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Acknowledgments
Introduction
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About the Authors
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PART I
COMMONLY USED GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
CHAPTER 1
Financial Statement Reporting: The Income Statement
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Income Statement Format
Comprehensive Income
Extraordinary Items
Nonrecurring Items
Discontinued Operations
Revenue Recognition
Realization
At the Completion of Production
Requirements
During Production
Cash Basis
Recognition of Franchise Fee Revenue by the Franchisor
Other Revenue Considerations
Multiple Deliverables
Software Revenue Recognition
Research and Development Costs
Advertising Costs
Restructuring Charges
Other Expense Considerations
Earnings per Share
Diluted Earnings per Share
Antidilutive Securities
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Assets
Accounts Receivable
Inventory
Fixed Assets
Depreciation
Capitalized Interest
Nonmonetary Transactions
Impairment or Disposal of Long-Lived Assets
Involuntary Conversion
Asset Retirement Obligations
Disclosure
Intangibles
Financial Assets
Insurance
Liabilities
Bonds Payable
Extinguishment of Debt
Estimated Liabilities
Accounting for Compensated Absences
Accounting for Special Termination Benefits
to Employees
Refinancing of Short-Term Debt to Long-Term Debt
Callable Obligations by the Creditor
Disclosure of Long-Term Purchase Obligations
Exit or Disposal Activities
Fair Value Measurements
Fair Value Option for Financial Assets and
Financial Liabilities
Electing the Fair Value Option
Events
Instrument Application
Balance Sheet
Statement of Cash Flows
Disclosures
Eligible Items at Effective Date
Available-for-Sale and Held-to-Maturity Securities
Stockholders’ Equity
Preferred Stock
Stock Retirement
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Financial Statement Reporting: The Balance Sheet
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Appropriation of Retained Earnings (Reserve)
Treasury Stock
Cost Method
Par Value Method
Quasi-Reorganization
Dividends
Stock Split
Stock Options
Debt Issued with Stock Warrants
Fractional Share Warrants
Disclosure
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Accounting and Disclosures
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Hierarchy of GAAP
FASB Accounting Standards Codification
Accounting Changes
Change in Accounting Principle
Change in Accounting Estimate
Change in Reporting Entity
Correction of an Error
Prior-Period Adjustments
Disclosure of Accounting Policies
Development-Stage Companies
Troubled Debt Restructuring
Debtor
Creditor
Segmental Reporting
Imputing Interest on Notes
Accounting for Futures Contracts
Oil- and Gas-Producing Companies
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Statement of Cash Flows
Interim Reporting
Personal Financial Statements
Incorporation of a Business
Partnerships
Bonus Method
Goodwill Method
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Financial Statement Reporting: Statement of Cash Flows and
Other Disclosures
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Consolidations
Noncontrolling Interests in Consolidated Financial
Statements
Business Combinations
Investments in Securities
Stock Investments
Market Value Adjusted
Equity Method
Leases
Lessee
Lessor
Sales-Leaseback Arrangement
Subleases and Similar Transactions
Leveraged Leases
Pension Plans
Defined Contribution Pension Plan
Defined Benefit Pension Plan
Trustee Reporting for a Defined Benefit Pension Plan
Balance Sheet
Other Postretirement Benefits
Income Tax Accounting
Temporary Differences
Permanent Differences
Financial Statement Presentation
Intraperiod Tax Allocation
Loss Carrybacks and Carryforwards
Deferred Tax Liability versus Deferred Tax Asset
Tax Rates
Indefinite Reversal
Foreign Currency Translation and Transactions
Translation Process
Balance Sheet
Income Statement
Translation Adjustments
Foreign Currency Transactions
Forward Exchange Contracts
Hedging
Derivative Products
Insurance Contracts
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Key Financial Accounting Areas
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U.S. GAAP versus IFRS
Cash and Cash Equivalents
Receivables
Inventories
Investments
Equity-Method Investments
Property, Plant, and Equipment
