[03-Sep-2026 22:42:32 UTC] PHP Fatal error: Trait 'AAM_Core_Contract_ServiceTrait' not found in /home/ogedengbe/public_html/wp-content/plugins/advanced-access-manager/application/Service/LogoutRedirect.php on line 21 [03-Sep-2026 22:42:33 UTC] PHP Fatal error: Trait 'AAM_Core_Contract_SingletonTrait' not found in /home/ogedengbe/public_html/wp-content/plugins/advanced-access-manager/application/Service/Core.php on line 20 [03-Sep-2026 22:42:33 UTC] PHP Fatal error: Trait 'AAM_Core_Contract_ServiceTrait' not found in /home/ogedengbe/public_html/wp-content/plugins/advanced-access-manager/application/Service/AdminMenu.php on line 18 [03-Sep-2026 22:42:33 UTC] PHP Fatal error: Trait 'AAM_Core_Contract_ServiceTrait' not found in /home/ogedengbe/public_html/wp-content/plugins/advanced-access-manager/application/Service/Metabox.php on line 18 [03-Sep-2026 22:42:33 UTC] PHP Fatal error: Trait 'AAM_Core_Contract_ServiceTrait' not found in 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Fatal error: Trait 'AAM_Core_Contract_ServiceTrait' not found in /home/ogedengbe/public_html/wp-content/plugins/advanced-access-manager/application/Service/DeniedRedirect.php on line 18 [03-Sep-2026 22:42:34 UTC] PHP Fatal error: Trait 'AAM_Core_Contract_RequestTrait' not found in /home/ogedengbe/public_html/wp-content/plugins/advanced-access-manager/application/Service/SecureLogin.php on line 19 [03-Sep-2026 22:42:34 UTC] PHP Fatal error: Trait 'AAM_Core_Contract_SingletonTrait' not found in /home/ogedengbe/public_html/wp-content/plugins/advanced-access-manager/application/Service/Compatibility.php on line 21 OGEDENGBE BLESSING & CO https://ogedengbeblessing.com Audit And Accounting Firm Sun, 22 Sep 2019 13:52:05 +0000 en-US hourly 1 https://ogedengbeblessing.com/wp-content/uploads/2019/09/favicon22.gif OGEDENGBE BLESSING & CO https://ogedengbeblessing.com 32 32 12 Things You Need to Know About Financial Statements https://ogedengbeblessing.com/2016/10/21/12-things-you-need-to-know-about-financial-statements/ https://ogedengbeblessing.com/2016/10/21/12-things-you-need-to-know-about-financial-statements/#respond Fri, 21 Oct 2016 03:50:44 +0000 https://bearsthemespremium.com/theme/consulta/?p=1883 1. Financial Statement = Scorecard

There are millions of individual investors worldwide, and while a large percentage of these investors have chosen mutual funds as the vehicle of choice for their investing activities, many others are also investing directly in stocks. Prudent investing practices dictate that we seek out quality companies with strong balance sheets, solid earnings, and positive cash flows.

Whether you’re a do-it-yourself or rely on guidance from an investment professional, learning certain fundamental financial statement analysis skills can be very useful. Almost 30 years ago, businessman Robert Follet wrote a book entitled “How To Keep Score In Business” (1987). His principal point was that in business you keep score with dollars, and the scorecard is a financial statement. He recognized that “a lot of people don’t understand keeping score in business. They get mixed up about profits, assets, cash flow and return on investment.”

The same thing could be said today about a large portion of the investing public, especially when it comes to identifying investment values in financial statements. But don’t let this intimidate you; it can be done. As Michael C. Thomsett says in “Mastering Fundamental Analysis” (1998):

“That there is no secret is the biggest secret of Wall Street and of any specialized industry. Very little in the financial world is so complex that you cannot grasp it. The fundamentals, as their name implies, are basic and relatively uncomplicated. The only factor complicating financial information is jargon, overly complex statistical analysis and complex formulas that don’t convey information any better than straight talk.”

2. Financial Statements to Use

The financial statements used in investment analysis are the balance sheet, the income statement, and the cash flow statement with additional analysis of a company’s shareholders’ equity and retained earnings. Although the income statement and the balance sheet typically receive the majority of the attention from investors and analysts, it’s important to include in your analysis the often overlooked cash flow statement.

3.What’s Behind the Numbers?

The numbers in a company’s financial statements reflect the company’s business; it’s products, services, and macro-fundamental events. These numbers and the financial ratios or indicators derived from them are easier to understand if you can visualize the underlying realities of the fundamentals driving the quantitative information. For example, before you start crunching numbers, it’s critical to develop an understanding of what the company does, its products and/or services, and the industry in which it operates.

4. Diversity of Reporting

Don’t expect financial statements to fit into a single mold. Many articles and books on financial statement analysis take a one-size-fits-all approach. Less-experienced investors might get lost when they encounter a presentation of accounts that falls outside the mainstream or a so-called “typical” company. Please remember that the diverse nature of business activities results in a diverse set of financial statement presentations. This is particularly true of the balance sheet; the income statement and cash flow statement are less susceptible to this phenomenon.

5.Understanding Financial Jargon

The lack of any appreciable standardization of financial reporting terminology complicates the understanding of many financial statement account entries. This circumstance can be confusing for the beginning investor. There’s little hope that things will change on this issue in the foreseeable future, but a good financial dictionary can help considerably.

