About the Authors xxi Acknowledgments xxiii Introduction xxv Part I Commonly Used Generally Accepted Accounting Principles Chapter 1 Financial Statement Reporting: The Income Statement 3 Income Statement Format 4 Comprehensive Income 4 Extraordinary Items 5 Nonrecurring Items 6 Discontinued Operations 6 Revenue Recognition 8 Other Revenue Considerations 18 Multiple Deliverables 18 Software Revenue Recognition 19 Research and Development Costs 20 Advertising Costs 23 Restructuring Charges 23 Other Expense Considerations 23 Earnings per Share 23 Chapter 2 Financial Statement Reporting: The Balance Sheet 33 Assets 33 Liabilities 57 Fair Value Measurements 71 Fair Value Option for Financial Assets and Financial Liabilities 73 Stockholders'' Equity 77 Chapter 3 Financial Statement Reporting: Statement of Cash Flows and Other Disclosures 91 Statement of Cash Flows 91 Interim Reporting 103 Personal Financial Statements 107 Incorporation of a Business 110 Partnerships 110 Chapter 4 Accounting and Disclosures 113 Hierarchy of GAAP 113 FASB Accounting Standards Codification 113 Accounting Changes 114 Prior-Period Adjustments 121 Disclosure of Accounting Policies 122 Development-Stage Companies 123 Troubled Debt Restructuring 124 Segmental Reporting 127 Imputing Interest on Notes 133 Accounting for Futures Contracts 135 Oil- and Gas-Producing Companies 138 Chapter 5 Key Financial Accounting Areas 139 Consolidations 139 Business Combinations 143 Investments in Securities 148 Leases 156 Pension Plans 170 Other Postretirement Benefits 183 Income Tax Accounting 184 Foreign Currency Translation and Transactions 189 U.S. GAAP versus IFRS 200 Part II Analyzing Financial Statements Chapter 6 Financial Statement Analysis 219 Introduction 219 Horizontal and Vertical Analysis 221 Balance Sheet Analysis 222 Income Statement Analysis 239 Bankruptcy Prediction 249 Liquidation Value 251 Part III Managerial Accounting Applications Chapter 7 Appraising Segmental Performance 255 The What and Why of Responsibility Accounting 255 Cost Center Performance and Standard Costs 258 Flexible Budgets and Performance Reports 276 Profit Centers and Segmented Reporting 278 Profit Variance Analysis 281 Single-Product Firms 282 Multiproduct Firms 282 Managerial Planning and Decision Making 287 How to Measure the Performance of Investment Centers 288 Investment Decisions under ROI and RI 292 More on Economic Value Added 293 Corporate Balanced Scorecard 295 How to Price Goods and Services Transferred 296 Alternative Transfer Pricing Schemes 297 Budgeting and Financial Planning 299 Chapter 8 Analysis of Projects, Proposals, and Special Situations 309 Cost-Volume-Profit and Breakeven Analysis 309 Short-Term, Nonroutine Decisions 320 Theory of Constraints 327 Life-Cycle Costs and Target Costing 327 Activity-Based Costing 331 Just-in-Time and Total Quality Management 334 Taguchi Method of Quality Control 338 Backflush Costing 339 Environmental Costs and Ecoefficiency 342 Time Value Fundamentals 346 Capital Budgeting 350 MACRS Rule 363 Chapter 9 Quantitative Applications and Modeling in Accounting 369 Statistical Analysis and Evaluation 369 Regression Analysis 374 Trend Analysis 378 Regression Statistics 380 Quantitative Methods for Accounting 386 Decision Making 387 Decision Making under Certainty 387 Decision Making under Uncertainty 388 Linear Programming and Shadow Prices 394 Goal Programming and Multiple Goals 398 Learning Curve 402 Inventory Planning and Control 404 Program Evaluation and Review Technique 411 Project Budgeting and Control Using Earned Value Analysis 416 Part IV Auditing, Compiling, and Reviewing Financial Statements Chapter 10 Auditing Procedures 425 Risk Assessment Procedures 425 The Entity and Its Environment 426 Internal Control 426 Substantive Procedures 442 Audit Reports 451 Chapter 11 Compilation, Review, and Other Reporting Services 463 Compilation of Financial Statements 463 Review of Financial Statements 470 Accountant''s Consideration of Obtaining an Updating Representation Letter from Management 480 Documentation in a Review Engagement 481 Restricting the Use of an Accountant''s Compilation or Review Report 485 Consideration