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Identify the
types of
problems that
can appear in
financial
statements.
What Are Three Reasons for
Problems in the Financial
Statements?
Fraud—Intentional manipulation.
Types of Errors in the
Reporting Process
Describe the
safeguards
employed within a
firm to ensure that
financial statements
are free (?) from
problems.
Define Internal Control
Structure
Management of public
companies are required
by law to issue a
management statement in
annual report.
They must acknowledge
their responsibility for a
good system of internal
controls.
Learning Objective 3
Understand the
concept of
earnings
management and
why it occurs.
List and Discuss Four Reasons
to Manage Earnings
Meet Internal
$
Targets
Meet External
Expectations $
Income Smoothing
Window Dressing
for an IPO or a
Loan
Control in Accounting:
The Accounting System
Describe the
role of auditors
and how their
presence affects
the integrity of
financial
statements.
Discuss Internal Auditors
Role
Who are internal auditors?
An independent group of experts in
control, accounting, and operations.
What do they do?
Monitor operating results
and financial records.
Evaluate internal controls.
Assist with increasing efficiency
and effectiveness of operations.
Detect fraud.
What is the Role of External
Auditors?
Who are external auditors?
Employees of CPA firms.
What do they do?
Perform SEC-required audits.
Examine financial statements in
accordance with GAAP to be
certain they are free from
material (significant)
misstatement.
Provide reasonable assurance that
financial statements are “presented
fairly.”
What Do Auditors Do?
Observe operations
to verify compliance with procedures.
to verify inventory.
Sample a set of transactions for analysis
to conclude if procedures are complied with.
to determine if system is reliable.
Confirmation
of records to verify existence of accounts.
with customers to verify account balances.
Perform analytical procedures involving
comparative ratio analysis.
Are Auditors Independent?
AUDITORS MANAGEMENT