Accounting Theory - 1267 Words

St Joseph Campus Capitol Hill, Monrovia Liberia Accounting 401 Section 01 Accounting Theory Assignment #2 To: Mr. Oye Williams By: Fatima E. Manyeh 07436 March 6, 2014 1) BDO Seidman’s attorney pointed out correctly that professional standards do not prohibit auditors and client personnel from being ‘friends’. At what point does such relationship result in violation of the auditor independence rules and guidelines? Provide hypothetical examples to strengthen your answers. Health Management, Inc. was a pharmaceutical sales company who faced many problems after their fiscal year ending on April 30, 1995. They had issues surrounding an in transit inventory problem that totaled up to $1.8 million. Involved in the†¦show more content†¦There were plenty of red flags that she had noticed giving her a good enough reason to continue on with the procedure. Since all the red flags would have probably had material effect on the records, she had every reason to go through with it. Because of time and costs, auditors may not be able to perform everything they can in the time period they have for the audit. When there is a possibility of material effect on a company the auditors need to do everything in their power to perform everything they can to detect the issue and be able to give their qualified opinion. 5) Should the result of inconclusive audit tests be included in audit work papers? Defend your answers. Inconclusive audit tests should be included in the audit work papers. There are reasons that the auditors started the test and there are reasons why they did not finish the test, whether it because of lack of time and money or the auditor and company might be hiding something. If the inconclusive tests are included in the work papers, it might open eyes up for others such as in the case in the court room. 6)A major focus of the trial in this case was BDO Seidman’s consideration of, and respond to, the ‘red flags’ apparent during the 1995 HMI audit. Define or describe the phrase ‘red flags’. Explain the impact of red flags indentified by auditors on each major phrase of an audit. The saying or term of â€Å"red flag† is defined as a warning signal and something that gives attentionShow MoreRelatedPositive Accounting Theory2425 Words   |  10 PagesCompare and contrast normative and positive accounting approaches: Definition of PAT: Watts and Zimmerman (1986) defined Pat as a theory that seeks to explain and predicts particular phenomenon. It is concerned with explaining accounting practice. The three basic hypotheses as outlined by Watts and Zimmerman (1978) underlying PAT are: 1. Bonus plan hypothesis: The bonus plan hypothesis is that managers of firms with bonus plans are more likely to use accounting methods that increase current period reportedRead MoreAccounting Theory And Management Accounting2580 Words   |  11 PagesThough forms of managerial accounting practices can be traced back decades, centuries even, management accounting used to be regarded as a financial tool, advantageous for the financial managers. However, over the past three decades views on management accounting have changed. As Kaplan (1994) states management accounting theory has experienced a revolution in both theory and practice with the development of new innovations. Through advances in information technology, more competitive markets andRead MorePositive Accounting Theory Essay1195 Words   |  5 PagesWhittington notes, they are two of the most widely discussed contributors to the accounting literature of the past decade (1989, p. 327). They are also the joint founder-editors of The Journal of Accou nting and Economics, a journal devoted to positive accounting research, which has achieved an international reputation. So their story, while admittedly controversial, has achieved credibility among a significant number of accounting researchers. But what accounts for that credibility? According to WattsRead MoreThe Theory Of Accounting Fraud3500 Words   |  14 PagesA number of cases of fraudulent accounting have been reported over the last fifty years. However, in each case the manner in which the fraud was perpetrated was different In the UK there is no legal definition of fraud (Levi, Information Gathering Working Party and Doig, 1999). Black’s Law Dictionary (1999) defines fraud as â€Å"a knowing misrepresentation of the truth or concealment of a material fact†. When we apply this to the world of accountancy there can be confusion between fraud and ‘creativeRead MoreAccounting Theory6586 Words   |  27 Pagesother relevant materials to justify your viewpoint. INTRODUCTION Accounting can be broadly defined as the ‘measurement and communication’ of economic information to the decision makers (Watts and Zimmerman 1986). Accounting is divided into internal and external accounting on the basis of the users of the information (Spohr 2005). Spohr (2005) further highlights that the responsibility for preparing the external accounting information and publishing it lies with the managers of the firm. TheseRead MoreAccounting Theory- Stakeholders1220 Words   |  5 PagesCurrent Issues in Accounting, South Melbourne: Cengage Learning Freeman RE. 1984. Strategic Management: a Stakeholder Approach. Pitman: Boston, MA Haigh, N., amp; Griffiths, A. (2009). The natural environment as a primary stakeholder: The case of climate change.  Business Strategy and the Environment,  18(6), 347. Retrieved from: http://ezproxy.waikato.ac.nz/login?url=http://search.proquest.com/docview/213770085?accountid=1728 Mitchell RK, Agle BR, Wood DJ. 1997. Toward a theory of stakeholder identificationRead MoreAccounting Theory and Practice Essay2225 Words   |  9 Pagesreached about what perspective theories should be used to explain the Social and Environmental Accounting, and moreover critique voices are from the works of Marx or by the deep-green or feminist literatures (Deegan, 2002), to some extent, systems-oriented theory and Positive Accounting Theory can list some hints. This essay will seek to explain the reasons why firms voluntary disclosure information by referring to Legitimacy theory, Stakeholder theory, institutional theory, and lastly Political CostsRead MoreA Research On Positive Accounting Theory2273 Words   |  10 Pagespositive accounting hypothesis (PAT) estimates that, in flawed markets, accounting decision may be controlled by directors looking to impact reported income and capital structure (Watts and Zimmerman, 1978). Specifically, the positive accounting hypothesis (PAT) contends that accounting decisions are liable to be spurred by components, for example, supervisors extra arranges, the company s obligation/value proportions and the more extensive political impact of outsiders (Watts and Zimmerman, 1978;Read MorePositive vs Normative Accounting Theory Essay1032 Words   |  5 Pageswith planning) TOPIC: Discuss positive accounting theory and contrast it with normative accounting theory. Provide examples where appropriate.       The purpose of this essay is to provide an overview of positive accounting theory (PAT) and highlight how this theory differs to normative accounting theory. Definitions and assumptions of both theories will be considered and examples of the theories will be provided. In addition specific theories related to PAT namely agency and the efficientRead MoreThe Imporance of Accounting Theory to the Field of Accounting1912 Words   |  8 PagesThe Importance of Accounting Theory to the Field Of Accounting The objective of theory is to explain and predict. One of the basic goals of the theory of a particular discipline is to have a well-defined body of knowledge that has been systematically accumulated, organized, and verified well enough to provide a frame of reference for future actions. The Webster’s definition of theory is the systematically organized knowledge, applicable in a relatively wide variety of circumstances, a system