of an Entity''s Ability to Continue as a Going Concern 486 Subsequent Events 486 Subsequent Discovery of Facts Existing at the Date of the Report 487 Change in Engagement from Audit or Review to Compilation 487 Reporting on Prescribed Forms 488 Communication between Successor and Predecessor Accountants 490 Compilation of Specified Elements, Accounts, or Items of a Financial Statement 490 Compilation of Pro Forma Financial Information 494 Communicating to Management and Others in a Compilation or Review Engagement 498 Reports on Prospective Financial Statements 499 Attest Engagements 511 Examination of an Entity''s Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements (SSAE 15) 518 Integration with the Financial Statement Audit 534 Reporting on Controls at a Service Organization 546 Compliance Attestation 555 Management''s Discussion and Analysis 557 Personal Financial Statements Included in Written Personal Financial Plans 557 Reporting on Comparative Statements 559 Special Reports 564 Chapter 12 Auditing Standards 573 SAS 1--Codification of Auditing Standards and Procedures 573 SAS 2--Reports on Audited Financial Statements 574 SAS 3--The Effects of EDP on the Auditor''s Study and Evaluation of Internal Control 575 SAS 4--Quality Control Considerations for a Firm of Independent Auditors 575 SAS 5--The Meaning of "Present Fairly in Conformity with Generally Accepted Accounting Principles" in the Independent Auditor''s Report 575 SAS 6--Related Party Transactions 575 SAS 7--Communication between Predecessor and Successor Auditor 575 SAS 8--Other Information in Documents Containing Audited Financial Statements 575 SAS 9--The Effect of an Internal Audit Function on the Scope of the Independent Auditor''s Examination 575 SAS 10--Limited Review of Interim Financial Information 575 SAS 11--Using the Work of a Specialist 575 SAS 12--Inquiry of a Client''s Lawyer Concerning Litigation, Claims, and Assessments 576 SAS 13--Reports on a Limited Review of Interim Financial Information 578 SAS 14--Special Reports 578 SAS 15--Reports on Comparative Financial Statements 578 SAS 16--The Independent Auditor''s Responsibility for the Detection of Errors or Irregularities 578 SAS 17--Illegal Acts by Clients 578 SAS 18--Unaudited Replacement Cost Information 578 SAS 19--Client Representations 578 SAS 20--Required Communication of Material Weaknesses in Internal Accounting Control 579 SAS 21--Segment Information 579 SAS 22--Planning and Supervision 579 SAS 23--Analytical Review Procedures 579 SAS 24--Review of Interim Financial Information 579 SAS 25--The Relationship of Generally Accepted Auditing Standards to Quality Control Standards 579 SAS 26--Association with Financial Statements 580 SAS 27--Supplementary Information Required by the Financial Accounting Standards Board 580 SAS 28--Supplementary Information on the Effects of Changing Prices 580 SAS 29--Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents 580 SAS 30--Reporting on Internal Accounting Control 581 SAS 31--Evidential Matter 581 SAS 32--Adequacy of Disclosure in Financial Statements 581 SAS 33--Supplementary Oil and Gas Reserve Information 581 SAS 34--The Auditor''s Considerations When a Question Arises about an Entity''s Continued Existence 581 SAS 35--Special Reports: Applying Agreed-Upon Procedures to Specified Elements, Accounts, or Items of a Financial Statement 581 SAS 36--Review of Interim Financial Information 581 SAS 37--Filings under Federal Securities Statutes 582 SAS 38--Letters for Underwriters 582 SAS 39--Audit Sampling 582 SAS 40--Supplementary Mineral Reserve Information 583 SAS 41--Working Papers 583 SAS 42--Reporting on Condensed Financial Statements and Selected Financial Data 583 Condensed Financial Statements 583 Selected Financial Data 584 SAS 43--Omnibus Statement on Auditing Standards 585 SAS 44--Special-Purpose Reports on Internal Accounting Control at Service Organizations 585 SAS 45--Omnibus Statement on Auditing Standards--1983 585 Related Parties 585 SAS 46--Consideration of Omitted Procedures after the Report Date 586 SAS 47--Audit Risk and Materiality in Conducting an Audit 586 SAS 48--The Effects of Computer Proc.