audit, and communication with shareholders. Key items from the code are also highlighted such as integrity, wisdom, ability to understand financial statements, business expertise, and devotion of sufficient time to director duties.
Corporate restructuring refers to changes in a company's ownership, business model, assets, or alliances to improve shareholder value. It can involve reorganizing ownership, business operations, or assets. Common types of restructuring include mergers, acquisitions, divestitures, spin-offs, and joint ventures. Mergers are done horizontally within an industry, vertically with suppliers or customers, concentrically to share expertise, or conglomerately across industries. The goal is often to gain competitive advantages through economies of scale, expanded resources or markets, or reduced costs. Regulatory approval and shareholder approval are typically required for major restructuring transactions.
This document provides an overview of Ind AS 116 on leases. It discusses the scope of leases covered, how to identify a lease by determining if a contract conveys the right to control the use of an identified asset. It provides examples of lease vs non-lease contracts and how to identify embedded leases. It also covers determining the lease term by considering non-cancellable periods and periods covered by options to extend or terminate the lease.
1. A liquidator is appointed to oversee the liquidation or winding up of a company. Their responsibilities include realizing company assets, collecting money from shareholders, and distributing funds according to legal order of preference.
2. Liquidation terminates a company's legal existence by disposing of assets and paying debts. Types of winding up include compulsory by court order, members' voluntary, creditors' voluntary, and voluntary under court supervision.
3. The liquidator prepares a final statement of accounts showing all asset realizations and payments to creditors and shareholders to fully settle the company's affairs.
Ratio - Classification , Advantages and LimitationsRajaKrishnan M
This document discusses various types of financial ratios used in ratio analysis including liquidity, solvency, activity, and profitability ratios. It provides examples of specific ratios under each type such as current ratio, debt-to-equity ratio, inventory turnover ratio, and net profit margin. The document also discusses limitations of ratio analysis including its use of historical data and different accounting methods between companies. Finally, it outlines advantages like simplifying comparisons and highlighting weak spots as well as uses of ratio analysis in areas like forecasting, decision making, and investment decisions.
1. The document discusses accounting for income taxes and defines key concepts like temporary differences, deferred tax assets and liabilities, valuation allowances, and the asset-liability method.
2. It provides examples of temporary differences that result in future taxable or deductible amounts and discusses the treatment of permanent differences.
3. The presentation of income taxes in financial statements is also summarized, including how deferred tax amounts are classified and reported in the balance sheet and income statement.
Financial distress occurs when a company cannot meet or has difficulty paying off its financial obligations to creditors. There are several outcomes for financially distressed companies, including private liquidation, financial restructuring, operations restructuring, and asset restructuring. Operations restructuring involves growing revenues and cutting costs to improve operating cash flows and meet debt obligations. Asset restructuring sells off fixed assets or improves working capital relationships. Financial restructuring changes the terms of existing debt obligations or the composition of debt claims.
The document provides a history of auditing from ancient times to the present day. It discusses how auditing evolved from simple transaction verification to a more risk-based approach focused on evaluating internal controls and sampling. Key developments include the emergence of statutory audits in the 1800s, a shift to the US in the 1920s-1960s, the introduction of materiality and sampling in the mid-1900s, and recent reforms regarding auditor independence and non-audit services. The objectives and role of auditors have changed over time in response to economic conditions and expectations.
The document discusses assurance services and audits. It defines assurance services as independent, professional services that improve the quality of information for decision makers. It outlines the key elements of an assurance engagement as having a three party relationship between the practitioner, responsible party, and intended users, a suitable subject matter, criteria to evaluate the subject matter, sufficient evidence to support the assurance opinion, and a written report. The document also discusses the differences between reasonable and limited assurance engagements.
Effective Financial closing & Management reporting is one of the must have Capabilities of a Finance professional and CFO which is very important for "Optimizing Finance Operation" to lead the Finance head and company to a world Class Finance Performance
1. The document discusses accounting principles and concepts from Accounting Principles, 7th Edition. It covers generally accepted accounting principles, the conceptual framework developed by the Financial Accounting Standards Board, objectives of financial reporting, qualitative characteristics of accounting information, and key assumptions and principles used in accounting.