6. Accounting: Art, Not Science

The presentation of a company’s financial position, as portrayed in its financial statements, is influenced by management’s estimates and judgments. In the best of circumstances, management is scrupulously honest and candid, while the outside auditors are demanding, strict and uncompromising. Whatever the case, the imprecision that can be inherently found in the accounting process means that the prudent investor should take an inquiring and skeptical approach toward financial statement analysis.

7. Key Accounting Conventions

Generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS) are used to prepare financial statements. Both methods are legal in the United States, although GAAP is most commonly used. The main difference between the two methods is that GAAP is more “rules-based,” while IFRS is more “principles-based.” Both have different ways of reporting asset values, depreciation, inventory, to name a few.

8. Non-Financial Information

Information on the state of the economy, the industry, competitive considerations, market forces, technological change, the quality of management and the workforce are not directly reflected in a company’s financial statements. Investors need to recognize that financial statement insights are but one piece, albeit an important one, of the larger investment puzzle.

9. Financial Ratios and Indicators

The absolute numbers in financial statements are of little value for investment analysis, which must transform these numbers into meaningful relationships to judge a company’s financial performance and gauge its financial health. The resulting ratios and indicators must be viewed over extended periods to spot trends. Please beware that evaluative financial metrics can differ significantly by industry, company size, and stage of development.

10. Notes to Financial Statements

The financial statement numbers don’t provide all of the disclosure required by regulatory authorities. Analysts and investors alike universally agree that a thorough understanding of the notes to financial statements is essential to properly evaluate a company’s financial condition and performance. As noted by auditors on financial statements “the accompanying notes are an integral part of these financial statements.” Please include a thorough review of the noted comments in your investment analysis.

11. The Annual Report/10-K

Prudent investors should only consider investing in companies with audited financial statements, which are a requirement for all publicly-traded companies. Perhaps even before digging into a company’s financials, an investor should look at the company’s annual report and the 10-K. Much of the annual report is based on the 10-K, but contains less information and is presented in a marketable document intended for an audience of shareholders. The 10-K is reported directly to the U.S. Securities And Exchange Commission or SEC and tends to contain more details than other reports.

Included in the annual report is the auditor’s report, which gives an auditor’s opinion on how the accounting principles have been applied. A “clean opinion” provides you with a green light to proceed. Qualifying remarks may be benign or serious; in the case of the latter, you may not want to proceed.

12. Consolidated Statements

Typically, the word “consolidated” appears in the title of a financial statement, as in a consolidated balance sheet. A consolidation of a parent company and its majority-owned (more than 50% ownership or “effective control”) subsidiaries means that the combined activities of separate legal entities are expressed as one economic unit. The presumption is that consolidation as one entity is more meaningful than separate statements for different entities.

]]> https://ogedengbeblessing.com/2016/10/21/12-things-you-need-to-know-about-financial-statements/feed/ 0 Cash Handling Roles & Responsibilities https://ogedengbeblessing.com/2016/10/21/cash-handling-roles-responsibilities/ https://ogedengbeblessing.com/2016/10/21/cash-handling-roles-responsibilities/#respond Fri, 21 Oct 2016 03:48:57 +0000 https://bearsthemespremium.com/theme/consulta/?p=1881 Department Level

Department Cash Handling Role Administrator

Policy:  Required Role
This person can be the Department Administrator (DA) or any other individual deemed appropriate by the Business Officer.  We recommend that this person be someone different than any of the individuals in the other roles.  However, if no other option is available, we strongly recommend that role overlap is limited to only the Local Cash Handling Control Manager or Cash Collection Point Supervisor. Overlap with other roles will be allowed if necessary provided the assignments are in compliance with the role overlap restrictions described below.

Description of Role

  • Maintain timely, accurate & effective communication with all local cash handling control managers in the department.
  • Update cash handling roles for all payment receipt locations at the sub-department level in a timely and accurate manner.

Audit Control:  None.  If role overlap is necessary, we strongly recommend that it is limited to only the Local Cash Handling Control Manager & Cash Collection Point Supervisor.

Sub-department Level

I. Local Cash Handling Control Manager

Policy:  Required Role
We recommend that this person be someone different than any of the individuals in the roles. However, if no other option is available, it may be the same person as the Cash Collection Point Supervisor.

Description of Role

  • Maintain strong internal controls for payment collections at the payment receipt location level and safeguarding against loss.
  • Annually, review local cash handling procedures and update as needed. At a minimum, resubmits procedures every 3 years to AFR for approval.
  • Notify the Departmental Cash Handling Role Administrator of staff role changes so Institutional Roles-Cash Handling can be updated.

Audit Control:  No overlap in roles except with Departmental Cash Handling Role Administrator & Cash Collection Point Supervisor.

II. Biller

Policy:  Optional Role
We recommend that this person be a different individual than any of the other roles.  However, if no other option is available, it may be the same person as Reconciler.

Description of Role

  • Create and send invoices.
  • Record sales as appropriate.
  • Update the accounts receivable system.

Audit Control:  No overlap in roles except with Reconciler.

III. Cash Collection Point Cashier

Policy: Required Role
We recommend that this person be a different individual than any of the other roles.  However, if no other option is available, it may be the same person as Deposit Preparer.

