In order to gain a better understanding of both the software industry and the applicable guidelines for capitalizing software, some outside research into the industry and FASB standards was completed. This research was complied as a part of the risk assessment portion of the audit process (Whittington & Pany, 2012). The issue of capitalizing the costs of developing a software program for sale is a complicated issue. This is due in part to the fact that the nature of technology is constantly changing so clear procedures regulating when to write off a software system vary according to the pace of technological changes within the industry. Therefore, while a company is developing software, they should report the incurred creative costs to a research and development account (Warfield, Weygandt, & Kieso, 2007). Once the software product has reached a point where it is feasibly considered a technological product the costing can be adjusted to begin capitalizing the costs (Warfield, Weygandt, & Kieso). As established in FASB Statement No. 2, any costs incurred in the developing, creating, testing, and so forth of software products will be charged to the research and development expense account; however any adjustments to the software for upgrades and any costs to market the product would not be included in the research and development expense account (Accounting-Financial-Tax.com, 2012). This is because by the point the product is ready to be marketed or needs to be upgraded to meet new technological standards, the feasibility of the product has been established and therefore the product should be capitalized (Accounting-Financial-Tax.com). If however, after meeting the feasibility requirements, there is substantial risk associate... ... middle of paper ... ....com. (2012). Capitalization and amortization of software costs. Retrieved from, http://accounting-financial-tax.com/2009/05/capitalization-and-amortization-of-software-cost/ Accounting For Management. (2011). Return on Shareholder’s investment or net worth ratio. Retrieved from, http://www.accountingformanagement.com/retun_on_share_holders_investment_or_net_worth.htm Kennon, J. (2012). Return on assets (ROA). Retrieved from, http://beginnersinvest.about.com/od/incomestatementanalysis/a/return-on-assets-roa-income-statement.htm Tracy, J. A. (2004). How to read a financial report (6th ed.). Hoboken, NJ: John Wiley & Sons. Warfield, T. D., Weygandt, J. J., & Kieso, D. E. (2007). Intermediate accounting (2nd ed.). Hoboken, NJ: John Wiley & Sons. Whittington, R., & Pany, K. (2012). Principles of auditing and other assurances (18th ed.). New York, NY: McGraw-Hill
Arens, Alvin A., Elder, Randall J., and Beasley, Mark S. (2012). Auditing and Assurance Services:
Develop and describe a technology lifecycle model (including the time and cost of development, the amount of time to recover the cost, and return on investment (profit) based on the development costs and risks) and/or product lifecycle model (including timing, marketing measures, and costs associated with the life of a product) for the new technology or application
Rittenberg, Larry, Bradley Schwieger, and Karla Johnstone. Auditing. 6th ed. Mason: Thomas South-Western, 2005. 10-40.
A key factor in determining a project's viability is its cost of capital [WACC]. The estimation of Boeing's WACC must be consistent with the overall valuation approach and the definition of cash flows to be discounted. Note that this process is a forward looking focus and is laden with uncertainty. It is how the assumptions are modeled that many costly mistakes can be made. While finding a rate of return for an individual project, it is important to remember that WACC is only appropriate for an individual project.
If done right, I believe that all of the costs can be allocated to each of the three products through both direct and overhead costs. The only direct costs that are being included currently are labor and manufacturing costs. I broke up overhead into overhead based off direct labor and overhead based on units sold.
This paper will discuss these steps in detail. Because I work at home, I am not currently involved in any of the steps of the accounting cycle. The examples I give in this paper will be from various jobs I have held in the past.
Introduction Within the current crisis of confidence in the public accounting profession after the Enron debacle and series of high profile failures of financial services firms, the issue of ‘audit expectation gap’ has never been more important. Though it would take an enormous amount of effort to address these issues, I will argue that tremendous amounts could be done in order to close the gap. In this essay, I will discuss some of these issues and in particular the strategies to reduce the gap. Definitions Various definitions have been proposed for the audit expectation gap.
