INDEX 1205

A

Abnormal spoilage, 1178 Above the line deductions, 921 Absolute advantage, 1091 Absorption (full) costing, 1185, 1188 Accelerated cost recovery system (ACRS),

917 Accelerated depreciation, 390 Accelerator theory, 1088 Acceptance of offer, 771 Access controls, 1055, 1070 Accident benefits, taxability of, 901 Accommodation party, 814 Accounting basis of, 341, 369

Cash to accrual conversion, 342 Accounting changes, 148

Effect on consistency, 285 Interim reporting, 558

Accounting estimates, auditing of AU 342, 278

Accounting information Qualitative characteristics of (SFAC 2), 698

Accounting methods Governmental, 579 Tax, 909

Accounting policies, disclosure of, 365 APB 22, 638

Accounting Principles Board Opinions APB 6 (Status of ARB), 634 APB 9 (Results of operations), 635 APB 10 (Various topics), 635 APB 12 (Various topics), 635 APB 14 (Debt), 636 APB 18 (Equity method), 636 APB 21 (Interest on NR and NP), 637 APB 22 (Disclosure of accounting policies),

638 APB 23 (Income taxes), 638 APB 25 (Stock issued to employees), 639 APB 26 (Debt extinguishment), 639 APB 28 (Interim financial reporting), 639 APB 29 (Nonmonetary transactions), 641 APB 30 (Results of operations), 642

Accounting rate of return (ARR), 1141 Accounting Research Bulletins

ARB 43 (Various topics), 630 ARB 45 (LT construction contracts), 633 ARB 51 (Consolidated financial statement),

633 Accounting standards, see also FASB

Interpretations, 630 APB, 634 ARB, 630 SFAC, 697 SFAS, 643

Accounting theory, see also Statements of Financial Accounting Concepts, 333

Capital maintenance theory, 337, 703 Conceptual framework

Basic elements, 336 Cash flow information, 338 Components of, 334 Objectives of financial reporting, 335 Qualitative characteristics, 335 Recognition and measurement, 336

Accounts payable, 409 Audit procedures, 119, 130

Accounts payable (trade credit), 1112 Accounts receivable, 401

APB 21, 637 Audit procedures, 118, 125, 264 Bad debt expense, 402 Pledging and selling, 403 Ratios, 414

Sale of, with recourse, 347 Sales discounts, 402 Transfers of, 405 Write-offs of, 402

Accounts receivable financing, 1114 Accrual basis, 593, 910 Accrual basis of accounting, 342, 369, 703

Conversion to, 343 Accrual of expenses, 612 Accruals, 342, 703

Accrued liabilities, 409 Errors in, 349

Accumulated adjustments account, 1003 Accumulated earnings and profits, 995,

1004 Accumulated earnings tax, 998 Accumulated other comprehensive income,

483, 503 Acid-test (quick) ratio, 414 Acquisition cost

Fixed assets, 383 Intangible assets, 395 Inventory, 372

Acquisition indebtedness, 929 Stock purchase treated as, 997

Active income, 916 Active participation, 917 Activity-based budgeting, 1186, 1192 Activity-based costing (ABC), 1179 Activity-based management, 1180 Actual (compensatory) damages, 788 Adhesion contracts, 781 Adjusted current earnings (ACE), 987 Adjusted gross income, 921, 926 Adjustments to AMTI, 942, 986 Admonishment from AICPA, 714 Adoption expenses

Credit for, 948 Paid by employer, 902

Advances from customers, 410 Advantages, 1117 Advantages of issuing common stock, 1118 Advantages of issuing preferred stock, 1119 Adverse opinion, 152, 289 Adverse possession, 884 Advisory services, 730 Affiliated corporations, 993 Affirmative action, 865 Age Discrimination in Employment Act, 864 Agency, 850

Agent And third parties, 855 Authority of, 853 Capacity to be, 853 Characteristics of, 850 Liability of, 855 Obligations of, 854 Types of, 852

Coupled with an interest, 851 Creation of, 852 Employer/employee relationships, 850, 859 Independent contractor, 850 Partnership relationships, 1024, 1027 Principal

And third parties, 855 Capacity to be, 853 Liability of, 854 Obligations of, 854 Types of, 851

Termination of, 855 Notice of termination, 856

Agency funds, 589, 609 Agency theory, 1103 Aggregate demand and supply, 1085 Agreed-upon procedures, 41, 110, 205, 216

AT 201, 205 Report on, 142, 160, 166, 205, 216

AICPA Content Specification Outlines, 37, 330, 1019

Alcohol fuels credit, 944 Alimony recapture, 906 Alimony, tax treatment

Payments, 926 Receipts, 906

Allowance method, 402 Alpha risk, 181, 185, 193 Alphanumeric characters, 1054 Alternate valuation date, 1010 Alternative depreciation system (ADS), 918 Alternative minimum tax, 941, 986 Americans with Disabilities Act of 1990,

864, 945 Amortization, 703

Bonds Issue costs, 427 Premium/discount, 425, 1139

Computer software costs, 398, 657 Differential

Business combinations, 524, 533, 537 Effective interest method, 427 Equity method investments, 508

Goodwill, 525, 536 Intangibles, in general, 395 Leases

Capitalized leased assets, 459, 466 Initial direct costs, 451, 462 Lease bonus (fee), 451, 452 Leasehold improvements, 451

Pensions Unrecognized net gain/loss, 439, 659 Unrecognized prior service cost, 438,

659 Straight-line method, 427

Amortization, tax purposes, 920 Analytical procedures, 62, 113

AU 329, 263 Annuities

Future value of, 416, 417, 1136, 1138 Present value of, 417, 1137, 1138 Taxability of, 900, 907

Annuity contracts, 661 Annuity due, 418, 1138 Antecedent debt, 832 Anticipatory breach, 788, 798 Anticybersquatting Consumer Protection

Act, 879 Application controls

Manual (user) controls, 1072 Programmed, 1071

Applications programming, 1067 Applications software, 1051 Appraisal cost, 1168 Appropriations (budgetary), 595 Appropriations of retained earnings, 488 Arbitrage pricing model, 1123 Arbitration, 789 Articles of copartnership, 1025 Articles of Incorporation, 1037 Artisan’s lien, 840 Assertions, 110, 115, 118 Assessing, 1095 Assessments, tax, 928, 951 Asset utilization (activity) ratios, 1160, 1163 Asset-backed public offerings, 1114 Assets, 701

Current, 365, 400, 630 Deferred tax, 470 Impairment of, 691 Infrastructure, 582 Intangible, 395

COPYRIG

HTED M

ATERIAL

INDEX 1206

Assignment For benefit of creditors, 841 Of contracts, 785 Of income, 900 Of negotiable instruments, 807 Of partnership interests, 1025, 1028, 1031

Association with the financial statements, auditor’s, 287

Assumption of liabilities Partnerships, 976 Sales and exchanges, 958

At-risk limitation, 915, 974, 1003 Attachment

Of security interests, 820 Perfection by, 821 Writ of, 840

Attest services, 729 Attestation

Attest function, 40 Engagements, 203

Compliance, 170, 215 Examination, 165 Responsibilities, 63

AU 110, 220 Review, 157, 165 Standards, 46, 63

AT 101, 203 At-the-money, 554 Attorney, inquiry of client’s, 134, 272 Auctions, 774 Audit and appeal procedures, 950, 953 Audit committees, 103

AU 380, 282 Audit completion, 45, 137 Audit defined, 41 Audit documentation, 273 Audit effectiveness and efficiency, 139, 181,

186 Audit evidence

Derivative instruments, hedging activities, and investments in securities, 266

Audit procedures, 112, 118, 120 Timing of, 78

Audit process, diagram of, 43 Audit programs, 227

Substantive tests, 113 Audit responsibilities, 63, 225 Audit risk, 55, 179

And compliance auditing, 216 AU 350, 279 Risk factors, 57, 238

Audit sampling, 177 Attributes sampling, 180

Sample deviation rate, 184 Allowance for sampling risk, 184 Upper deviation limit, 184

Sample selection methods Block sampling, 182 Haphazard sampling, 182 Random-number sampling, 182 Systematic sampling, 182

Sample size determination, 182 Allowable risk of assessing control

risk too low, 182 Discovery sampling, 183 Expected population deviation rate,

183 Relationship to sample size, 183 Sequential sampling, 183 Tolerable deviation rate, 183

Sampling risk, 179, 181 AU 350, 279 Classical variables sampling, 191, 194 Nonsampling risk, 179 Nonstatistical, 179

Tests of controls, 185

Probability-proportional-to-size sampling, 188, 190, 194

Risk, 179, 181, 182, 185, 193, 194 Statistical, 179

Substantive testing, 185 Tests of controls, 181

Substantive tests, 180, 185, 280 Tests of controls, 180, 181, 281 Uncertainty and, 179 Variables sampling, 180, 181

Basic precision, 189 Classical, 191

Compared to PPS, 194 Variations of, 191

Probability-proportional-to-size, 188 Compared to classical, 194 Example, 190

Sample size determination, 185, 188, 193 Acceptable level of risk, 186 Allowance for sampling risk, 193 Equation for, 188, 193 Expansion factors, 188 Expected amount of misstatement,

187 Relationships to sample size, 187 Reliability factors, 188 Tolerable misstatement, 187, 193

Sampling interval, 188 Sampling risk, 179, 185, 193, 194 Upper limit on misstatements, 189

Allowance for sampling risk, 189 Projected misstatement, 189, 194

Audit software, 1056 Audit standards, 63, 203

AU 150, 221 Relationship to quality control standards,

221 Audit strategy, 61 Auditing responsibilities

Compliance, 733 Governmental, 733 Internal, 732 Operational, 733

Auditor-submitted documents, 150 AU 551, 295

Authentication, 1064 Authorized stock, 1038 Autocorrelation, 1197 Automatic expulsion from AICPA, 735 Automatic perfection, 822 Available-for-sale securities, 503, 507

Hedge accounting, 550 SFAS 115, 673

Average collection period, 1160 Average fixed cost (AFC), 1083 Average total cost (ATC), 1083 Average variable cost (AVC), 1083 Averaging convention, 918 Avoidable costs, 1140, 1186 Awards, taxability of, 908

B

Backflush costing, 1110 Backup and recovery, 1056, 1071 Bad debt, deductibility of

Business, 913, 991 Nonbusiness, 913

Bad debts, 402 Allowance method, 402 Direct write-off method, 402

Bailment, 873 Balance of payments, 1092 Balanced scorecard, 1153 Bank confirmations, 123 Bank cutoff statements, 123 Bank reconciliations, 122, 400

Adjusting entries, 401 Four-column cash reconciliation, 401

Bank transfer schedule, 122 Banker’s acceptance, 816, 1107 Bankruptcy, 811, 828

Administration costs, 834 Alternatives to, 828 Assignment for benefit of creditors, 841 Automatic stay of other legal proceedings,

830 Chapter 7, 828, 830 Chapter 11, 836 Chapter 13, 837 Claims to debtor’s estate, 833

Filing of, 834 Priority of, 834 Proof of, 834 Property rights, 834

Discharge, 835 Nondischargeable debts, 835 Reaffirmation of, 836 Revocation of, 836

Equity sense vs. bankruptcy sense, 830 Exempt entities, 829 Exempt property and benefits, 831 Fraudulent conveyance, 832 Involuntary bankruptcy petitions, 828 Preferential transfers, 833 Priority of claims, 834 Proceedings, 830 Receiverships, 828 Trustee in bankruptcy, 830

As a lien creditor, 825 Duties and powers of, 830, 831 Exceptions to trustee’s power to avoid

preferential transfers, 833 Types of proceedings

Business reorganizations, 836 Debt adjustment plans, 837 Liquidation, 830

Voluntary bankruptcy petitions, 828 Bankruptcy, corporate, 496 Banks, 816 Bargain and sale deeds, 883 Bargain purchase option, 453, 647 Basic earnings per share, 491 Basis

Nonliquidating distributions, 980 Basis of accounting, 341, 342, 369

Accrual, 593, 910 Cash, 909, 979 Modified accrual, 593

Basis of partnership interests, 976 Basis of property

Carryover, 996 Estate, 1011 Exchanges, 958 Gifts, 956, 1009 In general, 956 In liquidation, 996 Partnership, 972, 982

Basket purchase of fixed assets, 389 Batch (control) total, 1071 Batch processing, 1052 Batch-level costs, 1179 Battle of forms, 773, 792 Bearer paper, 806, 808 Benchmarking, 1166, 1186 Benchmarks, 1166 Beneficiaries, tax treatment of, 1013 Benefits/years-of-service approach, 436 Bequest, 902 Best practices, 1166 Beta risk, 181, 186, 193 Bifurcation, 554 Bilateral offer/contract, 769

INDEX 1207

Bill and hold transactions, 133 Bill of lading, 792, 818 Bit, 1053 Black-Scholes option-pricing model, 1135 Blank endorsement, 808 Blanket inventory lien, 1114 Blended component unit, 580 Block sampling, 182 Blue-sky laws, 762 Bonds, 425

Amortization Effective interest vs. straight-line

methods, 427 Issue costs, 427 Premium/discount, 425, 1139

Callable SFAS 78, 657

Convertible, 427 APB 14, 636 Induced conversions of, 657

Corporate, 1041 Current portion, 409 Disclosure of long-term debt

SFAS 47, 653 Extinguishment of debt, 428 Impairment of, 433, 434

SFAS 114, 671 Intercompany transactions in, 532 Investments, 425, 501, 1139

SFAS 115, 673 Issued with detachable stock purchase

warrants, 428 APB 14, 636

Journal entries for, 425 Payable, 425 Surety, 849 Valuation example, 425, 1139

Bonds, market discount, 962 Bond-yield-plus approach, 1123 Bonus arrangements, 410 Bonus method (new partners), 565 Boot, 958, 984 Bottleneck resources, 1167 Boundary protection, 1070 Breach of contract, 735, 788, 797, 811 Breakeven point, 1187 Brother-sister corporations, 994 Budget, 1185 Budgetary comparison schedules, 592, 601 Budgetary slack, 1185 Budgeting, 1190

Activity-based, 1192 Example budgets

Cash, 1192 Direct materials, 1191 Factory overhead, 1198 Production, 1191

Flexible, 1198 Fund accounting, 595 Kaizen, 1192

Buffer memory, 1049 Business combinations, 523

Acquisition, 523, 529 Changes in ownership, 540 Combined financial statements, 541 Consolidated financial statements, 527

ARB 51, 633 Balance sheet

Date of combination, 529 Subsequent to acquisition, 538

Eliminating entries, 530, 535 Income statement, 538

Purchased preacquisition earnings, 540

Intercompany transactions, 532 Bond transactions, 532

Fixed asset transactions, 532 Inventory transactions, 532

Minority interest, 529, 537 Retained earnings, 538 Subsequent to acquisition, 531

Example of, 533 Worksheet, 534, 539

Consolidation, 523 Of majority-owned subsidiaries (SFAS

94), 663 Date of combination, 524

Purchase method, 524, 529 Deferred tax effects, 477 Differential, 524, 530, 536 Journal entries, 526 Merger, 523, 526 Pooling method, 524 Purchase method, 523, 524, 526, 529 Push-down accounting, 541 SFAS 141, 687 Statutory consolidation, 523, 527

Business cycles, 1086 Business energy credit, 944 Business expenses, deductibility of

By employees, 921, 936 By proprietor, 911

Business gifts, 913 Business income, tax purposes, 905, 911 Business property, gains and losses on, 966,

969 Capital gains treatment, 966, 969 Classification of, 969 Ordinary, 966, 969 Recapture rules

Section 291, 968 Section 1245, 967 Section 1250, 968

Section 1231, 966, 969 Business reorganizations, 836 Business risks, 1094, 1120, 1131 Business use of home, 914 Business-type activities, 581 Buyers in the ordinary course of business,

824 By-products, 1170, 1181 Byte, 1053

C

Call back, 1070 Call feature, 1116 Call option, 554 Callable obligations

SFAS 78, 657 Callable preferred stock, 485 Callable stock, 1040 Canceled stock, 1038 Capital (capital expenditures) budget, 1192 Capital account, 1092 Capital asset pricing model (CAPM)

method, 1122 Capital assets, 964 Capital budgeting, 1139

Accounting rate of return (ARR) method, 1141

Excess present value (profitability) index, 1142

Internal rate of return (IRR) method, 1142 Net present value (NPV) method, 1141

Capital budgeting function, 1103 Capital expenditures, 390, 927 Capital gains and losses, 964

