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"...submitting group assignments are not evidence of team work..." *loves*
Recap what we skipped last week: Audit!
Auditors are supposed to be independent, to express an opinion on whether the General Purpose Financial Report (GPFR) is 'true and fair' but do not prepare the GPFR. They check the accounting systems, check compliance with Corporations Act and accounting standards, check accuracy of a sample of transactions and provide a reasonable assurance but not an absolute guarantee. Independence is expected to be stated, as is what the auditors get paid, and if they have other financial dealings with the entity under audit.
Fun moments in fraud and forgery include faking bank statements and insurance policies to forging the auditor's signature. I confess my interest is heightened by watching White Collar and Leverage.
Now we have a 'long form' audit report that is designed to lower the expectation gap between what auditors can realistically be expected to do and what people want them to do. We also have rules about being employed by the same company as an auditor and as a director after the glorious Enron disaster which also killed the accounting firm Arthur Anderson.
How to measure your wealth or net worth bearing in mind it changes over time and other people may not be measuring the same things... or wanting to measure the same things. Changes in wealth over a period in time are called profit, or income and take into account contributions and distributions over said period in time.
Ways to measure the worth of assets:
We then read and talked about a lot of balance sheets which I shall not reproduce out of compassion but if you really want to know try Woolworths Annual Report 2008 page 65. We also talked about the 'double entry bookkeeping system' which looks (with my science background) a lot like a mass balance or chemical equation. Examples abound, we worked through some for practice.
Transactions are classified as
Limitations of the Balance Sheet
Recap what we skipped last week: Audit!
Auditors are supposed to be independent, to express an opinion on whether the General Purpose Financial Report (GPFR) is 'true and fair' but do not prepare the GPFR. They check the accounting systems, check compliance with Corporations Act and accounting standards, check accuracy of a sample of transactions and provide a reasonable assurance but not an absolute guarantee. Independence is expected to be stated, as is what the auditors get paid, and if they have other financial dealings with the entity under audit.
Fun moments in fraud and forgery include faking bank statements and insurance policies to forging the auditor's signature. I confess my interest is heightened by watching White Collar and Leverage.
Now we have a 'long form' audit report that is designed to lower the expectation gap between what auditors can realistically be expected to do and what people want them to do. We also have rules about being employed by the same company as an auditor and as a director after the glorious Enron disaster which also killed the accounting firm Arthur Anderson.
How to measure your wealth or net worth bearing in mind it changes over time and other people may not be measuring the same things... or wanting to measure the same things. Changes in wealth over a period in time are called profit, or income and take into account contributions and distributions over said period in time.
Ways to measure the worth of assets:
- Historical cost (what you paid when you got it) AASB 116 (Plant and equipment) reliable but may not be relevant
- Replacement cost (what you would pay to get another one) AASB 102 for not-for-profits (Inventory)
- Net Realisable value (what you would get if you sold it) AASB 102 for for-profits (Inventory)
- Economic value (what you could earn by using it) AASB 117 (Leases) not so reliable
- Fair value (what a 'willing and knowledgeable' buyer would be willing to pay you for it - who also isn't your best friend) AASB 140 (Investment property) & AASB 139 (Financial Instruments)
- Market Value (what you get if you sell shares) v. reliable
We then read and talked about a lot of balance sheets which I shall not reproduce out of compassion but if you really want to know try Woolworths Annual Report 2008 page 65. We also talked about the 'double entry bookkeeping system' which looks (with my science background) a lot like a mass balance or chemical equation. Examples abound, we worked through some for practice.
Transactions are classified as
- Assets
- Current (consumed within financial year)
- Non Current (everything else or things you plan to hang on to)
NB: Operating Cycle is when you aren't running off a financial year i.e. construction industry
NB: Woolworths has ~13 Billion "Operating lease" in the Notes, not in the Balance Sheet. There is discussion around changing the way this is reported.
- Liabilities
- Current (stuff you owe this financial year)
- Non Current (stuff you're gonna owe - long terms loans etc.)
- Owners Equity
Limitations of the Balance Sheet
- Snapshot in time
- Systems of measurement vary considerably
- Lots of estimating going on
- Cunning ways to apply 'window dressing' exist
- Many off balance sheet activities going on (i.e. what if entity is in the process of being sued)
no subject
There are many things I like because of their inherent uncertainty, and I love chaos theory but double entry bookkeeping is beautiful: there is only one answer because you have to reflect everything you do. It's like the most stately of formal dances.
/beancountergeekout
no subject
I was particularly entranced when the text talked about diagnosing transposition by checking if the variance is divisible by nine. So elegant.