Managerial Accounting addresses those aspects that relates to an individual organization return on investments (ROI). (Albrecht, Stice, Stice, & Skousen, 2002) A company’s profitability depends on periodic attention to its assets turnover and profit margin. This process is designed to support the decision making that adds value to an organization. Organizations are sometimes broad and divisional. Planning, controlling, and evaluating is key in the effective decision making process. (Albrecht, Stice, Stice, & Skousen, 2002) An organization must make decisions about its future products, services, operations, and investments. It must begin a tracking process for cost, quality, and performance. Finally it must analyze the results, and variances, providing feedback to assess areas of personnel, divisions, products, and processes. (Albrecht, Stice, Stice, & Skousen, 2002)
Stair, R.M., Reynolds, G.W., Gelinas, J.U. Jr., Sutton, S.G., Hunton, J.E., Albright, S.C., Winston, W.L. & Zappe, C. (2007) Accounting Information Systems and Financial Modelling, Thomson, South Melbourne, Victoria, Australia.
According to the conceptual framework, the potential users of financial statements are investors, creditors, suppliers, employees, customers, governments and agencies, and the general public (Financial Accounting Standards Board, 2006). The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine whom the financials should be catered towards and what level of prudence is necessary for quality judgment.
The four techniques used for analyzing the costs and benefits of a proposed system is break-even analysis, payback analysis, cash-flow analysis, and present value analysis. Break-even analysis is a supply-side analysis. Only the costs of the sales is analyze with break-even. It does not analyze how demand may be affected at different price levels. A strength of break-even analysis it’s relatively simple concept and the formula can be easily understood and used by most people. Another strength is that it provides vital information when making a decision. Weaknesses of break-even analysis is it assumes that all output will be sold. It is difficult to apply break-even analysis when a company sells more than one product. Break-even cannot show what will definitely happen. The payback analysis method is the simplest analysis method to use when looking at one or more major project options. It tells you how long it will takes to earn back the money you will spend on the project. Payback analysis helps you decide you whether or not you should undertake the project. The biggest strength of the payback method is that it is simple. The payback analysis method is used to make quick evaluations of projects. Weaknesses of the payback method is that the method ignores the time value of money. The payback analysis method does not consider cash inflows from a project that may occur after the initial investment has been recovered. A cash flow analysis is a listing of the flows of cash into and out of the project. This is like your checking account at your bank. Deposits are the cash inflows and withdrawals are the cash outflows. The balance in your checking account is your net cash flow at a specific point in time...
The requirements and cost benefit analysis took several months to complete and a final decision would not be made until 18 months after the initiation of this project. The end result of the requirements and cost benefit analysis concluded that it was most beneficial to our business partners to build our own accounting engine; however this was not the elected solution.
Schroeder, Richard G., Myrtle Clark, and Jack M. Cathey. Financial Accounting Theory and Analysis: Text and Cases. 10th ed. Hoboken, NJ: John Wiley & Sons, 2009. 97. Print.
Amelia Annette Baldwin, Brad S. Trinkle. “The Accounting Educators’ Journal.” An Initial Placement Research Ranking of U.S. Accounting Doctoral Programs. N.p., n.d.
The evolution of auditing is a complicated history that has always been changing through historical events. Auditing always changed to meet the needs of the business environment of that day. Auditing has been around since the beginning of human civilization, focusing mainly, at first, on finding efraud. As the United States grew, the business world grew, and auditing began to play more important roles. In the late 1800’s and early 1900’s, people began to invest money into large corporations. The Stock Market crash of 1929 and various scandals made auditors realize that their roles in society were very important. Scandals and stock market crashes made auditors aware of deficiencies in auditing, and the auditing community was always quick to fix those deficiencies. The auditors’ job became more difficult as the accounting principles changed, and became easier with the use of internal controls. These controls introduced the need for testing; not an in-depth detailed audit. Auditing jobs would have to change to meet the changing business world. The invention of computers impacted the auditors’ world by making their job at times easier and at times making their job more difficult. Finally, the auditors’ job of certifying and testing companies’ financial statements is the backbone of the business world.