Carryovers, 965, 991 Corporate, 966, 992 Holding period, 964 Individual, 905, 933, 965 Netting of, 965

Rollover of capital gain On securities, 962

Capital gains exclusion for small business stock, 961

Capital leases, 449, 458, 466, 522, 648 Capital maintenance theory, 337, 703 Capital projects funds, 585, 602 Capital rationing, 1143 Capital stock transactions, audit

considerations of, 131 Capital surplus, 1039 Capitalization of interest cost, 383

Diagram of, 384 SFAS 34, 652 Tax purposes, 912

Capitalization of interest, tax purposes, 912 Carryforwards/carrybacks

Of capital gains and losses, 965, 991 Of net operating losses, 914, 992

Carrying costs, 1109 Cartridge tape, 1049 Cash, 400

Audit procedures, 118, 122 Cash basis, 909, 979 Cash basis financial statement reports, 160 Cash basis of accounting, 342, 369

Conversion to accrual basis, 342 Cash collection recognition basis, 341 Cash conversion cycle, 1104 Cash flow hedge, 549, 1134 Cash flow information (SFAC 7), 338 Cash flow ROI, 1159 Cash management, 1105 Cash reconciliation (four-column), 401 Cash surrender value of life insurance, 512 Casualty gains and losses, 933, 966, 991 Cause-and-effect, 1167

Fishbone, 1167 Ishikawa, 1167

Central processing unit, 1048 Centralized processing, 1053 Certificates of deposit (CD), 1107 Change in accounting estimate, 149, 285 Change in accounting principle, 148, 285 Change in reporting entity, 149, 285 Change in statement format, 149 Changes in accounting principle

Income statement presentation, 361 Interim reporting, 558

Changing prices and financial reporting SFAS 89, 662

Channel stuffing (trade loading), 133 Charitable gifts, 1009 Check digit, 1071 Checks, 804

Types of, 816 Child care credit, 945 Child support, tax treatment

Payments, 906 Receipts, 900, 906

Child tax credit, 948 Children, income of, 940 Civil liability, 755, 759 Civil Rights Act, 863 Claims for refund, 951 Claims to debtor’s estate, 833 Classical economic theory, 1091 Classical variables sampling, 191

Compared to PPS, 194 Difference estimation, 192, 194 Mean-per-unit, 191, 194 Ratio estimation, 192, 194 Regression approach, 192

Clean Air Act, 868 Clean Water Act, 868

INDEX 1208

Client representation letters, 133 AU 333, 268

Client’s lawyer, inquiry of, 134, 272 Clients, acceptance and continuance of

clients and engagements, 64 Client-server architecture, 1058 Closed-loop verification, 1072 Closely held C corporation, 916, 917 Closely held corporations, 1037 Closing agreement, 951 Coefficient of correlation, 1152 Coefficient of determination, 1196 Coefficient of variation, 1149 Coinsurance clause, 891 Collateral, 409, 820

Types, 820 Collateral trust bond, 1116 Collection from transferees and fiduciaries,

951 College accounting, 616, 625

Financial statements, 625 Combined corporations, 994 Comfort letter

AU 634, 306 Commercial paper, 1107, 1113 Committed costs, 1140, 1186 Committee of Sponsoring Organizations

(COSO), 69, 72 Common stock, 484, 1039 Common-size, 1165 Communications between predecessor and

successor auditors, 60, 62 AR 400, 325 AU 315, 235

Comparability of information, 336 Comparative advantage, 1091 Comparative financial statements, 369, 630 Comparative financial statements, reports

on, 149, 289 AR 200, 323

Compensated absences, 413 SFAS 43, 653

Compensating balances, 1105, 1113 Compensation cost, 675 Compensation, taxability of, 905 Compensatory (actual) damages, 788 Competence, 253 Competitor analysis, 1097 Compilation of financial statements, 41, 110

AR 100, 318 Procedures, 137 Prospective financial statement

compilations, 208 Reports, 142, 155, 208

AR 300, 324 Responsibilities, 63

Compiler program, 1051 Completed-contract method, 379 Completing the audit, 45, 137 Completion-of-production recognition

basis, 341 Compliance audits, 170

AT 601, 215 Of Federal Financial Assistance Programs,

172 AU 801, 312

Reports, 161, 172, 174, 217, 302 Component units, 580 Composite depreciation method, 392 Composition agreement, 828, 841 Compounding of interest, 416, 1136 Comprehensive annual financial report

(CAFR), 579 Comprehensive bases of accounting, 369 Comprehensive basis of accounting

Reports on, 159, 301 Comprehensive Environmental,

Compensation, and Liability Act, 869 Comprehensive income, 338, 360, 363

SFAS 130, 678 Compromise, 951 Computer exception reports, 1072 Computer Matching and Privacy Act, 879 Computer output to microfilm or

microfiche (COM), 1051 Computer software costs, 397

SFAS 86, 657 Computer technology rights, 874 Computer-integrated manufacturing, 1170 Computer-processed controls, 1072 Computers, see also Technology

Auditing and, 196, 1047 Effects on IC, 1065 Types of, 1048

Concentration banking, 1106 Concurrent interest in real property, 881 Condensed financial statements, 159, 297 Conduit, 971, 1011 Confidence level, 1197 Confirmations

AU 330, 264 Bank, 122 Consigned inventory, 126 Negative, positive, 124, 265 Payables, 129 Receivables, 124

Congeneric merger, 1127 Conglomerate merger, 1127 Consent dividends, 998 Consequential damages, 800 Consideration for contract, 775, 811 Consignments, 378, 792, 824 Consistency, 336

AU 420, 285 In application of GAAP, 148 Reporting, 288

Console, 1049 Consolidations, 1045 Consolidations, tax treatment, 1005 Constant dollar accounting, 365 Constant returns to scale, 1083 Construction bonds, 849 Constructive eviction, 888 Constructive fraud, 738 Constructive receipt, 909 Constructive stock ownership, 963 Consulting services, 729 Consumer price index, 1088 Consumption function, 1079 Contingencies

Compensated absences, 413 Definition, 410 Gains, 414 Liabilities/losses, 410 Litigation, 412 Recording and disclosing, 411 SFAS 5, 644

Contingency processing, 1071 Contingent expenses, deductibility of, 910 Contingent issuances of common stock, 496 Continuous improvement, 1167 Contra stockholders’ equity items, 483 Contract price, 910 Contracts, 768

Acceptance of offer, 771 Against public policy, 778 Assignment of, 785 Battle of forms problem, 773, 792 Consideration for, 775, 811 Delegation of, 785

Discharge of, 788 Essential elements of, 768, 769 Legal capacity, 777 Legality of, 777 Modification of, 776, 782, 792 Offer, 769

Auctions, 774 Counteroffer, 770 Firm offer, 772, 791 Option contracts, 770, 773 Termination of, 770

Online, 784 Parol evidence rule, 784 Performance, 787 Promissory estoppel, 776, 783 Reality of consent, 779 Remedies for breach of contract, 788 Statute of Frauds, 781 Statute of limitations, 789, 800 Types of, 768

Third-party beneficiary contracts, 786, 844

Uniform Commercial Code Rules, 772, 791 Void/voidable contracts, 768, 777, 779

Contributed capital, 483 SFAS 116, 674

Contribution margin, 1186, 1187, 1188, 1198

And pricing decisions, 1202 Contribution, right of, 848 Contributions

Deductibility of Charitable

Corporate, 989 Individual, 930, 936 Nondeductible, 931 Qualified organizations, 930

To retirement plans By employer, 992 By self, 923

SFAS 116, 674 To not-for-profits, 618

Contributory negligence, 737, 795, 850 Control, 1185 Control activities, 70, 73, 1068 Control charts, 1167 Control environment, 70, 73, 246, 1066 Control risk, 56, 76, 247 Control total, 1071 Controllable contribution, 1198 Controllable costs, 1186 Controlled corporations, 993

Transfers to, 984 Controlled group, 963, 994 Controlled partnerships, transactions with,

977 Controllers, 1049 Conversion, 1116 Conversion costs, 1170 Convertible debt, 427

APB 14, 636 Induced conversions of (SFAS 84), 657

Convertible preferred stock, 484 Convertible securities, 1119 Convertible stock, 1040 Copyright law, 874 Copyrights, amortization of, 920 Corporate governance function, 1103 Corporate reorganizations, 1005 Corporate taxation, 984

Accumulated earnings tax, 997 Affiliated corporations, 993 Alternative minimum tax, 986 Calculation of tax, 992 Capital gains and losses, 964, 966, 991 Controlled corporations, 993

INDEX 1209

Transfers to, 984 Deductions, 988 Dividends and distributions, 994, 996 Dividends received deduction, 990 Earnings and profits, 995 Filing and payment of tax, 985 Form 1120, 898, 985, 993 Gross income, 988 Individual taxation, variations from, 985 Liquidations, 996 Losses

Capital, 991 Net operating, 992 Ordinary, 991

Personal holding companies, 997 Reconciling book and tax income, 992 Reorganization, 1005 Small business corporation stock (Sec.

1244), 985 Stock redemptions, 995 Tax rates, 986

Corporations Advantages of, 1035 Articles of Incorporation, 1037 Bankruptcy, 496 Characteristics of, 1035 Corporate structure

Substantial change in, 1045 Directors, 1041 Financial structure, 1038 Formation of, 1037 Officers, 1041, 1043 Promoters, 1037 Quasi reorganization, 497 Reorganization, 497 Stock

Classes of, 1039 Definitions, 1038 Marketing of, 1040

Stockholders’ liability, 1035, 1045 Stockholders’ rights, 1043 Types of, 1036 Ultra vires acts, 1041, 1042

Correction of an error, 149, 285 Corrective controls, 87 Correlation analysis, 1184 Cost adjusted for fair value method, 507

Compared to equity method, 507, 509 Cost assignment, 1170 Cost behavior, 1170 Cost center, 1198 Cost drivers, 1179 Cost flow assumptions, 372

Periodic, 372 Perpetual, 373

Cost flow methods, inventory valuation, 373 Direct costing method, 378 Dollar-value LIFO, 375 FIFO, 375 Gross profit method, 377 LIFO, 375 Long-term construction contracts, 379

ARB 45, 633 Lower of cost or market, 374 Market value method, 378 Moving average, 373 Relative sales value method, 378 Simple average, 373 Specific identification, 373 Standard cost method, 378 Variable costing method, 378 Weighted-average, 373

Cost flows, 1171 Cost leadership, 1100 Cost management, 1185 Cost method (Treasury stock), 486

Cost of capital, 1121 Cost of common equity, 1122 Cost of debt, 1121 Cost of goods manufactured, 1169 Cost of goods sold, 372, 1171

Interim reporting, 558 Cost of preferred equity, 1122 Cost of quality, 1168 Cost recovery method, 341, 345 Costing methods

Absorption (full), 1188 Direct (variable), 1188

Costing systems, 1169 Activity-based costing, 1179 By-product costing, 1170, 1181 Job-order costing, 1172 Joint product costing, 1170, 1180 Process costing, 1176

Cost-plus pricing, 1202 Cost-push, 1089 Costs of production, 1082 Cost-sharing plans, 608 Cost-volume-profit analysis, 1185, 1186

Assumptions of, 1188 Examples of, 1187 Multiproduct firms, 1188

Cosureties, 848 Counteroffer, 770 Coupon rate, 1116 Creditor beneficiary, 786 Creditors’ agreement, 841 Credits, tax, 900, 943 Criminal liability, 743, 756, 759 Cross-sectional analysis, 1165 Cross-subsidization, 1180 Crummey trust, 1009 Cumulative average-time model, 1184 Cumulative monetary amount (CMA)

sampling, 188 Cumulative preferred stock, 484 Current account, 1092 Current assets, 365, 400, 630 Current cost accounting, 337, 367 Current earnings and profits, 995 Current financial resources measurement

focus, 593 Current liabilities, 365, 409, 630

ARB 43, Chapter 3A, 630 SFAS 43, 653

Current market value, 337 Current ratio, 414, 1160, 1164 Current yield, 1116 Curtailment, 661 Customer perspective, 1153 Cutoff statements, 123 Cycle time, 1110, 1170 Cyclical unemployment, 1088

D

Damages, 737, 740, 741, 788, 799 Mitigation of, 789, 800

Damages, taxability of, 902 Data control, 1068 Data control language (DCL), 1055 Data definition language (DDL), 1055 Data file structure, 1054 Data flow diagram, 1075 Data independence, 1054 Data library, 1068 Data manipulation language (DML), 1055 Data mart, 1053 Data mining, 1053 Data organization, 1053 Data preparation, 1067 Data structure, 1053

Data warehouse, 1053 Database, 1054 Database administration, 1067 Database controls, 1055 Database management system, 1054 Database servers, 1059 Database structures, 1055 Database systems, 1054 Date of business combination, 524

Purchase method, 524, 529 Dating the audit report, 143

AU 530, 290 De facto corporations, 1037 De jure corporations, 1037 De minimis fringes, 902 Death benefits, taxability of, 901 Debenture, 1116 Debt

Bad debts, 402 Convertible, 427

APB 14, 636 Induced conversions of, 657

Discharge of Taxability of, 904

Discharge of indebtness, taxability, 904 Extinguishment, 428

APB 26, 639 Impairment of, 433, 507, 671 Issued with detachable purchase warrants,

428, 636 Long-term, disclosure of, 653 Modification of terms, 430 Restructure, 430

SFAS 15, 651 Securities, 425, 501

SFAS 115, 673 Short-term obligations expected to be

refinanced, 409 SFAS 6, 646

Debt adjustment plans, 837 Debt covenants, 1115 Debt financing, 1117 Debt service funds, 585, 604 Debt to equity, 1160 Debt to equity ratio, 1164 Debt to total assets, 1160, 1164 Debt utilization ratios, 1160 Debt-financed portfolio stock, 990 Debtor-creditor relationships, 840

Attachment, 840 Composition agreements, 841 Construction bonds, 849 Contracts, surety and guaranty, 843 Cosureties, 848

Contribution, right of, 848 Discharge or release of, 849 Joint and several liability, 848

Creditors Assignment for the benefit of, 841 Composition agreement with, 841 Rights and remedies of, 845

Equal Credit Opportunity Act, 842 Exoneration, right of, 845, 849 Fair Credit Billing Act, 842 Fair Credit Reporting Act, 842 Fair Debt Collection Practices Act, 841 Fidelity bonds, 849 Garnishment, 840 Guarantor, 843

Capacity to act as, 844 Defenses, 846 Rights and remedies of, 845

Guaranty, 843 Contracts, 843

Homestead exemption, 841 Liens, 840

INDEX 1210

Performance bonds, 849 Reimbursement, right of, 845, 849 Rights and duties of, 840 Subrogation, right of, 846, 849 Surety, 843

Bonds, 849 Defenses of, 846 Rights and remedies of, 845

Truth-in-Lending Act, 842 Debts not discharged in bankruptcy, 835 Debug, 1052 Decedent, 907, 956 Decentralized processing, 1053 Decision tables, 76, 1075 Decision trees, 1150 Decomposition of time series, 1195 Decreasing returns to scale, 1083 Deductions from gross income

Corporate taxation, 988 Individual taxation, 900

Above the line, 921 Business, 911 Itemized, 926

Required reduction of, 937 Standard, 926

Partnership taxation, 972 Deed of trust, 887 Deeds, 882, 883 Defalcation, 57 Default, 826 Default risk, 1116 Defective units, 1178 Deferrals, 342, 703 Deferred compensation, 446 Deferred taxes, 468

APB 23, 638 Business investments, 477 Changing tax rates, 474, 670 Deferred tax asset valuation allowance, 476 Deferred tax assets/liabilities, 470, 669

Balance sheet presentation, 480, 670 Retained earnings presentation, 480

Equity method investments and, 510 Financial statement presentation, 479, 670 Future taxable/deductible amounts, 471,

670 Interim periods

FASB I 18, 641 Loss carryforwards/carrybacks, 479 Permanent differences, 468 Scheduling and recording deferred tax

amounts, 471 SFAS 109, 669 Subsidiaries and, 478 Temporary differences, 468, 470, 478, 480,

670 Defined benefit pension plan, 436, 608, 661,

992 Defined contribution pension plan, 436, 608,

658, 992 Deflation, 1088 Del credere, 851 Delegation of contracts, 785 Demand, 1076 Demand curve shift, 1076 Demand-pull, 1089 Dental expenses, deductibility of, 927 Dependent care assistance, 902 Depletion, 394 Depletion, income tax purposes, 917, 920,

