What is a non-cash expense?
Non-cash expenses are such expenses that do not involve real cash outlay or against which no real cash outflow has taken place at least in the period in which such expense has been reported. And as they are recognized as an expense they will cause entity’s retained earnings to decrease but such expenses will not […]
What is the difference between depreciation account and accumulated depreciation account?
Capital assets also known as fixed assets are simply such assets which are used over a period longer than one year. Although real cash outflow takes place for the whole price at the time of acquisition of such assets however, for reporting purposes such costs are not expensed out in the year of purchase of […]
What is Credit note and when is it used?
A credit note is a source document providing evidence that a credit entry has been made in the financial records for specific reason which is explained on the face of this business document. Credit note is also known as credit memo or credit memorandum as it only notifies about the entry made in the financial […]
What is Source document?
In the business world buyers and sellers interact to exchange goods and services and other transactions like payment. A diligent accountant keeps the record of all such important transactions about which users must be informed. However, to have the information reliable the recording of such transaction is controlled by source documents. Source document is basically […]
What are the five components of internal control system?
Internal control system is implemented by the management or those charged with governance to assure that entity’s objectives regarding reporting, compliance with applicable laws and effectiveness and efficiency of operations is achieved. However, this becomes possible because internal control system serve this purpose through its different components or subsystems working collectively like a clockwork and […]
What is the difference and relation between Business risk Inherent risk Control risk Detection risk and Audit risk?
In risk based audit engagements understanding different kinds of risk become extremely important. Proper understand will not only differentiate between different kinds of risks but also help you in recognizing the duties of management and auditor in a given context and the nature of their responsibilities. Another reason of having a clear understanding of these […]
What is Cost classification and in how many ways can we classify cost?
Cost classification is a simple process in which we group or categorize costs on the basis of common characteristics. Grouping costs on the basis of their nature, form, source or any other attribution makes it really easy to understand their effects and ultimately to take decisions about costs and beyond any shadow of doubt classifying […]
What is meant by Subject Matter in assurance engagements in auditing?
For an engagement to be an assurance engagement five elements needs to be present which are as follows: Existence of three party relationship i.e. practitioner, responsible party and the intended users Subject matter Criteria Collecting sufficient appropriate audit evidence Expression of an opinion Subject matter is in simple words means the following: Financial position of […]
What is meant by sufficient appropriate audit evidence and how is it obtained?
It is the responsibility of the auditor to obtain reasonable assurance by conducting audit engagement and expressing his opinion in the audit report. This expression of opinion results in reasonable assurance which is conveyed to users of financial statements via audit report. However, to form audit opinion, auditor is required to stay objective and he […]
What is meant by inherent limitations of audit and what are these?
Inherent limitations are such features of audit that constrains the auditor to obtain absolute assurance. It is because of these inherent limitations of audit the practitioner cannot assure the users of financial statements that financial statements are absolutely free of (material) misstatements. As a result of these limitations auditor is expected provide reasonable assurance which […]