Revaluations Involving Depreciable Assets
Intangible Assets and Goodwill
Contingent Liabilities
Defined Benefit Plans
Income Tax Deferrals
Lease Accounting
Equity
Revenue Recognition
Sale of Goods
Bill-and-Hold Transactions
Multiple-Element Arrangements
Long-Term Construction Contracts
Customer Loyalty Programs
Discontinued Operations
Share-Based Payment
Impairment
Intangible Impairment
Property, Plant, and Equipment Impairment
Earnings per Share
Subsequent Events
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PART II
ANALYZING FINANCIAL STATEMENTS
CHAPTER 6
Financial Statement Analysis
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Introduction
Industry Comparison
Trend Analysis
Horizontal and Vertical Analysis
Balance Sheet Analysis
Assets
Cash
Accounts Receivable
Inventory
Investments
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Fixed Assets
Intangibles
Deferred Charges
Unrecorded Assets
Liabilities
Evaluation of Liquidity
Appraising Corporate Solvency
Income Statement Analysis
Cash Flow from Operations
Discretionary Costs
Accounting Policies
Degree of Certainty in Accounting Estimates
Residual Income
Taxable Income
Foreign Operations
Discontinued Operations
Stability of Earnings
Operating Leverage
Profitability Measures
Growth Rate
Market Value Measures
Bankruptcy Prediction
Liquidation Value
MANAGERIAL ACCOUNTING APPLICATIONS
CHAPTER 7
Appraising Segmental Performance
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PART III
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The What and Why of Responsibility Accounting
Cost Center
Profit Center
Investment Center
Cost Center Performance and Standard Costs
Materials Variances
Labor Variances
Variable Overhead Variances
Fixed Overhead Variances
Mix and Yield Variances
Flexible Budgets and Performance Reports
Profit Centers and Segmented Reporting
Profit Variance Analysis
Types of Standards in Profit Variance Analysis
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CHAPTER 8
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Single-Product Firms
Multiproduct Firms
Managerial Planning and Decision Making
Sales Mix Analysis
Performance Reports
How to Measure the Performance of Investment Centers
Rate of Return on Investment
Residual Income
Residual Income and Economic Value Added
Investment Decisions under ROI and RI
More on Economic Value Added
EVA and Value Creation
Corporate Balanced Scorecard
How to Price Goods and Services Transferred
Alternative Transfer Pricing Schemes
Budgeting and Financial Planning
Computer-Based Budgeting
Case 1
Case 2
Budgeting Software
Budget Maestro
Microsoft Business Solutions for Analytics—Forecaster
Host Budget
SAP BusinessObjects Budgeting and Consolidation
Latest Generation of Budgeting and Planning Software
Analysis of Projects, Proposals, and Special Situations
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Cost–Volume–Profit and Breakeven Analysis
Contribution Margin
Target Income Volume and Margin of Safety
Sales Mix Analysis
Short-Term, Nonroutine Decisions
Theory of Constraints
Life-Cycle Costs and Target Costing
Activity-Based Costing
Cost of Measurement
Indirect Measures and the Degree of Correlation
Just-in-Time and Total Quality Management
Taguchi Method of Quality Control
Backflush Costing
Environmental Costs and Ecoefficiency
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Quantitative Applications and Modeling in Accounting
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Statistical Analysis and Evaluation
Mean
Standard Deviation
Regression Analysis
Method of Least Squares
Use of a Spreadsheet Program for Regression
Trend Analysis
Regression Statistics
Quantitative Methods for Accounting
Decision Making
Decision Making under Certainty
Decision Making under Uncertainty
Decision Matrix
Expected Value of Perfect Information
Decision Tree
Linear Programming and Shadow Prices
Shadow Prices (Opportunity Costs)
Goal Programming and Multiple Goals
Learning Curve
Inventory Planning and Control
Economic Order Quantity
Reorder Point
Safety Stock and Reorder Point
Program Evaluation and Review Technique
Project Budgeting and Control Using Earned Value Analysis
Forecasting Project Parameters Using Earned Value
Methodology
Schedule Variance (SV)
Cost Variance (CV)
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Time Value Fundamentals
Capital Budgeting
Payback Period
Accounting (Simple) Rate of Return
