ACCOUNTING AND AUDIT

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Department of Education and Science of Ukraine

Ternopil Ivan Pul'uj National Technical

University

ACCOUNTING AND AUDIT

Study guide

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Korolyuk T.M. Study guide on the discipline “Accounting and

audit” for students majoring in 6.030601 “Management” field of

study (full-time bachelors study) / T.M. Korolyuk. – Ternopil:

Ternopil Ivan Pul'uj National Technical University, 2015. – 132 p.

Author: Korolyuk T.M.

Reviewers:

Kravchuk N.V.

Hablyuk O.A.

Responsible for the issuing: T.M. Korolyuk

Study guide is considered and ratified on meeting

of department of accounting and audit

protocol №2 from 22.09.2015

Study guide is approved and recommended to the

seal meeting of methodical commission of faculty

of “Economy and entrepreneurial activity”

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CONTENTS

PREFACE ... 5

TOPIC 1. ACCOUNTING AS AN INFORMATION SYSTEM ... 6

1. Accounting Defined ... ... 6

2. Accounting Information and Decision Making ... 7

3. Decision Makers: The Users of Accounting Information ... 7

4. Financial and Management Accounting ... 9

5. Accounting Measurement ... 9

6. Forms of Business Organization ... 9

7. Financial Position and the Accounting Equation ... 10

8. Accounting Communication Through Financial Statements ... 12

Tasks for practical classes ……… 14

TOPIC 2. THE DOUBLE-ENTRY SYSTEM ... 17

1. Measurement Issues ... 17

2. Accounts ... 18

3. The Double-Entry System: The Basic Method of Accounting ... 22

4. Recording Transactions ... 25

5. The Trial Balance ... 28

Tasks for practical classes ………... 30

TOPIC 3. LONG-TERM ASSETS: ACQUISITION AND DEPRECIATION ... 31

1. Long-Term Assets: nature, types, and issues of accounting ... 31

2. Acquisition Cost of Property, Plant, and Equipment ... 33

3. Accounting for Depreciation ... 34

4. Methods of Computing Depreciation ... 34

5. Control of Plant Assets ... 37

TOPIC 4. SHORT-TERM LIQUID ASSETS ... 40

1. Accounting for Cash and Short-Term Investments ... 40

2. Accounting for Accounts Receivable ... 41

3. Accounting for Notes Receivable ... 46

Tasks for practical classes ………. 50

TOPIC 5. INVENTORIES ... 51

1. Inventories: Definition ... 51

2. Inventory Measurement ... 51

3. Pricing the Inventory at Cost ... 52

4. Maintaining the Detailed Perpetual Inventory Records ... 54

Tasks for practical classes ………... 55

TOPIC 6. CURRENT LIABILITIES AND PAYROLL ACCOUNTING ... 57

1. Nature and Measurement of Liabilities ... 57

2. Common Categories of Current Liabilities ... 58

3. Contingent Liabilities ... 61

4. Introduction to Payroll Accounting ... 62

TOPIC 7. STOCKHOLDERS’ EQUITY AND RETAINED EARNINGS TRANSACTIONS ... 65

1. Stockholders’ equity ... 65

2. Retained earnings transactions ... 69

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Tasks for practical classes ……….. 71

TOPIC 8. AN INTRODUCTION TO AUDIT ………... 72

1. What is an audit ………...………... 72

2. The advantages and disadvantages of audit ……... 73

3. Types of audit ………...………... 74

4. Subject and objects of audit ………....…………... 76

5. The distinction between audit, revision, forensic accounting expertise, inventory 76 Tasks for practical classes ……….. 77

TOPIC 9. LEGAL FRAMEWORK OF AUDIT ………....………. 79

1. Types of auditors and certification ………...…... 79

2. Rights of auditors and audit firms ………...……... 81

3. The duties of auditors and audit firms ………... 81

4. Responsibility of auditors and audit firms ………... 82

TOPIC 10. PROFESSIONAL ETHICS OF AUDITORS ……… 83

1. Essence of professional ethics of auditors ………...………... 83

2. Fundamental Principles ……....………..……... 83

3. Auditor independence ………...…………... 84

Tasks for practical classes ………. 85

TOPIC 11. PREPARATION FOR AN AUDIT ………... 86

1. Audit planning ………....………... 86

2. Preliminary preparations by the auditor …………... 88

3. Audit program ………....………... 91

Tasks for practical classes ………. 93

TOPIC 12. DOCUMENTATION OF AUDIT ……….... 94

1. Audit notebook ………...………... 94

2. Audit working papers ………... 95

TOPIC 13. AUDIT EVIDENCE ………... 98

1. Definition and types of audit evidence ………... 98

2. Sufficient end appropriate audit evidence .………... 98

3. Methods of obtaining audit evidence ………... 99

TOPIC 14. AUDIT METHODS ………... 101

1. Methods of verification ………....…………... 101

2. Methods of audit organization ………... 103

TOPIC 15. AUDITOR’S REPORT ………... 104

1. Nature of auditor’s reports ………... 104

2. Forming an Opinion on the Financial Statements ………... 105

3. Elements of the Auditor’s Report ………... 105

4. Modifications to the auditor’s report ………... 109

Tasks for practical classes ……….. 112

TESTS ……… 114

GLOSSARY OF TERMS ………. 124