Question

i.          You wish to buy an existing manufacturing business. Why would you

need to have an explanation from an accountant about the business.

2. Explain whether the financial statement reflects the full value of the company.
3. What is a balance sheet?
4. Distinguish between the 3 types of professional accountants in Canada.
5. Explain the term “owner’s equity” in the accounting equation.
6. What role does a forensic accountant have?

Answer 1

i) As the buyer, you’ll want to have a good accountant on your side to review the business’s financials. It’s also beneficial to have a good business attorney to represent you in negotiations and to help you understand how the transaction will be structured.

Before you can begin your due diligence, the seller will most likely ask for a signed confidentiality agreement or nondisclosure agreement. By signing, you agree not to disclose any confidential information about the business that’s uncovered during the due diligence process. This protects the seller in case you decide buying the business is not for you after reviewing all the documents.

A) Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes. Financial statements include

• Balance sheet
• Income statement
• Cash flow statement. Investors and financial analysts rely on financial data to analyze the performance of a company and make predictions about its future direction of the company's stock price. One of the most important resources of reliable and audited financial data is the annual report,which contains the firm's financial statements. The financial statements are used by investors, market analysts, and creditors to evaluate a company's financial health and earnings potential. The three major financial statement reports are the balance sheet, income statement, and statement of cash flows B). The balance sheet provides an overview of a company's assets, liabilities, and stockholders' equity as a snapshot in time. The date at the top of the balance sheet tells you when the snapshot was taken, which is generally the end of the fiscal year.

  The Balance Sheet Formula

  Assets=(Liabilities+Owner’s Equity)Assets=(Liabilities+Owner’s Equity)

  The balance sheet totals will be calculated already, but here's how you identify them.

• Locate total assets on the balance sheet for the period.
• Total all liabilities, which should be a separate listing on the balance sheet. It may not include contingent liabilities.
• Locate total shareholder's equity and add the number to total liabilities.
• Total assets should equal the total of liabilities and total equity. C) The Accounting profession in Canada is broken into at least four groups, the first of which is the Canadian Institute of Chartered Accountants (CICA). Chartered Accountants (CA) are seen to be the highest level of accountant in Canada. They are most often controllers and vice presidents of finance and specialize in senior management, advisory, financial, tax and assurance roles

  Certified General Accountants (CGA): Certified General Accountants (CGA), as their name suggests, are general accountants and are active in all areas of business and governmental accounting. Founded in 1908 they represent some 73,000 accountants in Canada and around the world, mostly in British Commonwealth countries.

  Society of Management Accountants of Canada (CMA)

  Members of the Society of Management Accountants of Canada (CMA) specialize in all facets of management and measurement and are found throughout manufacturing and auditing. They are experts in process, financial reporting and moving from the theoretical to real-world applications for business solutions.

  Canadian Academic Accounting Association (CAAA)

  While not a separate accounting designation, the Canadian Academic Accounting Association (CAAA) promotes accounting in Canada and is made up of accounting educators, professional accountants and others.

  The group promotes excellence in accounting research and education in Canada. D) Owner’s equity, often called net assets, is the owners’ claim to company assets after all of the liabilities have been paid off. In other words, if the business assets were liquidated to pay off creditors, the excess money left over would be considered owner’s equity.

  That is why it is often referred to as net assets. According to the accounting equation, owner’s equity equals total company assets minus total company liabilities.

  The term owner’s equity is used as a generic equity account, but it’s most commonly used for sole proprietorships. Partnerships typically call their equity accounts members’ equity and corporations use shareholders’ equity.

  There are several different components that contribute to the owner’s equity formula. Owner’s capital is the permanent account that maintains the cumulative balance of draws, contributions, income, and losses over time. This balance could be positive or negative depending on the next few components. E) Forensic accounting is a branch of traditional accounting, still linked to analysing taxes and auditing, but it’s a hugely important part of fighting crime and assisting the law to combat fraud and a number of other financial conflicts. Fraud generally can range in its impact, from individuals not paying the tax they are due to pay, to falsely claiming government privileges.With fraud costing countries millions with a figure that is only growing, it’s never been so significant to have forensic accountants working to catch out those committing fraud and falsely taking away money that’s owed to the government, individuals, or businesses. The problem is only increasing with the rise of cyber-attacks, and it has been determined that the longer a fraudulent crime lasts, the more severe the financial loss caused. Essentially, no matter where we are in the world, fraud has damaging effects on society, which is why forensic accountants are ever more valuable and in demand in order to help prevent these crimes.

  The primary role of a forensic accountant is to assist in preparing financial evidence and analysis for court against criminal activity. Firstly, there’s an element of investigation, and another element of providing review and consultancy in court. The job is generally varied, working on a case by case basis, and forensic accountants generally work in teams to get a job done, often dealing with lawyers, law enforcement agencies, insurance companies, government organisations, financial institutions, and other accountants to get the best analysis for a case.