Complete CPA Reference

Nick Dauber, MS, CPA, is the author of four books and has served as book reviewer for major book publishers and has had articles published in many professional accounting journals. He is Instructor of Auditing and Taxation at Queens College of the City University of New York and has been in professional practice for over twenty-five years.Jae K. Shim, PHD, CPA, a prolific accounting and finance expert, has over fifty college and professional books to his credit. He is Professor of Accounting and Finance at California State University, Long Beach, and is CEO of Delta Consulting Company, a financial consulting and training firm.Joel G. Siegel, PHD, CPA, is the author of over fifty books and has written hundreds of articles for accounting and financial journals. Siegel was a member of the audit staff of Coopers & Lybrand and has consulted many organizations, including IT&T, Citicorp, and Person-Wolinsky CPA Review. He is Professor of Accounting at Queens College of the City University of New York.

• About the Authors xxiAcknowledgments xxiiiIntroduction xxvPart I Commonly Used Generally Accepted Accounting PrinciplesChapter 1 Financial Statement Reporting: The Income Statement 3Income Statement Format 4Comprehensive Income 4Extraordinary Items 5Nonrecurring Items 6Discontinued Operations 6Revenue Recognition 8Other Revenue Considerations 18Multiple Deliverables 18Software Revenue Recognition 19Research and Development Costs 20Advertising Costs 23Restructuring Charges 23Other Expense Considerations 23Earnings per Share 23Chapter 2 Financial Statement Reporting: The Balance Sheet 33Assets 33Liabilities 57Fair Value Measurements 71Fair Value Option for Financial Assets and Financial Liabilities 73Stockholders’ Equity 77Chapter 3 Financial Statement Reporting: Statement of Cash Flows and Other Disclosures 91Statement of Cash Flows 91Interim Reporting 103Personal Financial Statements 107Incorporation of a Business 110Partnerships 110Chapter 4 Accounting and Disclosures 113Hierarchy of GAAP 113FASB Accounting Standards Codification 113Accounting Changes 114Prior-Period Adjustments 121Disclosure of Accounting Policies 122Development-Stage Companies 123Troubled Debt Restructuring 124Segmental Reporting 127Imputing Interest on Notes 133Accounting for Futures Contracts 135Oil- and Gas-Producing Companies 138Chapter 5 Key Financial Accounting Areas 139Consolidations 139Business Combinations 143Investments in Securities 148Leases 156Pension Plans 170Other Postretirement Benefits 183Income Tax Accounting 184Foreign Currency Translation and Transactions 189U.S. GAAP versus IFRS 200Part II Analyzing Financial StatementsChapter 6 Financial Statement Analysis 219Introduction 219Horizontal and Vertical Analysis 221Balance Sheet Analysis 222Income Statement Analysis 239Bankruptcy Prediction 249Liquidation Value 251Part III Managerial Accounting ApplicationsChapter 7 Appraising Segmental Performance 255The What and Why of Responsibility Accounting 255Cost Center Performance and Standard Costs 258Flexible Budgets and Performance Reports 276Profit Centers and Segmented Reporting 278Profit Variance Analysis 281Single-Product Firms 282Multiproduct Firms 282Managerial Planning and Decision Making 287How to Measure the Performance of Investment Centers 288Investment Decisions under ROI and RI 292More on Economic Value Added 293Corporate Balanced Scorecard 295How to Price Goods and Services Transferred 296Alternative Transfer Pricing Schemes 297Budgeting and Financial Planning 299Chapter 8 Analysis of Projects, Proposals, and Special Situations 309Cost–Volume–Profit and Breakeven Analysis 309Short-Term, Nonroutine Decisions 320Theory of Constraints 327Life-Cycle Costs and Target Costing 327Activity-Based Costing 331Just-in-Time and Total Quality Management 334Taguchi Method of Quality Control 338Backflush Costing 339Environmental Costs and Ecoefficiency 342Time Value Fundamentals 346Capital Budgeting 350MACRS Rule 363Chapter 