Description of Role

  • Conduct cash transactions with customers
  • Provide a receipt to customer paying in person.
  • Endorse all checks immediately upon receipt with a restrictive University of Iowa endorsement.
  • Enter transactions into accounts receivable system, cash register or cash receipt journal/log.
  • Count the cash and submit the cash & supporting documentation to the Cash Collection Point Supervisor at the end of their shift.

Audit Control:  No overlap in roles except with Deposit Preparer.

IV. Cash Collection Point Supervisor

Policy: Optional Role
We recommend that this person be a different individual than any of the other roles.  However, if no other option is available, it may be the same person as Local Cash Handling Control Manager.

Description of Role

  • Monitor cash receipting functions.
  • Authorize various transactions, such as refunds, voids, and cash drawer reconciliations.

Audit Control:  No overlap in roles except with Departmental Cash Handling Role Administrator & Local Cash Handling Control Manager.

V. Deposit Preparer

Policy: Required Role
We recommend that this person be a different individual than any of the other 5 roles.  However, if no other option is available, it may  be the same person as Cash Collection Point Cashier.

Description of Role

  • Retrieve & count cash receipts from the business day.
  • Prepare the deposit.
  • Store the cash in a secure location until it is deposited.
  • Deliver deposit to the bank or designated deposit drop location.
  • Submit accounting information through the eDeposit system within 3 working days of the bank deposit.
  • Deliver each validated deposit slip/eDeposit form to the Reconciler.

Audit Control:  No overlap in roles except with Cash Collection Point Cashier.

VI. Reconciler

Policy: Required Role
We recommend that this person be a different individual than any of the other roles.  However, if no other option is available, it may be the same person as Biller.

Description of Role

  • Verify that the Deposit Preparer has deposited all cash received.
  • Reconcile eDeposit forms to the supporting documentation and to the Transaction Detail Report (TDR).
  • Cannot have access to the cash at any point, i.e., cash drawer or box, safe.

Audit Control:  No overlap in roles except Biller.

]]> https://ogedengbeblessing.com/2016/10/21/cash-handling-roles-responsibilities/feed/ 0 The Objectives And Characteristics Of Financial Reporting https://ogedengbeblessing.com/2016/10/21/the-objectives-and-characteristics-of-financial-reporting/ https://ogedengbeblessing.com/2016/10/21/the-objectives-and-characteristics-of-financial-reporting/#respond Fri, 21 Oct 2016 03:46:57 +0000 https://bearsthemespremium.com/theme/consulta/?p=1879
The overarching objective of financial reporting, which includes the production and dissemination of financial information about the company in the form of financial statements, is to provide useful information to investors, creditors, and other interested parties. Ideally, accounting information provides company shareholders and other stakeholders (e.g., employees, communities, customers, and suppliers) with information that aids in the prediction of the amounts, timing, and uncertainty of future cash flows. In addition, financial statements disclose details concerning economic resources and the claims to those resources.

In recent years, there has been a growing demand on the part of stakeholders for information concerning the social impacts of corporate decision making. Increasingly, companies are including additional information about environmental impacts and risks, employees, community involvement, philanthropic activities, and consumer safety. Much of the reporting of such information is voluntary, especially in the United States.

In addition, quantitative data are now supplemented with precise verbal descriptions of business goals and activities. In the United States, for example, publicly traded companies are required to furnish a document commonly identified as “management’s discussion and analysis” as part of the annual report to shareholders. This document summarizes historical performance and includes forward-looking information.

To accountants, the two most important characteristics of useful information are relevance and reliability. Information is relevant to the extent that it can potentially alter a decision. Relevant information helps improve predictions of future events, confirms the outcome of a previous prediction, and should be available before a decision is made. Reliable information is verifiable, representational faithful, and neutral. The hallmark of neutrality is its demand that accounting information not be selected to benefit one class of users to the neglect of others. While accountants recognize a trade off between relevance and reliability, information that lacks either of these characteristics is considered insufficient for decision making.

In addition to being relevant and reliable, accounting information should be comparable and consistent. Comparability refers to the ability to make relevant comparisons between two or more companies in the same industry at a point in time. Consistency refers to the ability to make relevant comparisons within the same company over a period of time.

In general, financial reporting should satisfy the full disclosure principle—meaning that any information that can potentially influence an informed decision maker should be disclosed in a clear and understandable manner on the company’s financial statement.

Company Financial Statements

The primary output of the financial accounting system is the annual financial statement. The three most common components of a financial statement are the balance sheet, the income statement, and the statement of cash flows. In some jurisdictions, summary financial statements are available (or may be required) on a quarterly basis. These reports are usually sent to all investors and others outside the management group. Some companies post their financial statements on the Internet, and in the United States the financial reports for public corporations can be obtained from the Securities and Exchange Commission (SEC) through its website. The preparation of these reports falls within a branch of accounting known as financial accounting.

The balance sheet

A balance sheet describes the resources that are under a company’s control on a specified date and indicates where these resources have come from. As an overview of the company’s financial position, the balance sheet consists of three major sections: (1) the assets, which are probable future economic benefits owned or controlled by the entity; (2) the liabilities, which are probable future sacrifices of economic benefits; and (3) the owners’ equity, calculated as the residual interest in the assets of an entity after deducting liabilities.

The list of assets shows the forms in which the company’s resources are lodged; the list of liabilities and the owners’ equity indicate where these same resources have come from. The balance sheet, in other words, shows the company’s resources from two points of view—asset and liability—and the following relationship must be maintained: total assets are equal to total liabilities plus total owners’ equity.