992 Depreciation, 390

Accelerated, 390 Accelerated cost recovery system (ACRS),

917

APB 12, 635 Changes in, 393 Composite (group), 392 Fractional year, 393 Inventory, 392 Physical usage, 392 Recapture, 911, 967 Straight-line, 390

Depreciation, income tax purposes, 917, 992 Accelerated cost recovery system (ACRS),

917 Alternative depreciation system, 918 Modified accelerated cost recovery system

(MACRS), 917 Depression, 1087 Derivative financial instruments, 544

Bifurcation, 547 Definition, 545, 554 Disclosure, 552 Embedded, 547 Exclusions, 546 Fair value measurement, 545 Forward exchange contracts, 551 Glossary, 554 Hedging instruments, 545, 547

Cash flow hedge, 549 Fair value hedge, 548 Foreign currency hedge, 550

Inclusions, 546 Initial net investment, 555 SFAS 107, 668 SFAS 133, 683 SFAS 137, 684 SFAS 138, 684

Derivative instruments, 266 Derivative lawsuit, 1044 Derivatives, 1133

Currency swaps, 1133 Forwards, 1133 Futures, 1133 Interest rate swaps, 1133 Options, 1133 Swaption, 1133

Derived tax revenues, 594 Desk checking, 1052 Detachable stock purchase warrants, 428 Detail file, 1054 Detection risk, 56 Detective controls, 87 Development stage enterprises, 365, 398

SFAS 7, 646 Devises, 902 Diagnostic routines, 1070 Difference estimation, 192, 194 Differential

Business combinations, 524, 530, 536 Equity method investments, 508, 509

Differential (incremental) cost, 1140, 1186 Differential cost analysis, 1203 Digital Millennium Copyright Act, 879 Diluted earnings per share, 493 Dilutive securities, 493 Direct access processing, 1052 Direct costing, 378, 1188 Direct financing lease, 449, 452, 456, 465,

650 Financial statement elements, 458

Direct Public Offerings (DPO), 762 Direct write-off method, 402 Directional testing, 86 Disabled access credit, 945 Disabled, credit for elderly and, 945 Disadvantages, 1117 Disadvantages of common stock, 1118 Disadvantages of preferred stock, 1119

Discharge Of bankrupt, 835 Of contractual obligation, 788 Of liability on negotiable instrument, 815

Discharge of indebtedness, 904 Disciplinary systems, 735 Disclaimer of opinion, 152, 155, 289 Disclaimer of warranty, 794 Disclosed principal, 851, 854 Disclosure

Accounting policies, 365 APB 22, 638

Contingencies, 410 Depreciable assets (APB 12), 635 Financial instruments

Derivative, 552 Fair values of, 552

SFAS 107, 668 Fixed assets

Impairment of (SFAS 144), 691 To be disposed of (SFAS 144), 691

Interim (APB 28), 639 Leases, 465, 647 Loan impairments, 671 Long-term obligations (SFAS 47), 653 Pensions, 440, 681 Related-party transaction

SFAS 57, 656 Securities (SFAS 115), 673 Segments, 561 SFAS 131, 679 Stock compensation (SFAS 123), 675

Disclosure in financial statements AU 431, 286

Discontinued operations, 362, 558 SFAS 144, 692

Discount on forward contract, 554 Discount rate, 1090 Discounted payback, 1140 Discovery sampling, 183 Discrete view, 558 Discretely presented component unit, 580 Discretionary costs, 1140, 1186 Disposals of fixed assets, 393

SFAS 144, 691, 693 Distributable net income, 1013 Distributed data processing, 1053 Distributed database, 1055 Distributed systems, 1059 Distributions, income tax purposes

From corporations, 994 Liquidations, 996 Stock redemptions, 995

From estates/trusts, 1011 From partnerships, 980

Dividend payout ratio, 1160, 1163 Dividend policy, 1126 Dividends, 486, 1043

Payable, 409 Received, 507, 509 Tax treatment

Payment of, 994 Receipt of

By corporations, 989 By individuals, 901, 903, 905, 910 By partnerships, 973

Types of, 486 Dividends received deduction, 990 Dividend-yield-plus-growth-rate approach,

1123 Doctrine of respondeat superior, 850 Doctrine of substantial performance, 787 Documentation

Audit, 121 Flowchart, 1075 Internal control, 72, 75

INDEX 1211

Dollar-unit sampling, 188 Dollar-value LIFO, 375 Domestic corporation, 1036 Donations, 469

SFAS 116, 674 Donee beneficiary, 787 Double-extension technique, 376 Drafts, 803, 816 Dual dating

AU 530, 290 Dual transfer pricing, 1203 Dual-purpose tests, 180 Due care

AU 201 through 230, 222 Due diligence, 755 Due negotiation, 819 Dues, 913 Dun & Bradstreet Information Services,

1111 DuPont ROI Analysis, 1156 Duress, 780

E

Earned income, 925 Earned income credit, 947 Earned income of children, 940 Earnings and profits, 995 Earnings per share

Basic, 491 Diluted, 493 SFAS 128, 677 Simple capital structure, 491 Weighted-average common shares

outstanding, 491 Easement by prescription, 884 Echo check, 1069 Econometric models, 1195 Economic effect, 974 Economic order quantity (EOQ), 1109 Economic profit, 1084 Economic profit and EVA, 1158 Economic resources measurement focus,

593 Economic value added measure, 1156 Edit, 1052 Education expenses, tax treatment

Paid by self, 936 Paid via assistance, 902, 903, 1009 Savings bonds for, 903

Education IRA, 924 Education loans

Deduction for interest on, 925 Effective interest amortization method, 427

Elimination entries, 530, 535 Efficient frontier, 1152 Elasticity of supply, 1081 Elder care, 42 Elderly credit, 945 Electronic commerce, 1050, 1062 Electronic data interchange (EDI), 1050,

1063 Electronic funds transfer (EFT), 1062, 1106 Elliott Committee, 42 Embedded derivative instruments, 547, 554 Embezzlement income, 909 Emergency Planning, and Community

Right-to-Know Act, 870 Emphasis of a matter, 150, 289 Employee achievement awards, 908 Employee benefits, 862, 865 Employee benefits, taxability of, 901, 902 Employee business expenses, deductibility

of, 921, 936 Employee discount, 902

Employee Retirement Income Security Act (ERISA), 866

Employee safety, 863 Employee stock ownership plan (ESOP),

499 Employee stock ownership plans, 1120 Employee stock purchase plan, 908 Employer social security credit, 945 Employer supplemental unemployment

benefits, 907 Employer/employee relationships, 850, 859 Employers’ accounting for postemployment

benefits (SFAS 112), 446, 671 Settlements and curtailments of defined

benefit pension plans (SFAS 88), 661 Termination benefits (SFAS 88), 661

Employment discrimination, 863 Empowerment zone employment credit, 945 Encryption, 1064, 1070 Encumbrances, 596 Endangered Species Act, 870 Endorsement of negotiable instruments, 808 Endowment funds, 609 End-user computing, 1061 Engagement letters, 60 Engagement planning, 54

Acceptance and continuance of clients and engagements, 64

Audit planning procedures Analytical procedures, 62, 263 Audit program, 227 Communication with predecessor

auditors, 60, 62, 235, 325 Considering internal control, 62 Supervision requirements, 62 Timing of audit procedures, 78

Overall audit planning requirements Audit risk, 55, 227 Errors and fraud, 57

AU 316, 237 Illegal acts, 57, 59 Materiality, 56

Procedures prior to obtaining new clients Communication between predecessor

and successor auditor, 60, 62, 235, 325 Engagement planning and other

responsibilities, 63 Audit, 63 Compilation and review, 63 General attestation, 63 Prospective financial statements, 64 Quality control, 64

Enterprise funds, 585, 606 Enterprise Resource Planning (ERP), 1051 Enterprise Resource Planning (ERP)

Systems, 1110 Entertainment expenses, deductibility of,

912 Environmental Compliance Audits, 870 Environmental liability, 867 Environmental Protection Agency (EPA),

867 Environmental regulation, 867

Clean Air Act, 868 Clean Water Act, 868 Comprehensive Environmental,

Compensation, and Liability Act (CERCLA), 869

Emergency Planning, and Community Right-to-Know Act, 870

Endangered Species Act, 870 Federal Environmental Pesticide Control

Act, 869 Federal Insecticide, Fungicide, and

Rodenticide Act, 869

International protection of ozone layer, 870 Marine Protection, Research, and

Sanctuaries Act, 870 National Environmental Policy Act, 867 Noise Control Act, 869 Nuclear Waste Policy Act, 870 Oil Pollution Act, 869 Pollution Prevention Act, 870 Resource Conservation and Recovery Act,

869 Safe Drinking Water Act, 868 Toxic Substance Control Act, 869

Environmental remediation, 645 Equal Credit Opportunity Act, 842 Equal Employment Opportunity

Commission, 864 Equal Pay Act, 864 Equity, 1118 Equity (net assets), 701 Equity and debt securities, 1108 Equity method of accounting, 507

APB 18, 636 FASB I 35, 634, 635, 637

Compared to cost adjusted for fair value, 507, 508

Deferred tax effects, 510 Differential, 508 Intercompany transactions, 508, 532 Retroactive change to, 510

Equity risk premium, 1129 Equity securities, 484, 501

SFAS 115, 673 Equivalent units of production, 1176 Error correction, 349, 352

Income statement presentation, 361 Error, knowledge of, 1015 Errors and fraud, 57

AU 316, 237 Summary of, 57

Escheat property, 609 E-SIGN Act, 784 Estate tax, 1010

Alternate valuation date, 1010 Basis of property, 1011 Computation of, 1010 Deductions, 1010 Generation-skipping tax, 1011 Gross estate, 1010 Income in respect of a decedent, 907 Property acquired from a decedent, 956

Estates Intestate succession, 873

Estates and trusts, taxation of Beneficiaries, 1011 Computation of tax, 1010 Termination of, 1013

Estimated tax payments, 949 Estimated warranty liability, 468 Estimates, accounting, 278 Estoppel

Agency by, 852, 853 Partnership by, 1027 Promissory, 776

Ethics rulings, 722, 725, 728 Eurobonds, 1115, 1117 Eurodollar certificate of deposit, 1107 Evidence, 109

Assertions, 109, 118 Audit documentation, 273 Audit procedures, 112

Cash, 118, 122 Illegal acts, 120 Inventory, 118, 125

In public warehouses, 126, 266, 313 Litigation, claims, and assessments, 120,

272

INDEX 1212

Long-term debt, 119, 131 Marketable securities, 119, 127 Owners’ equity, 119, 131 Payables, current, 119, 129

Search for unrecorded liabilities, 130 Prepaid assets, 119, 129 Property, plant, and equipment, 119, 128 Receivables, 118, 123, 264 Related-party transactions, 120, 135, 270 Subsequent discovery of facts existing at

report date, 136, 299, 322 Subsequent events, 120, 136, 298 Supplemental information, 120, 322

AU 558, 297 Audit program development, 61, 115, 227 Client representation letters, 133

AU 333, 268 Competent and sufficient evidence, 257 Competent and sufficient evidential matter,

111 Compilation procedures, 137 Confirmations, 123, 124, 126, 129, 264 Documentation, 121 Going concern considerations, 135, 276 Goods held in public warehouses, 266, 313 Lawyer inquiries, 134

AU 337, 272 Omitted procedures, 136, 283 Operational auditing, 139 Review procedures, 137 Specialist, use of, 134, 271 Substantive tests, 113

Analytical procedures, 113, 263 Interim

AU 313, 232 Tests of details of transactions and

balances, 115 Timeliness of, 78 Types of evidence, 112 Workpaper files, 122

Examination report, 142, 171, 205, 288 Excess present value index, 1142 Exchange revenues, 581 Exchanges, taxability of, 957 Exclusions from gross income, 900 Exculpatory clause, 779 Execution, 1153 Executory costs, 647 Exempt securities, 753, 757 Exemptions, 937 Exoneration, right of, 845, 849 Expectations theory, 1133 Expected cash flow approach, 339 Expected return, 1129

Arithmetic average return, 1129 Geometric average return, 1129

Expendable trust funds, 609 Expenditures, 596

Classification, 596 Expenses, 702 Expert system, 1053 Explanatory paragraph, 288 Exponential smoothing, 1195 Express warranties, 793 Expulsion from AICPA, 714, 735 Extensible markup language (XML), 1057 External failure cost, 1168 External labels, 1071 Externalities, 1082 Extranet, 1058 Extraordinary dividend, 991 Extraordinary items, 361, 558, 581

APB 9, 635 APB 30, 642 Extinguishment of debt, 429

F

Factoring, 1114 Factoring accounts receivable, 403

With recourse, 347, 404 Without recourse, 403

Fair Credit Billing Act, 842 Fair Credit Reporting Act, 842 Fair Debt Collection Practices Act, 841 Fair Labor Standards Act, 945 Fair value hedge, 545, 1134 Fair values, 135 Family and Medical Leave Act, 865 Family Educational Rights and Privacy Act,

879 Family partnerships, 975 FASB Interpretations

No. 1 (Accounting changes to inventory), 637

No. 8 (ST obligations repaid prior to being replaced by a LT security), 646

No. 14 (Estimating contingent losses), 645 No. 18 (Interim income taxes), 641 No. 28 (SAR, stock options), 639 No. 30 (Involuntary conversions), 642 No. 35 (Equity method), 634, 635, 637 No. 37 (Translation adjustment), 656 No. 39 (Offsetting of amounts related to

certain contracts), 635 No. 46 (Consolidation of variable interest

entities), 634 FASB Technical Bulletins

TB 85-3 (Operating leases with scheduled rent increases), 650

Federal agency securities, 1107 Federal Consolidated Budget Reconciliation

Act, 866 Federal Counterfeit Access Device and

Computer Fraud and Abuse Act, 877 Federal Employee Polygraph Protection

Act, 866 Federal Environmental Pesticide Control

Act, 869 Federal Fair Labor Standards Act, 865 Federal Insecticide, Fungicide, and

Rodenticide Act, 869 Federal Insurance Contributions Act

(FICA), 857 Federal Securities Statutes

AU 711, 307 Federal Social Security Act, 857 Federal Unemployment Tax Act (FUTA),

858, 943 Fee simple, 880 Feedback value, 336 Fellowships, taxability of, 904 FICA tax, 943 Fictitious name statutes, 1025 Fictitious payee rule, 815 Fidelity bonds, 849 Fiduciary duty, 1027, 1042, 1044 Fiduciary funds, 588, 608

Agency funds, 589, 608 Investment trust funds, 589, 609 Pension (and other employee benefit) trust

funds, 589, 608 Private-purpose trust funds, 589, 609 Statement of changes in net assets, 589 Statement of net assets, 589

Field, 1054 Field check, 1072 Field size check, 1072 Field warehousing, 313, 823 Fieldwork standards, 204, 220, 221 Fifty (50%) reduction rule, 912 File, 1054

File protection ring, 1071 File servers, 1059 Filing requirements

Corporate taxation, 984 Estate tax, 1010 Estates and trusts, 1011 Gift tax, 1008 Individual taxation, 950

Filing status, 941 Financial accounting reporting cycle, 87 Financial budget, 1185, 1190 Financial forecasts and projections

AT 301, 207 Reports on, 166

Financial instruments Cash, 400 Derivative contracts, 669 Disclosures about fair value of, 552

SFAS 107, 668 Securities

Debt, 425, 501 Equity, 484, 501 SFAS 115, 673

Financial intermediaries, 1133 Financial leverage, 1121 Financial management function, 1103 Financial perspective, 1153 Financial planning, 1189 Financial planning models, 1185 Financial reporting, 333

Changing prices and SFAS 89, 662 Objectives of, 335

SFAC 1, 698 Recognition and measurement, 336

SFAC 5, 699 Financial statement assertions, 71, 110, 116,

118 Financial statements, 360

Accompanying information AU 551, 295

Accounting policies, 365 Adequacy of disclosures, 286 Auditor association with, 287 Balance sheet, 365

Accounts payable, 409 Accounts receivable, 401 Accruals, 342 Bonds payable, 425 Consolidated, 529, 538 Current assets, 365, 400, 630 Current liabilities, 365, 409, 631 Deferred tax assets/liabilities, 480 Example of, 364 Fixed assets, 383 Intangible assets, 395 Inventory, 372, 631 Investments, 501 Notes payable, 419, 637 Notes receivable, 419, 637 Retained earnings, 483