9 Quantitative Applications and Modeling in Accounting 369Statistical Analysis and Evaluation 369Regression Analysis 374Trend Analysis 378Regression Statistics 380Quantitative Methods for Accounting 386Decision Making 387Decision Making under Certainty 387Decision Making under Uncertainty 388Linear Programming and Shadow Prices 394Goal Programming and Multiple Goals 398Learning Curve 402Inventory Planning and Control 404Program Evaluation and Review Technique 411Project Budgeting and Control Using Earned Value Analysis 416Part IV Auditing, Compiling, and Reviewing Financial StatementsChapter 10 Auditing Procedures 425Risk Assessment Procedures 425The Entity and Its Environment 426Internal Control 426Substantive Procedures 442Audit Reports 451Chapter 11 Compilation, Review, and Other Reporting Services 463Compilation of Financial Statements 463Review of Financial Statements 470Accountant’s Consideration of Obtaining an Updating Representation Letter from Management 480Documentation in a Review Engagement 481Restricting the Use of an Accountant’s Compilation or Review Report 485Consideration of an Entity’s Ability to Continue as a Going Concern 486Subsequent Events 486Subsequent Discovery of Facts Existing at the Date of the Report 487Change in Engagement from Audit or Review to Compilation 487Reporting on Prescribed Forms 488Communication between Successor and Predecessor Accountants 490Compilation of Specified Elements, Accounts, or Items of a Financial Statement 490Compilation of Pro Forma Financial Information 494Communicating to Management and Others in a Compilation or Review Engagement 498Reports on Prospective Financial Statements 499Attest Engagements 511Examination of an Entity’s Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements (SSAE 15) 518Integration with the Financial Statement Audit 534Reporting on Controls at a Service Organization 546Compliance Attestation 555Management’s Discussion and Analysis 557Personal Financial Statements Included in Written Personal Financial Plans 557Reporting on Comparative Statements 559Special Reports 564Chapter 12 Auditing Standards 573SAS 1—Codification of Auditing Standards and Procedures 573SAS 2—Reports on Audited Financial Statements 574SAS 3—The Effects of EDP on the Auditor’s Study and Evaluation of Internal Control 575SAS 4—Quality Control Considerations for a Firm of Independent Auditors 575SAS 5—The Meaning of “Present Fairly in Conformity with Generally Accepted Accounting Principles” in the Independent Auditor’s Report 575SAS 6—Related Party Transactions 575SAS 7—Communication between Predecessor and Successor Auditor 575SAS 8—Other Information in Documents Containing Audited Financial Statements 575SAS 9—The Effect of an Internal Audit Function on the Scope of the Independent Auditor’s Examination 575SAS 10—Limited Review of Interim Financial Information 575SAS 11—Using the Work of a Specialist 575SAS 12—Inquiry of a Client’s Lawyer Concerning Litigation, Claims, and Assessments 576SAS 13—Reports on a Limited Review of Interim Financial Information 578SAS 14—Special Reports 578SAS 15—Reports on Comparative Financial Statements 578SAS 16—The Independent Auditor’s Responsibility for the Detection of Errors or Irregularities 578SAS 17—Illegal Acts by Clients 578SAS 18—Unaudited Replacement Cost Information 578SAS 19—Client Representations 578SAS 20—Required Communication of Material Weaknesses in Internal Accounting Control 579SAS 21—Segment Information 579SAS 22—Planning and Supervision 579SAS 23—Analytical Review Procedures 579SAS 24—Review of Interim Financial Information 579SAS 25—The Relationship of Generally Accepted Auditing Standards to Quality Control Standards 579SAS 26—Association with Financial Statements 580SAS 27—Supplementary Information Required by the Financial Accounting Standards Board 580SAS 28—Supplementary Information on the Effects of Changing Prices 580SAS 29—Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents 580SAS 