2. The conceptual framework consists of objectives of financial reporting, qualitative characteristics of useful information, elements of financial statements, and operating guidelines including assumptions, principles, and constraints. The primary objective of financial reporting is to provide decision-useful information to investors and creditors.
3. Qualitative characteristics that make information useful include relevance, reliability, comparability, consistency, and understandability. Key principles discussed include revenue recognition using the percentage
The document discusses Indian Accounting Standards (IAS) and their objectives. It notes that IAS are issued by the Institute of Chartered Accountants of India (ICAI) to standardize accounting policies and practices. This helps eliminate non-comparability between financial statements and ensures their reliability. Currently there are 31 IAS issued by ICAI. The document provides a brief overview of some of the key IAS such as those relating to cash flow statements, revenue recognition, fixed assets, taxes on income, and consolidated financial statements. It explains that compliance with IAS issued by ICAI is mandatory for companies in India.
Impact of real earnings management on firms performanceAhmed Selim
Earnings management refers to practices used by company managers to misrepresent financial performance or alter reported income. There are several motives for and techniques of earnings management, including income smoothing and using discretionary estimates to manipulate reported earnings. Earnings management can be done through accrual manipulation or real activities manipulation like reducing discretionary expenses or timing asset sales. While some studies find earnings management can positively impact short-term measures like stock price, most research shows it adversely affects long-term financial performance indicators like return on assets. Case studies on companies like GE and Samsung provide examples of earnings management techniques.
Principal Financial Group reported strong second quarter 2014 earnings. Some key points:
- Record total company operating earnings were up 19% over second quarter 2013.
- Approximately 90% of investment options are in the top half of Morningstar rankings over 3 and 5 years.
- Assets under management surpassed $518 billion, a record high.
- International operations grew operating earnings by 13% on a normalized local currency basis.
- The company continued strong capital deployment including a 31% increased dividend and $61 million in share repurchases in the quarter.
This document summarizes the key points from Principal Financial Group's third quarter 2014 earnings call. It discusses Principal's continued strong financial performance, including record operating earnings of $354 million. It highlights the continued execution across Principal's business segments, including strong investment performance, net cash flows, and returns. The document also provides an overview of Principal's capital deployment activities and upcoming investor events.
This document summarizes Principal Financial Group's third quarter 2014 earnings call. It provides non-GAAP financial measures to help investors understand the company's normal ongoing operations. These measures are also used internally for goal setting and compensation. The document discusses strong investment performance across time periods. It highlights earnings and growth in different business segments, including retirement services, guaranteed income, Principal Global Investors, and international operations. Normalizing items are identified to show the underlying growth in operating earnings.
This document defines and provides examples of window dressing in finance, banking, and accounting. Window dressing refers to actions taken to improve the appearance of financial statements, such as postponing payments to increase reported cash or accelerating revenue recognition. While not always illegal, it can mislead investors and other stakeholders. The document discusses why companies engage in window dressing, who benefits, methods used, disadvantages, and how to identify it.
Applying cash flow management strategies part 1 score 12-2-19 final 11-25-19ChloePastorelli
This document outlines topics that will be covered in a two-part presentation on applying cash flow management strategies. Part I will discuss profit versus cash flow, cash flow cycles, key ratios like leverage and debt service coverage, income statements, balance sheets, and statements of cash flow. Part II will cover creating business plans and projections, debt structure strategies, criteria lenders consider, and presenting loan requests to lenders. The document provides definitions and strategies for managing inventory, accounts receivable, accounts payable, liquidity, and reasons why businesses often fail.
Preparation Final statement ppt (1) 125-1.pptxShaheenAkthar
The document provides information about financial statements, retained earnings, dividends, stockholders' equity, and valuation of investments. It defines key terms and concepts.
The main points are:
1. Financial statements include the income statement, balance sheet, and cash flow statement and provide information on a company's financial performance and position.
