terriharrison, cpa, has discussed various reporting consideratio

Project Description:

terriharrison, cpa, has discussed various reporting considerations with three of her audit clients. the three clients presented the following situations and asked how they would affect the audit report.a. a client has changed its depreciation method on its machinery from straight line to double declining balance. both harrison and the client agree that the new depreciation method better reflects the usage of the machinery in the manufacturing process. the client agrees with harrison that the change is material but claims that it needs disclosure only in the “summary of significant accounting policies” footnote to the financial statements, not in harrison’s report.b. a client has a loan agreement that restricts the amount of cash dividends that can be paid and requires the maintenance of a particular current ratio. the client is in compliance with the terms of the agreement, and it is not likely that there will be a violation in the foreseeable future. the client believes there is no need to mention the restriction in the financial statements because such mention might mislead the readers.c. during the year, a client correctly accounted for the acquisition of a majority-owned domestic subsidiary but did not properly present the minority interest in retained earnings or net income of the subsidiary in the consolidated financial statements. the client agrees with harrison that the minority interest presented in the consolidated financial statements is materially misstated but takes the position that the minority shareholders of the subsidiary should look to that subsidiary’s financial statements for information concerning their interest therein. required: each of the situations presented relates to one of the four generally accepted auditing standards of reporting. identify and describe the applicable generally accepted auditing standard of reporting in each situation, and discuss how the particular client situation relates to the standard. (aicpa, adapted)
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