Question 1
Accounting errors can be defined by the concepts of Materiality and Judgment, which you need to master in accounting. However, there is much debate as to what exactly defines materiality concerning the financial statements. Your current job is to review several financial statement accounts. You found there was a failure to record accrued wages and a failure to record depreciation for 6 months. Your boss indicated to you not to worry as these are not material. However in your view they are! What key points would you address to your boss and why?
Respond to this... Defining Materiality can be difficult and requires experience and judgement whether an adjustment needs to be made or not. "Materiality is the threshold above which missing \ or incorrect information in financial statements is considered to have an impact on the decision making of users. Materiality is sometimes construed in terms of net impact on reported profits, or the percentage or dollar change in a specific line item in the financial statements (Materiality.)" I believe it would have to depend on the total amount. For example 5,000 failure to depreciation would be a big deal to me and I would feel that it needs to be corrected but management may think that the amount is insignificant in the big picture. It would also depend on how depreciation is calculated.
References:
Materiality retrieved from https://www.accountingtools.com/definition-materiality
Respond to this... What the business may think is or isn't material may not be what an investor or auditor thinks.
"Certain errors, such as misclassifications of balances within a financial statement, are not as significant to investors as other errors. Significant errors would be those resulting in overstating assets or income, for example. However, investors should know the potential impact of all errors. Even "harmless" misclassifications can affect important ratios. Also, some errors could signal important weaknesses in internal controls that could lead to more significant errors" (Kieso, Weygandt, & Warfield, 2013, p. 1359).
There are 6 types of accounting errors listed in our text book on page 1359. This scenario would follow under number 5. "A misuse of facts, such as failure to use salvage value in computing the deprecation base for the straight-line approach' (Kieso, Weygandt, & Warfield, 2013, p. 1359).
Our textbook also says "as soon as a company discovers an error, it must correct the error" (Kieso, Weygandt, & Warfield, 2013, p. 1360).
Kieso, D. E., Weygandt, J. j., & Warfield, T. D. (2013).Intermediate Accounting 2014 FASB Update (15th ed.). (M. McDonald, B. Kamins, T. A. Tatro, M. Thompson, Y. Mermel, V. Vargas, & M. A. Price, Eds.) Hoboken, NJ, United States: John Wiley & Sons Inc. Retrieved from https://bookshelf.vitalsource.com/#/books/9781118722671/cfi/0
Question 2
Activity based costing (ABC) often revalues existing costing systems by looking at specific activities that drive costs. Through this identification of the key activities, we define the cost objects as these activities. In order to first achieve ABC in a business, we need to do the following:
1. Identify the key activities performed.
2. Realize the costs associated with these activities.
3. Assign these activities to cost objects.
Select two examples of processes that exist in a business and specify each of the above three elements for each process in order to create an ABC model for the examples. Share the process you undertook to do this and why you chose it.
Respond to this... The examples of ABC can be easily traced to a manufacturing plant. They produce two items. One item is a high volume product that runs continuously and the other is a low volume product that is special order, and doesn't require many machine hours. If you assigned overhead costs equally you would not get a true reflection of costs, the low volume product would get to much of the overhead and the high volume would not get enough to reflect its true cost. By using ABC, you assign a cost to each function so that you get a better understanding of the cost to produce each item.
Distribution is another example where ABC is easily applied. It takes more man hours and larger trucks to ship heavy or larger items than it does small hand held items. Therefore assigning the costs equally does not make sense. Using the ABC method will give you a truer reflection of the cost to distribute each product.
Being more accurate with the cost to produce and distribute your products will enable you to better price each product in the marketplace, making you more competitive.
Question 3
Datamining is the concept of collecting information about certain situations to help with forcasting. How does the use of data warehouses and datamining help management make better decisions?
To whatextent should end users be involved in the selection of a database management system and database design?
Respond to this... Data stored in warehouses helps managers by giving them the information they need to make business decisions on a daily, weekly, and quarterly basis. Managers mine the data according to their needs and retrieve relevant information only. Managers learn where this data exists in the warehouses and is able to quickly gather the data, sort it out and make decisions.
The end users should be involved in the selection of the system and design somewhat, but not completely detailed and in-depth. The users of the data only need to know how to retrieve the data in a timely and efficient manner. Designers of management systems should make it user-friendly for all of management, depending on the level of management they are in, and stay relevant to each management level.