2. Retained earnings represent a company's cumulative net earnings minus any dividends paid out and can be used to expand operations, invest in new products, or repay debt.
3. Dividends are payments made to shareholders from a company's profits and retained earnings, and must be approved by the board of directors.
4. Stockholders' equity is calculated
This document discusses key concepts related to managing cash and receivables. It covers cash needs and considerations, credit policies, evaluating accounts receivable levels, and methods for financing receivables. It also addresses estimating uncollectible accounts, writing off accounts, and making and paying promissory notes. Specific topics include cash requirements, receivable turnover, days' sales uncollected, allowance method for estimating bad debts, percentage of net sales method, accounts receivable aging method, and discounting and factoring receivables.
The document discusses Aimia's financial outlook and investments to grow. It notes that Aimia has a track record of growing gross billings and free cash flow. It also focuses on returning value to shareholders through dividend increases and share repurchases. The document outlines details of new long-term financial credit card agreements with TD and CIBC that are expected to drive Aeroplan program growth. It provides financial implications and targets for 2013-2015, including higher gross billings, adjusted EBITDA, and free cash flow. Aimia has a strong balance sheet to support further investments in emerging markets and capabilities.
The document discusses various accounting standards in India. It explains key concepts from AS 2 on inventories, AS 6 on depreciation, AS 9 on revenue recognition, and AS 10 on fixed assets. It provides examples to illustrate the treatment of various items under different standards like treatment of work-in-progress, methods of depreciation, and recognition of revenue. The document also answers some practice questions related to valuation of inventories, cost of fixed assets, and accounting for business combinations.
AUDITING Accounts PayableDiscussion TopicIm Done Top .docxrock73
AUDITING
Accounts Payable
Discussion Topic
I'm Done
Top of Form
Due July 30 at 11:59 PM
Starts Jul 24, 2017 1:00 AM
Bottom of Form
Do you think accounts payable confirmation can be useful to the auditor? How? What are the limitations of accounts payable confirmation? What are some alternatives to accounts payable confirmation?
Replies
1
The confirmation of accounts payable is not a generally accepted auditing procedure. The auditor is required to obtain confirmation of accounts receivable only. The evidence supporting accounts payable, such as vendors' invoices and statements, is produced by outside sources. Determining that all payables are recorded is the primary objective of the accounts payable audit. It follows that confirmations are very useful in supplying supporting evidence for receivables but that auditing procedures other than confirmation are required to verify that all payables are recorded. The selection of accounts payable for confirmation would be from the following groups: (1) large accounts including important suppliers even though the account balance is small at balance sheet date; (2) accounts for which monthly statements are unavailable; (3) accounts with unusual transactions; and (4) accounts with zero balances that had substantial activity earlier in the year.
The main limitation of accounts payable confirmation is that it does not prove the completeness of recorded accounts payable. The accounts payable confirmation procedures are not always used because reliable externally generated evidence supporting accounts payable balances are generally available for audit inspection on the premises of client. Some auditors believe that it is not required to confirm accounts payable because the search for unrecorded liabilities is the basic means of testing for completeness of accounts payable.
The alternative procedures are generally performed for non replies of accounts payable confirmations and or selected unconfirmed accounts. This includes examination of unpaid invoices, receiving reports and bills supporting the recorded balances. The examination of vendor statement dated near the balance sheet date can also be made. The statement balances shall be reconciled to the balance in client account. The subsequent payment of liability shall be vouched. The invoices from few selected vendors for the purchase of goods and services after balance sheet date shall be inspected. It shall be determined whether invoices show an amount that was owed as on balance sheet date. Generally alternative procedures on non replies are not required because the search for unrecorded liabilities compensates for such procedures. The main benefit of this alternative procedure is that it provides 100% confirmation about the existence of accounts payable. The limitation is that this process is quite time taking and wastes auditor’s precious time. It is not very result oriented because performing basic or alternative audit procedures for acco ...
