Accounting principles and procedures

Question 1

What are the key accounting concepts and procedures?

Answer 1

• Business identity – A business should be treated separately from the owner(s) as far as their transactions are concerned.
• Going concern – Financial statements are prepared on the assumption that the business will remain in operation in future periods.
• Monetary period – Only business transactions that can be expressed in monetary units are recorded in accounting, through records of other types of transactions may be kept separately as a memorandum.
• Accounting period – Each business chooses an accounting period in order to complete a cycle of accounting process. This may be monthly, quarterly or annually – following a calendar or fiscal year.
• Accrual – under accrual basis accounting, income is recorded when earned and expenses are recorded when incurred, regardless of the time the cash is received/ withdrawn.

Question 2

What are the differences between balance sheet, profit and lost and cash flow statements and what are they for?

Answer 2

• Balance sheet - reports a company’s assets (resources that company controls) , liabilities (obligations to Lenders and Debtors) and shareholders’ equity (interest in net assets of a company) at a specific point in time. Provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.
• Profit and loss (Income statement) - summarizes the revenues, expenses and profit/loss incurred during a specified period, usually a fiscal quarter or year. Provide information about a company’s ability or inability to generate profit by increasing revenue, reducing costs, or both.
• Cash flow - The statement of cash flows provides information about the changes in cash and cash equivalents of an entity for a reporting period (net cash flow). This statement shows separately changes from each business activity:
• Cash Flow from Operations (CFO),
• Cash Flow from Investing (CFI),
• Cash Flow from Financing (CFF).

Question 3

What is the role of auditor?

Answer 3

• Auditor is responsible for checking if the financial statements comply with the adopted accounting principles and examine the company’s accounting control system.
• They confirm reported values and identify any material errors in the financial statements.
• An auditor is a person authorized to review and verify the accuracy of financial records and ensure that companies comply with tax laws. They protect businesses from fraud, point out discrepancies in accounting methods and, on occasion, work on a consultancy basis, helping organizations to spot ways to boost operational efficiency. Auditors work in various capacities within different industries.

Question 4

What are the types of audit?

Answer 4

• Internal
• External
• Financial - the auditor analyses the fairness and accuracy of a business’s financial statements.
• Operational - An operational audit analyzes your company’s goals, planning processes, procedures, and operation results.
• Compliance - A compliance audit examines your business’s policies and procedures to see if they comply with internal or external standards.
• Information system - Information systems audits mostly impact software and IT companies. Business owners use information system audits to detect issues relating to software development, data processing, and computer systems
• Payroll - A payroll audit examines your business’s payroll processes to ensure they are accurate. When conducting payroll audits, look at different payroll factors, such as pay rates, wages, tax withholdings, and employee information.
• Pay - Pay audits allow you to identify pay discrepancies among your employees. A pay audit can help you spot unequal pay at your company. During a pay audit, analyze things like disparities due to race, religion, age, and gender.

Question 5

What are accounting framework?

Answer 5

• An accounting framework is a published set of criteria that is used to measure, recognize, present, and disclose the information appearing in financial statements.
• The most commonly-used accounting frameworks are generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS).

Question 6

What is Mace Internal Audit procedure?

Answer 6

All internal audits shall be undertaken in accordance with the requirements set out in BS: EN: ISO 19011 - Guidelines for auditing management systems.

1. Audit Preparation and Notification ,
2. Conduct Audit
3. Audit reporting
4. Audit Follow up and close out – evaluation of actions taken, escalation – correction action should be fixed and nonconformity actions should be logged.

Question 7

What is the financial statement?

Answer 7

Financial statements present the financial information of the business and allow managers, regulators and outside analysts to make more informed decisions about the economic positions of the business.
The main financial statements are balance sheet, profit and loss (income statement) and cash flow statement.