This same identity is also expressed in another way: total assets minus total liabilities equals total owners’ equity. In this form, the equation emphasizes that the owners’ equity in the company is always equal to the net assets (assets minus liabilities). Any increase in one will inevitably be accompanied by an increase in the other, and the only way to increase the owners’ equity is to increase the net assets. This is known as the fundamental accounting equation.

Assets are ordinarily subdivided into current assets and noncurrent assets. The former include cash, amounts receivable from customers, inventories, and other assets that are expected to be consumed or can be readily converted into cash during the next operating cycle (production, sale, and collection). Noncurrent assets may include noncurrent receivables, fixed assets (such as land and buildings), intangible assets (such as intellectual property), and long-term investments.

The liabilities are similarly divided into current liabilities and noncurrent liabilities. Most amounts payable to the company’s suppliers (accounts payable), to employees (wages payable), or to governments (taxes payable) are included among the current liabilities. Noncurrent liabilities consist mainly of amounts payable to holders of the company’s long-term bonds and such items as obligations to employees under company pension plans. The difference between total current assets and total current liabilities is known as net current assets, or working capital.

]]> https://ogedengbeblessing.com/2016/10/21/the-objectives-and-characteristics-of-financial-reporting/feed/ 0 Audit evidence and the objectives of an audit https://ogedengbeblessing.com/2016/10/21/audit-evidence-and-the-objectives-of-an-audit/ https://ogedengbeblessing.com/2016/10/21/audit-evidence-and-the-objectives-of-an-audit/#respond Fri, 21 Oct 2016 03:44:17 +0000 https://bearsthemespremium.com/theme/consulta/?p=1877 The main objective of the work performed by the auditor in an audit engagement is that of obtaining reasonable assurance as to whether the financial statements, as a whole, are free from material misstatement, so that the auditor is able to express an opinion on the financial statements and report accordingly in the auditor’s report.

To obtain reasonable assurance about the financial statements, which is a high but not absolute level of assurance, the auditor needs to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.

ISA (UK and Ireland) 500, Audit Evidence, explains what are the auditor’s responsibilities in obtaining audit evidence that can underpin the auditor’s opinion and what constitutes sufficient appropriate audit evidence for such purpose.

Sufficient appropriate audit evidence

A large part of the work involved in the performance of an audit consists of obtaining and evaluating audit evidence, which is primarily derived from audit procedures carried out during the course of the engagement, but that can also be gained from other sources. For example sources  like previous audits; provided that changes occurred in the meantime have been carefully taken into account; or the firm’s quality control procedures, especially around client acceptance and continuance.

Audit procedures that are used to obtain audit evidence are various and are often applied in combination. They can include inspection, observation, confirmation, recalculation, reperformance and analytical procedures, in addition to inquiry, as the latter does not normally provide sufficient audit evidence on its own.

However, audit evidence obtained will only be useful in reducing to an acceptably low level the risk that the auditor could express an inappropriate opinion when the financial statements are materially misstated and, therefore, allow the auditor to draw reasonable conclusions, when it is sufficient and appropriate to the circumstances.

Sufficiency and appropriateness of audit evidence are two qualities that are interrelated. Sufficiency is the measure of the quantity of audit evidence. The quantity of audit evidence needed is affected by the risks of misstatement assessed by the auditor, whereby the higher the risks the more audit evidence required, and by the quality of the evidence, where the higher the quality the less evidence perhaps required. A large amount of audit evidence may, however, not compensate for its poor quality.

Appropriateness is the measure of the quality of audit evidence. The quality of audit evidence depends on whether it is relevant and reliable in providing support to the conclusions on which the auditor’s opinion is based. Whether evidence is reliable also depends on its source; for instance, whether it is generated by the client, a third party or the auditor; and also from its nature, whereby documentary evidence is normally more reliable than verbal evidence.

Whether the audit evidence obtained in the course of an engagement is sufficient and appropriate to support the auditor’s opinion is a matter of professional judgment that the auditor needs to establish. Professional judgment is not, however, an abstract and subjective category of the auditor’s frame of mind, and should be informed by a structured approach to gathering evidence that is based on the assessed risks of material misstatement of the financial statements.

Designing and performing audit procedures for obtaining audit evidence

A number of ISAs (UK and Ireland), namely ISA 300, ISA 315 and ISA 330, require and explain that audit evidence should be obtained by performing risk assessment procedures and further audit procedures. Further audit procedures include tests of controls and substantive procedures, including tests of details and substantive analytical procedures.

In particular, alongside an overall audit strategy that indicates the scope of the work, the resources of staff allocated to specific areas and the timing of the engagement, a more detailed audit plan should indicate the audit procedures to be performed in respect of specific assertions in the financial statements and their timing.

The results of the initial risk assessment procedures, like the entity’s business risk assessment or the assessment of internal controls, are the basis on which to design the nature, timing and extent of further audit procedures to be performed in respect of the risks identified.

Further audit procedures should respond to the assessed risks of material misstatement at the assertion level, so that sufficient appropriate evidence can be obtained in respect of those risks.