Notes on Valuation of Goodwill and Shares For BBA/B.com studentsYamini Kahaliya
the document contains Notes on Valuation of Goodwill and Shares
{Goodwill may be described as the aggregate of those intangible attributes of a business which contributes to its superior earning capacity over a normal return on investment}
{The share capital is the most important requirement of a business. It is divided into a ‘number of indivisible units of a fixed amount. These units are known as ‘shares’. }
Amendments in Schedule III of Companies Act, w.e.f. 1st April 2022taxguru5
"CA Pragathi Gudur* With the ever-increasing stringency in the regulatory framework and disclosure requirements under various provisions of law, MCA, vide notifi"
TaxGuru is a platform that provides Updates On Amendments in Income Tax, Wealth Tax, Company Law, Service Tax, RBI, Custom Duty, Corporate Law , Goods and Service Tax etc.
To know more visit https://taxguru.in/company-law/amendments-schedule-iii-companies-act-w-e-f-1st-april-2022.html
study objectivesAfter studying this chapter, you should be a.docxhanneloremccaffery
study objectives
After studying this chapter, you should be able to:
1 Explain the revenue recognition principle and the expense
recognition principle.
2 Differentiate between the cash basis and the accrual basis of
accounting.
3 Explain why adjusting entries are needed, and identify the
major types of adjusting entries.
4 Prepare adjusting entries for deferrals.
5 Prepare adjusting entries for accruals.
6 Describe the nature and purpose of the adjusted trial balance.
7 Explain the purpose of closing entries.
8 Describe the required steps in the accounting cycle.
9 Understand the causes of differences between net
income and cash provided by operating activities.
chapter
ACCRUAL ACCOUNTING
CONCEPTS
4
● Scan Study Objectives
● Read Feature Story
● Scan Preview
● Read Text and Answer
p. 175 p. 180 p. 185 p. 189
● Work Using the Decision Toolkit
● Review Summary of Study Objectives
● Work Comprehensive p. 197
● Answer Self-Test Questions
● Complete Assignments
● Go to WileyPLU S for practice and tutorials
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The accuracy of the financial reporting system de-
pends on answers to a few fundamental questions. At
what point has revenue been earned? At what point
is the earnings process complete? When have ex-
penses really been incurred?
During the 1990s, the stock prices of dot-com com-
panies boomed. Many dot-com companies earned most
of their revenue from selling advertising
space on their websites. To boost re-
ported revenue, some dot-coms began
swapping website ad space. Company
A would put an ad for its website on company B’s web-
site, and company B would put an ad for its website on
company A’s website. No money ever changed hands,
but each company recorded revenue (for the value of
the space that it gave up on its site). This practice did
little to boost net income and resulted in no additional
cash flow—but it did boost reported revenue. Regula-
tors eventually put an end to the practice.
Another type of transgression results from compa-
nies recording revenue or expenses in the wrong year.
In fact, shifting revenues and expenses is one of the
most common abuses of financial accounting. Xerox
admitted reporting billions of dollars of lease revenue
in periods earlier than it should have been reported.
And WorldCom stunned the financial markets with its
admission that it had boosted net income by billions
of dollars by delaying the recognition of expenses un-
til later years.
Unfortunately, revelations such as
these have become all too common in
the corporate world. It is no wonder that
the U.S. Trust Survey of affluent Ameri-
cans reported that 85 percent of its respondents be-
lieved that there should be tighter regulation of finan-
cial disclosures, and 66 percent said they did not trust
the management of publicly traded companies.
W.
The document discusses the purpose and components of a statement of cash flows. It explains that the statement of cash flows provides information about a company's cash inflows and outflows during a period and summarizes operating, investing and financing activities. It is comprised of three sections - operations, investing activities, and financing activities. The statement of cash flows helps users assess a company's liquidity, financial flexibility, operating capabilities, and risk.
A presentation about the Cash Flow Statement ,whole chapter is covered in the slides .one can easily understand the concept of cash flow statement
and a video is also there but link went missing so please search it on youtube by the name of "cash flow statement in 3-min" a beautiful video to understand the basic concept of cash flow statement.In the end a numerical has solved for the better understanding ,which let u fetch marks in your examinations.
