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Week One Individual Cpa Report

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Week One Individual Cpa Report
Individual CPA Report
Kendall Nicholson
University of Phoenix
Financial Reporting
ACC 545
Mario Ducret
July 31, 2012

Individual CPA Report
Internal Memorandum
Date: July 31st, 2012
To: Ms. Liza Stephens, CEO
From: Kendall Nicholson, CPA
Subject: CPA responsibilities regarding subsidiary.

Dear Ms. Stephens. Per your request, I am providing you with information regarding explanations about the subsidiary that has been set up as a corporation. This explanation includes the methodology used to determine deferred taxes, procedures for reporting accounting changes and error corrections, and the rationale for establishing the subsidiary as a corporation. I am providing you with information about the professional responsibilities of a CPA. I am also providing an explanation of the difference between a review and an audit.
Deferred Taxes Accounting for taxes and tax expense is extremely important to the company. Fundamental differences exist between accounting for taxes and the financial reporting of pretax income. Pretax financial income is calculated according to generally accepted accounting principles (GAAP). Taxable income is calculated using Internal Revenue Service (IRS) rules (Kieso, Weygandt, & Warfield, 2007). This difference in accounting principles creates a difference between taxable income and income tax payable. This difference results in a deferred tax amount. If the income tax expense is greater than the income tax payable, this results in a deferred tax liability. If the income tax payable is greater than the income tax expense, this results in a deferred tax asset. Deferred tax liabilities and assets cause temporary differences. Temporary differences are carried over into future years and adjustments are made accordingly (Kieso, Weygandt, & Warfield, 2007).
Reporting Accounting Changes and Error Reporting Accounting changes result from a change from one GAAP to another. Adoption of a new principle affects the current



References: Bline, D. M., Fischer, M. L., & Skekel, T. D. (2004). Advanced accounting . Hoboken, NJ: Wiley. Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007). Intermediate accounting (12th ed.). Hoboken, NJ: Wiley. AICPA. (n.d.). Retrieved from http://www.aicpa.org Knowledge to solutions certified public accountants and advisors. (n.d.). Retrieved from http://www.k2scpa.com

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