Appropriations, 488 Stockholders’ equity, 483, 701

Combined financial statement, 541 Comparative financial statement, 369 Compiled, 41, 110, 137, 318 Comprehensive income, 360, 363 Consolidated financial statements, 527, 533

ARB 51, 633 Constant dollar accounting, 366 Current cost accounting, 367 Development stage enterprise accounting,

365 Elements of financial statement, 336

SFAC 6, 700 Foreign currency financial statement, 577,

655

INDEX 1213

Fund, 584 Government-wide, 580 Income statement, 360

APB 9, 635 Bad debts expense, 402 Change in accounting principle, 361 Consolidated, 539 Correction of an error, 361 Depreciation, 390 Discontinued operations, 362, 642 Earnings per share, 491, 493 Example of, 360, 363 Extraordinary items, 361, 642 Income taxes, 479 Investment income, 507 Unusual or infrequent items, 361

Interim financial statement, 558 APB 28, 639

Not-for-profit, 620, 625, 627 Other comprehensive bases of accounting,

369 Other information in documents containing

audited FS, 150, 295 Personal, 326 Personal financial statement, 557 Prospective financial information, 369 Recognition criteria (SFAC 5), 699 Reports on

Audited FS, 142, 204, 288 Comparative FS, 149, 289, 323 Compiled FS, 142, 156, 318

Prospective, 207 Reviewed, 41, 142, 155, 158, 205, 320 Unaudited, 41, 156, 287

Retained earnings statement, 360 Appropriations of, 488 Consolidated, 539 Dividends, 486, 632 Prior period adjustments

Deferred tax effects, 479 Retroactive change to equity method,

510 SFAS 16, 651

Risks and uncertainties, 368 Statement of affairs, 496 Statement of cash flows, 513

Classification in, 513, 664 Direct presentation, 514, 519, 665 Examples of, 516, 521 Financing activities, 513, 521, 664 Indirect presentation, 514, 517, 665 Investing activities, 513, 521, 664 Noncash investing and financing

activities, 514 Objectives of, 513 Operating activities, 513, 517, 519, 521,

664 SFAS 95, 663

Financing activities, 513, 521 Financing current assets, 1112 Financing cycle, 99 Financing function, 1103 Financing statement, filing, 821 Fines, 911 Fire insurance, 891 Firewall, 1058 Firm commitment, 555

Unrecognized, 550 Firm offer, 772, 791 First-in, first-out (FIFO) method, 375, 1177 Fiscal policy, 1090 Fitness for a particular purpose, warranty

of, 793 Fixed amount, 805 Fixed asset turnover, 1160, 1163 Fixed assets, 383

Acquisition cost, 383 Audit procedures, 119, 128 Basket purchase of, 389 Computer software costs, 398 Depletion, 394 Depreciation, 390 Development stage enterprises, 398 Disclosure of (APB 12), 635 Disposals of, 393

SFAS 144, 691 Expenditures, capital vs. revenue, 389 Impairment of, 393

SFAS 144, 691 Insurance on, 395 Intangible assets, 395 Intercompany transactions, 532 Interest capitalization, 383

Diagram of, 385 SFAS 34, 652

Internal controls for, 100, 102 Nonmonetary exchanges, 384

Diagram of, 386 Research and development costs, 397 Start-up costs, 397

Fixed costs, 1185 Fixtures, 872 Flexible budget, 1185, 1198 Float, 1105 Floatation or selling costs, 1123 Floating rate bonds, 1117 Flowcharting, 74, 76, 1074

Common symbols, 1074 Types of, 1075

FOB destination/shipping point, 378 Forecasted transaction, 549, 555

Foreign currency denominated, 550 Forecasting, 1095 Forecasting methods, 1194 Forecasts and projections

AT 301, 207 Reports on, 166

Foreign bonds, 1117 Foreign corporations, 1036 Foreign Corrupt Practices Act, 72, 760 Foreign currency hedge, 550 Foreign currency hedges, 1134 Foreign currency transactions, 543, 555 Foreign currency translation, 572

Foreign currency statements, 572 Glossary of terms, 577 SFAS 52, 655

Foreign earned income exclusion, 904 Foreign exchange rates, 1092 Foreign investment, 1093 Foreign tax credit, 947 Foreseeable third party, 739 Foreseen third party, 739 Forgery, 811

Fictitious payee rule, 815 Imposter rule, 815

Forward contract, 555 Discount or premium on, 554

Forward exchange contracts, 551, 555, 656 Fractional year depreciation, 393 Franchise agreements, 345

SFAS 45, 653 Fraud, 736, 779, 811

AU 316, 237 Fraudulent conveyance, 832 Free cash flow, 1158 Frictional unemployment, 1088 Fringe benefits, taxability of, 902, 1004 Full cost, 1203 Full costing, 1188 Functional currency, 578, 655

Fund accounting (GASB 34), 579 Basis, 593 Budgetary accounting, 595 Fiduciary funds, 588, 608

Agency funds, 589, 608 Investment trust funds, 589, 608 Pension (and other employee benefit)

trust funds, 589, 608 Private-purpose trust funds, 589, 609

Financial statements, 600 Conversion from fund FS to government-

wide FS, 611 Fund, 584 Government-wide statements, 580

Governmental funds, 584, 596 Capital projects funds, 585, 597, 602 Debt service funds, 585, 604 General fund, 584, 595, 597 Permanent funds, 585 Special revenue funds, 585, 595, 601

Interfund transactions, 609 Investments, 611 Management’s discussion and analysis, 580 Measurement focus, 593 Nonexchange transactions, 594 Notes to the financial statement, 591 Permanent funds, 606 Proprietary funds, 585, 606

Enterprise funds, 585, 606 Internal service funds, 585, 606

Reporting entity, 580 Required supplementary information, 591 Special assessments, 606

Fund financial statements, 584 Balance sheet, 585, 601, 605 Conversion to government-wide FS, 611 Statement of cash flows, 590 Statement of changes in fiduciary net

assets, 592 Statement of fiduciary net assets, 589 Statement of net assets, 588 Statement of revenues, expenditures, and

changes in fund balances, 587, 604 Statement of revenues, expenses, and

changes in fund net assets, 589 Future interest in real property, 881 Future value, 1138 Futures contracts, 555

G

Gain, 702 Gain contingencies, 414, 645 Gains and losses, tax treatment

Between related parties, 963, 977, 991 Personal casualty and theft, 933, 966, 991

Gambling winnings/losses, tax treatment, 909, 936

Garnishment, 840 GDP, 1085 GDP deflator, 1089 General business credit, 943 General controls for computers, 1069 General environment, 1094 General fund, 584, 595, 597 General standards, 63, 203, 222

AU 201 through 230, 222 Generally accepted accounting principles

(GAAP) Consistency of application, 148, 288

AU 420, 285 Hierarchy, 144, 284, 333 Meaning of “present fairly in conformity

with GAAP”, 283 Report on application of, 148

Generally accepted auditing standards (GAAS), 46, 203

INDEX 1214

AU 150, 221 General standards, 46, 63, 203, 222 Relationship to quality control standards,

222 Standards of fieldwork, 204, 221 Standards of reporting, 204, 221

General-purpose governments, 579 Generation-skipping tax, 1011 Gift tax

Annual exclusion, 1008 Basis of property, 1009 Computation of, 1008 Exclusions, 1009 Generation-skipping tax, 1011

Gifts, 1008 Basis of, 956 Deductibility of, 932

Business gifts, 913 Taxability of, 902

Nontaxable gifts, 1008 Gifts of property, 873 Gift-splitting, 1009 Going concern considerations, 135, 147

AU 341, 276 Going private, 1120 Going public, 1120

Advantages of, 1120 Disadvantages of, 1120

Good faith, 788, 792, 810 Goodness of fit, 1196 Goods in transit, 378 Goodwill

Amortization of, 469, 524 Impairment, 396 SFAS 142, 688

Goodwill method (new partners), 565 Government budget surplus (deficit), 1089 Government reporting model, 579 Governmental Accounting Standards Board

(GASB), 579 Governmental auditing responsibilities, 733 Governmental auditing standards, 316 Governmental funds, 584, 596

Capital projects funds, 585, 602 Debt service funds, 585, 604 Expenditure classification, 596 General fund, 584, 595, 597 Permanent funds, 585 Special revenue funds, 585, 595, 601

Government-mandated nonexchange transactions, 595

Government-wide financial statements, 580 Conversion from fund FS, 611 Statement of activities, 581, 583 Statement of net assets, 581, 582

Grant deeds, 883 Gross income

Corporate, 988 Individual, 900, 905

Of business, 911 Gross margin, 1160, 1162 Gross National Product (GNP), 1085 Gross negligence, 737 Gross profit method, 377 Group depreciation method, 392 Group-term life insurance, 901 Guaranteed payments, 975 Guaranteed residual value, 453 Guarantor of debt, 913 Guaranty contracts, 782, 843

H

Haphazard sampling, 182 Hardware and software access controls,

1070

Hardware, computer, 1048, 1060 Hash total, 1071 Head of household status, 941 Health benefits, taxability of, 901 Health care entities, 616, 626, 629

Financial statements, 627 Health care guide, 626 Health Insurance Portability and

Accountability Act, 865 Hedging, 543, 544, 547, 1134

Cash flow hedges, 549 Disclosure, 552 Fair value hedges, 548 Foreign currency hedges, 550 Forward exchange contracts, 551 SFAS 133, 683 SFAS 138, 684

Hedging activities, 266 Hedging to reduce interest rate risk, 1114 Held-to-maturity securities, 502, 503, 507

SFAS 115, 673 Hierarchical database, 1055 High-low method, 1182 Historical cost principle, 337 Hobby-loss rules, 914 Holder in due course, 809, 825

Rights of, 810 Holder through a holder in due course, 812 Holding period, 964, 972 Home equity indebtedness, 929 Homestead exemption, 841 Hope Scholarship credit, 948 Horizontal analysis, 1165 Horizontal merger, 1127 Hurdle rate, 1143 Hypertext markup language (HTML), 1057 Hypertext transfer protocol (HTTP), 1057

I

Identification of goods, 795, 800, 890 If-converted method, 494 Illegal acts by clients

AU 317, 59, 243 Audit procedures, 120 Risk of material misstatement factors, 239 Summary, 57

Illegal income, taxability of, 909 Illegality

Of commercial paper, 811 Of contracts, 778

Impairment Of assets acquired with goodwilll, 396 Of fixed assets, 393 Of goodwill

SFAS 142, 688 Of loans, 433

SFAS 114, 671 Of long-lived assets

SFAS 144, 691 Of securities, 507

SFAS 115, 673 Implementation services, 730 Implied warranties, 793 Imposed nonexchange transactions, 594 Imposter rule, 815 Imputed interest, 905 Incentive stock option, 907 Incidental beneficiary, 787 Income bond, 1116 Income determination, 341

Completed-contract method, 379 Cost recovery method, 341, 345 Installment method, 341, 344 Net realizable value method, 341 Percentage-of-completion, 341, 379

Real estate sales, 345, 347 Sales basis, 341, 347 Software transactions, 346 Transactions approach, 341

Income distribution deduction, 1012 Income effect, 1078 Income elasticity of demand, 1078 Income in respect of a decedent, 907 Income tax, 1090 Income tax bases of accounting, 369 Income tax deductibility, 928 Income tax return preparers, 1014 Income tax returns

Form 1040 (Individuals), 895 Form 1065 (Partnerships), 897, 971 Form 1120 (Corporations), 898, 985, 993

Income taxes Corporate, 985 Estate, 1010 Gift, 1008 Individual, 900 Partnerships, 972 Property transactions, 956 SFAS 109, 669 Trusts, 1012

Incompetence, 777, 781 Inconsistency, 148, 285, 288 Increasing returns to scale, 1083 Incremental budgeting, 1186 Incremental cost, 1204 Incremental unit-time learning model, 1184 Indemnity contract, 844 Independence, 64, 152

AU 201 through 230, 222 Independence, auditor’s, 717, 721 Independent contractor, 850, 859 Individual Retirement Account (IRA), 923 Individual taxation, 900

Alternative minimum tax, 941 Calculation of tax, 939 Children, income of, 940 Deductions, 900

Above the line, 921 Business, 911

At-risk limitation, 915 Itemized, 926

Required reduction of, 937 Standard, 926

Depreciation, depletion, and amortization, 917

Estimated tax payments, 949 Exclusions, 900 Exemptions, 937 Filing requirements, 950 Filing status, 941 Form 1040, 895 Gross income, 900, 905

Of a business, 911 Passive activities, 916 Tax accounting methods, 909 Tax procedures, 950 Tax rate schedules, 940 Tax tables, 939

Induced conversions of debt SFAS 84, 657

Industry analysis, 1095 Infancy, 781, 812 Inflation, 1088 Informal line of credit, 1113 Information and communications, 71, 73,

75, 1068 Information systems, 1048 Infrastructure assets, 582 Infrequent item, 361 Inherent risk, 56

INDEX 1215

Inheritances Basis of, 956 Holding period of, 964 Taxability of, 902

Initial direct costs, 451, 462 SFAS 91, 662

Initial net investment, 555 Injunction, 789 Innkeeper’s lien, 840 Innocent misrepresentation, 780 Input controls, 1071 Input devices, 1050 Inquiries, 77 Inquiry of client’s lawyer, 134, 272 Insiders, 750

Preferential transfers to, 832 Reporting requirements of, 760

Insolvency, bankruptcy vs. equity sense, 830 Insolvent financial institutions, 962 Inspection, 77 Installment sales method, 341, 344, 635

Tax reporting, 910 Insurable interest, 800, 890 Insurance, 889

Cash surrender value of life insurance, 512 Coinsurance clause, 891 Contracts for, 889 Fire insurance, 891 Insurable interest, 800, 890 Liability insurance, 890 Life insurance, 890 Loss account for fixed assets, 395 Malpractice insurance, 743, 891 Pro rata clause, 891 Proof of loss, 891 Self-insurance, 889 Statute of Frauds, applicability of, 889 Subrogation, insurer’s right of, 890 Voidability of, 889

Insurance policies, exchange of, 961 Insurance premiums, tax treatment

Paid by employer, 901 Paid by self-employed individual, 922

Insurance proceeds, taxability of, 901 Intangible assets, 395

Acquisition of, 395 Amortization of, 395 Goodwill, 395 Impairment, 396 Section 197, 921 SFAS 142, 395 Tax treatment, 921

Integral view, 558 Integrity, 64 Intellectual property rights, 874 Intercompany transactions, 508, 532 Interest

Capitalization of, 383 Diagram of, 385 SFAS 34, 652

Compounding, 416, 1136 From investments, 507 On notes receivable/payable

APB 21, 637 Interest expense, deductibility of

Education loan, 925 Investment interest, 930 Personal interest, 929 Qualified residence interest, 929

Acquisition indebtedness, 929 Home equity indebtedness, 929

Interest income Nontaxable, 903 Taxable, 905

Interest methods of allocation, 341 Interest on overpayment of tax, 951

Interest rate, 1089 Effective, 1131 Stated, 1131

Interests in real property, 880 Insurable, 890

Interfund transactions, 609 Interim financial information

AU 722, 308 Reports on, 158 Review of, 138 Substantive testing of, 232

Interim reporting, 558 APB 28, 639 Discrete view, 558 Integral view, 558

Internal audit function Effect on auditor’s examination, 106

AU 322, 252 Internal auditing responsibilities, 732 Internal business processes perspective,

1154 Internal control, 68, 212

Accounting cycles, 86 Financial accounting reporting, 87 Financing, 99 Inventories and production, 96 Investing, 100 Personnel and payroll, 97 Purchases, payables, and cash

disbursements, 92 Sales, receivables, and cash receipts, 89

Accounting vs. administrative controls, 71 AU 325, 256 Audit committee, communicating with

AU 380, 282 Auditor’s understanding of, 72, 75, 213

Tests of controls for, 74, 79 Committee of Sponsoring Organizations

(COSO), 69, 72 Components of

Control activities, 70, 73, 1068 Control environment, 70, 73, 1066 Information and communication, 71, 73,

75, 1068 Monitoring, 65, 71, 73, 1068 Risk assessment, 70, 73, 75, 1068

Control risk, 56 Corrective controls, 87 Decision table, 76, 1075 Detective controls, 87 Directional testing, 86 Documentation, 75 Effect of computer on, 1065 Effects of internal audit function, 106

AU 322, 252 Flowcharting, 74, 1074, 1075 Foreign Corrupt Practices Act, 72 Limitations of, 71 Material weakness in, 213, 256 Memoranda, 76 Preventive controls, 87 Questionnaire, 76, 100 Reportable conditions, 213, 256 Reports on, 104, 173

