Lecture 6

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Introduction to published accounts
The accounting cycle

The sequence of accounting procedures

completed during each accounting period is
called the accounting cycle.

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Introduction to published accounts
A broad summary of the steps of the
accounting cycle includes;

1. Recording transactions
2. Recording adjusting entries
3. Preparing the financial statements

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Introduction to published accounts
Recording transactions
A transaction is an event that causes a change
in a company’s assets, liabilities or
stockholders equity, thus changing the
company’s financial position

Transactions must be recorded in a journal, then

ledger then trial balance.

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Introduction to published accounts
Recording adjusting entries
The accrual basis accounting requires that
revenue be recognized when realized and
expenses recognized when incurred (matching
concept).
A company must use the accrual basis to achieve
a reasonable result for the Balance sheet and
Income statement.

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Introduction to published accounts
Preparing the financial statements
• The financial controller and finance director uses the
accounts after the adjustments have been made to
prepare the financial statements. These statements
represent the output of the accounting system.
• Two of the principal financial statements, IS and SFP
can be prepared directly from the adjusted accounts.
Preparation of the statement of cash flow requires
further analysis of the accounts.

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Introduction to published accounts
Auditor’s opinion
An auditors report is the formal statement of the
auditor’s opinion of the financial statement after
conducting an audit

An auditor conducts an independent examination of the

accounting information presented by the business and
issues a report.

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Introduction to published accounts
Auditor’s opinion
Audit opinions are classified as follows;

1. Unqualified opinion
2. Qualified opinion
3. Adverse opinion
4. Disclaimer of opinion

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Introduction to published accounts
Unqualified opinion

This opinion states that the financial

statement present fairly, in all material
respects, the financial position, results from
operations and cash flows of the entity, in
conformity with generally accepted
accounting principles

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Introduction to published accounts
Qualified opinion

A qualified audit report is a report issued by an

auditor that reports certain discrepancies in the
financial statements prepared by the entity. These
discrepancies are typically termed as qualifications.
Such report therefore issues a qualified opinion on
the true and fair view of the financial position as
reported in the financial statements..

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There can be several types of qualifications noted in a
qualified audit report such as:
• Provisions of accounting standard and rules have not been
followed by the entity to some extent in preparing its
books of accounts and drawing up financial statements.
• Auditors were unable to gather sufficient audit evidence to
adequately validate all aspects of the financial statements.
• Inadequate disclosures have been made in the financial
statements.

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Introduction to published accounts
Adverse opinion

This opinion states that the FS do not present

fairly the financial position, results from
operations and cash flows of the entity, in
conformity with generally accepted
accounting principles.

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Introduction to published accounts
Disclaimer of opinion

A disclaimer of opinion states that the auditor does not

express an opinion on the financial statements. A
disclaimer of opinion is rendered when the auditor has
not performed an audit sufficient in scope to form an
opinion.
When an auditor issues a disclaimer of opinion report, it
means that they are distancing themselves from providing
any opinion at all related to the financial statements

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Introduction to published accounts
Auditors report on the firm’s internal controls

• For public companies reporting under Sarbanes- Oxley, a

report on the firm’s internal controls is required in addition
to the audit report.

• The internal control report is usually much longer than the

audit report. For some firms, the audit opinion and the
report on the firm’s internal controls have been combined.
This results in one audit report that can be very long.

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 Report of management on internal control
over financial reporting

• Under Sarbanes-Oxley, management of public

companies must prepare a report of
management on internal control over financial
reporting

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 The SEC’s integrated disclosure system

The SEC has the authority to prescribe

external financial reporting requirements for
companies with securities sold to the general
public. Under this jurisdiction, the SEC
requires that certain FS information be
included in the annual report to shareholders.

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 Ethics
Ethics and morals are synonymous. While
ethics is derived from Greek, morals is derived
from Latin. They are interchangeable terms
referring to ideals of character and conduct.

Ethics affect all individual, from the financial

clerk to the high-level financial executive.

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  Introduction to published accounts
                                          

Ethics

• Ethics require accounting professionals to
comply with the laws and regulations that
govern their jurisdictions and their bodies of
work. Avoiding actions that could negatively
affect the reputation of the profession is a
reasonable commitment that business
partners and others should expect
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 Purpose of Accounting Ethics
• The purpose of financial accounting ethics is
to ensure that certified
public accountants (CPAs) conduct their duties
objectively and with integrity.
Financial accounting ethics form the basis for
legal and regulatory requirements and include
issues realted to maintaining public trust

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