An audit of financial statements aims to express or disclaim an independent opinion on the financial statements. The auditor expresses an independent opinion on the fairness with which the financial statements presents the financial position, results of operations, and cash flows of an entity, in accordance with the generally acceptable accounting principle (GAAP) and "in all material respects". An auditor is also required to identify circumstances in which the generally acceptable accounting principles (GAAP) has not been consistently observed.[39]
An audit of financial statements aims to express or disclaim an independent opinion on the financial statements. The auditor expresses an independent opinion on the fairness with which the financial statements presents the financial position, results of operations, and cash flows of an entity, in accordance with the generally acceptable accounting principle (GAAP) and "in all material respects". An auditor is also required to identify circumstances in which the generally acceptable accounting principles (GAAP) has not been consistently observed.[39]
Tax accounting in the United States concentrates on the preparation, analysis and presentation of tax payments and tax returns. The U.S. tax system requires the use of specialised accounting principles for tax purposes which can differ from the generally accepted accounting principles (GAAP) for financial reporting.[42] U.S. tax law covers four basic forms of business ownership: sole proprietorship, partnership, corporation, and limited liability company. Corporate and personal income are taxed at different rates, both varying according to income levels and including varying marginal rates (taxed on each additional dollar of income) and average rates (set as a percentage of overall income).[42]
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Organizations in individual countries may issue accounting standards unique to the countries. For example, in the United States the Financial Accounting Standards Board (FASB) issues the Statements of Financial Accounting Standards, which form the basis of US GAAP,[1] and in the United Kingdom the Financial Reporting Council (FRC) sets accounting standards.[53] However, as of 2012 "all major economies" have plans to converge towards or adopt the IFRS.[11]
Even though accounting has existed in various forms and levels of sophistication throughout many human societies, and the double-entry accounting system in use today was developed in medieval Europe, particularly in Venice, and is usually attributed to the Italian mathematician and Franciscan friar Luca Pacioli.[9] Today, accounting is facilitated by accounting organizations such as standard-setters, accounting firms and professional bodies. Financial statements are usually audited by accounting firms,[10] and are prepared in accordance with generally accepted accounting principles (GAAP).[7] GAAP is set by various standard-setting organizations such as the Financial Accounting Standards Board (FASB) in the United States[1] and the Financial Reporting Council in the United Kingdom. As of 2012, "all major economies" have plans to converge towards or adopt the International Financial Reporting Standards (IFRS).[11]
Financial accounting refers to the processes used to generate interim and annual financial statements. The results of all financial transactions that occur during an accounting period are summarized into the balance sheet, income statement and cash flow statement. The financial statements of most companies are audited annually by an external CPA firm. For some, such as publicly traded companies, audits are a legal requirement. However, lenders also typically require the results of an external audit annually as part of their debt covenants. Therefore, most companies will have annual audits for one reason or another.
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