The detailed audit plan records the risk assessment procedures and the further audit procedures at the assertion level in response to the assessed risks. The audit plan describes the nature, extent and timing of the audit procedures to be performed by team members in respect of specific classes of transactions, account balances and disclosures. In the case of an audit of a small entity, the audit plan would normally be included in standard audit programmes and schedules used for the various transactions and account balances. In any case, the standard programmes need to be tailored so that the approach to an item, in terms of the use of substantive procedures, tests of controls or both, is proportional to the risk assessed for that item and is directed at obtaining audit evidence capable of verifying the underlying assertions.

The audit evidence generated by the planned audit procedures should be sufficient and appropriate to support and corroborate, or to contradict, the management’s assertions in respect of specific classes of transactions, account balances or disclosures in the financial statements.

Audit procedures in respect of specific items in the financial statements should be designed with the objective of providing evidence capable of verifying the assertions embodied in an item, so that the auditor can draw a reasonable conclusion about that item. Audit evidence and the auditor’s conclusions in respect of the various assertions tested contribute to the overall audit evidence on which the auditor’s opinion is based.

]]> https://ogedengbeblessing.com/2016/10/21/audit-evidence-and-the-objectives-of-an-audit/feed/ 0 The Audit of Financial Statement Assertions https://ogedengbeblessing.com/2016/10/21/the-audit-of-financial-statement-assertions/ https://ogedengbeblessing.com/2016/10/21/the-audit-of-financial-statement-assertions/#respond Fri, 21 Oct 2016 03:42:03 +0000 https://bearsthemespremium.com/theme/consulta/?p=1875 In July 2015 the International Auditing and Assurance Standards Board (IAASB) revised ISA 315, Identifying and Assessing the Risks of Material Misstatements through Understanding the Entity and its Environment with respect to financial statement assertions.

These changes were made as a result of the IAASB project entitled ‘Addressing Disclosures in the Audit of Financial Statements – which resulted in a number of Revised ISA’s and Related Conforming Amendments’.

This article will focus on financial statement assertions as identified by ISA 315 (Revised) and also provides useful guidance to candidates on how to tackle questions dealing with these.

ISA 315 revised

ISA 315 (Revised) states: ‘In representing that the financial statements are in accordance with the applicable financial reporting framework, management implicitly or explicitly makes assertions regarding the recognition, measurement and presentation of classes of transactions and events, account balances and disclosures’.

Consequently auditors use these assertions when considering the potential types of misstatements that may occur and when designing and performing appropriate audit procedures.

Interim and final audit tests

During the interim audit, the internal control system is documented and evaluated. This will determine the mix of tests of control and substantive tests but both will tend to focus on transactions that have occurred so far in the period.

During the final audit, the focus is on the financial statements and the assertions about assets, liabilities and equity interests. At this stage the auditor will design substantive procedures to ensure that assurance has been gained over all relevant assertions.

Financial statement assertions

Transactions include sales, purchases, and wages paid during the accounting period. Account balances include all the asset, liabilities and equity interests included in the statement of financial position at the period end.

Obviously there is a link between the two because if the auditor performs tests to confirm the occurrence of sales this will also provide some assurance about the existence of receivables. Although the auditor may perform other tests specifically focussed on existence.

The assertions listed in ISA 315 (Revised) are as follows:

Assertions about classes of transactions and events and related disclosures for the period under audit

(i) Occurrence – the transactions and events that have been recorded or disclosed, have occurred, and such transactions and events pertain to the entity.

(ii) Completeness – all transactions and events that should have been recorded have been recorded and all related disclosures that should have been included in the financial statements have been included.

(iii) Accuracy – amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures have been appropriately measured and described.

(iv) Cut–off – transactions and events have been recorded in the correct accounting period.

(v) Classification – transactions and events have been recorded in the proper accounts.

(vi) Presentation – transactions and events are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.

Assertions about account balances and related disclosures at the period end

(i) Existence – assets, liabilities and equity interests exist.

(ii) Rights and obligations – the entity holds or controls the rights to assets, and liabilities are the obligations of the entity.

(iii) Completeness – all assets, liabilities and equity interests that should have been recorded have been recorded and all related disclosures that should have been included in the financial statements have been included.

(iv) Accuracy, valuation and allocation – assets, liabilities and equity interests have been included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments have been appropriately recorded and related disclosures have been appropriately measured and described.

(v) Classification – assets, liabilities and equity interests have been recorded in the proper accounts.

(vi) Presentation – assets, liabilities and equity interests are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.

Interpretation of assertions and appropriate audit tests

In many cases the meaning of the assertions is fairly obvious and in preparation for their FAU or AA exam candidates are reminded of the importance to learn and be able to apply the use of assertions in the course of the audit. Particularly, candidates need to be able to identify and explain the assertions, identify which assertion is being tested by a particular audit procedure and to describe audit procedures for relevant assertions in testing a specific transaction or balance, bearing in mind that the relevant disclosures should also be considered when deriving appropriate procedures.

Below is a summary of the assertions, a practical application of how the assertions are applied and some example audit procedures relevant to each.

Transaction assertions

Occurrence – this means that the transactions recorded or disclosed actually happened and relate to the entity. For example that a recorded sale represents goods which were ordered by valid customers and were despatched and invoiced in the period. An alternative way of putting this is that sales are genuine and are not overstated.

Relevant test – select a sample of entries from the sales account in the general ledger and trace to the appropriate sales invoice and supporting goods despatched notes and customer orders.

Completeness – this means that transactions that should have been recorded and disclosed have not been omitted.

Relevant test – select a sample of customer orders and check to despatch notes and sales invoices and the posting to the sales account in the general ledger.

