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Audit of financial statements- The objective of an audit of financial statements is to express an opinion on whether the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in accordance with generally accepted accounting principles.
Capital cost allowance- Capital cost allowance is a term used in Canada to describe depreciation for income tax purposes. (See Depreciation in this Glossary). Every company is permitted to use the depreciation method of its choice as long as it is a methodology which falls under the umbrella of generally accepted accounting principles. However, when filing a corporate income tax return, the tax authorities do not permit any depreciation methodology other than the specific one which is permitted for income tax purposes; this methodology is called Capital Cost Allowance (CCA). It is basically a declining-balance method, which means that a fixed rate is applied to the undepreciated capital cost (UCC) of the asset class at the end of each fiscal year. The UCC refers to the original cost minus the total accumulated CCA from prior years. The government sets a fixed CCA rate for each of various asset classes, for example, 20% for furniture and fixtures and 55% for computer equipment. All purchases of the asset class are grouped together and the CCA is taken on the group total. For example, suppose a company purchases a computer for $1000 in 2008. The CCA would be one-half of 55% of the purchase price, or $275. The reason for the one-half is that you are only permitted to apply one-half of the purchase cost in the year of acquisition. At the end of 2008 the UCC would be $725, which is $1000 less the CCA of $275. Then suppose the company purchases an additional computer in 2009 for $1200. One-half of this amount would be added to the computer class in 2009 (year of acquisition), and then CCA would be calculated on the UCC at end of 2008 plus the new acquisition. This comes to $725 plus $600, times 55% which equals $728.75. Then the new UCC at end of 2009 would be $1196.25, which is the previous UCC of $725 plus the new addition of $1200 less the CCA of $728.75.
Disclosure of information- According to Canadian generally accepted accounting principles, certain specific types of information must be disclosed on a companyís financial statements or in the attached notes to the financial statements. The required disclosures are very numerous and are listed in the Handbook of the Canadian Institute of Chartered Accountants. Here are a few examples: (a) accounting policies used for measuring inventory, carrying amounts of inventory at net realizable value, (b) for pension plans, a summary description of the plan, the funding policy, a description of how fair values have been determined, and details of investments in the plan sponsor, and (c) revenue recognition policy. The disclosures are required for audited financial statements and review engagements.
Generally accepted accounting principles (GAAP)- This commonly used expression refers to the broad accounting principles that are in general use in Canada at a particular time. The actual rulings as to whether a particular principle falls within GAAP are determined by the Canadian Institute of Chartered Accountants and updated from time to time. An audit of a Canadian corporationís financial statements always includes an evaluation as to whether the statements have been presented in accordance with Canadian GAAP.
Generally accepted accounting principles-(GAAP)- Encompass broad principles and conventions of general application as well as rules and procedures that determine accepted accounting practices at a particular time.