A scenario for Inventory Manipulation
A typical valuation of inventories revolves around two major elements; price and quality. One way the management can connive transactions that impact inventory values so that auditors may find it difficult to detect through auditor's papers manipulation after hours. Subject to the physical counts of inventories necessitating the auditor to take and test count for variant documents. Suppose a particular company awaits to attain a colossal shipment in a short period, before the culmination of a specific accounting time, and picks copies of all invoices and receiving reports. In that case, it eases the management capabilities of document alteration without being discovered. In such a scenario, there will be an overstatement of physical inventories, most of which are of shipments that went unrecorded.
However, auditors and capacitated with the knowhow to detect such kind of manipulations and consequently mitigate the dangers that may arise from such anomalies. One of the auditors' criteria in seeing such is through an in-depth examination and analysis of cash disbursements during a specific period's culmination. One other way would entail conducting physical counts for inventories. While doing this, the auditor must search for trends and patterns within the institution's books. These include stocks increasing at a fast rate. At the same time, sales are left lagging, the discovery of a declining inventory turnover, a skyrocketing inventory at a rate faster than that of total assets, or when the shipping cost is declining as an inventory's percentage.
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A Subsequent Event and a Subsequent Discovery of Facts
A subsequent event is one that happens in the dates between financial reports and auditor's statements. However, on the other hand, subsequently discovered facts are those that surfaces to the auditor's knowhow after the auditor's report is already out. If such information would not be out of reach, the auditor may have opted to make some changes to the statement.
The following are some of the interventions to be necessitated by the auditor if discrepancies were detected: converse the issue with clients' management teams, notification of third-parties, re-auditing of presented material, and consequentially updating the audit reports.
Week 11: Reflections
Internal Controls
Effective internal controls aid in the risks associated with the loss of assets. It consequently ascertains the accuracy and articulates the completion of plan information. It also fortifies the adherence of laws and regulations in the execution of plan operations.
Auditor's Independence
Independence from the client's company is vital to avoid any influences in the opinions of audit reports. Such independence aids the auditors in providing an unbiased professional standpoint to shareholders.
Management Responsibility in Auditing
Management's responsibility is crucial in adopting sane accounting policies that aim to establish and maintain fortified internal controls that instigate and report transactions in line with management's proclamations exemplified in the Statements.
Goals in the Auditing Profession
Learning about auditing entails convoluted conundrums of intricacies that, if not well divulged, may result in insurmountable levels of discrepancies. In my learning pursuits, I have been able to delve into the depth of auditing operations and have been able to identify the gaps and loopholes associated with audit reports. My most prominent pursuits in learning about auditing were the urge to ensure that systems and institutional organizations operate in utmost transparency and keen observance of set laws and regulations. My other major highlight is understanding the meanings and applicability of various terms used in auditing. An overhaul understanding of these concepts will tremendously aid me in my career and professional journey.
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Dual Residency dilemma
To determine the tax advantages of owning a home begins when deciding whether it's a dwelling unit. For tax purposes, a dwelling unit is a house, a boat, condominium that provides a suitable place that can be occupied by people. A dwelling unit can be owned for personal use or rental or a mixture of the two.
A significant advantage of homeownership is that the interest paid on a mortgage is deductible for homes occupied by owners. Another tax benefit is the deduction for the real estate taxes paid on the house, and the gains made on the sale of the home are excluded from taxation.
For Holly and Jolly, it is essential to understand the deductible mortgage interest on homeownership. If they acquired the house on loan, the interest on mortgage payments would be a deductible tax benefit. The tax savings on deductible interest payments are used to reduce the number of mortgage payments but only if the interest on mortgage payments exceed standard deductions. A rise in the standard deduction in the recent laws will reduce the number of individuals enjoying this benefit. However, suppose Holly and Jolly have huge non-mortgage deductions such as hefty state income taxes, property taxes and charitable contributions. In that case, the law increases the tax savings on mortgage payments substantially.
The amount of mortgage interest depends on when the loan was taken. The loan must have been used to purchase the home or spent towards its substantial improvement. Acquisition indebtedness is subject to limits depending on when loans were taken, a limit of $1million for loans acquired on or before December 16, 2017, and $750000 for loans acquired afterward.
Course Wrap -up
There are two taxation concepts, including the taxation of individual incomes and tax consequences of homeownership. Taxation of personal incomes will assist in filing annual tax returns and could help me offer tax filing services to the public as a form of employment. Besides, the tax knowledge on homeownership taxation will help me take full advantage of the tax benefits in the sector to reduce mortgage obligations.