Note the difference in the direction of the above test. In order to test completeness the procedure should start from the underlying documents and check to the entries in the relevant ledger to ensure none have been missed. To test for occurrence the procedures will go the other way and start with the entry in the ledger and check back to the supporting documentation to ensure the transaction actually happened.

Accuracy – this means that there have been no errors while preparing documents or in posting transactions to ledgers. The reference to disclosures being appropriately measured and described means that the figures and explanations are not misstated.

Relevant test – reperformance of calculations on invoices, payroll, etc, and the review of control account reconciliations are designed to provide assurance about accuracy.

Cut–off – that transactions are recorded in the correct accounting period.

Relevant test – recording last goods received notes and despatch notes at the inventory count and tracing to purchase and sales invoices to ensure that goods received before the year–end are recorded in purchases at the year end and that goods despatched are recorded in sales.

Classification – transactions recorded in the appropriate accounts – for example, the purchase of raw materials has not been posted to repairs and maintenance.

Relevant test – check purchase invoices postings to nominal ledger accounts.

Presentation – this means that the descriptions and disclosures of transactions are relevant and easy to understand. There is a reference to transactions being appropriately aggregated or disaggregated. Aggregation is the adding together of individual items. Disaggregation is the separation of an item, or an aggregated group of items, into component parts. The notes to the financial statements are often used to disaggregate totals shown in the statement of profit or loss. Materiality needs to be considered when judgements are made about the level of aggregation and disaggregation.

Relevant test – confirm that the total employee benefits expense is analysed in the notes to the financial statements under separate headings– ie wages and salaries, pension costs, social security contributions and taxes, etc.

Account balance assertions

Existence – means that assets and liabilities really do exist and there has been no overstatement – for example, by the inclusion of fictitious receivables or inventory. This assertion is very closely related to the occurrence assertion for transactions.

Relevant tests – physical verification of non–current assets, circularisation of receivables, payables and the bank letter.

Rights and obligations – means that the entity has a legal title or controls the rights to an asset or has an obligation to repay a liability.

Relevant tests – in the case of property, deeds of title can be reviewed. Current assets are often agreed to purchase invoices although these are primarily used to confirm cost. Long term liabilities such as loans can be agreed to the relevant loan agreement.

Completeness – that there are no omissions and assets and liabilities that should be recorded and disclosed have been. In other words there has been no understatement of assets or liabilities.

Relevant tests – A review of the repairs and expenditure account can sometimes identify items that should have been capitalised and have been omitted from non–current assets. Reconciliation of payables ledger balances to suppliers’ statements is primarily designed to confirm completeness although it also gives assurance about existence.

Accuracy, valuation and allocation – means that amounts at which assets, liabilities and equity interests are valued, recorded and disclosed are all appropriate. The reference to allocation refers to matters such as the inclusion of appropriate overhead amounts into inventory valuation.

Relevant tests – Vouching the cost of assets to purchase invoices and checking depreciation rates and calculations.

Classification – means that assets, liabilities and equity interests are recorded in the proper accounts.

Relevant tests – the test for transactions of checking purchase invoice postings to the appropriate accounts in the general ledger will be relevant again. Also that research expenditure is only classified as development expenditure if it meets the criteria specified in IAS® 38 Intangible Assets.

Presentation – this means that the descriptions and disclosures of assets and liabilities are relevant and easy to understand. The points made above regarding aggregation and disaggregation of transactions also apply to assets, liabilities and equity interests.

Relevant tests – auditors often use disclosure checklists to ensure that financial statement presentation complies with accounting standards and relevant legislation. These cover all items (transactions, assets, liabilities and equity interests) and would include for example confirming that disclosures relating to non–current assets include cost, additions, disposals, depreciation, etc.

]]> https://ogedengbeblessing.com/2016/10/21/the-audit-of-financial-statement-assertions/feed/ 0 Reasons for Auditing Cash https://ogedengbeblessing.com/2016/10/21/reasons-for-auditing-cash/ https://ogedengbeblessing.com/2016/10/21/reasons-for-auditing-cash/#respond Fri, 21 Oct 2016 03:39:43 +0000 https://bearsthemespremium.com/theme/consulta/?p=1873 Cash auditing is a complete or partial assessment of cash transactions that your business carries out within a set time frame. You may audit cash to ensure proper documentation of cash received or disbursed and to establish that the cash balance and deposits are accurate. A cash audit is a review of cash transactions between an identified start date and end date in accordance with the generally accepted procedures of accounting, in addition to the policies of your company.

Disclosure

Cash audits ensure that you clearly and appropriately name and categorize cash when making a financial statement, including lines of credit and loan guarantees, in order to enable easy verification of cash balances. For example, you should report cash on deposit as a current asset while displaying a bank overdraft as a current liability. Thus, an audit will help you understand how the business is performing financially and avoid misappropriation of funds.

Authenticity

Businesses conduct cash audits to ensure that cash balances exist in line with the dates they are reported on the balance sheet, and in the long run, this can help you make better business decisions. Records must show existing items to reassure you of their dependability and a cash audit exposes non-existent items and unreliable records. Many times, you will make decisions based on the data you analyze from financial documents, so entries need to be authentic.

