1. Who are Creative’s external auditors? What sort of audit opinion did Creative receive for fiscal year 2006? In your own words, what does the opinion mean to external users? (5 marks)
PricewaterhouseCoopers (Singapore) is Creative’s external auditor. In the report of independent registered public accounting firm (Pg 19), PricewaterhouseCoopers gave an unqualified opinion to Creative for the fiscal year 2006 financial statements. The opinion literally means that no issues of concern to report, accounts were signed by auditor, and they agreed that the financial reports, including consolidated balance sheets and the related consolidated statements of operations, of cash flows and of shareholders’ equity, are true and fair and prepared in accordance with the generally accepted accounting principle, also known as GAAP.
The external users of the Creative’s financial report are its shareholders, creditors, labor unions, suppliers, and customers. The audit results in the report which gives an ‘audit opinion’ as to the ‘true and fair’ view of the state of affairs of the organization and operations for the period. To external users, ‘true’ means that the transaction did take place and that an asset exists, whereas ‘fair’ means that a transaction is fairly valued and that assets and liabilities are fairly stated (I). This opinion of PwC assures the external users that the financial statements issued by Creative provide a complete and reliable representation of the company’s financial position and operating results. Therefore, external users could base on the relevant financial information to make business and operational decisions.
(I) Mango’s Guide to Financial Management for NGOs, Handling an external audit, November 2005, www.mango.org.uk/guide/files/external-audit-v2.doc (last accessed, 15th April, 2008)
2. (a) What is meant by the term “revenue recognition”? At what point in time in its earnings cycle does Creative record revenue? Explain if...
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