30—Reporting on Internal Accounting Control 581SAS 31—Evidential Matter 581SAS 32—Adequacy of Disclosure in Financial Statements 581SAS 33—Supplementary Oil and Gas Reserve Information 581SAS 34—The Auditor’s Considerations When a Question Arises about an Entity’s Continued Existence 581SAS 35—Special Reports: Applying Agreed-Upon Procedures to Specified Elements, Accounts, or Items of a Financial Statement 581SAS 36—Review of Interim Financial Information 581SAS 37—Filings under Federal Securities Statutes 582SAS 38—Letters for Underwriters 582SAS 39—Audit Sampling 582SAS 40—Supplementary Mineral Reserve Information 583SAS 41—Working Papers 583SAS 42—Reporting on Condensed Financial Statements and Selected Financial Data 583Condensed Financial Statements 583Selected Financial Data 584SAS 43—Omnibus Statement on Auditing Standards 585SAS 44—Special-Purpose Reports on Internal Accounting Control at Service Organizations 585SAS 45—Omnibus Statement on Auditing Standards—1983 585Related Parties 585SAS 46—Consideration of Omitted Procedures after the Report Date 586SAS 47—Audit Risk and Materiality in Conducting an Audit 586SAS 48—The Effects of Computer Processing on the Audit of Financial Statements 586SAS 49—Letters for Underwriters 587SAS 50—Reports on the Application of Accounting Principles 587SAS 51—Reporting on Financial Statements Prepared for Use in Other Countries 589SAS 52—Omnibus Statement on Auditing Standards—1987 590SAS 53—The Auditor’s Responsibility to Detect and Report Errors and Irregularities 590SAS 54—Illegal Acts by Clients 590SAS 55—Consideration of Internal Control in a Financial Statement Audit 591SAS 56—Analytical Procedures 591SAS 57—Auditing Accounting Estimates 591SAS 58—Reports on Audited Financial Statements 592SAS 59—The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern 592SAS 60—Communication of Internal Control Related Matters Noted in an Audit 594SAS 61—Communication with Audit Committees 594SAS 62—Special Reports 594SAS 63—Compliance Auditing Applicable to Governmental Entities and Other Recipients of Governmental Financial Assistance 594SAS 64—Omnibus Statement on Auditing Standards 594SAS 65—The Auditor’s Consideration of the Internal Audit Function in an Audit of Financial Statements 594SAS 66—Communication of Matters about Interim Financial Information Filed or to Be Filed with Specified Regulatory Agencies 595SAS 67—The Confirmation Process 595SAS 68—Compliance Auditing Applicable to Governmental Entities and Other Recipients of Governmental Financial Assistance 597SAS 69—The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles in the Independent Auditor’s Report 597SAS 70—Service Organizations 597SAS 71—Interim Financial Information 598SAS 72—Letters for Underwriters and Certain Other Requesting Parties 598SAS 73—Using the Work of a Specialist 599SAS 74—Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance 600SAS 75—Engagements to Apply Agreed-Upon Procedures to Specified Elements, Accounts, or Items of a Financial Statement 600SAS 76—Amendments to Statement on Auditing Standards No. 72, Letters for Underwriters and Certain Other Requesting Parties 600SAS 77—Amendments to Statements on Auditing Standards No. 22, Planning and Supervision; No. 59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern; and No. 62, Special Reports 600SAS 78—Consideration of Internal Control in a Financial Statement Audit: An Amendment to SAS 55 600SAS 79—Amendment to Statement on Auditing Standards No. 58, Reports on Audited Financial Statements 600SAS 80—Amendment to Statement on Auditing Standards No. 31, Evidential Matter 601SAS 81—Auditing Investments 601SAS 82—Consideration of Fraud in a Financial Statement Audit 601SAS 83—Establishing an Understanding with the Client 601SAS 84—Communications between Predecessor and Successor Accountants 602SAS 85—Management Representations 603SAS 86—Amendment to Statement on Auditing Standards No. 72, Letters for Underwriters and Certain Other Requesting