Accuracy

Cash audits help to obtain and verify the mathematical accuracy of cash transactions by tracing opening balances to the previous year’s documents and by reviewing activity in general ledger accounts for cash. An audit helps to expose errors such as kiting, where you may record deposits and omit withdrawals, causing an overstatement of cash. You must ensure that you record realizable cash balances in the amounts you state on your balance sheet.

Completeness

To ascertain that all records reflect the expenditure in the financial statements, an auditor may examine cash receipts and disbursement records for a period before the balance sheet date. This prevents deliberate misstatement of fact and establishes errors committed by the person handling the records. Misstatement of fact may occur for many reasons, such as to conceal poor decisions or fraudulence. The auditor’s intention may not be to identify fraud, but in the course of the audit, he may uncover it and save your business from theft.

Cut-off Dates

You may also audit cash to establish the cut-off dates of accounts by reconciling balances and tracing the reconciled items with the aid of supporting documentation. For instance, if the transaction is at a date other than the end of the period, reconcile the activity to the date of the balance sheet. A cash audit provides evidence that transactions for each year are included in the financial statements of the appropriate year.

]]> https://ogedengbeblessing.com/2016/10/21/reasons-for-auditing-cash/feed/ 0 Major Problems Associated With a Sole Proprietorship https://ogedengbeblessing.com/2016/10/21/major-problems-associated-with-a-sole-proprietorship/ https://ogedengbeblessing.com/2016/10/21/major-problems-associated-with-a-sole-proprietorship/#respond Fri, 21 Oct 2016 03:37:01 +0000 https://bearsthemespremium.com/theme/consulta/?p=1864 A sole proprietorship is a type of business that has only one owner who is legally and financial bound to all of the business’s decisions and obligations. Although sole proprietorship are easily and cheaply set up, they suffer legal, efficiency and financial disadvantages that are not always present in other company forms, such as limited partnerships.

Defining Sole Proprietorships

In its simplest sense, a sole proprietorship is a type of business under the management of a single person. Many smaller businesses have this type of legal structure as it is the easiest to set up. Sole proprietorship start-ups do not have any legal requirements, and unlike other types of businesses, the owner and the business are not taxed separately. They have little in the way of start-up costs, and the owner is able to make all decisions.

Legal Disadvantages

One disadvantage of sole proprietorships is that the owner and the business are legally a single entity. Any legal issues that may affect the business — for example, a lawsuit — will also involve the owner of the business. The business’s costs are also the owner’s costs, and the business’s profits are the owner’s income. When a government taxes a sole proprietorship, it is the same as taxing the owner’s income.

Efficiency Disadvantages

Because the business and the owner are regarded as the same entity, the owner is responsible for all obligations that pertain to the business. If the business faces any financial or legal hurdles, the owner must devote as much time as he can to addressing such hurdles if he wants to keep his business alive. This can have a strain on the owner’s personal life. Furthermore, if the owner suffers any personal mishaps, such as disability, the business will suffer or even cease to exist. Sole proprietorships do not exist indefinitely like that of other company structures.

Financial and Business Disadvantages

Sole proprietorships may find it difficult to raise capital to expand. This is because sole proprietorships tend to be rather small and have a relatively low level of turnover. Investors are cautious of investing in sole proprietorships as a single owner and manager may entail increased risks. Furthermore, a single owner limits himself with his own training and experience. Any new ideas and ventures must come from himself, and without any input from other owners or managers that other businesses may have.

]]> https://ogedengbeblessing.com/2016/10/21/major-problems-associated-with-a-sole-proprietorship/feed/ 0 Audit Procedures to Detect Fraud https://ogedengbeblessing.com/2016/08/23/audit-procedures-to-detect-fraud/ https://ogedengbeblessing.com/2016/08/23/audit-procedures-to-detect-fraud/#respond Tue, 23 Aug 2016 10:20:17 +0000 https://bearsthemespremium.com/theme/consulta/?p=263 While audits are not designed to root out every instance of fraud, auditors have a responsibility to detect material misstatements in the company’s financial statements caused by either fraud or error. Accordingly, generally accepted auditing principles prescribe specific audit procedures to detect fraud that must be carried out during each audit. Knowing some of these procedures can help you better align resources for your company’s audit.

Fraud Brainstorming Session

Under generally accepted auditing standards, audit engagement teams must hold a fraud brainstorming session at the beginning of the audit. This session, led by the partner in charge of the audit, is designed to provide a time for the audit team to consider how the company could commit fraud. Further, the brainstorming meeting is used to set a tone of professional skepticism in the audit. Often, a fraud specialist attends the meeting to provide insight into other frauds committed by similar companies or industries and help identify the client’s risk factors.

Journal Entry Testing

Because committing material financial statement fraud often requires adjustments to the company’s financial records, auditors will test the company’s journal entries for any signs of manipulation. To perform this test, after gaining an understanding of the company’s controls and procedures, the auditor will make a selection from the company’s journal entries. Auditors typically select entries that are large, made by upper management, posted late in the accounting period or otherwise of interest. Once the selections have been made, the auditor will ask for supporting documentation that validates each entry.

Accounting Estimates

Another likely place for fraud is in accounting estimates. Because accounting estimates are subjective, management may be able to influence accounting estimates to manipulate the financial statements. Auditors look for fraud in accounting estimates in two major manners. First, auditors complete a “lookback” procedure to determine if the methodology for completing accounting estimates has changed from the prior year. Changes in methodology could be a sign of manipulation. Auditors also examine the directionality of estimates as a whole. For example, if nearly all estimates in the prior year were of decreasing income and nearly all estimates in the current year were of increasing income, auditors may be concerned that the company is shifting income from one period to another.

