Lesson 1: Integration of Accounting Concepts/ FAR

Statement of Financial Position

Balance Sheet is also called

Retained Earnings

is increased by net income and decreased by net losses and dividends paid to stockholders.

Income Statement

summarizes revenues and expenses and gains and losses, ending with net income.

Statement of Cash Flows

details the inflows and outflows of cash during a specified period—the same period that is used for the income statement.

Notes to Financial Statements

used to present additional information about items included in the financial statements and to present additional financial information

Auditor

conducts an independent examination of the accounting information presented by the business and issues a report thereon. Responsible for conducting an independent examination of the statements and expressing an opinion on the financial statements based on the audit.

Auditor’s report

is the formal statement of the auditor’s opinion of the financial statements after conducting an audit.

Disclaimer of Opinion

states that the auditor does not express an opinion on the financial statements.

Adverse Opinion

This opinion states that the financial statements do not present fairly the financial position, results of operations, and cash flows of the entity, in conformity with generally accepted accounting principles.

Qualified Opinion

except for the effects of the matter(s) to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity, in conformity with generally accepted accounting principles.

Unqualified Opinion

This opinion states that financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity, in conformity with generally accepted accounting principles.

Internal control report

usually much longer than the audit report. For some firms, the audit opinion and the report on the firm’s internal controls have been combined. This results in one audit report that can be very long.

Management

responsible for the preparation of the company’s consolidated financial statements and related notes.

1st Paragraph

This paragraph states that the auditors have the responsibility to either express an opinion on these statements based on the audit or to disclaim an opinion

2nd Paragraph

indicates that the audit has been conducted in accordance with generally accepted auditing standards. This paragraph also confirms that the audit provided a reasonable basis for an opinion.

3rd Paragraph

In this paragraph, the auditor may express agreement with a departure from a designated principle, describe a material uncertainty, describe a change in accounting principle, or express doubt as to the ability of the entity to continue as a going concern.

3 Paragraph

How many paragraph the typical unqualified (or clean) opinion for private companies has

certified public accountant

the auditor should be/ audit the company’s consolidated financial statements in accordance with the standards of the Public company accounting oversight board and provides an objective, independent review of the fairness of reported operating results and financial position.

Generally accepted accounting principles

GAAP stands for