Net Present Value
Internal Rate of Return (or Time-Adjusted Rate of Return)
Profitability Index (or Excess Present Value Index)
Limited Funds for Capital Spending
Effects of Income Tax Factors on Capital Budgeting
Decisions
MACRS Rule
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Schedule Performance Index (SPI)
Cost Performance Index (CPI)
Estimate at Completion (EAC)
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AUDITING, COMPILING, AND REVIEWING
FINANCIAL STATEMENTS
CHAPTER 10
Auditing Procedures
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Risk Assessment Procedures
The Entity and Its Environment
Internal Control
Substantive Procedures
Audit Reports
Unqualified Opinion
Qualified Opinion
Disclaimer of Opinion
Adverse Opinion
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Compilation of Financial Statements
Review of Financial Statements
Accountant’s Consideration of Obtaining an Updating
Representation Letter from Management
Documentation in a Review Engagement
Reports on Reviewed Financial Statements
Departures from the Applicable Financial Reporting
Framework
Supplementary Information
Emphasis of a Matter
Restricting the Use of an Accountant’s Compilation or
Review Report
Consideration of an Entity’s Ability to Continue as a
Going Concern
Subsequent Events
Subsequent Discovery of Facts Existing at the Date of
the Report
Change in Engagement from Audit or Review to Compilation
Reporting on Prescribed Forms
Communication between Successor and Predecessor
Accountants
Compilation of Specified Elements, Accounts, or Items of a
Financial Statement
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Compilation of Pro Forma Financial Information
Communicating to Management and Others in a Compilation
or Review Engagement
Reports on Prospective Financial Statements
Modification and Other Issues
Range of Values
Departure from AICPA Presentation Guidelines
Significant Assumption Does Not Provide Reasonable
Basis
Scope Limitation
Emphasis of a Matter
Division of Responsibility
Agreed-Upon Procedures
Attest Engagements
Examination Engagements
Review Engagements
Engagements to Apply Agreed-Upon Procedures
Examination of an Entity’s Internal Control over Financial
Reporting That Is Integrated with an Audit of Its Financial
Statements (SSAE 15)
Integration with the Financial Statement Audit
Reporting on Controls at a Service Organization
Compliance Attestation
Management’s Discussion and Analysis
Personal Financial Statements Included in Written Personal
Financial Plans
Reporting on Comparative Statements
Same Level of Service
Higher Level of Service
Guideline
Lower Level of Service
Special Reports
Specific Elements, Accounts, or Items in a Basic Set of
Financial Statements
Compliance with Contracts or Regulations Relating to
Audited Financial Statements
Financial Information Included in Prescribed Forms
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Auditing Standards
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SAS 1—Codification of Auditing Standards and
Procedures
SAS 2—Reports on Audited Financial Statements
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SAS 3—The Effects of EDP on the Auditor’s Study and
Evaluation of Internal Control
SAS 4—Quality Control Considerations for a Firm of
Independent Auditors
SAS 5—The Meaning of “Present Fairly in Conformity with
Generally Accepted Accounting Principles” in the
Independent Auditor’s Report
SAS 6—Related Party Transactions
SAS 7—Communication between Predecessor and
Successor Auditor
SAS 8—Other Information in Documents Containing Audited
Financial Statements
SAS 9—The Effect of an Internal Audit Function on the Scope
of the Independent Auditor’s Examination
SAS 10—Limited Review of Interim Financial Information
SAS 11—Using the Work of a Specialist
SAS 12—Inquiry of a Client’s Lawyer Concerning Litigation,
Claims, and Assessments
SAS 13—Reports on a Limited Review of Interim Financial
Information
SAS 14—Special Reports
SAS 15—Reports on Comparative Financial Statements
SAS 16—The Independent Auditor’s Responsibility for the
Detection of Errors or Irregularities
SAS 17—Illegal Acts by Clients
SAS 18—Unaudited Replacement Cost Information
SAS 19—Client Representations
SAS 20—Required Communication of Material Weaknesses in
Internal Accounting Control
SAS 21—Segment Information
SAS 22—Planning and Supervision
SAS 23—Analytical Review Procedures