Significant Unusual Transactions

Recent revisions in generally accepted auditing principles require that auditors closely examine significant unusual transactions outside of a company’s normal business operations. This examination requires companies to explain the purpose and business rationale for the transaction. Once the auditor obtains management’s explanation, the engagement team should corroborate management’s response with other information received during the audit.

]]> https://ogedengbeblessing.com/2016/08/23/audit-procedures-to-detect-fraud/feed/ 0 The Role of the Finance Function in Organizational Processes https://ogedengbeblessing.com/2016/08/23/the-role-of-the-finance-function-in-organizational-processes/ https://ogedengbeblessing.com/2016/08/23/the-role-of-the-finance-function-in-organizational-processes/#respond Tue, 23 Aug 2016 10:18:39 +0000 https://bearsthemespremium.com/theme/consulta/?p=261 The Finance Function and the Project Office

Contemporary organizations need to practice cost control if they are to survive the recessionary times. Given the fact that many top tier companies are currently mired in low growth and less activity situations, it is imperative that they control their costs as much as possible. This can happen only when the finance function in these companies is diligent and has a hawk eye towards the costs being incurred. Apart from this, companies also have to introduce efficiencies in the way their processes operate and this is another role for the finance function in modern day organizations.

There must be synergies between the various processes and this is where the finance function can play a critical role. Lest one thinks that the finance function, which is essentially a support function, has to do this all by themselves, it is useful to note that, many contemporary organizations have dedicated project office teams for each division, which perform this function.

In other words, whereas the finance function oversees the organizational processes at a macro level, the project office teams indulge in the same at the micro level. This is the reason why finance and project budgeting and cost control have assumed significance because after all, companies exist to make profits and finance is the lifeblood that determines whether organizations are profitable or failures.

The Pension Fund Management and Tax Activities of the Finance Function

The next role of the finance function is in payroll, claims processing, and acting as the repository of pension schemes and gratuity. If the US follow the 401(k) rule and the finance function manages the defined benefit and defined contribution schemes, in India it is the EPF or the Employee Provident Funds that are managed by the finance function. Of course, only large organizations have dedicated EPF trusts to take care of these aspects and the norm in most other organizations is to act as facilitators for the EPF scheme with the local or regional PF (Provident Fund) commissioner.

The third aspect of the role of the finance function is to manage the taxes and their collection at source from the employees. Whereas in the US, TDS or Tax Deduction at Source works differently from other countries, in India and much of the Western world, it is mandatory for organizations to deduct tax at source from the employees commensurate with their pay and benefits.

The finance function also has to coordinate with the tax authorities and hand out the annual tax statements that form the basis of the employee’s tax returns. Often, this is a sensitive and critical process since the tax rules mandate very strict principles for generating the tax statements.

Payroll, Claims Processing, and Automation

We have discussed the pension fund management and the tax deduction. The other role of the finance function is to process payroll and associated benefits in time and in tune with the regulatory requirements.

Claims made by the employees with respect to medical, and transport allowances have to be processed by the finance function. Often, many organizations automate this routine activity wherein the use of ERP (Enterprise Resource Planning) software and financial workflow automation software make the job and the task of claims processing easier. Having said that, it must be remembered that the finance function has to do its due diligence on the claims being submitted to ensure that bogus claims and suspicious activities are found out and stopped. This is the reason why many organizations have experienced chartered accountants and financial professionals in charge of the finance function so that these aspects can be managed professionally and in a trustworthy manner.

The key aspect here is that the finance function must be headed by persons of high integrity and trust that the management reposes in them must not be misused. In conclusion, the finance function though a non-core process in many organizations has come to occupy a place of prominence because of these aspects.

]]> https://ogedengbeblessing.com/2016/08/23/the-role-of-the-finance-function-in-organizational-processes/feed/ 0 An Examination of the Competency Approach in Defining Entrepreneurs https://ogedengbeblessing.com/2016/08/23/an-examination-of-the-competency-approach-in-defining-entrepreneurs/ https://ogedengbeblessing.com/2016/08/23/an-examination-of-the-competency-approach-in-defining-entrepreneurs/#respond Tue, 23 Aug 2016 10:16:32 +0000 https://bearsthemespremium.com/theme/consulta/?p=259 Entrepreneurship is of critical importance to the modern economy. Researchers have studied entrepreneurship for decades. In recent years, significant relationship between entrepreneurial competencies and firm performance has been reported in empirical studies. Applying the competency approach, researchers have assumed that entrepreneurial competency differentiates entrepreneurs from non-entrepreneurs without empirically examining if this is the case. The research conducted under this thesis addresses this gap. Drawing upon a thorough literature review regarding the components, antecedents and performance outcomes of the entrepreneurial competency, we propose the following hypothesis: the entrepreneurs generally possess higher level of entrepreneurial competencies than the non-entrepreneurs, and the entrepreneurs and the non-entrepreneurs can be discriminated based on their entrepreneurial competency level. A survey is conducted among the business owners and the managers. Employing discriminant analysis, we find empirical evidence that the business owners generally possess higher level of entrepreneurial competencies than the managers, and the business owners and the managers can be discriminated based on their entrepreneurial competency level, which supports our hypothesis.

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