This document provides an overview of accounting standards LKAS 01, 02, 16, 37, and 38 and their application to Dialog Axiata PLC's financial statements. It summarizes Dialog Axiata's business, vision, mission and financial performance for 2020-2021. Key points include a decrease in profit from 2020 to 2021 due to higher expenses. Total assets increased in 2021 due to rises in inventories, receivables, property and cash. Equity increased slightly from 2020 to 2021 because of a smaller dividend payment leading to higher reserves. Net cash flows also increased over this period. The document was prepared by accounting students at Rajarata University of Sri Lanka.
Joyce M Sullivan, Founder & CEO of SocMediaFin, Inc. shares her "Five Questions - The Story of You", "Reflections - What Matters to You?" and "The Three Circle Exercise" to guide those evaluating what their next move may be in their careers.
A Guide to a Winning Interview June 2024Bruce Bennett
This webinar is an in-depth review of the interview process. Preparation is a key element to acing an interview. Learn the best approaches from the initial phone screen to the face-to-face meeting with the hiring manager. You will hear great answers to several standard questions, including the dreaded “Tell Me About Yourself”.
Learnings from Successful Jobs SearchersBruce Bennett
Are you interested to know what actions help in a job search? This webinar is the summary of several individuals who discussed their job search journey for others to follow. You will learn there are common actions that helped them succeed in their quest for gainful employment.
We recently hosted the much-anticipated Community Skill Builders Workshop during our June online meeting. This event was a culmination of six months of listening to your feedback and crafting solutions to better support your PMI journey. Here’s a look back at what happened and the exciting developments that emerged from our collaborative efforts.
A Gathering of Minds
We were thrilled to see a diverse group of attendees, including local certified PMI trainers and both new and experienced members eager to contribute their perspectives. The workshop was structured into three dynamic discussion sessions, each led by our dedicated membership advocates.
Key Takeaways and Future Directions
The insights and feedback gathered from these discussions were invaluable. Here are some of the key takeaways and the steps we are taking to address them:
• Enhanced Resource Accessibility: We are working on a new, user-friendly resource page that will make it easier for members to access training materials and real-world application guides.
• Structured Mentorship Program: Plans are underway to launch a mentorship program that will connect members with experienced professionals for guidance and support.
• Increased Networking Opportunities: Expect to see more frequent and varied networking events, both virtual and in-person, to help you build connections and foster a sense of community.
Moving Forward
We are committed to turning your feedback into actionable solutions that enhance your PMI journey. This workshop was just the beginning. By actively participating and sharing your experiences, you have helped shape the future of our Chapter’s offerings.
Thank you to everyone who attended and contributed to the success of the Community Skill Builders Workshop. Your engagement and enthusiasm are what make our Chapter strong and vibrant. Stay tuned for updates on the new initiatives and opportunities to get involved. Together, we are building a community that supports and empowers each other on our PMI journeys.
Stay connected, stay engaged, and let’s continue to grow together!
About PMI Silver Spring Chapter
We are a branch of the Project Management Institute. We offer a platform for project management professionals in Silver Spring, MD, and the DC/Baltimore metro area. Monthly meetings facilitate networking, knowledge sharing, and professional development. For more, visit pmissc.org.
In the intricate tapestry of life, connections serve as the vibrant threads that weave together opportunities, experiences, and growth. Whether in personal or professional spheres, the ability to forge meaningful connections opens doors to a multitude of possibilities, propelling individuals toward success and fulfillment.
Eirini is an HR professional with strong passion for technology and semiconductors industry in particular. She started her career as a software recruiter in 2012, and developed an interest for business development, talent enablement and innovation which later got her setting up the concept of Software Community Management in ASML, and to Developer Relations today. She holds a bachelor degree in Lifelong Learning and an MBA specialised in Strategic Human Resources Management. She is a world citizen, having grown up in Greece, she studied and kickstarted her career in The Netherlands and can currently be found in Santa Clara, CA.