AT 501, 212 AU 325, 256 For service organizations, 106, 254

Tests of controls, 77, 79 Internal failure cost, 1168 Internal labels, 1071 Internal rate of return (IRR), 1142 Internal Revenue Code

Section 179, expense deduction, 919, 967, 973

Section 197 intangibles, 921 Section 267, related taxpayers, 959

Section 291 recapture, preference items, 911, 968, 970

Section 332, liquidations of subsidiaries, 996

Section 338, stock purchases treated as acquisitions, 997, 1001

Section 351 transfers to controlled corporations, 984, 996

Section 381, NOL carryovers in acquisitions, 1007

Section 382, NOL carryforwards and built-in losses after ownership change, 1007

Section 465, at-risk limitations, 974, 1003 Section 469, passive activity loss

limitations, 974, 1003 Section 751, unrealized receivables or

inventory items, 979 Section 1231, business assets, 933, 964,

966, 967, 969, 970, 973, 995 Section 1244, Small business stock, 985 Section 1245 recapture, depreciable

property, 911, 967, 968, 970, 972, 979 Section 1250 recapture, depreciable realty,

911, 966, 968, 970, 972 Section 1252 recapture, farm land, 979 Section 1366, pass-through to shareholders,

1002 Section 2503(c), trusts for minors, 1008

Internal service funds, 585, 606 International cash management, 1107 International Monetary Fund (IMF), 1092 International protection of ozone layer, 870 International trade, 1091 Internet, 1057 Intestate succession, 873 In-the-money, 555 Intranet, 1058 Intrinsic value, 555 Invasion of privacy, 878 Inventories

AU 331, 266 Audit procedures, 118, 125 In public warehouses, 126, 266, 313

Inventories and production cycle, 96 Inventory, 372, 911, 1170

Acquisition cost, 372 Consignments, 378 Cost flows, 1171 Cost of goods sold determination, 372 Errors in, 351 Intercompany transactions in, 532 Items included in, 378 Losses on purchase commitment, 375 Models of

Economic order quantity (EOQ), 1109 Just-in-time (JIT), 1109

Periodic method, 372 Perpetual method, 373 Ratios, 379 Shipping items, 378 Valuation, see Cost flow methods

ARB 43, Ch. 4, 630 FASB I 1, 637

Inventory conversion period, 1104 Inventory depreciation method, 392 Inventory financing, 1114 Inventory management, 1108 Inventory management and MRP, 1109 Inventory turnover, 1160, 1163 Investing activities, 513, 520 Investing cycle, 100 Investment, 1088, 1139 Investment center, 1198 Investment interest, 930 Investment trust funds, 589, 609 Investments, 425, 501, 611

INDEX 1216

AU 332, 266 Comprehensive example, 503 Income statement presentation, 507 Investment percentage, 501 Involving significant influence, 507

APB 18, 636 Not involving significant influence, 502

Cost adjusted for fair value method, 507 Example of, 503 Impairment of, 507 SFAS 115, 673

Transfers between categories, 506 Involuntary bankruptcy, 828 Involuntary conversions, 469

FASB I 30, 642 Tax treatment, 959

ISO quality standards, 1167 Itemized deductions, 926

Casualty and theft losses, 935 Charitable contributions, 930 Interest expense, 929 Medical and dental expenses, 927 Miscellaneous, 936 Taxes, 928

J

Job-order costing, 1172 Overhead, 1172 Spoilage, 1178

Joint and several liability, 870, 1028 Joint costs, 1170, 1180

Sell or process further decision, 1181, 1203 Joint products, 1170, 1180 Joint return, 926, 938, 940, 941 Joint tenancy, 881 Joint venture, 971, 1032 Judgment lien, 841 Junk bonds, 1117 Jury duty pay, taxability of, 926 Just-in-time (JIT), 1109 Just-in-Time (JIT) Production, 1110 Just-in-Time (JIT) Purchasing, 1109

K

Kaizen, 1167 Kaizen budgeting, 1192 Keogh plans, 923 Keynesian theory, 1091 Key-to-disk, 1050 Key-to-tape, 1050 Kickbacks, 911 Kiting, 122

L

Labor variances, 1200 Landrum-Griffin Act, 866 Lapping, 123 Last-in, first-out (LIFO)method, 375 Law of diminishing marginal utility, 1079 Lawyer inquiries, 134

AU 337, 272 Lead schedules, 121 Lean manufacturing philosophy, 1167 Learning and growth perspective, 1154 Learning curves, 1184 Leasehold improvements, 451

Cost recovery of, 919 Taxability of, 904

Leases, 449, 801, 887 Bargain purchase option, 453, 647 Capital lease, 449, 458, 466, 522, 649

Financial statement elements, 458 Contingent rentals, 647 Direct financing lease, 449, 452, 456, 465,

650 Financial statement elements, 458

Disclosure requirements, 465 Executory costs, 647 Fair value of leased property, 647 Free rent/uneven payments, 450 Implicit interest rate, 647 Incremental borrowing rate, 648 Initial direct costs, 451, 462

SFAS 91, 662 Lease bonus (fee), 451 Lease term, 648, 665 Leasehold improvements, 451 Lessee, 450, 451, 458, 466, 647, 648 Lessor, 450, 452, 458, 465, 647, 648 Minimum lease payments, 453, 648 Operating lease, 449, 450, 649

Financial statement elements, 451 With scheduled rent increases, 650

Residual value, 453, 648 Sale-leaseback, 347, 462, 650 Sales-type lease, 347, 449, 456, 465, 649

Financial statement elements, 458 Security deposits, 451 SFAS 13, 647 SFAS 98, 665 Summary, 465

Leasing, 1117 Least squares (regression) method, 1183 Legal capacity to contract, 776 Legal detriment, 775 Legality

Of commercial paper, 811 Of contracts, 778

Lending activities, 422, 423, 429 Letter of credit, 1113 Letters for underwriters, 162

AU 634, 306 Leverage, 1120 Leveraged buyout, 1120 Liabilities, 701

Assumption of Partnerships, 976 Sales and exchanges, 957, 958

Contingent, 410 Current, 365, 409, 631 Deferred tax, 470 Environmental remediation, 645 Short-term, expected to be refinanced, 409,

646 Liability insurance, 890 Liability of parties of negotiable

instruments, 813 LIBOR, 555, 1115 Liens, 825, 832, 840, 885 Life insurance, 890 Life insurance cash surrender value of, 512 Life insurance proceeds, taxability of, 901 Life interest, 880 Life-cycle budgeting, 1185 Lifetime learning credit, 949 LIFO recapture, 1000 Like-kind exchange, 957, 964 Limit (reasonableness) test, 1071 Limited liability companies, 1032 Limited liability partnerships, 1034 Limited partnerships, 1024, 1029 Link-chain technique, 377 Liquidated damage clause, 789 Liquidation (Chapter 7), 830 Liquidation dividends, 487 Liquidations, corporate, 996

Of subsidiary, 996 Liquidity preference (premium) theory,

1132 Liquidity ratios, 1160, 1164 Litigation, claims, and assessments

AU 337, 272 Audit procedures, 120

Litigation, contingencies and, 412 Loans

Acquisition/origination costs, 662 Impairment of, 433

SFAS 114, 671 Interfund, 610

Local area network (LAN), 1057, 1060 Local currency, 578 Lockbox system, 1106 Logic check, 1072 London Interbank Offered Rate (LIBOR),

1113 Long-term construction contracts, 379

ARB 45, 633 Tax rules, 911

Long-term debt, 1115 Audit procedures, 119, 131

Loop, 1052 Loss carryforwards/carrybacks

Deferred tax effects, 479 Losses, 702

Contingent, 411, 644 On long-term construction contracts, 381 On purchase commitments, 375 Tax treatment

Between related parties, 963, 977, 991 Net operating losses

Corporate, 992 Individual, 914

On deposits in insolvent financial institutions, 962

Passive activity, 916 Personal casualty and theft, 933, 966,

991 Lower of cost or market method, 374 Low-income housing credit, 945

M

Magnetic disk, 1049 Magnetic ink character reader (MICR),

1050 Magnetic tape, 1049 Magnetic tape reader, 1050 Make or buy (outsourcing) decisions, 1203 Malpractice, 743, 891 Management by exception, 1186 Management’s assertions, 110, 118

AU 326, 257 Management’s discussion and analysis, 168,

217, 580 Manufacturing cells, 1110 Manufacturing contribution margin, 1198 Marginal cost (MC), 1083 Marginal product, 1084 Marginal propensity to consume (MPC),

1079 Marginal propensity to save (MPS), 1080 Marginal revenue, 1084 Marginal revenue product, 1084 Marine Protection, Research, and

Sanctuaries Act, 870 Market discount bonds, 962 Market equilibrium, 1081 Market price, 1203 Market ratios, 1160, 1164 Market segmentation theory, 1133 Market value method, 378 Market/book ratio, 1160, 1164 Marketable securities, 501

Accounting for, 501 Audit procedures, 119, 127 Equity method, 501

APB 18, 636

INDEX 1217

Deferred tax effects, 477, 510 SFAS 115, 673

Marketable securities management, 1107 Markov techniques, 1195 Master budget, 1185 Master file, 1054 Matching, 703 Material alteration of negotiable

instruments, 812 Material misstatement

Risk factors, 58, 239 Material participation, 916 Material weakness in internal control, 214,

256 Materiality, 56, 335

AU 150, 221 AU 312, 227

Materialman’s lien, 840 Materials variances, 1199 Maturity risk premiums, 1132 Meals and lodging provided by employer,

taxability of, 901 Meals expense, deductibility of, 912 Mean-per-unit estimation, 191, 194 Measurement focus, 593 Mechanic’s lien, 840 Medical expenses, deductibility of, 927 Medical savings account (MSA), 901 Memoranda, 76 Memory dump, 1052 Menu driven input, 1072 Merchant, 791 Merchantability, warranty of, 793 Mergers, 1045, 1127

Tax treatment, 1005 Metropolitan area networks (MAN), 1057 Microcomputers, 1048, 1060 Midquarter convention, 918 Minimum tax credit, 943, 987 Minority, 777, 781, 812 Minority interest, 529, 537 Miscellaneous itemized deductions, 936 Misrepresentation, 779 Missing data check, 1072 Mistake, 770, 780 Mitigation of damages, 789, 800 Mixed (semivariable costs), 1170 Mixed costs, 1185 Model Business Corporation Act, 1040 Modified Accelerated Cost Recovery

System (MACRS), 917 Modified accrual basis, 593 Monetarist theory, 1091 Monetary policy, 1089 Money, 1089 Money market accounts, 1108 Money market funds, 1108 Money order, 816 Monitoring, 65, 71, 73, 1068, 1095 Monopolistic competition, 1096 Mortgage bond, 1116 Mortgages, 885 Moving average, 1194 Moving average method, 373 Moving expenses, tax treatment

Paid by employer, 902 Paid by self, 922

Multicollinearity, 1197 Multiple regression, 1184, 1185, 1196 Multiple support agreement, 939 Multiprocessing, 1051 Municipal bonds, 903 Mutual mistake, 780 Mutually exclusive projects, 1143

N

Naive models, 1194 National Environmental Policy Act, 867 National Labor Relations Act, 865 Natural monopolies, 1095 Negative assurance, 142, 166 Negligence, 736, 794 Negotiable instruments, 803

Ambiguities in, 807 Assignment of, 807 Banks, 816 Bearer paper, 806, 808 Certificates of deposit, 804 Checks, 804

Types of, 816 Discharge of parties, 815 Dishonor, notice of, 813 Documents of title, 818 Drafts, 804

Types of, 816 Endorsements, 808 Forgery, 811

Fictitious payee rule, 815 Imposter rule, 815

General concepts, 803 Holder in due course, 809, 812, 825

Holder through a holder in due course, 812

Rights of, 810 Liability of parties, 813

Accommodation party, 814 Agent, 814 Contractual liability, 813 For forged instruments, 815 Primary and secondary, 813 Warranty liability, 813

Material alteration of, 812 Negotiability, requirements of, 804 Negotiation, 807

By agent, 814 By endorsement, 808

Notes, 804 Order paper, 806, 807 Personal defenses, 811 Presentment, 814 Promissory notes, 804 Real defenses, 811 Securities law and, 753 Shelter provision, 812 Stop payment orders, 817 Types of, 803 UCC Article 3, 803 Warranties, 814 Warranty liability, 814

Negotiated transfer price, 1203 Neo-Keynesian theory, 1091 Net assets (equity), 701 Net Domestic Product (NDP), 1085 Net operating loss carryovers

Deferred tax effects, 479 Net operating losses

Corporate, 992 Individual, 914

Net patient revenue, 627 Net present value (NPV), 1141 Net present value profile, 1143 Net realizable value, 337, 341 Net settlement, 555 Networked database, 1055 Networks, computer, 1056 Neutrality of information, 336 New clients

Communication between predecessor and successor auditors, 60, 62, 235, 325

Understanding the client, 60

Ninety (90)-day letter, 950 No additional-cost services, 902 Noise Control Act, 869 Nominal gross domestic product, 1084 Nominal interest rate, 1089 Nonbottleneck resources, 1167 Nonbusiness bad debt, 913 Noncash investing and financing activities,

514 Nondetachable stock purchase warrants,

428 Nonexchange revenues, 581 Nonexchange transactions, 594 Nonexpendable trust funds, 609 Nonmonetary exchanges, 347, 384

APB 29, 641 Diagram of, 386 FASB I 30, 642 Notes, 420

Nonpossessory interests in land, 881 Non-pro-rata distributions, 981 Nonqualified stock option, 908 Nonrecourse financing, 915 Nonrefundable loan origination fees (SFAS

91), 662 Nonsampling risk, 179 Nontaxable exchanges, 957, 964 Non-value-added activities, 1179 Normal profit, 1084 North American Free Trade Agreement

(NAFTA), 1091 Notes payable, 409, 419

APB 21, 637 Notes receivable, 419

APB 21, 637 Notes to the financial statements, 591 Not-for-profit accounting, 616, 701

Colleges and universities, 625 FASB and AICPA standards for, 616 Financial statements, 619, 625, 627 Health care entities, 626, 629 Illustrative transactions, 622

Not-for-Profit Guide, 616 Notional amount, 545, 556 Novation, 788, 886 Nuclear Waste Policy Act, 870

O

Object program, 1051 Objectivity, 64, 253 Object-oriented database, 1055 Object-relational database, 1055 Observation, 77, 125 Occupational Safety and Health Act

(OSHA), 863 Offer to contract, 769 Official bank checks, 1106 Official reserve account, 1092 Off-line, 1049 Oil Pollution Act, 869 Oligopoly, 1096 Omitted procedures discovered after report

date, 136 AU 390, 283

Omnibus opinion APB 10, 635 APB 12, 635

Online, 1049 Online analytical processing (OLAP), 1052 Online contracts, 784 Online entry, 1050 Online real-time systems, 1052 Online transaction processing (OLTP), 1052 Open-market operations, 1090 Operating activities, 513, 515, 517, 519, 664

INDEX 1218

Operating budget, 1185, 1190 Operating cycle, 365, 414 Operating lease, 449, 450, 649

Financial statement elements, 451 With scheduled rent increases, 650

Operating leverage, 1120 Operating profit margin, 1160, 1162 Operating segment, 560 Operational auditing, 139 Operational efficiency ratios, 414 Operation-costing system, 1178 Operations, 1068 Opinion paragraph, 143 Opportunity cost, 1140, 1186, 1203 Optimal capital structure, 1124 Option contracts, 770, 773 Order paper, 806, 807 Ordering costs, 1109 Ordinary and necessary expenses, 911 Ordinary annuities, 416, 417, 1136, 1137,

1138 Organization costs, 397 Organization costs, amortization of, 988 Other comprehensive bases of accounting,

369 Other comprehensive income, 678 Other information, reporting on, 150, 295 Outlay (out-of-pocket) cost, 1140, 1186 Out-of-the-money, 556 Output contracts, 776 Output devices, 1050 Outside salesman expenses, deductibility of,

936 Outsourcing, 1101 Outsourcing (make or buy) decisions, 1203 Overhead, 1170

Accounting for, 1172 Overapplied/underapplied, 1174

Disposition of, 1174 Variance analysis of, 1200

Three-way, 1201 Two-way, 1201

Owners’ equity Audit procedures, 119, 131 Capital stock transactions, 131 Retained earnings, 132

