Question

• Q: What is materiality and give an example?
  Q. What is the difference between a capital lease and operational lease?
  Q. What is the matching principle and why it is important to accountants?
  Q. What is professional skepticism and why is it important to auditors?
  Q. What is the balance sheet formula and describe each part?
  Q. A/R journal entry?
  Q. What is going concern?
  Q. Do you mind staying overnight/travel for audits?
  Q. What qualities does an auditor need to have?

Answer 1

Answer.7

The going concern principle is the assumption that a business will continue to exist in the near future, in other words, that it will not liquidate or be forced out of business.As an accounting principle, the going concern principle serves as a guideline which allows readers of a business’s financial statements to assume that the business will continue to operate long enough to carry out its current obligations, objectives and commitments.

Going concern is an important part of the generally accepted accounting principles. Without it, businesses would not be able to perform accrued or prepaid expenses.The going concern principle allows a business to defer some of their prepaid expenses to future accounting periods, rather than recognising them all at once.

Answer.5

balance sheet reports a company's assets, liabilities and shareholders' equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure. Balance sheet includes assets on one side, and liabilities on the other. For the balance sheet to reflect the true picture, both heads (liabilities & assets) should tally. It is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.

Formula for Balance Sheet:

The balance sheet adheres to the following equation, where assets on one side, and liabilities plus shareholders' equity on the other.

Assets=liability+ shareholders fund.

Answer.4

Professional scepticism is an attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

Professional skepticism plays a fundamentally important role in the audit, and forms an integral part of the auditor's skill set. It facilitates the appropriate exercise of professional judgment, particularly regarding decisions about: ... the drawing of conclusions based on the audit evidence obtained.

Based on the thirty items, Hurtt (2010) identifies six traits of professional skepticism: questioning mind; suspension of judgment; searching for knowledge; interpersonal understanding; self-determining; and self- confidence. The traits relate to the way an auditor examines evidence.

Answer.3

The matching concept is an accounting practice whereby firms recognize revenues and their related expenses in the same accounting period. Firms report "revenues," that is, along with the "expenses" that brought them. The purpose of the matching concept is to avoid misstating earnings for a period.

The matching principle is important because the proper matching of expenses and revenues gives a more accurate appraisal of the results of operations, helps to avoid distortion of the financial position of the business, and improves the quality of the financial statements.

Answer.1

Materiality relates to the significance of transactions, balances and errors contained in the financial statements. Materiality defines the threshold or cutoff point after which financial information becomes relevant to the decision making needs of the users. Information contained in the financial statements must therefore be complete in all material respects in order for them to present a true and fair view of the affairs of the entity.

Materiality is relative to the size and particular circumstances of individual companies.

In accounting, materiality refers to the impact of an omission or misstatement of information in a company's financial statements on the user of those statements. If it is probable that users of the financial statements would have altered their actions if the information had not been omitted or misstated, then the item is considered to be material. If users would not have altered their actions, then the omission or misstatement is said to be immaterial.