SAS 24—Review of Interim Financial Information
SAS 25—The Relationship of Generally Accepted Auditing
Standards to Quality Control Standards
SAS 26—Association with Financial Statements
SAS 27—Supplementary Information Required by the Financial
Accounting Standards Board
SAS 28—Supplementary Information on the Effects of
Changing Prices
SAS 29—Reporting on Information Accompanying the Basic
Financial Statements in Auditor-Submitted Documents
SAS 30—Reporting on Internal Accounting Control
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SAS 31—Evidential Matter
SAS 32—Adequacy of Disclosure in Financial Statements
SAS 33—Supplementary Oil and Gas Reserve Information
SAS 34—The Auditor’s Considerations When a Question Arises
about an Entity’s Continued Existence
SAS 35—Special Reports: Applying Agreed-Upon Procedures
to Specified Elements, Accounts, or Items of a Financial
Statement
SAS 36—Review of Interim Financial Information
SAS 37—Filings under Federal Securities Statutes
SAS 38—Letters for Underwriters
SAS 39—Audit Sampling
SAS 40—Supplementary Mineral Reserve Information
SAS 41—Working Papers
SAS 42—Reporting on Condensed Financial Statements and
Selected Financial Data
Condensed Financial Statements
Selected Financial Data
SAS 43—Omnibus Statement on Auditing Standards
SAS 44—Special-Purpose Reports on Internal Accounting
Control at Service Organizations
SAS 45—Omnibus Statement on Auditing Standards—1983
Related Parties
SAS 46—Consideration of Omitted Procedures after the
Report Date
SAS 47—Audit Risk and Materiality in Conducting an Audit
SAS 48—The Effects of Computer Processing on the Audit of
Financial Statements
SAS 49—Letters for Underwriters
SAS 50—Reports on the Application of Accounting
Principles
SAS 51—Reporting on Financial Statements Prepared for Use
in Other Countries
SAS 52—Omnibus Statement on Auditing Standards—1987
SAS 53—The Auditor’s Responsibility to Detect and Report
Errors and Irregularities
SAS 54—Illegal Acts by Clients
SAS 55—Consideration of Internal Control in a Financial
Statement Audit
SAS 56—Analytical Procedures
SAS 57—Auditing Accounting Estimates
SAS 58—Reports on Audited Financial Statements
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SAS 59—The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern
SAS 60—Communication of Internal Control Related Matters
Noted in an Audit
SAS 61—Communication with Audit Committees
SAS 62—Special Reports
SAS 63—Compliance Auditing Applicable to Governmental
Entities and Other Recipients of Governmental Financial
Assistance
SAS 64—Omnibus Statement on Auditing Standards
SAS 65—The Auditor’s Consideration of the Internal Audit
Function in an Audit of Financial Statements
SAS 66—Communication of Matters about Interim Financial
Information Filed or to Be Filed with Specified Regulatory
Agencies
SAS 67—The Confirmation Process
SAS 68—Compliance Auditing Applicable to Governmental
Entities and Other Recipients of Governmental Financial
Assistance
SAS 69—The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles in the
Independent Auditor’s Report
SAS 70—Service Organizations
SAS 71—Interim Financial Information
SAS 72—Letters for Underwriters and Certain Other Requesting
Parties
SAS 73—Using the Work of a Specialist
SAS 74—Compliance Auditing Considerations in Audits of
Governmental Entities and Recipients of Governmental
Financial Assistance
SAS 75—Engagements to Apply Agreed-Upon Procedures to
Specified Elements, Accounts, or Items of a Financial
Statement
SAS 76—Amendments to Statement on Auditing Standards
No. 72, Letters for Underwriters and Certain Other
Requesting Parties
SAS 77—Amendments to Statements on Auditing Standards
No. 22, Planning and Supervision; No. 59, The Auditor’s
Consideration of an Entity’s Ability to Continue as a Going
Concern; and No. 62, Special Reports
SAS 78—Consideration of Internal Control in a Financial
Statement Audit: An Amendment to SAS 55
SAS 79—Amendment to Statement on Auditing Standards
No. 58, Reports on Audited Financial Statements
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SAS 80—Amendment to Statement on Auditing Standards
No. 31, Evidential Matter
SAS 81—Auditing Investments
SAS 82—Consideration of Fraud in a Financial Statement Audit
SAS 83—Establishing an Understanding with the Client
SAS 84—Communications between Predecessor and Successor
Accountants
SAS 85—Management Representations
