adjustments financial statements and the quality of earnings

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1、Rev.ConfirmingPagesLEARNINGOBJECTIVESAfterstudyingthischapter,youshouldbeableto:1.Explainthepurposeofatrialbalance.p.1652.ExplainthepurposeofadjustmentsandanalyzetheadjustmentsnecessaryattheLecturePresentationLP-4endoftheperiodtoupdatebalancesheetandincomestatementaccounts.p.167ww

2、w.mhhe.com/libby7e3.Presentanincomestatementwithearningspershare,statementofstockholders’equity,balancesheet,andstatementofcashflows.p.1774.Computeandinterpretthenetprofitmargin.p.1825.Explaintheclosingprocess.p.183lib11021_ch04_162-227.indd16202/08/1011:49AMConfirmingPagesCHAPTER

3、FOURADJUSTMENTS,FINANCIALSTATEMENTS,ANDTHEQUALITYOFEARNINGSheendoftheaccountingperiodisaverybusytimeforPapaJohn’s.AlthoughthelastdayofthefiscalyearforPapaJohn’sfallsonthelastSundayofDecembereachyear,Tthefinancialstatementsarenotdistributedtousersuntilmanagementandtheexternalaudito

4、rs(independentCPAs)makemanycriticalevaluations.■ManagementmustensurethatFOCUSCOMPANY:thecorrectamountsarereportedonthebalancesheetandincomePapaJohn’sInternationalstatement.Thisoftenrequiresesti-mations,assumptions,andjudg-ESTIMATINGREVENUESANDmentsaboutthetimingofrevenueEXPENSESAT

5、YEAR-ENDandexpenserecognitionandval-www.papajohns.comuesforassetsandliabilities.■Theauditorshaveto(1)assessthestrengthofthecontrolsestab-lishedbymanagementtosafeguardthecompany’sassetsandensuretheaccuracyofthefinancialrecords,and(2)evaluatetheappropriatenessofestimatesandaccountin

6、gprinciplesusedbymanagementindetermin-ingrevenuesandexpenses.Managersofmostcompaniesunderstandtheneedtopresentfinancialinformationfairlysoasnottomisleadusers.However,sinceend-of-periodadjustmentsarethemostcomplexportionoftheannualrecordkeepingprocess,theyarepronetoerror.Externalau

7、ditorsexam-inethecompany’srecordsonatest,orsample,basis.Tomaximizethechanceofdetectinganyerrorssignificantenoughtoaffectusers’decisions,CPAsallocatemoreoftheirtestingtotransactionsmostlikelytobeinerror.Severalaccountingresearchstudieshavedocumentedthemosterror-pronetransac-tionsfo

8、rmedium-sizemanufacturingcompanie