Auditing a Publicly Traded Company

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To:Senior Tax Manager, Stellar CPA Consulting, Inc.
From:Team D, Stellar CPA Consulting, Inc.
Date:August 30, 2010
Subject: Impact of Shared-Based Payments and Special Purpose Entities on Financial Statements and Audits
Economies of scales have created consolidation of ventures between companies. As a result of mergers, shared-based payments and special purpose entities (SPEs) have become prevalent in business. In addition to strengthening competition of the combined companies, several goals are met such as tax reductions, growth and diversification, a larger financial base, and increase profits. Generally Accepted Accounting Principles (GAAP) does not require separate financial statements of the companies merged. SFAS No. 131 does require a segment reporting that includes separate income statement and balance sheet information as well as profit or loss and total assets (Schroeder, Clark, & Cathey, 2005). Segment is defined as a “component of an enterprise engaged in proving a product or service” (Schroeder, Clark, & Cathey, 2005 p. 9). Part of our audit will include evaluating shared-based payment and SPEs. This memorandum describes requirements per GAAP in preparing an audit opinion on whether the client is in compliance with segment reporting of shared-based payments and SPEs. Purpose of Financial Audits According to GAAP

The purpose of financial audits is to ensure that information reported on the financial statements is relevant, reliable, honest and accurate. Financial statements are developed to communicate financial information of a company to its stakeholders and to identify a company’s financial performance. The American Institute for Certified Public Accountants (AICPA) states that anyone who prepares financial statements is required to do so in accordance with GAAP. By complying with GAAP, auditors can assure appropriate internal controls are in place. A successful financial audit minimizes the chance of material misstatements...
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