Accounting class help?

Question

u are reviewing the year-end financial statements of a small ($2 mil. revenues) company that has applied for a long-term loan from the bank. u note as you begin that a principal stockholder is your former college roommate. You are preparing your report & wonder about the following:
a. The company decided during the last month of the year to change their method of accounting for depreciation for this year’s financial statements. You do not believe that any adjustments were made to prior years’ reported results as a consequence of this change.
Should these items be disclosed in your report? Why or why not? If you disclose, how should your disclosure be phrased?

Should you disclose this to the company, to your employer, or in your report? Should the audit have been conducted differently? In your answers, try to keep in mind some of the fundamental qualitative principles underlying financial reporting and cite them where relevant.

Answer 1

I assume you are the loan officer from the bank and not the external auditor. You are assessing the credit-worthiness of the co. as a potential loan customer. The part of the roommate is totally irrelevant and should not come into your considerations at all.
There can be good reasons why companies change their depreciation policies. Enquire into the reasons, and document them in your report. Do you agree with them? Then assess the impact of the change. Did it increase or decrease profit? You can make an adjustment to the reported results in your report. Why did the auditors not do a prior year adjustment? Bear in mind that you only do a PYA if the item was material. Could the effect have been immaterial? You can mention all this as your findings in your report, merely stating facts. Assuming you work for the bank, stating anything in your report is the same as disclosing it to your employer (the bank).

In terms of GAAP, the ones on materiality and PYA would apply (change in a/cg policy should be retrospective)

Answer 2

That accounting **** is very difficult. Its also not logical and makes no sense when you sit down and study for it. I took accounting in the same semester with a calculus class. I found the calculus to be way easier than the accounting. The calculus was logical and although it was still hard, i ended up still getting an A. With the accounting, I had to cheat my way through that. I didn't learn a thing from that class. It was just a requirement for my information systems degree. I ended up with a B in the accounting. All I can say is good luck if your taking it. That **** is hard as ****. The math in that **** is easy but you literally have to think like an entrepreneur to understand the business part of it. Making ledgers, transactions, debits/credits, getting stuff to balance is no fun. If your not going to be an accounting and just need it to graduate, just cheat through it. You won't need that stuff. If you plan to be an accountant, then unfortunately it would be best not to cheat.

Answer 3

Yes, change in depreciation method needs to be disclosed in the notes to the financial statement including mention that no adjustments were made. Just in the audit report.