Khushi Saini, An Intern from The Sparks Foundationkhushisaini0924
This is my first task as an Talent Acquisition(Human resources) Intern in The Sparks Foundation on Recruitment, article and posts.
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3. Xerox Corporation
On April 11, 2002, the U.S. Securities and Exchange Commission filed a
complaint against Xerox.
The complaint alleged Xerox deceived the public between 1997 and 2000
by employing several "accounting maneuvers," the most significant of
which was a change in which Xerox recorded revenue from copy
machine leases – recognizing a "sale" when a lease contract was
signed, instead of recognizing revenue over the entire length of the
contract.
In response to the SEC's complaint, Xerox Corporation neither admitted nor
denied wrongdoing. It agreed to pay a $10 million penalty and to restate
its financial results for the years 1997 through 2000.
On January 29, 2003, the SEC filed a complaint against Xerox's auditors,
KPMG, alleging four partners permitted Xerox to "cook the books" to fill
a $3 billion "gap" in revenue and $1.4 billion "gap" in pre-tax earnings.
In April 2005 KPMG settled with the SEC by paying a US$22.48 million
fine. As part of the settlement KPMG neither admits nor denies
wrongdoings.
4. WorldCom
Beginning modestly during mid-year 1999 and continuing at an accelerated
pace through May 2002, the company used fraudulent accounting
methods to disguise its decreasing earnings to maintain the price of
WorldCom’s stock.
The fraud was accomplished primarily in two ways:
• Booking ‘line costs’ (interconnection expenses with other
telecommunication companies) as capital expenditures on the balance
sheet instead of expenses.
• Inflating revenues with bogus accounting entries
CEO Bernard became very wealthy from the increasing price of his
holdings in WorldCom common stock.
5. - Non-provision of diminution in the value of long-term
investments due to discretion available to management
11. • In 1994-95, WIPRO Ltd. transferred land of Rs.197 million from
fixed assets to current assets, pending its sale.
Asset was transferred at the fair market value of Rs.4500 million and
the surplus of Rs.4303 million was transferred to capital reserve
improving the net worth per share and current ratio.
In subsequent years (1996-97 to 1999-2000), reduction in the value of
land was charged to the profit & loss account and an equivalent
amount was withdrawn from the capital reserve to offset the impact on
profit & loss account.
The actual sale of land took place after 5 years from the date of
conversion.
12. • In 1999-2000 and 2001-02, L & T assigned some of its outstanding
debt to one of its subsidiaries at a lower value and reported the
difference between the outstanding loan amount and the transfer value
as income in P & L A/c with a note to accounts.
13. • Hindustan Zinc Ltd.’s marketable investments represented
investments of Rs.6193 million in mutual funds as at 31-03-2004 and
Rs.688 million as at 31-03-2005.
The company changed the classification of these investments to
Intangible Assets.
The motive behind such reclassification might be to avoid the
requirements for providing for losses in value of investment as
provided in AS 13.
The auditors qualified the accounts in respect of the investments
disclosed by the company as Intangible Assets.
14. • Anantraj Industries, a north Indian commercial developer, transferred
part of one of its projects (0.52 mn sf out of 0.75 mn sf in a mall in
Delhi) to its wholly-owned subsidiary and consequently showed
equivalent revenues in its standalone results (93% of Q1 FY09
revenues).
15. • Jet Airways changed its depreciation policy from WDV to SLM, and
thereby wrote back Rs 920 crore into its P&L, which helped the
company to report profits during the quarter.
16. • Prajay Engineers, Hyderabad-based developer, reported a loss in its
fourth quarter results against expectations of a profit.
The company “lost” records for a project worth 40% of its annual
revenues at the site office. The company, in its press release, said -
“After the year end, basic records relating to sale agreements/revenue
and construction expenses of one of the projects of property
development were lost at the site office, Vishakapatnam. The auditors
in their report have stated that they were not able to verify the books
and records relating to income of Rs 143.77 crore and relevant
construction cost of Rs 75.26 crore. Management is making all efforts
to locate/ retrieve the lost records.”
