CPA REPORT Essay

CPA ReportThe charabanc of a large organization has asked the CPA to provide cultivation to divulgeside CPAs examining a subsidiary that has been set up as a slew. As a part of their palingenesis, the outside CPAs inadequacy to be provided with the several explanations. The CPAs want to know the methodology used to lay deferred imposees and the procedures for reporting chronicle miscellaneas and misapprehension corrections. The CPAs also want to know the rationale behind establishing the subsidiary as a corporation. Methodology Used to Determine Deferred TaxesThe methodology used to determine deferred valuatees deals with the basic principles of accounting for income imposees. According to FASB (2013), The following basic principles be utilize in accounting for income taxes A current of deferred tax liability or asset is recognized for the current or deferred tax consequences of all events that sacrifice been recognized in the monetary statements The current of defer red tax consequences of an event ar measured by applying the provisions of enacted tax laws to determine the amount of taxes collectible or refundable currently or in future eld The tax consequences of earning income or incurring losses or expenses in future years or the future enactment of a change in tax laws or rates are not anticipated for purposes of recognition and mensuration of a deferred tax liability or asset (Summary of Statement zero(prenominal) 96). Procedures for Reporting Accounting Changes and Error CorrectionsSFAS 154 addresses procedures for reporting accounting changes and phantasm corrections. This statement 154 calls for retrospective application for voluntary changes in accounting principles. done retrospective application, a change in accounting principle is tempered by restating comparative fiscal statements to reflect the new method as though it hadbeen applied all along.Thus, the company should show any additive effect as a retrospective application and an adjustment to the hypothesis retained earnings balance. SFAS also requires retrospective application to be presented with pry to direct effects and related income tax effects of a change in principle. Indirect effects should be reflected in the period of the accounting change (FASB, 2013).Corrections of demerits from prior periods are recorded as adjustments to the stolon balance of retained earnings in the current period. The nature of the error should be disclosed as well as the effect on the current and prior periods presented. If an error affects the current or prior periods presented or is expected to affect subsequent periods, the entity must disclose that comparative information has been restated, the effect of the correction by line-item and per-share amounts for all periods presented, and the amount of the adjustment to theory retained earnings (FASB, 2013). Rationale behind Establishing the Subsidiary as a Corporation on that point several reasons behind estab lishing a subsidiary as a corporation. One reason is that a corporation maintains a working capital stock account, additional remunerative-in capital accounts, and a retained earnings account. light up income or loss becomes part of retained earnings, and dividends are always paid equally to all shareholders of a particular class of stock (Bline, Fischer, & Skekel, 2004, Chapter 7). Corporations are also able to reacquire some of its own equity interest in the form of treasury stock. Other prefers of establishing a subsidiary as a corporation are Limited Liability. When it comes to taking indebtedness for business debts and actions of a corporation, shareholders personal assets are protected. Shareholders can generally only be held responsible for their investment in stock of the company. Ability to Generate Capital.Corporations stimulate an advantage when it comes to raising capital for their business the ability to raise funds by means of the sale of stock. Corporate Tax Treatment. Corporations file taxes separately from their owners. Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends, but any additional profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate.Attractive to Potential Employees. Corporations are generally able to attract and hire high-quality and motivated employees because they offer competitive benefits and the potential for partial ownership through stock options (U.S. Small Business Administration, 2013).MEMORANDUMTO ManagerFROM CPA ascertain September 30, 2013SUBJECT Professional responsibilities as a CPAIn response to the request for more information, the following is a outline of the nonrecreational responsibilities of a CPA. This memo will also cover the differences between a review and an examine.CPAs perform an essential role in society, and they are responsible to all those who use their skipper services. CPA s have a continuing responsibility to improve the art of accounting, maintain the publics confidence, and carry out the professions special responsibilities for self-governance (The CPA Journal, 2004).CPAs must adhere to the AICPA principle of Professional Conduct, which sets forth certain standards of professional conduct. AICPA peniss are bound by the AICPA Code of Professional Conduct. Rule 201 requires that members provide professional services with qualification (AICPA, 2013). According to AICPA (2013), In the delivery of personal monetary planning services, a member shall adhere to the following Principles of Professional Conduct.ET portion 52 oblige I ResponsibilitiesIn carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.Section ET 53 Article II The Public InterestMembers should accept the obligation to act in a way that will serve the public interest, honor the public auth ority and demonstrate commitment to professionalism. Section ET 54 Article III oneTo maintain and broaden public confidence, members should perform all professional responsibilities with the highest gumption of integrity. Section ET 55 Article IV Objectivity and Independence A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services. Section ET 56 Article V Due CareA member should observe the professions technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the outstrip of the members ability (Professional Responsibilities).ReviewThe purpose of a review is to provide limited agency that financial statements do not have any known errors or departures from the accounting rules found in GAAP. There is usually no testing of information in the financial statements beyond inquiry and analytical review. The CPA will not obtain an thought of the innate apply system or address how the organization is addressing the venture of fraud in the financial statements (Ulvog, 2006).A review involves the CPA acting procedures that will provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework. A review does not contemplate obtaining an understanding of the entitys internal control assessing fraud risk testing accounting records or otherprocedures commonly performed in an audit (Barfield, Murphy, root & Smith LLC, 2013). AuditThe purpose of an audit is to provide reasonable assurance that financial statements are fairly presented in accordance with GAAP. In an audit, the CPA will gain an understanding of internal control s, evaluate the risk of major fraud, test the places where there is a profound risk of major fraud, and perform testing where necessary for the significant components of the financial statements (Ulvog, 2006). The auditor is required to corroborate the amounts and disclosures included in the financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures, and other procedures (Barfield, Murphy, Shank & Smith LLC, 2013). An audit provides more assurance to a reader of the financial statements than a review.ReferencesAICPA. (2013). Retrieved from http//www.aicpa.org/INTERESTAREAS/PERSONALFINANCIALPLANNING/RESOURCES/PRACTICECENTER/PROFESSIONALRESPONSIBILITIES/Pages/ProfessionalResponsibilities.aspx Barfield, Murphy, Shank & Smith LLC. (2013). Retrieved from http//www.bmss.com/news-story.php?cn=172 Bline, D., Fischer, M., & Skekel, T. (2004). Advanced Accounting. Retrieved from The Univers ity of Phoenix eBook Collection database FASB. (2013). Retrieved from http//www.fasb.org/summary/stsum96.shtml The CPA Journal. (2004). Retrieved from http//www.nysscpa.org/cpajournal/2004/104/text/p80.htm Ulvog, J.L. (2006). Ulvog CPA. Retrieved from http//ulvogcpa.com/Audit_or_Review.html U.S. Small Business Administration. (2013). Retrieved from http//www.sba.gov/content/corporation