P

Paid-in capital, 483 Par value method (treasury stock), 486 Parent-subsidiary relationship, 994 Pareto chart, 1167 Parity check, 1069 Parol evidence rule, 783 Partially disclosed principal, 851, 855 Participating preferred stock, 484 Partnership taxation, 971

Cash method, use of, 979 Continuation of partnership, 979 Controlled partnerships, transactions with,

977 Form 1065, 897, 971 Partnership agreements, 974 Partnership distributions, 974, 980 Partnership formation, 972 Partnership income/loss, 972

At-risk limitations, 974 Calculation of, 973

Partnership interest Basis of, 976 Sale of, 979

Partnership property, basis of, 972, 982 Optional adjustment to, 982 Passive activities, 974

Taxable year, 978

Termination of partnership, 979 Partnerships, 564, 1023, 1035, 1036, 1046

Admission of new partners, 565 Bonus method, 565 Goodwill method, 565

Admission of partners, 1027, 1028, 1031 Agency relationship, 1024 Characteristics of, 1024 Death of partner, 567 Dissolution of, 565 Fiduciary duty, 1024, 1027 Formation of, 564, 1025 Income/loss allocation, 564 Incorporation of, 571 Interest, sale of, 568 Interests in, 1025

Assignment of, 1025, 1031 Joint and several liability, 1028 Joint ventures, 1032 Limited, 1024, 1029

Assignment of interest, 1031 Creation of, 1029 Termination of, 1031

Limited liability companies, 1032 Limited liability partnerships, 1034 Liquidation of, 568 Nature of, 1023 Partners

Capacity to be, 1024 General, 1024

Authority of, 1026 Liability of, 1028 Rights of, 1025, 1030

Limited, 1024, 1029 Liability of, 1030 Rights of, 1030

Partnership property, 1025 Profits and losses, 1026, 1030 Relationship to third parties, 1027 Termination of

Dissolution, 1029, 1031 Notice of, 1029

Distribution of property, 1029 Winding up, 1029, 1031

Transactions between partners, 568 Withdrawal of partner, 567, 1028

Passage of title, 795 Passive activities, 916, 974, 1003, 1005

Credits, 916 Limitation rules, 917 Losses, 916 Rental, 916

Pass-through entity, 971, 1001 Past consideration, 775 Patch, 1052 Patent law, 875 Patents, amortization of, 920 Payables (current)

Audit procedures, 129 Payables deferral period, 1104 Payback, 1140 Payroll tax liability, 409 PDCA, 1167 Peer reviews, 64 Penalties

Imposed on tax preparers, 1016 On premature withdrawals, 926 Taxpayer, 952

Pension (and other employee benefit) trust funds, 589, 608

Pensions, 435, 866 Accumulated benefit obligation, 658 Additional liability, 437, 660 Annuity contract, 661 Benefits, taxability of, 907 Curtailment, 662

Defined benefit plan, 436, 661 Defined contribution plan, 436, 658 Disclosures, 440, 661, 681 Employer sponsor’s vs. plan’s accounting

and reporting, 435 Employer’s accounting, 436 Employer’s contribution to, 992 Example, 441 Funding of pension liability, 436 Market-related value of plan assets, 438,

659 Measurement date, 661 Minimum liability, 437, 661 Pension cost/expense, 438, 659

Accrued or prepaid, 436, 659 Components of, 438

Actual return on plan assets, 438, 658 Expected return on plan assets, 439 Gain or loss, 438, 658, 659 Interest on projected benefit

obligation, 438 Prior service cost, 438, 659 Service cost, 438, 659

Projected benefit obligation, 438, 659 Settlement, 661 SFAS 87, 658 SFAS 88, 661 SFAS 132, 681 Single-employer defined benefit plans, 659 Taxability of, 907 Termination benefits, 662

Percentage-of-completion method, 341, 379 Tax reporting, 911

Perfect (Pure) competition, 1095 Perfecting a security interest, 821

By attachment, 822 Purchase money security interest in

consumer goods, 822 By control of collateral, 822 By filing a financing statement, 821

Performance bonds, 849 Performance measures, 1153 Performance of contract, 787 Performance reports, 1185 Period costs, 372, 1169, 1178 Periodic inventory method, 372 Periodic tenancy, 887 Peripheral equipment, 1049 Permanent current assets, 1112 Permanent differences, 469 Permanent funds, 585, 606 Permanently restricted net assets, 701 Permanently restricted resources, 625 Perpetual inventory method, 373 Personal casualty and theft losses, 933, 966,

991 Personal defenses, 811 Personal disposable income, 1079, 1089 Personal exemptions, 938 Personal financial planning, 730 Personal financial statements, 557

AR 600, 326 Personal holding companies, 997 Personal interest, 929 Personal property, 918 Personal property taxes, 632 Personal property taxes deductibility, 928 Personnel and payroll cycle, 97 Personnel management, 64

SQCS 5, 65 Petty cash, 400 Phillips curve, 1089 Physical access controls, 1070 Physical usage depreciation, 392 Piecemeal opinion, 152

INDEX 1219

Piercing the corporate veil, 1045 Planning, 1185 Pledging accounts receivable, 403 Pledging of receivables, 1114 Point of sale recognition basis, 341 Point-of-sale recorders, 1050 Point-to-point, 1063 Poka-yoke, 1167 Political contributions, taxability of, 904 Political gifts, 1009 Pollution control facilities cost,

amortization of, 920 Pollution Prevention Act, 870 Pooling method, 524 Portfolio income, 916 Portfolio returns and risk, 1130

Efficient portfolio, 1131 Expected returns, 1130 Variance, 1130

Portfolio risk, 1152 Postemployment benefits, 446

SFAS 112, 671 Postretirement benefits other than pensions,

445 Disclosures, 446 SFAS 106, 665

Potential GDP, 1085 Predecessor auditor, 60, 62, 235, 325 Predictive value, 336 Preemptive right, 1044 Preexisting legal duty (as consideration),

775 Preferences, tax, 942, 986 Preferential transfers in bankruptcy

proceedings, 833 Preferred stock, 484, 1040, 1119

Callable, 485 Convertible, 484 Cumulative, 484 Participating, 484

Pregnancy Discrimination Act, 864 Premature withdrawals, 926 Premium on forward contract, 554 Premium plans, contingent liabilities for,

412 Prepaid assets

Audit procedures, 119, 129 Preparer (income tax), 1014 Present interest, 1008 Present value, 1136, 1138 Presentment warranty, 814 Prevention cost, 1168 Preventive controls, 87 Price ceiling, 1082 Price elasticity analysis, 1097 Price elasticity of demand, 1077 Price floor, 1082 Price/earnings (PE) ratio, 1160, 1164 Pricing of products and services, 1202

Cost-plus pricing, 1202 Target pricing, 1202 Transfer pricing, 1202

Primary government, 580 Prime costs, 1169 Prime rate, 1113 Principal (in agency relationship), 850

And third parties, 854 Capacity to be, 853 Liability of, 854 Obligations of, 854 Types of, 851

Prior period adjustments, 361, 635 Deferred tax effects, 479 Retroactive change to equity method, 510 SFAS 16, 651

Prior service cost, 438, 659 Priority of claims of security interests, 824 Privacy Acts, 878 Private activity bonds, 903 Private debt, 1115 Private network, 1057 Private placement, 1115 Private-purpose trust funds, 589, 609 Privileged communication, 742 Privity of contract, 736, 738, 794 Prizes, taxability of, 908 Pro forma financial information, 167

AT 401, 210 Pro rata distributions, 980 Probability analysis, 1147 Probability-proportional-to-size sampling,

188, 190, 194 Process costing, 1176

Equivalent units of production, 1176 Example of, 1176 Flow of units, 1176 Spoilage, 1178

Processing controls, 1072 Processing methods, 1052 Producer price index, 1089 Product costs, 341, 1169, 1178 Product differentiation, 1100 Product financing arrangements, 347 Product liability, 793

Negligance, 794 Strict liability, 795 Warranty liability, 793

Disclaimers, 794 Product pricing, 1202 Product services, 730 Product warranties, contingent liabilities

for, 411 Professional corporations, 1037 Professional responsibilities, 714

Accountant’s legal liability, 735 Common law liability

To clients, 735 To nonclients, 738

Criminal liability, 743 Statutory liability to third parties

Securities Act of 1933, 739 Securities Exchange Act of 1934, 740

Auditing, 732 Code of professional conduct, 714

Ethics rulings, 722, 725, 726, 728 Principles, 714

Due care, 715 Integrity, 715 Objectivity and independence, 715 Public interest, 715 Responsibilities, 715 Scope and nature of services, 715

Rules, 716 Accounting principles, 724 Acts discreditable, 726 Advertising and other solicitation, 727 Commissions and referral fees, 727 Compliance with standards, 724 Confidential client information, 725 Contingent fees, 725 Form of practice and name, 727 General standards, 724 Independence, 716, 722

Application of, 716 Integrity and objectivity, 721, 722

Disciplinary systems, 735 In consulting services, 729 In personal financial planning services, 730 Legal considerations, 741 Standards for tax services, 1014

Profit center, 1198

Profitability index, 1142 Profitability ratios, 1160, 1162 Program flowchart, 1075 Projections, financial, 166, 207 Promissory estoppel, 776, 783 Promissory notes, 804 Promoters of corporation, 1037 Proof (control) total, 1071 Proof of cash, 401 Property, 872

Acquired by Finding, 873 Gift, 873 Intestate succession, 873 Will, 873

Adverse possession, 884 Bailment, 873 Concurrent interests, 881

Joint tenancy, 881 Tenancy by the entirety, 881 Tenancy in common, 881

Contracts for sale of land, 882 Copyright law, 874 Deeds

Executing, 883 Recording of, 883 Types of, 882

Easement by prescription, 884 Fixtures, 872 Future interests, 881

Remainder, 881 Reversion, 881

Intellectual, 874 Interests in real property, 880 Leases, 887

Lessee’s/lessor’s duties and rights, 887 Sublease, 888 Termination of, 888 Type of leaseholds, 887

Mortgages, 885 Patent law, 875 Personal property, 872, 873 Present interests, 880

Fee simple, 880 Life interest, 880

Real property, 872, 880 Semiconductor Chip Protection Act, 877 Title insurance, 884 Trade fixtures, 872 Trade Secrets Law, 876 Trademarks, 877

Property dividends, 487 Property plant and equipment

Audit procedures, 119, 128 Internal controls for, 100

Property rights, transfer of, 795 Property settlement, taxability of, 900 Property tax, 1090 Property taxes, 410, 632 Property transactions, tax treatment

Basis computation, 956 Exchanges, 958 Gifts, 956 Inheritances, 956 Stock dividends, 957 Stock rights, 957

Gains and losses Business property, 966 Capital, 964

Capital GL treatment of business property, 966, 970

Corporate, 966, 991 Individual, 965

On sale, 957 On taxable exchanges, 957

INDEX 1220

Personal casualty and theft, 933, 966, 991

Losses on deposits in insolvent financial institutions, 962

Nontaxable exchanges, 957, 964 Involuntary conversions, 959, 964 Like-kind exchange, 958, 964 Principal residence, 960 Transfers between spouses, 963

Related-party transactions, 963 Sale or exchange, 905, 956

Proprietary funds, 585, 606 Enterprise funds, 585, 606 Internal service funds, 585, 606 Statement of cash flows, 590 Statement of changes in net assets, 589 Statement of net assets, 588

Proprietary networks, 1064 Prospective financial information, 369 Prospective financial statements, 64, 207 Prospectus, 752 Proxy solicitation, 757 Public long-term debt, 1115 Public networks, 1057, 1064 Public warehouses, 266

AU 901, 313 Publicly traded securities

Rollover of capital gain on, 962 Punitive damages, 737, 738, 789 Purchase commitments

Disclosure of (SFAS 47), 653 Losses on, 375

Purchase method, see also Business combinations, 523

Accounting, date of combination, 524 Consolidated balance sheet, 527

Purchase money security interest, 822 Purchase of groups of fixed assets, 389 Purchase-money mortgage, 885 Purchases, payables, and cash

disbursements cycle, 91 Pure monopoly, 1095 Push-down accounting, 541 Put option, 556

Q

Qualified adoption expenses, 902 Qualified charitable organizations, 930 Qualified domestic trust (QDT), 1011 Qualified endorsement, 808 Qualified moving expense reimbursement,

902 Qualified opinion, 151, 155, 289 Qualified organizations, 930 Qualified residence interest, 929 Qualified Subchapter S trust (QSST), 999 Qualified terminable interest property,

1009, 1010 Qualified transportation fringes, 902 Qualifying widow(er), 941 Qualitative characteristics of accounting

information, 335, 698 Qualitative factors, 1204 Quality award programs, 1166 Quality control, 64 Quality control elements

Acceptance and continuance of clients and engagements, 64

Engagement performance, 65 Independence, 64 Integrity, 64 Monitoring, 65 Objectivity, 64 Personnel management, 64

Quality control standards

AU 161, 221 Relationship to GAAS, 221

Quantitative factors, 1204 Quantitative methods

Correlation, 1184 High-low method, 1182 Regression (least squares), 1183 Scattergraph method, 1182

Quarterly reporting, 149, 158 Quasi contracts, 768 Quasi reorganization, 497

ARB 43, Ch. 7A, 630 Questionnaires, internal control, 76, 100 Quick (acid) ratio, 414, 1160, 1164 Quitclaim deeds, 883 Quota, 1091

R

Random access, 1049 Random-number sampling, 182 Rate of return, 1202 Ratification

Of agency relationship, 852 Of contract by minor, 777

Ratio analysis Acid-test (quick), 414 Book value of common stock, 499 Current, 414 Days in inventory, 379, 414 Days in receivables, 414 Debt to equity, 499 Dividend payout, 499 Inventory turnover, 379, 414 Length of operating cycles, 414 Rate of return on common stockholders’

equity, 499 Receivable turnover, 414

Ratio estimation, 192, 194 Reaffirmation of dischargeable debts, 836 Real defenses against a holder in due

course, 811 Real estate sales, 345, 347

SFAS 66, 656 Transactions, 345

Real GDP, 1085 Real interest rate, 1089 Real options, 1151 Real property, 872, 880, 919 Real property taxes, 632 Real property taxes deductibility, 928 Realistic possibility standard, 1014 Reality of consent, 779 Realization, 703 Reasonableness (limit) test, 1071 Reasonableness of compensation, 911 Recapture rules, 967, 1000 Receivable turnover, 1160 Receivables

Audit procedures, 118, 123 Receivables collection period, 1104 Receivables management, 1111 Receivables turnover, 1163 Recession, 1087 Reclassification adjustments, 363 Recognition, 336, 700 Reconcile book and taxable income, 992 Record count, 1071 Recovery property, 917, 967 Redeemable, 1116 Redundant data check, 1072 Reengineering, 1167 Refund claims, 951 Registered bonds, 1117 Registration statement, 751 Regression analysis, 1183, 1195

Regression estimation, 192 Regulation of employment, 857

Affirmative action, 865 Age discrimination, 864 Civil Rights Act, 863 Employee safety, 863 Employment discrimination, 863 Environmental regulation, 867 Equal Pay Act, 864 Family and Medical Leave Act, 865 Federal Consolidated Budget

Reconciliation Act, 866 Federal Employee Polygraph Protection

Act, 866 Federal Fair Labor Standards Act, 865 Federal Insurance Contributions Act

(FICA), 857 Federal Social Security Act, 857 Federal Unemployment Tax Act (FUTA),

858 Health Insurance Portability and

Accountability Act, 865 Landrum-Griffin Act, 866 National Labor Relations Act, 865 Occupational Safety and Health Act

(OSHA), 863 Pensions, 866 Pregnancy Discrimination Act, 864 Religion discrimination, 864 Self-Employment Contributions Act, 858 Taft-Harley Act, 866 Title VII, 863 Torts of employee, 862 Unemployment benefits, 860 Unemployment insurance (FUTA), 858,

859 Vietnam Era Veterans Readjustment

Assistance Act, 864 Vocational Rehabilitation Act, 864 Wages, 858 Wagner Act, 865 Whistleblower Protection Act, 865 Worker Adjustment and Retraining

