The SEC study, Report Pursuant to Section 704 of the Sarbanes-Oxley Act of 2002 review 515 enforcement actions between July 31 1997 and July 30 2002 classified improper accounting practices into four categories: Improper revenue recognition (25% weightage) Improper expense recognition (20% weightage) Improper accounting in connection with business combination (4.5%) Other accounting and reporting … Read more
State that it is management’s responsibility to establish and maintain adequate internal control; Identify management’s framework for evaluating internal control; Include management’s assessment of the effectiveness of the company’s internal control over financial report as of the end of the most recent year, including a statement as to whether internal control over financial reporting is … Read more
The role of financial statement analysis is to take financial reports prepared by companies, combined with other information to evaluate the past, current and prospective performance and financial position of a company for the purpose of making investment, credit and other economic decisions. Some of the common economic decision in mind when performing the financial … Read more
{ See article on the different methods of depreciation of fixed assets } Below are some of the advantages and disadvantages of using the annuity method or system : Advantages: Useful method to use in respect to long-term lease which generally involve considerable capital outlay Interest on capital investment is taken into account. This … Read more
{ Note that the diminishing balance method is also known as the reducing balance method, fixed percentage on diminishing balance method or written down value method of depreciation – see the article on the different methods of depreciation} See earlier article on details of this method. Below tabulates the advantages and disadvantages of this … Read more
{ Note that the straight line method is also known as the fixed or equal instalment method} See earlier article on details of this method. Below tabulate the advantages and disadvantages of using the Straight Line method:- Advantages: Over the period of useful life of the fixed asset, the total burden of depreciation and repairs … Read more
Management/Board of Director are personally involve when they : Have significant financial interests in the entity Significant portions of their compensation like bonuses,stock options and earn-out arrangement begin contingent upon achieving aggressive target s for stock price, operating results, financial position, or cash flow Personal guarantees of debts of the entity. { See article on … Read more
Excessive pressures on Management can come from the following: The need to achieve the targeted profitability or trend-level expectations of investment analysts, institutional investors, significant creditors or other external parties Need to obtain additional debt or equity financing to stay competitive Marginal ability to meet exchange listing requirements or debt repayment or other debt covenant … Read more
Aggressive Revenue recognition are aggressive techniques that are deploy to result in reporting of accounting for revenue earlier than may be appropriate even though they may not technically violate GAAP Examples are: Bill-and-hold sales arrangements ( invoicing a sale without shipping merchandise) Sales-type leases (lessor reporting leases as a sale, particularly when the lessee is … Read more
The different methods to calculate depreciation of fixed assets are: Fixed or Equal Installment method or Straight line method or Fixed Percentage on Original Cost method Diminishing or Reducing Balance method or Fixed Percentage on Diminishing Balance method Revaluation method Depreciation fund or Sinking Fund method Annuity method Insurance policy method Depletion or Production Unit … Read more