Parties 607SAS 87—Restricting the Use of an Auditor’s Report 607SAS 88—Service Organizations and Reporting on Consistency 608SAS 89—Audit Adjustments 608SAS 90—Audit Committee Communications 608SAS 91—Federal GAAP Hierarchy 608SAS 92—Auditing Derivative Instruments, Hedging Activities, and Investments in Securities 609Existence or Occurrence 610Completeness 610Rights and Obligations 611Valuation 611Impairment Losses 612SAS 93—Omnibus Statement on Auditing Standards—2000 614SAS 94—The Effect of Information Technology on the Auditor’s Consideration of Internal Control in a Financial Statement Audit 614SAS 95—Generally Accepted Auditing Standards 614SAS 96—Audit Documentation 614SAS 97—Amendment to Statement on Auditing Standards No. 50, Reports on the Application of Accounting Principles 614SAS 98—Omnibus Statement on Auditing Standards—2002 614SAS 99—Consideration of Fraud in a Financial Statement Audit 615SAS 100—Interim Financial Information 623SAS 101—Auditing Fair Value Measurements and Disclosures 623SAS 102—Defining Professional Requirements in Statements on Auditing Standards 625SAS 103—Audit Documentation 625SAS 104—Amendment to SAS 1, Codification of Auditing Standards and Procedures (“Due Professional Care in the Performance of Work”) 629SAS 105—Amendment to SAS 95—Generally Accepted Auditing Standards 629SAS 106—Audit Evidence 630SAS 107—Audit Risk and Materiality in Conducting an Audit 632SAS 108—Planning and Supervision 634SAS 109—Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement 636SAS 110—Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained 637SAS 111—Amendment to Statement on Auditing Standards No. 39, Audit Sampling 640SAS 112—Communication of Internal Control–Related Matters Identified in an Audit 641SAS 113—Omnibus 2006 641SAS 114—The Auditor’s Communication with Those Charged with Governance 641SAS 115—Communicating Internal Control Related Matters Identified in an Audit 642SAS 116—Interim Financial Information 647SAS 117—Compliance Audits 648SAS 118—Other Information in Documents Containing Audited Financial Statements 648SAS 119—Supplementary Information in Relation to the Financial Statements as a Whole 650SAS 120—Required Supplementary Information 654SAS 121—Revised Applicability of Statement on Auditing Standards No. 100, Interim Financial Information 655AS 1—References in Auditor’s Reports to the Standards of the Public Company Accounting Oversight Board 656AS 2—An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements 656AS 3—Audit Documentation 656AS 4—Reporting on Whether a Previously Reported Material Weakness Continues to Exist 657AS 5—An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements 662Definitions 664AS 6—Evaluating Consistency of Financial Statements 670AS 7—Engagement Quality Review 671AS 8—Audit Risk 672AS 9—Audit Planning 673AS 10—Supervision of the Audit Engagement 674AS 11—Consideration of Materiality in Planning and Performing an Audit 675AS 12—Identifying and Assessing Risks of Material Misstatements 677AS 13—The Auditor’s Responses to the Risks of Material Misstatement 680AS 14—Evaluating Audit Results 681AS 15—Audit Evidence 682Chapter 13 Sarbanes-Oxley Act of 2002 685Auditor Independence 685Partner Rotation 686Public Company Accounting Oversight Board 686Part V TaxationChapter 14 Tax Research 691Sources of Tax Law 691The Court System 692Part VI Other Professional StandardsChapter 15 Consulting Services 697Chapter 16 Quality Control 699Chapter 17 Code of Professional Conduct 703Rule 101—Independence 703Rule 102—Integrity and Objectivity 705Rule 201—General Standards 705Rule 202—Compliance with Standards 705Rule 203—Accounting Principles 706Rule 301—Confidential Client Information 706Rule 302—Contingent Fees 706Rule 501—Acts Discreditable 707Rule 502—Advertising and Other Forms of Solicitations 707Rule 503—Commissions and Referral Fees 707Rule 505—Form of Organization and Name 707Index 709

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