17. Earnings Quality
Key objective of financial statement analysis is to estimate
future earnings from current earnings
Profit reported in the annual report is a noisy measure of a
company’s operating performance
Earnings are said to be of high quality if
- can be distributed in cash
- derived primarily from continuing operations
- methods used in measuring profit are conservative.
Earnings are said to be of low quality if
- have only a small percentage of distributable cash
- derived from non-operating sources
- computed using liberal accounting methods
18. Earnings Quality
Quality of earnings is lowered by management’s discretionary
actions.
Managers have great temptations to choose accounting
policies that will maximize their own utility and/or market
value of the company.
Managing earnings through accounting manipulations is
known as earnings management.
Creative accounting means accounting practices that may
follow the letter of the rules of standard accounting
practices, but certainly deviate from the spirit of those rules.
19. Motivation for earnings management
Imagine you're a kid with a lemonade stand and you want to build a roof
over it so that you and your customers aren't in the hot sun. You don't
have the money because business hasn't been that good. Your brother
has the money, but he won't lend it to you unless he knows that he'll
make something in the deal. You're sure that having a covered
lemonade stand will make all the difference for your business because
your customers will enjoy sipping their drinks in the cool shade.
So you decide to creatively boost your current sales figures and offer
your brother a chance to invest in your business. He gives you the
money to build your roof in exchange for 25 percent of your profits.
For reasons unknown to you, the covered stand doesn't really sell any
more lemonade than the uncovered stand did.
Now your brother is mad, because the profit he thought he was going to
make was based on phony sales figures. At this rate, it'll take four
summers to break even and much more to actually make a profit.
20. Motivation for earnings management
Employee compensation may be linked to current year’s earnings
Reduce tax liability
Maintain financial parameters like debt-equity ratio, net worth, etc.
Show rosy picture to prospective investors before IPO
Retiring CEO would like to enhance his retiring benefits that are linked
to earnings
Borrowing from financial institutions
Camouflage poor management decisions
Shoot up market price of shares and build good future expectations
Gain institutional support
Improve credit rating
Increase revenue from takeovers
Gain shareholder approval
21. Limitations of Financial Statements
Quality of earnings suffers from certain limitations of financial
statements, which stem basically from two sources:
1. Leverage provided by GAAPs in the choice of accounting
policies and changes therein
2. Window dressing in accounts and financial statements
22. Leverage provided by GAAPs
Ind AS 8 allows changes in accounting policies when is
considered to result in more appropriate preparation or
presentation of financial statements
While provision is well intended, it leaves management with a
handle to justify the appropriateness of its decision to effect
a change suiting its own requirements
Even within the framework of GAAPs, it is possible for
management to fabricate the financial statements, thus
affecting the quality of earnings
23. Leverage provided by GAAPs
AS permit management choice between alternative accounting
policies in certain areas
Property, plant & equipment (cost of acquisition and
revaluation)
Depreciation (Method, estimation and revision of useful life
and residual value)
Assets under lease
Inventories (valuation method and estimating net realizable
value)
Recognition of profit on long-term contracts
Treatment of contingent liabilities
24. Window dressing
Financial statements are said to be window dressed when
management tries to portray a rosier performance and
financial position of the company than is true
- Capitalization of revenue expenses
inflate bottom-line
WorldCom
- Revaluation of fixed assets
to show better financial position
Wipro
- Advancing billing on the customers towards the year-end
inflate top-line as well as bottom-line
Xerox
25. Window dressing
- Extension of accounting year
Liberty Shoes Ltd. / Annual Report 1999-2000
Extracts from the directors’ report:
The financial results as on 30th June, 2000 are for the period of 15
months as compared to the previous 12 months period ended on 31st
March, 1999 and are therefore not comparable.
The intention of extending the financial year by 3 months was to
implement the then ongoing restructuring programme.
However considering its complexity and financial burden, the
programme has been postponed for the time being.
