The writing has begun...

I have begun to write the first draft of my auditing research paper. The paper focuses in on the changes, proposed by the AICPA and the PCAOB, to the auditing standard AU 319. AU 319 is the auditing standard on the consideration of internal control in a financial statement audit. As a result of the recent accounting scandals the US congress passed the Sarbanes Oxley act of 2002. In a nutshell the Sarbanes Oxley act attempts to restore confidence in the US capital marketplace by placing additional regulations on fiancial reporting, with the hopes of creating more reliable financial reporting. We can all thank Worldcom for this nice piece of legislation.

In a smart move Congress decided against attempting to solve the problems of the accounting and auditing world through direct legislation. Instead Congress, by use of the Sarbanes Oxley Act, created a new oversight board appropriately labeled the Public Companies Accounting Oversight Board (PCAOB). At this point the PCAOB is creating and documenting recommendations for changes to the standards followed by the audit and accounting world. These recommendations will eventually become standards that will need to be followed by all auditors and accountants of public companies.

At the same time another group, which has been around for many more decades, the American Institute of Certified public Accountants (AICPA) is also responding to the Sarbanes Oxley Act. The PCAOB has many great recommendations, however, their focus is solely on public companies which make up a very small percentage of companies in the US economy. The AICPA creates standards for use amongst auditors engaged in auditing the financial statement of both private and public companies. That is, an auditor of a public company must follow the standards of both the AICPA and the PCAOB while an auditor of a private company does not necessarily need to follow the standards set forth by the PCAOB.

 

The paper that I am writing is merely a reference paper documenting the proposed changes to the existing auditing standard AU 319.

In other news

I will be going home today (thursday) sometime in the afternoon.
Today's Music mood: Alternative Rock, emo and Drum and Bass
Today's Stress Level: not that bad.. I have a LOT of homework to get through, my auditing course is sucking up all my time which is raising my stress level.
School Gripes: My financial analysis group presented our final project today. We evaluated the financial performance of the Nordstrom department stores. In an unexpected twist another group in our class also evaluated Nordstrom. Interestingly they came to the conclusion that the company was overvalued (i.e. stock price is overpriced) and we came to the conclusion that the company is undervalued (i.e. stock price is too low). We both had separate assumptions regarding the company, our group forecasted 7 years out to get past a lull brought about by a period of rapid expansion, the other group took the growth rate of the past five years and used 2005 as the terminal year. The past five years, however, was a period of rapid expansion which is coming to an end thus the past five years are, in our opinion, not reflective of the true growth of the company. It was interesting to see a different perspective.

Last night (tuesday night) my group in accounting ethics delivered our final presentation and turned in our report. The report focused on the questionable accounting practices of America Online, who merged with Time Warner to become AOL-Time Warner and is now called simply Time-Warner. In short America Online's business affairs and marketing departments would push the boundaries of the accounting standards to boost revenues. While many of their actions were not technically illegal they were found to be in violation of the "spirit" of many standards (i.e. misrepresentation of underlying financial position). The paper weighs in at 22 pages double-spaced pages. I wrote 20 of them, so come'on ask me about AOL I can discuss the topic at length (or maybe at nauseam).