Control activities are the policies and procedures that guide employees’ actions to address risks and achieve management’s objectives. Control activities include segregation of duties and controls on information processing.
Segregation of duties should create conditions where no one person is in a position to both perpetrate and conceal errors or irregularities in the normal course of [...]

Risk assessment aims to identify, assess, and manage risks that could affect the entity’s ability to reach its major objectives. Once risks are identified, management considers the significance of the risks, the probabilities, and ways to manage them. Management may address specific risks or it may decide to accept a risk because of cost or [...]

The information and communication part includes the accounting system. The accounting system, whether manual or computerized, is the methods and records set up to record, process, summarize, and report the firm’s transactions. It must maintain accountability for all the related assets and liabilities.

Can the system identify and record all valid transactions? This objective concerns the [...]

The control environment reflects the overall attitude, awareness, and actions of the board of directors, management, owners, and others concerning the importance of control and its profile in the entity. Seven areas collectively affect the control environment.
• Is integrity valued? What are the ethical values of the company? Is there a code of conduct? Do incentive [...]

There are three types of audits that CPAs perform—an audit, a compilation, and a review. Each comes with varying degrees of assurance. The assurance comes in the form of an auditor’s letter. The wording in the letter is controlled as carefully as the moves in a kabuki dance. I just wish it were possible to [...]

The sudden implosion of many companies at the dawn of the Third Millennium was not a repudiation of GAAP. It was a breakdown in the system of checks and balances that supported GAAP. Even governmental and charitable organizations were infected.
The revenue recognition principle still applies, even though companies reported as current income cash they would [...]

To the novice, accounting often looks like a street corner shell game. The accountant places a pea under one of three walnut shells. He then moves the three shells swiftly over the felt tabletop while saying a bunch of magic words like “financial ratios transfer to the balance sheet while the equity pie becomes an [...]

• materiality
• cost/benefit
• prudence
• industry peculiarities
The materiality constraint is often misunderstood. It does not apply while recording cash transactions. Even small amounts must be recorded. As a general rule, every cash transaction has to be recorded in the general journal.
If you want to alienate the Accounting Department, ask them [...]

• cost
• revenue recognition
• matching
• full disclosure
The cost principle requires that assets appear on the books at the acquiring cash value. Even though a building or land may have substantially increased in value, it is still recorded at the historical cost. This condition explains how the reported “book” value of [...]

• separate entity
• monetary unit
• continuity
• time period
Each economic entity needs its own financial records. A large company may have several divisions, product lines, and plants whose economic activities are combined in the company financial statements. Within that company, a specific entity, branch, office, or shop must record every [...]