Notification Act, 866 Workers’ compensation, 860

Rehabilitation expense credit, 944 Reimbursed employee business expenses,

921 Reimbursement, 594

Right of, 845, 849 Rejection of offer, 770

Effectiveness of, 772 Related-party disclosures

SFAS 57, 656 Related-party transactions

AU 333, 269 Audit procedures, 120, 135 Tax treatment

Constructive stock ownership rules, 963, 964

Corporations Distributions to related persons, 996 Sales and exchanges, 991

Losses, expenses, and interest between related parties, 963, 991

Partnerships, 977 Spouses, 963

Gift tax, 1009 Relational database, 1055 Relative sales value method, 378 Relevance/reliability of information, 336 Relevant costs, 1140, 1186, 1203 Relevant range, 1171, 1185, 1186 Religious discrimination, 864 Remainder, 881 Remeasurement (foreign currency), 578

INDEX 1221

Remedies for breach of contract, 788, 798 Removal of structural barriers, 927 Rent

Free or uneven payments, 450 Tax treatment

Expense, 921 Income, 905, 910 Passive activity rules, 916

Rental of vacation home, 922 Reorganization, corporate, 1005 Reorganizations, 497 Reperformance, 77 Replacement property, 959 Replevin, 800 Reportable conditions, 213, 256 Reportable operating segments, 679 Reporting, 140

Consistency, 148, 288 Accounting changes, 148 AU 420, 285

Cycle, 86 Dating the report, 143

AU 530, 290 Departure from standard report, reasons for,

145, 214, 304 Comparative statements, 148, 290 Departures from GAAP, 147, 150 Emphasis of a matter, 150, 289 Going concern question, 135, 147

AU 341, 276 Inconsistent application of GAAP, 148,

285, 288 Independence, lack of, 152 Opinion based, in part, on report of

another auditor, 146, 214 AU 543, 293

Other information, 150 AU 550, 295

Quarterly data, 149 Restricted-use, 142, 291 Scope limitation, 151, 289 Supplementary information, 150

AU 558, 297 Negative assurance, 142, 166 Opinions

Adverse, 152, 155, 289 Disclaimer, 152, 155, 289 Except for (piecemeal), 152 Qualified, 152, 155, 289 Unqualified with explanatory language,

155 Quarterly reports, 158

SEC reporting companies, 149 Report form

Explanatory paragraph, 288 Introductory paragraph, 143, 164 Opinion paragraph, 143 Scope paragraph, 143 Short form, 142 Standard unqualified report, 45, 142,

204, 288 Report preparation, 153 Types of reports

Agreed-upon procedures, 142, 160, 166, 204

Application of accounting principles, 162 AU 625, 304

Comparative statements, 148, 289 AR 200, 323

Compiled statements, 142, 155, 208 AR 300, 324

Compliance, 215 Attestation engagements, 164, 215

Agreed-upon procedures, 166, 216 Examinations, 142, 171, 216

Auditing of Federal Financial Assistance Programs, 172

Under GAAS, 173 Under GAS, 173 Under Single Audit Act, 175

Report examples, 160, 172, 174 Comprehensive basis other than GAAP,

159, 164, 300 Condensed financial statements, 159,

297 Financial forecasts and projections, 166,

207 Financial statement audit, 141

AU 508, 288 Information accompanying basic FS in

auditor-submitted documents, 150 AU 551, 295

Interim, 158 Internal control, 104, 173, 212

AU 325, 256 For service organizations, 106, 254

Letters for underwriters, 162, 306 Management’s discussion and analysis,

168, 217 Prepared for use in other countries, 159

AU 534, 292 Pro forma financial information, 167,

208 Prospective, 207 Quarterly, 149, 158 Restricted-use, 142, 291 Reviewed statements, 142, 155, 158,

204, 318 Selected financial data, 297 Special reports, 159, 300 Unaudited statements, 156, 287 WebTrust, 1062

Reporting currency, 578 Reporting cycle, 87 Reporting entity, 580 Reporting standards, 204, 221 Representation letters, 133

AU 333, 268 Representational faithfulness, 336 Required supplementary information, 591 Requirements contracts, 776 Rescission of contract, 789 Research and development costs, 397

SFAS 2, 643 Research and development costs,

deductibility of, 920, 992 Reserve requirements, 1089 Residence, tax treatment

Interest on, 929 Sale or exchange of, 905, 960

Residual income profile, 1157 Residual value, 453, 648

Guaranteed, 453 Unguaranteed, 454

Resource Conservation and Recovery Act, 869

Responsibility accounting, 1186, 1198 Restitution, 789 Restricted use of audit report, 142, 291 Restrictive endorsement, 808 Retained earnings, 483, 1039

Appropriations of, 488 Retained interests, 406 Retirement of assets, 690 Retirement of stock, 486 Retirement plans

Education IRA, 924 Individual retirement accounts (IRA), 923 Keogh plans, 923 Roth IRA, 924

Savings incentive match plan for employees (SIMPLE), 925

Simplified employee pension (SEP) plan, 925

Return of capital, 900 Return on assets, 1160, 1162 Return on equity, 1160, 1162 Return on investment, 1156 Revenue, 702 Revenue expenditures, 390 Revenue recognition, 336, 699

Cost recovery method, 345 Franchise agreements, 345 Installment sales, 344 Long-term construction contracts, 379, 633 Nonmonetary exchanges, 347 Product financing arrangements, 347 Real estate transactions, 345, 347 Receivables, sale with recourse, 347 Sale-leaseback transactions, 347, 462, 650 Sales-type leases, 347, 449, 456, 465, 649 SFAC 5, 699 Software, 346 When right of return exists, 347

SFAS 48, 654 Revenue, special audit considerations, 132 Reversing entries, 342 Reversion, 881 Review

Accountant’s report, 155, 204 AR 100, 318 Of financial statements, 41, 110, 320 Of interim financial information

AU 722, 308 Procedures, 137 Responsibilities, 63

Revocation of discharge, 836 Revocation of offer, 770

Effectiveness of, 770 Revolving credit agreements, 1113 RICO, 744 Right to Financial Privacy Act, 879 Rights of a holder in due course, 810 Rights of parties upon default of secured

interests, 826 Risk, 368

Audit, 55, 179, 280 Control, 56, 76 Credit or default, 1131 Detection, 56 Estimating risk

Normal distribution, 1130 Inherent, 56 Interest rate, 1131 Market, 1131 Nonsampling risk, 179 Risk averse, 1129 Risk of assessing control risk too high, 181 Risk of assessing control risk too low, 181 Risk of incorrect acceptance, 186, 193 Risk of incorrect rejection, 185, 193 Risk of material misstatement, 56, 239 Risk-neutral, 1129 Risk-seeking, 1129 Sampling, 179, 181

Substantive tests, 185 Tests of controls, 181

Systematic, 1131 Unsystematic, 1131

Risk and return, 1129 Risk assessment, 70, 73, 75, 1068 Risk of loss and title, 796 Risk preference function, 1131, 1152 Risk-adjusted discounted rate, 1149 Risk-management function, 1103 Risks in using derivatives, 1134

INDEX 1222

Basis risk, 1134 Credit risk, 1134 Legal risk, 1134 Market risk, 1134

Robust design, 1167 Rollover of capital gain

On securities, 962 Roth IRA, 924 Router, 1058 Royalties, taxability of, 905, 910 Run, 1052

S

S corporations, 998 Basis of stock, 1002 Distributions, 905, 1003 Election, 998, 999

Built-in gain, 1004 Eligibility requirements, 998 LIFO recapture, 1000 Losses, deductibility of, 1002 Passive income, 1005 Taxability of, 1000 Termination of, 1000

Safe Drinking Water Act, 868 Safety stock, 1109 Sale-leaseback transactions, 347, 462, 650 Sales

Bailments, 873 Battle of forms, 792 Buyer’s remedies for breach of contract,

799 Consignment, 792, 824 Contracts

For sale of goods, 782, 791 For sale of land, 781

Documents of title, 792 Bill of lading, 792 Transfer of, 818 Warehouse receipt, 792

Express warranties, 793 Firm offer, 773, 791 Identification, 795, 800 Implied warranties, 793 Merchant, 791 Of accounts receivable, 403

With recourse, 347, 404 Without recourse, 403

Of real estate, 347 SFAS 66, 656 Transactions, 345

Performance of contract, 798 Product liability, 793

Negligence, 794 Strict liability, 795 Warranty liability, 793

Property rights Transfer of, 795

Receivables, and cash receipts cycle, 89 Remedies, 798

Buyer’s, 799 Seller’s, 798

Sale on approval, 797 Sale or return, 797 Seller’s remedies for breach of contract,

798 Shipping terms, 796 Statute of Frauds, 768, 781 Statute of limitations, 800 Strict liability, 795 Title

Passage of, 796 Risk of loss and, 796 Voidable, 795, 797

UCC Article 2, 791 Warranty liability, 793

Disclaimers, 794 Express warranties, 793 Implied warranties, 793 Warranty of title, 793

With right of return, 347 SFAS 48, 654

Sales and exchanges, tax treatment Of property, 905, 956 Of residence, 905, 960 Of securities, 905, 961

Sales basis of revenue recognition, 341, 347 Sales discounts, 402 Sales tax, 1090 Sales-type lease, 347, 449, 456, 465, 649

Financial statement elements, 458 Sample deviation rate, 184 Sample size equation, 188, 193 Sampling risk, 179, 181, 185, 193, 194 Sarbanes-Oxley Act, 745, 760 Savings bonds, taxability of, 903 Savings incentive match plan for employees

(SIMPLE), 925 Scanner, 1050 Scanning, 1095 Scattergraph method, 1182 Scenario analysis, 1150 Schedule of employer contributions, 591 Schedule of funding progress, 591 Schedules

Cost of goods manufactured, 1171 Cost of goods sold, 1171 Tax purposes

Schedule A, 896 Schedules K and K-1, 897 Schedules M-1 and M-2, 993

Scholarships and fellowships, taxability of, 904

Scienter, 738, 741, 779 Scope limitation, 151, 289 Scope paragraph, 143 Scrip dividends, 487 Secured borrowing, 405 Secured transactions, 820

After-acquired property clause, 823 Attachment of security interests, 820 Consignments, 824 Perfecting a security interest, 821

By attachment, 821 Purchase money security interest in

consumer goods, 822 By filing, 821 By possession, 822

Field warehousing, 823 Priority of claims, 824 Rights of parties upon default, 826 UCC Article 9, 820

Securities Available-for-sale, 503, 507, 673 Debt, 425, 501 Equity, 483, 501 Held-to-maturity, 502, 503, 507, 673 Impairment of, 674 Income statement presentation of, 507, 673 Marketable, 119, 127 Sale or exchange of, 961 SFAS 115, 673 Tax treatment

Passive income from, 916, 974, 1003 Sale or exchange of, 905, 961

Trading, 502, 503, 507, 673 Transfers between categories of, 506, 674

Securities Act of 1933, 306 Intrastate issues, 753 Liability under, 755, 756 Rule 506, 754

Securities Exchange Act of 1934

Auditors’ defenses, 741 Foreign Corrupt Practices Act, 760 Private Securities Litigation Reform Act,

744, 745 Tender offers, 758

Securities law, 749 Blue-sky laws (state), 762 Securities Act of 1933, 739, 749

Antifraud provisions, 755 Auditors’ defenses, 741 Civil liability, 755 Controlling person, 750 Criminal liability, 756 Exempt securities, 753 Exempt transactions, 753 Insiders, 750 Postregistration transactions, 755 Prospectus, 751 Purposes of, 749 Registration requirements, 751 Registration statement, 751 Regulation D, 754 Securities

Definition of, 749 Sale of, 750

Small issues (Regulation A), 753 Underwriter, 750

Securities Exchange Act of 1934, 740, 741, 756

Antifraud provisions, 758 Exempt securities, 757 Liability under, 759 Proxy solicitation, 757 Purposes of, 756 Registration under, 757 Reporting requirements of insiders, 760 Required disclosures, 756 Sanctions available, 757

Securitization of assets, 1114 Securitizations, 408 Security deposits, 451 Security deposits, taxability of, 910 Security provisions, 1116 Segment contribution, 1198 Segment reporting, 560

APB 30, 642 Disclosure, 561, 562 Restatement, 562 SFAS 131, 679

Segment reporting and controllability, 1198 Segregation controls, 1067, 1069, 1070 Selected financial data, reports on, 297 Self-employed individuals, tax treatment

Deductions, 922 Keogh plans, 923

Self-Employment Contributions Act, 858 Self-employment tax, 922, 943 Sell or process further decision, 1181, 1203 Selling accounts receivable, 403 Semiconductor Chip Protection Act, 877 Sensitivity analysis, 1150 Separate maintenance payments, 906, 926 Sequential access, 1049 Sequential sampling, 183 Serial bonds, 1116 Service bureau/center, computer, 1065

Reports on, 106, 254 Service department cost allocation, 1174

Direct method, 1174 Step method, 1175

Service pricing, 1202 Servicing assets, 407 Settlement value, 337 Share repurchases, 1126, 1127 Shelf registration, 752 Shelter provision, 812

INDEX 1223

Shipping terms, 378 Short-form audit report, 142 Short-swing profits, 758 Short-term bank loans, 1113 Short-term differential cost analysis, 1203

Allocation of scarce resources, 1204 Closing a department/segment, 1203, 1204 Outsourcing (make or buy), 1203 Sale of obsolete inventory, 1203, 1204 Sell or process further, 1181, 1203 Special orders, 1203

Short-term obligations expected to be refinanced, 409

SFAS 6, 701 Side agreements, 133 Sight draft, 816 Simple average method, 373 Simplified employee pension (SEP) plan,

925 Simulation models, 1150 Single Audit Act, 734 Sinking fund provisions, 1116 Six-sigma quality, 1166 Small business corporation stock, 985

Capital gains exclusion, 961 Social security benefits, taxability of, 907 Social security taxes, 943 Software, 1051, 1060, 1070 Software costs, 397 Software revenue recognition, 346 Solvency ratios, 414 Source program, 1051 Sources of short-term funds, 1112 Special assessments, 606 Special endorsement, 808 Special items, 581 Special order decisions, 1203 Special reports

AU 623, 300 Comprehensive basis other than GAAP,

159 Financial forecasts and projections, 162 Letters for underwriters, 162 Pro forma financial information, 162 Special-purpose financial presentation, 161,

303 Specified elements, 302

Agreed-upon procedures, 142, 160, 165, 166, 205, 216

Special revenue funds, 585, 595, 601 Specialist, use of, 134

AU 336, 271 Special-purpose entities, 527 Special-purpose governments, 580 Specific identification method, 373 Specific performance, 789 Speculation, 1134 Spin-offs, 1119 Split-interest agreements, 619 Split-off point, 1180 Spoilage

Job-order costing, 1178 Process costing, 1178

Staff and support services, 730 Standard confirmation form, 123 Standard costing of inventory, 378 Standard costs, 1186, 1199

And pricing, 1202 Variance analysis, 1199

Standard deduction, 926 Standard error of the estimate, 1197 Standard report departures, 145 Start-up activities, 397 State “blue-sky” laws, 762, 763 Statement of activities, 581, 583

Statement of affairs, 496 Statement of net assets, 581, 582 Statements of Financial Accounting

Concepts SFAC 1 (Reporting objectives), 335, 698 SFAC 2 (Accounting information), 335,

698 SFAC 5 (Recognition and measurement),

336, 699 SFAC 6 (Financial statements), 336, 701 SFAC 7 (Cash flow information), 338, 704

Statements of Financial Accounting Standards

SFAS 2, 643 SFAS 5, 644 SFAS 6, 646 SFAS 7, 646 SFAS 13, 647 SFAS 15, 651 SFAS 16, 651 SFAS 34, 652 SFAS 43, 653 SFAS 45, 653 SFAS 47, 653 SFAS 48, 654 SFAS 52, 655 SFAS 57, 656 SFAS 66, 656 SFAS 78, 657 SFAS 84, 657 SFAS 86, 657 SFAS 87, 658 SFAS 88, 661 SFAS 89, 662 SFAS 91, 662 SFAS 94, 663 SFAS 95, 663 SFAS 98, 665 SFAS 106, 665 SFAS 107, 668 SFAS 109, 669 SFAS 112, 671 SFAS 114, 671 SFAS 115, 673 SFAS 116, 616, 674 SFAS 117, 616, 620 SFAS 123, 675 SFAS 124, 616 SFAS 128, 677 SFAS 129, 678 SFAS 130, 678 SFAS 131, 679 SFAS 132, 681 SFAS 133, 683 SFAS 134, 684 SFAS 135, 684 SFAS 136, 617, 618, 684 SFAS 137, 684 SFAS 138, 684 SFAS 140, 685 SFAS 141, 687 SFAS 142, 688 SFAS 143, 690 SFAS 144, 691, 693 SFAS 145, 693 SFAS 146, 693 SFAS 147, 694 SFAS 149, 694 SFAS 150, 694 SFAS 151, 695 SFAS 152, 695 SFAS 153, 696 SFAS 154, 696