Financial year may be extended to cover up a major loss or to
include a major likely gain of immediately following 2-3
months
26. Window dressing
- Inadequate or no provision for doubtful debts to inflate the
financial position and bottom-line; Hindustan Motors
- No separate disclosure of prior-period adjustments or
extraordinary income
- Increasing the estimates of useful life of fixed assets
to charge a lower depreciation; Cadila Healthcare
- Round-tripping: Getting into fictitious transactions to inflate
revenue; Satyam Computers
A company sells unused assets to a party with the promise
of buying back at a later date at the same or different price.
27. Window dressing
- Companies put aside money for possible loan defaults.
Some companies, during periods of high revenue growth,
increase the amount of reserves and release the same during
periods of poor revenue, offsetting the impact of low sales
growth.
cookie jar reserves
e.g. Dell
28. Window dressing
- Non-operational/non-recurring income being the major
source of income
OMCs encountered sharp reductions in their profits during the
last FY. In fact, during the first nine months of the last FY
all OMCs registered operating losses. Indian Oil
Corporation, India’s largest company, only prevented itself
from sliding into losses by selling-off their shares in India’s
upstream major, ONGC.
Clearly, this one-off non-operational profit cannot be repeated.
29. Big bath/kitchen sinking
- Practice of making big asset write-downs, huge provisions for
restructuring or liabilities
- Enables a firm to come clean
- Productive assets/saleable inventories may be written off, large
impairment charges, excessively large provisions for credit losses,
losses on disposal of assets
- Even if business does not do well, reported profit will go up in next
period because of lower depreciation and COGS
- Big bath is usually done when a new CEO takes over or M&A
30. Other things which companies do to manipulate earnings- modify
operating decisions
- Reducing discretionary expenditures- R&D, advertising, training,
plant maintenance
- Offering price discounts to boost sales
- Selling surplus assets at a gain
- Generous credit terms
- Overproduction- reduce cost per unit and hence COGS
- Delaying plant commissioning- defers recognition of depreciation,
extends interest capitalization
- Deferring capital expenditure- reduces current depreciation (but would
hurt future production capacity)
- Deferring planned maintenance- reduce current maintenance (but
damages the equipment)
Perfectly within GAAP, may be harmful to firm value
More difficult to detect
31. Beating window dressing
We have to live with street smart managements and their
window dressed financial statements
We can just make some efforts and resort to some measures to
beat window dressing to the extent possible in analyzing
financial statements
- Careful study of ‘notes to accounts and accounting policies’
and assessment of variations in policies, accounting
estimates, extraordinary items and contingent liabilities
- Assessment of the financial impact of qualifications in
auditors’ report on the corporate profitability and financial
position
- Comparison of basic and diluted EPS to predict EPS
sustainability in future
32. Beating window dressing
- Study of chairman’s statement, directors’ report, corporate
governance report, management discussion and analysis and
integrate them with the study of financial statements
- Analysis of related party transactions to find out whether
any undue benefit is being provided to them at the cost of
the company
- Analysis of segment results to analyze whether any line of
business is making a dent on the overall bottom-line
33. Ten Commandments
Prof. W H Beaver put together a list of warnings for those intending to
use financial statements
1. Do not use financial statements in isolation, but only in the context of
other available information.
2. Do not use financial statements as the only source of firm-specific
information.
3. Do not avoid reading the footnotes, which are an integral part of
financial statements.
4. Do not focus on a single number.
5. Do not overlook the implications of what is read.
6. Do not ignore events subsequent to the financial statements.
7. Do not overlook the limitations of financial statements.
8. Do not use financial statements without adequate knowledge.
9. Do not shun professional help.
10. Do not take unnecessary risks.
34. Potential red flags
An analyst should develop the skill of identifying red flags
- Unexplained change in accounting policy
- Unusual increase in accruals including receivables,
inventory, creditors and depreciation
- Increasing gap between reported earnings and cash flow
from operations
- Increasing gap between reported income and taxable income
- Increase in unusual short-term financing
- Large adjustments in fourth quarter
- Qualified audit opinion
- Change in external or internal auditor
- Increase in related party transactions