A recession is a business cycle contraction, a general slowdown in economic activity over a period of time. A recession occurs when there is a fall in economic growth for two consecutive quarters. As stated by the National Bureau of Economic Research(NBER), recessionis definedas "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product(GDP), real income, employment, industrial production and wholesale...
In order to understand the concept of materiality and risk it is necessary to appreciate the objective of an Audit. An Audit is an evaluation of a person, organisation or a system. They are performed to determine the validity and the reliability of the information provided and also provides an assessment of the systems internal control. The objective of an audit of financial statements is to enable the auditor to express an opinion on whether the financial statements are prepared in complianc...
FASB 2 defines materiality as: The magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable user relying on the information would have been changed or influenced by the omission or misstatement. A careful reading of the FASB definition reveals the difficulty that the auditors have in applying materiality in practice. While the definition emphasizes reasonable users who rely on the st...
The primary aim of an audit is to judge the correctness of financial statements and establish their reliability and supporting accounting documents for a particular period. The dominant principle of audit is the examination of the accounts or statements made by an accountable party with a view to reporting to the person to whom the account is rendered on its truth or falsity. The economic decisions of many people in the society depend upon the financial statements published by a firm. The dec...
Auditor independence is a crucial determinant in the delivery of audit quality. A key aspect of auditor independence is ensuring that other services provided to an audit client do not impair the auditor's objectivity. Without independence, the value of the auditor's attestation function would be decrease in the eyes of a third party that relies on the auditor's communication. Independencerequires objectivity and freedom from bias. And the auditor must favor neither the client nor third par...
International accounting standard No.2 (IAS2) "Inventory" gives the rules which should be followed during the recording and presentation of inventory. Inventory refers to goods which are held by a firm for sale, are in the production process or are materials which will be consumed in the production process or in giving out of services. This standard does not apply to financial instruments and it gives out a guideline on how to measure an asset which is categorized as an inventory, which conce...
Executive Summary The strategic location of the South Face Mine, owned by Mountain Mining Canada Ltd (MMCL), catches the attention of Can-Do to make an offer for purchasing the mine. If our company successfully acquires it, the combination of better surface logistics and optimal location of new drift mines could provide an annual cost saving of up to $1.5 million for 20 years. However, MMCL has closed the mine and currently been spending on closure and reclamation of it; undoubtedly MMCL woul...
When traditional costing methods were introduced few decades back companies marketed a relatively narrow range of products. Direct labour was often the biggest cost of production and overhead costs were therefore smaller; the distortions that resulted from inappropriate overhead allocation were not evident. Direct labour was therefore used as a proxy to allocate overheads; managers would simply allocate a higher portion of overheads to products with higher direct labour hours. Information pro...
Earnings management strategy is adopted by many companies in this profit- oriented business world. First of all, earnings are the profit of an organization. That is the reason why it is the indicator for external parties like investors and analysts to determine the attractiveness of a particular stock. Companies with good earnings prospects will typically have higher share prices in market than those with poor prospects. The crucial thing is company's ability to generate profit in short term ...
Messie, Glover, Prawitt & Boh, Margaret , 2007 stated that audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. In simple terms, audit risk is the risk that an auditor will issue an unqualified opinion when the financial statements contain material misstatement. ISA 200 states that auditor should plan and perform the audit to reduce audit risk to an acceptably low level that is consistent with the objective of...