Statements of Governmental Accounting Standards Board

GASB 6, 606

GASB 9, 588 GASB 25, 589 GASB 26, 589 GASB 31, 611 GASB 33, 594, 602 GASB 34, 579, 584 GASB 35, 612 GASB 37, 609 GASB 39, 580, 614

Statements of Position SOP 96-1, 645

Statements on Auditing Standards, 47, 49, 220

AU 110, 220 AU 150, 221 AU 161, 221 AU 201 through 230, 222 AU 310 and 311, 275, 276 AU 312, 276 AU 313, 232 AU 315, 235 AU 316, 237, 276 AU 317, 243, 276 AU 319, 276 AU 322, 252 AU 324, 254 AU 325, 256, 276 AU 328, 262 AU 329, 262, 263, 276 AU 330, 264, 276 AU 331, 266 AU 332, 266 AU 333, 268, 276 AU 334, 269 AU 336, 271 AU 337, 272, 276 AU 341, 276 AU 342, 278 AU 350, 279 AU 380, 276, 282 AU 390, 283 AU 410, 283 AU 411, 283 AU 420, 285 AU 431, 286 AU 504, 287 AU 508, 276, 288 AU 530, 290 AU 532, 291 AU 534, 276, 292 AU 543, 293 AU 550, 295 AU 551, 295 AU 552, 297 AU 558, 297 AU 560, 298 AU 561, 299 AU 623, 300 AU 634, 306 AU 711, 307 AU 722, 308 AU 801, 276 AU 901, 313 SAS 102, 220 SAS 103, 273 SAS 106, 223 SAS 107, 227 SAS 108, 225, 233 SAS 109, 245 SAS 110, 257

Statements on Quality Control Standards SQCS 2, 64 SQCS 3, 65 SQCS 4, 65 SQCS 5, 65

INDEX 1224

Statements on Standards for Accounting and Review Services, 141

AR 100, 318 AR 200, 323 AR 300, 324 AR 400, 325 AR 500, 326 AR 600, 326

Statements on Standards for Attestation Engagements, 203

AT 101, 203 AT 201, 204 AT 301, 207 AT 401, 210 AT 501, 212 AT 601, 215 AT 701, 217

Statements on Standards for Consulting Services

SSCS 1, 729 Statistical sampling, see also Audit sampling

AU 350, 279 Substantive tests, 180, 185, 280 Tests of controls, 180, 181, 182, 281

Statute of Frauds, 781 Agreements that cannot be performed

within one year, 781 Parol evidence rule, 783 Promise to pay the debt of another, 782 Required writing, 782, 792 Sales of goods, 782, 792 Sales of interests in land, 781

Statute of limitations for breach of contract, 789, 800

Statutory liability to third parties, 739, 740 Stepped (semifixed costs), 1170 Stock

Classes of, 1039 Common, 484 Definitions, 1038 Dividends, 487, 511 Issued to employees

APB 25, 639 Marketing of, 1040 Preferred, 484 Retirement of, 486 Splits, 487, 511 Subscriptions, 485 Treasury, 485 Warrants, 428, 636

Stock appreciation rights FASB I 28, 639

Stock dividends, 488, 511, 1126 ARB 43, Ch. 7B, 630 Basis of, 957 Taxability of, 903

Stock options ARB 43, Ch. 13B, 630 Taxability of, 907

Stock ownership plans for employees, 499 Stock purchase treated as an acquisition

(tax), 997 Stock purchase warrants, 428, 636 Stock redemptions, tax treatment, 995 Stock rights, 499, 511

Basis of, 957 Taxability of, 903

Stock splits, 487, 511, 1126 ARB 43, Ch. 7B, 632

Stock subscriptions, 485, 1040 Stock warrants, 1118 Stockholders’ equity, 483

Common stock, 484, 1039 Comprehensive income, 483 Preferred stock, 484, 1040 Retained earnings appropriated, 488

SFAS 128, 677 SFAS 129, 678 Stock, types of, 484 Treasury stock transactions, 485

Stockholders’ equity ratios, 499, 500 Stockholders’ liability, 1035, 1045 Stockholders’ rights, 1043, 1044 Stockouts, 1109 Stop payment orders, 817 Stop-or-go sampling, 183 Storage devices, 1049 Straight-line amortization, 427 Straight-line depreciation, 390 Strategic alliances, 1101 Strategy, 1153 Strategy maps, 1154 Stratified sampling, 192 Strict liability, 795, 860, 870 Strike benefits, 907 Structural unemployment, 1088 Structured query language (SQL), 1055 Subordinated debenture, 1116 Subpart E trust, 999 Subrogation

Insurer’s right of, 890 Surety’s/guarantor’s right of, 845

Subsequent bona fide purchaser, 825 Subsequent discovery of facts existing at

report date AU 561, 299 Audit procedures, 136, 322

Subsequent events AU 560, 298 Audit procedures, 120, 136 Reporting, 214

Subsidiaries Consolidation of (SFAS 94), 663 Deferred tax effects, 478 Liquidation of, 996

Substantial performance, 787 Substantive tests, 113

Analytical procedures, 113, 263 Interim

AU 313, 232 Sampling in, 180, 185, 281 Tests of details of transactions and

balances, 115 Substitution effect, 1078 Successor auditor, 60, 62, 236, 325 Summary of significant accounting policies,

638 Sum-of-the-years’ digits method, 390 Sunk costs, 1203 Sunk, past, or unavoidable costs, 1140, 1186 Superfund, 869 Supervision requirements, 62, 227 Supplementary information, 150, 322

AU 558, 297 Audit procedures, 120

Supply, 1080 Supply chain, 1108 Supply chain management, 1100, 1108 Supply curve shift, 1080 Supply-side theory, 1091 Surety bonds, 849 Suretyship contracts, 843 Surviving spouse, 941 Suspension from AICPA, 714 Swap contracts, 556 Swaption, 556 Syndicate, 971 System, 1048 System flowchart, 1075 Systematic risk, 1131 Systematic sampling, 182

Systems analysis, 1067 Systems programming, 1067

T

Taft-Hartley Act, 866 Target costing, 1186 Target market analysis, 1099 Target pricing, 1202 Tariff, 1091 Tax accounting methods, 909, 979 Tax benefit rule, 908 Tax computation

Corporate, 992 Estate tax, 1010 Estates and trusts, 1012 Gift tax, 1008 Individual, 939

Tax credits, 900, 943 Adoption credit, 948 Alcohol fuels credit, 944 Business energy credit, 944 Child care credit, 946 Child tax credit, 948 Credit for rehabilitation expenditures, 944 Credit for the elderly and disabled, 945 Disabled access credit, 945 Earned income credit, 947 Employer social security credit, 945 Empowerment zone employment credit,

945 Foreign tax credit, 947 General business credit, 943 Hope Scholarship credit, 948 Lifetime learning credit, 949 Low-income housing credit, 945 Minimum tax credit, 943 Passive activity credits, 916 Unified transfer tax credit, 1008 Welfare-to-work credit, 944 Work opportunity credit, 943, 944

Tax preference items, 942, 986 Tax procedures, 950, 953 Tax rate schedules, 940, 986 Tax return preparers, 1014 Tax tables, 939 Taxable exchanges, 957 Taxes, 1090 Taxes, deductibility of, 927 Taxpayer penalties, 952 Technology, auditing with

Application controls, 1071 Computer systems

Characteristics of, 1048, 1056 Types of, 1048 Vs. manual systems, 1048

Computers, types of, 1048 Data file structure, 1054 Data organization, 1053 Database systems, 1054 Documentation

Data flow diagrams (DFD), 1075 Decision tables, 1075 Flowcharting, 1074

Common symbols, 1074 Types of, 1075

Effect of computer on internal control, 1065 Control activities, 1068 Control environment, 1066 Information and communication, 1068 Monitoring, 1068 Risk assessment, 1068

Electronic commerce, 1062 Electronic data interchange, 1063

Value-added network (VAN), 1063 End-user computing, 1061 General controls, 1069

INDEX 1225

Hardware, 1048 Information systems, 1048 Local area networks (LAN), 1057, 1060 Manual vs. computer system, 1048 Microcomputers, 1048, 1060 Networks, 1056 Processing methods

Batch, 1052 Centralized, 1053 Decentralized, 1053 Direct access, 1052 Distributed, 1053 Online real-time, 1052

Service bureau/center, 254, 1065 Software, 1051

Telecommunications, 1056, 1065 Telephone Consumer Protection Act, 870 Telephone line, 911 Temporarily restricted net assets, 702 Temporarily restricted resources, 623 Temporary current assets, 1112 Temporary differences, 468, 470, 477, 480

Donated asset, 469 Estimated warranty liability, 468 Goodwill, 469 Involuntary conversion of assets, 469, 481 Plant assets and accumulated depreciation,

469 Unearned rent (royalty) revenue, 468

Tenancy At sufferance, 887 At will, 887 By the entirety, 881 For a term, 887 In common, 881 Joint tenancy, 881 Periodic tenancy, 887

Tender offer, 758 Tentative minimum tax, 941 Term structure of interest rates, 1132

Flat yield curve, 1132 Humped yield curve, 1132 Inverted yield curve, 1132 Normal yield curve, 1132

Termination of offer, 770 Tests of controls, 74, 77

Inquiries, 77 Inspection, 77 Observation, 77 Reperformance, 77 Sampling in, 180, 181, 281

Tests of details of transactions and balances, 115

The F-Statistic, 1197 The multiplier, 1086 The t-Statistics, 1197 Theft gains and losses, 933, 966, 991 Theory of constraints (TOC), 1167 Third-party beneficiary contracts, 786, 844 Thirty (30)-day letter, 950 Three-tier architectures, 1059 Throughput contribution, 1167 Throughput time, 1170 Time deposits, 926 Time draft, 816 Time value of money, 337, 416

Amortization of bond interest, 425, 1139 Annuities, 416, 418, 1137, 1138 Applications of, 418, 1138 Bonds payable/bond investments, 425 Compounding interest, 416, 1136 Debt restructure, 430 Effective interest vs. straight-line

amortization method, 427 Expected cash flow, 339 Factor tables, 417, 1137

Future value Of an amount, 416, 1136 Of an annuity due, 418, 1138 Of an ordinary annuity, 416, 1137

Leases, 449 Notes receivable/payable, 419 Pensions, 435 Present value

Of a future amount, 337, 416, 1136 Of an annuity due, 418, 1138 Of an ordinary annuity, 417, 1137

SFAC 7, 338 Time-adjusted discount rates, 1149 Time-adjusted rate of return, 1142 Timeliness of evidential matter, 78 Timeliness of information, 336 Times interest earned, 1160, 1164 Tips, taxability of, 905 Title

Documents of, 792, 818 Insurance, 884 Marketable title, 882 Passage of, 795 Risk of loss and, 796 Transfer of, 818 Voidable, 795, 797 Warranty of, 793

Tolerable deviation rate, 183 Tolerable misstatement, 187, 193 Torts, 862, 1041 Total asset turnover, 1160, 1164 Total quality control, 1167 Total Quality Management (TQM), 1166 Toxic Substance Control Act, 869 Tracking stocks, 1119 Trade acceptance, 816 Trade discounts, 1105 Trade fixtures, 872 Trade Secrets Law, 876 Trademarks, 877 Trading securities, 502, 503, 507

SFAS 115, 673 Training and proficiency

AU 201 through 230, 222 Transaction file, 1054 Transaction gain or loss, 556 Transaction services, 730 Transfer of assets, 405 Transfer of negotiable documents of title,

818 Transfer of property rights, 795 Transfer of receivables, 403 Transfer pricing, 1093, 1186, 1202 Transfer warranty, 814 Translation adjustments, 578 Translation of foreign currency, 572

SFAS 52, 574 Transportation fringes, 902 Travel expenses, deductibility of

Business, 912 For medical care, 927

Treadway Commission, 69 Treasury bills (T-bills), 1107 Treasury Inflation Protected Securities

(TIPS), 1107 Treasury notes, 1107 Treasury stock, 485, 1038

APB 6, 634 ARB 43, Ch. 1B, 630

Treasury stock method (to test dilutiveness), 493

Trend analysis, 1195 Troubled debt restructure, 430

SFAS 15, 651 Trust receipt, 1114

Trustee In bankruptcy, 826, 830

Truth-in-Lending Act, 842 Tuition and related expenses, taxability of,

925 Turnaround documents, 1050 Type I error, 181, 185 Type II error, 181, 186

U

Ultra vires acts, 1041, 1042 Ultramares Corp. vs. Touche, 738 Unaudited statements, 41, 155, 287 Uncertainties, 368 Unconditional purchase obligations, 654 Unconscionable contracts, 781 Underlyings, 545, 556 Understanding, auditor’s

Of client and industry, 60 Of internal control, 62, 72, 75, 213 With client (engagement letters), 60

Underwriters, 750 Letters for, 162

AU 634, 306 Undisclosed principal, 851, 855 Undue influence, 781 Unearned income of children, 940 Unearned rent (royalty) revenue, 468 Unemployment, 1088 Unemployment benefits, taxability of, 909 Unemployment insurance (FUTA), 858, 859 Unemployment tax (FUTA), 943 Unguaranteed residual value, 454, 648 Unified transfer tax credit, 1008 Uniform capitalization rules, 912 Uniform Commercial Code

Commercial paper, 803 Contract rules, 772, 791 Leases, 801 Sales of goods, 782, 791 Secured transactions, 820

Uniform resource locator (URL), 1057 Unilateral mistake, 780 Unilateral offer/contract, 769 University accounting, 616, 625 Unliquidated debt, 775 Unqualified opinion

Reporting, 45, 140, 287 With explanatory paragraph, 155

Unrecognized firm commitment, 550 Unrecorded liabilities, 130 Unreimbursed employee expenses, 936 Unrestricted net assets, 702 Unusual item, 361 Usury, 778 Utility program, 1051

V

Vacation home, 922 Validity check, 1072 Value engineering, 1202 Value-added activities, 1179 Value-added network (VAN), 1063 Value-added tax, 1090 Value-based management, 1153 Variable (direct) costing, 1185, 1188 Variable costing of inventory, 378 Variable costs, 1185 Variable interest entities, 527 Variance analysis, 1199

Disposition of variances, 1202 Labor, 1200 Materials, 1199 Overhead, 1200

Variance power, 618

INDEX 1226

Venture capital, 1119 Verifiability of information, 336 Vertical analysis, 1165 Vertical merger, 1127 Vietnam Era Veterans Readjustment

Assistance Act, 864 Virtual storage, 1052 Vocational Rehabilitation Act, 864 Void/voidable contracts, 768, 777, 779 Voidable title, 795, 797 Voluntary bankruptcy, 828 Voluntary nonexchange transactions, 595

W

Wages taxes, 1090 Wagner Act, 865 Warehouse receipt, 792, 818 Warehouses, goods held in public, 126, 266,

313 Warehousing, 1114 Warranties

Compared to guaranty, 844 Disclaimers, 794 In contract for sale of goods, 793

Express, 793

Implied, 793 Liability for, 793, 813 On negotiable instruments, 814

Warranties, contingent liabilities for, 411 Warrants, detachable stock purchase, 428,

636 Warranty deeds, 882 Warranty of fitness for a particular

purpose, 793 Warranty of merchantability, 793 Warranty of title, 793 Wash sales, 962 Watered stock, 1040 Web browser, 1058 Web server, 1058 WebTrust, 168, 1062 Weighted-average cost of capital, 1125 Weighted-average inventory method, 1176 Weighted-average method, 373 Welfare-to-work credit, 944 Whistleblower Protection Act, 865 Wide area networks (WAN), 1057 Wills, 873 With vs. without recourse, 403 Work opportunity credit, 944

Worker Adjustment and Retraining Notification Act, 866

Workers’ Compensation Act, 860 Workers’ compensation, taxability of, 902 Working capital, 635 Working capital management, 1104 Working condition fringes, 902 Working trial balance, 121 Workpaper files, 122 World Wide Web, 1058 Worthless securities, 962 Writ of attachment, 840 Writ of garnishment, 840 Write-offs of accounts receivable, 402

Y

Yield to maturity, 1116

Z

Zero-balance accounts, 1105 Zero-based budgeting, 1186 Zero-coupon method, 1135 Zero-coupon rate bonds, 1117