SAS 86—Amendment to Statement on Auditing Standards
No. 72, Letters for Underwriters and Certain Other
Requesting Parties
SAS 87—Restricting the Use of an Auditor’s Report
SAS 88—Service Organizations and Reporting on Consistency
SAS 89—Audit Adjustments
SAS 90—Audit Committee Communications
SAS 91—Federal GAAP Hierarchy
SAS 92—Auditing Derivative Instruments, Hedging Activities,
and Investments in Securities
Existence or Occurrence
Completeness
Rights and Obligations
Valuation
Impairment Losses
SAS 93—Omnibus Statement on Auditing Standards—2000
SAS 94—The Effect of Information Technology on the
Auditor’s Consideration of Internal Control in a Financial
Statement Audit
SAS 95—Generally Accepted Auditing Standards
SAS 96—Audit Documentation
SAS 97—Amendment to Statement on Auditing Standards
No. 50, Reports on the Application of Accounting Principles
SAS 98—Omnibus Statement on Auditing Standards—2002
SAS 99—Consideration of Fraud in a Financial Statement Audit
SAS 100—Interim Financial Information
SAS 101—Auditing Fair Value Measurements and Disclosures
SAS 102—Defining Professional Requirements in Statements
on Auditing Standards
SAS 103—Audit Documentation
SAS 104—Amendment to SAS 1, Codification of Auditing
Standards and Procedures (“Due Professional Care in the
Performance of Work”)
SAS 105—Amendment to SAS 95—Generally Accepted
Auditing Standards
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SAS 106—Audit Evidence
SAS 107—Audit Risk and Materiality in Conducting an Audit
SAS 108—Planning and Supervision
SAS 109—Understanding the Entity and Its Environment and
Assessing the Risks of Material Misstatement
SAS 110—Performing Audit Procedures in Response to
Assessed Risks and Evaluating the Audit Evidence Obtained
SAS 111—Amendment to Statement on Auditing Standards
No. 39, Audit Sampling
SAS 112—Communication of Internal Control–Related Matters
Identified in an Audit
SAS 113—Omnibus 2006
SAS 114—The Auditor’s Communication with Those Charged
with Governance
SAS 115—Communicating Internal Control Related Matters
Identified in an Audit
SAS 116—Interim Financial Information
SAS 117—Compliance Audits
SAS 118—Other Information in Documents Containing
Audited Financial Statements
SAS 119—Supplementary Information in Relation to the
Financial Statements as a Whole
SAS 120—Required Supplementary Information
SAS 121—Revised Applicability of Statement on Auditing
Standards No. 100, Interim Financial Information
AS 1—References in Auditor’s Reports to the Standards of the
Public Company Accounting Oversight Board
AS 2—An Audit of Internal Control over Financial Reporting
Performed in Conjunction with an Audit of Financial
Statements
AS 3—Audit Documentation
AS 4—Reporting on Whether a Previously Reported Material
Weakness Continues to Exist
AS 5—An Audit of Internal Control over Financial Reporting
That Is Integrated with an Audit of Financial Statements
Definitions
AS 6—Evaluating Consistency of Financial Statements
AS 7—Engagement Quality Review
AS 8—Audit Risk
AS 9—Audit Planning
AS 10—Supervision of the Audit Engagement
AS 11—Consideration of Materiality in Planning and
Performing an Audit
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Contents
AS 12—Identifying and Assessing Risks of Material
Misstatements
AS 13—The Auditor’s Responses to the Risks of Material
Misstatement
AS 14—Evaluating Audit Results
AS 15—Audit Evidence
680
681
682
685
Auditor Independence
Partner Rotation
Public Company Accounting Oversight Board
685
686
686
PART V
TAXATION
CHAPTER 14
Tax Research
691
691
692
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Sources of Tax Law
The Court System
OTHER PROFESSIONAL STANDARDS
CHAPTER 15
Consulting Services
CHAPTER 16
Quality Control
CHAPTER 17
Code of Professional Conduct
Rule
Rule
Rule
Rule
Rule
Rule
Rule
Rule
Rule
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Rule
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PART VI
Index
677
Sarbanes-Oxley Act of 2002
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CHAPTER 13
101—Independence
102—Integrity and Objectivity
201—General Standards
202—Compliance with Standards
203—Accounting Principles
301—Confidential Client Information
302—Contingent Fees
501—Acts Discreditable
502—Advertising and Other Forms of Solicitations
503—Commissions and Referral Fees
505—Form of Organization and Name
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