At the completion of the Darby Department Store audit, the president asks about the meaning of the phrase “in conformity with generally accepted accounting principles,” which appears in your audit report on the management’s financial statements. He observes that the meaning of the phrase must include more than what he thinks of as “principles.”
a. Explain the meaning of the term accounting principles as used in the audit report. (Do not in this part discuss the significance of “generally accepted.”)
b. The president wants to know how you determine whether or not an accounting principle is generally accepted. Discuss the sources of evidence for determining whether an accounting principle has substantial authoritative support. Do not merely list the titles of publications. c. The president believes that diversity in accounting practice will always exist among independent entities despite continual improvements in comparability. Discuss the arguments that support his belief. Accounting principles are the guidelines and rules that are followed by the accountant in the preparation of financial statements. The accounting principles guide the accountant in the recording of the assets, the ways to depreciate, the recording of revenue and expenses and the ways to process the timing of when to record all revenue and expenses. The accounting principles follow the objectives of accounting for the processing of the financial statements so that when they are read they are accurate and true and show a true statement of the financial status of the company. The accounting principles allow the investors and stockholders have faith in what the financial statements state about the company and its financial status. The accounting principles are generally accepted if they have been stated as such by the AICPA and the NYSE and that they are in compliance with the rules set by FASB. The principles listed as...