What is tolerable misstatement and tolerable rate of deviation and the difference betweem them?
Auditor most of the time, due to number of factors, is unable to apply audit procedures on each and every piece of information available to him. Therefore, he applies different audit procedures on less then 100% items in a given population. This is called sampling. Among these audit procedures there are two types of procedures […]
What is the difference between budgeting and forecasting?
Budgeting and Forecasting are two important constituents of managerial decision making process. Even though both of these functions are distinct and are not same but their use and their dependency on each other make them inseparable and thus many confuse the two as same and use them interchangeably. Let’s understand the technical difference between these […]
Why don’t we revalue current assets like non-current assets?
Concept of revaluation of assets is usually associated with non-current assets only. The main reason why the term ‘revaluation’ is just attached with non-current asset might be that International Accounting Standard (IAS) 16 use this term. Therefore, usually revaluation of assets refers to revaluation of non-current assets. But this does not mean that other assets […]
What is the difference between revenue, income, profit, gain and return?
Every student who starts accounting and get an idea of these terms, the instinct of differentiating kicks in and he/she starts looking for the differences among these terms. Though there are sometimes minor and sometimes major differences among these terms but these days, with an exception of few, these terms are used interchangeably. For example, […]
What is the purpose of Statement of changes in equity?
Many students find it confusing that if we already have two financial statements, one covering the financial position of the business and the other telling about the financial performance then why do we need yet another statement with the name of Statement of Changes in Equity? And more interestingly, many think that its just a […]
What is the objective of an assurance engagement?
Well objective of every assurance engagement can be understood if we understand the elements of an assurance engagement. So let’s first of all understand the connection between three parties and what each do. Stakeholders like owner, employees, creditors, lenders and many other need financial information regarding financial performance and financial position of the business for […]
What is Inherent risk?
Inherent risk has been defined in the standards as follows: The susceptibility of an assertion about a class of transaction, account balance or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls. Simply put, management make assertions in financial statements which might […]
What is the difference between ‘separate entity’ and ‘separate legal entity’?
Separate entity is basically an accounting concept where as separate legal entity is a legal concept which overrules the accounting concept of separate entity. According to separate entity concept (also termed as business entity concept) the business and the owner(s) of the business are two distinct and separate entities which implies that assets and liabilities […]
What is business entity concept?
Business entity concept or Separate entity concept or Separate economic entity concept are different names for the same concept. According to business entity concept, the business is distinct and separate from its owners i.e. business and its owners should not be treated as one and the same thing. Accepting this concept means that the activities […]
Is there any case in which Liability increases and decreases as well?
In one single transaction there are absolutely NO chances that liability increases and also decreases at the same time. And even for the sake of argument we consider that yes it will increase and decrease then the increase and decrease will be equal thus making no difference at all. However, if the question was asked […]