It’s crazy how rollercoaster my feelings about MAcc can be, even three months in. I was literally crying two days ago, and now I feel pretty comfortable about the exam tomorrow. I debriefed two ACC 650 cases today and would rate my performance as… acceptable.
Dry Quick
Since it’s been a while since we covered it in class, I tried a very quick rewriting of the DQ case before debriefing.
- One thing I learned from debriefing Dry Quick is when discussing accounting issues in an audit case, not to jump straight into “your accounting treatment is wrong and here’s why,” but instead compare management’s current treatment with the other alternatives, then use that discussion to flow into why the alternative treatment is better. This will make management more receptive to making the adjustment.
- I also need to be making more references to the handbook. For example, when addressing the inventory overhead allocation issue, I merely said the current allocation “is inappropriate and not in accordance with GAAP.” I should have referenced ASPE 3031 which says costs should relate to “bringing the inventories to their present location and condition” which is not met for admin salaries in this case.
- I was also surprised that the evaluation guide’s position on the capitalization of M&A costs was a “maybe.” I thought it was a straight up no!! But it turns out, if you apply ASPE 1000’s definition of an asset (future benefit, controlled by entity, arising from past events), the costs do indeed meet the asset definition. Next, applying the recognition criteria for assets (reasonable estimate is measurable, probable that benefits will be obtained), the only one that may not be met is the “probable” part, ie. is it probable that DQ will be purchased. So we would just need to investigate that issue, and if it turns out the second purchase offer is likely to materialize, then we can capitalize the M&A costs!
- Another learning: any time there are discrepancies during our audit procedure (ie. expectation ≠ actual audit evidence result), we need to follow up by performing additional work (eg. get management to provide us with a reconciliation of the differences, using supporting documentation. We then would need to vouch the reconciling items to an original record, eg. sales invoice or bill of lading).
- Oh yeah, I learned something new today. The phrase “Canadian GAAP” apparently means ASPE!
Ball Construction
I liked that the BC gave us a nice example of when to issue qualified opinion vs adverse opinion. When writing this case, I thought that an adverse opinion would be appropriate given the sheer size of misstatements. But this understanding was incorrect, because the term “pervasive” as used for reporting opinion purposes refers not exactly to the size of misstatements but instead to how misleading they are.
In this case, since we can pinpoint exactly what misstatements occurred and how large they are, we can explain their impact in the auditor’s report and the bank (primary user) would be able to unwind the misstatements by making the adjustments themselves, thus revealing the true state of the financials. Therefore, a qualified opinion would be sufficient.
If the financial statements are so tangled that they would continue to be misleading (or useless to users) even when read in conjunction with the audit report, only then would we issue an adverse opinion.