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Unit Four Review Assignment

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Certified Public Accountants (CPAs) are professionals who render opinions on the equality of financial accounts.  Certified Public Accountants (CPAs) perform three different types of accounting services. The assurance offered by a Certified Public Accountant is referred to as attest service. The three main types of attest services are audit, review and compilation.  A compilation means the accountant has financial statements, and they do not adhere to the rules of the Generally Accepted Account Principles. Compilations are either with or without disclosure. Certified Public Accountants also render review attest service. This service requires the accountant to make management inquiries, and analyze tests to come up with a review report.  CPA renders audit attest services. The process requires the account to test and examine financial accounts of the firm. The test is conducted with accordance to the Generally Accepted Auditing Standards.  The CPA issues a report regarding the fairness of the statements tested (Atkinson et al., 2012).

There exist various differences between managerial accounting and financial accounting.  First and foremost, financial accounts are mandatory reports to external parties including lenders, suppliers and tax regulators. On the other hand, managerial accounting entails optional reports to the internal parties in the organization with an aim of performance evaluation, motivating and directing the parties involved. Secondly, financial accounting emphasize on analysis of past financial consequences while managerial accounting emphasizes on financial status in the future of the organization. Additionally, financial accounting emphasizes on verifiability and objectivity of data, whereas managerial accounting emphasizes on significance of the items regarding decision making. Financial accounting requires precision of data while managerial accounting requires timelessness of data. Moreover, financial accounting summarizes data of the entire firm, while managerial accounting details reports from departments, products, employees and customers. Finally, financial account must obey Generally Accepted Accounting Principles while managerial accounting does not have to follow them.

The Sarbanes-Oxley Act of 2002 was signed on July 30, 2002. It is one of the most important laws passed by federal securities law. The act was motivated by corporate financial outrage that existed in organizations. It is named after two strong men who sponsored it to the congress. These are none other than Michael Oxley and Paul Sarbanes who were by then a representative and a Senator respectively. The act has various sections which are meant to control financial fraud in USA. It also includes provision for necessities for Securities and Exchange Commission, requiring it to make perfect rules ascertain Accounting Oversight Board as a public company to oversee the reforms made. The most significant provisions which have controlled financial fraud are: insiders to accelerate reports of traders, public to report CFO and CEO profits and compensation, auditor prohibition and independence on audit companies, certified external audit system in all firms and certification of pecuniary reports.

Firms must monitor money - how much money they have and how this money is being used. There are three fundamental documents describing the financial flow in a firm. These are: balance sheet, profit & loss statement and cash flow statement. It is important for every business person to understand how the three financial statements function since they are linked together integrally. This means that whenever an item changes in one statement, the other two are affected as well. A balance sheet shows a highlight of the firm’s situation at a specific time. This can be at the end of the month, year, quarter year or fiscal; year. It clearly indicates assets, that is what the firm owns, and liabilities which is what the firm owes.  Profit and loss statement shows the results achieved over a specified period of time. This statement shows whether the firm has made loss or profit within that specified period of time. A cash flow statement registers the movement of money into and out of the company. It records the incoming and the outgoing money in a period between two completed balance sheets (Atkinson et al., 2012).

The same financial principles that apply to business apply to individuals. We need to know how to create and use capital, make profits and manage assets. We need to control our money and operate within a budget. The first and the most important step when you want to cut back your operating expenses are to set realistic goals. Goal setting is important in both business operation and day to day life. As you develop the goals and the plans you will establish to achieve these goals, be flexible so as you can accept any positive change that might perfect the situation. Investing in employees is the other useful step that you have to follow. Employees make the largest contribution to the success of the business. Therefore, training them to work towards achieving the goals can reduce operating expenses greatly. They should be motivated and appreciated after working as expected.  Involving perfect suppliers in your business reduces operation costs. The raw materials supplied in the business determine whether the operating cost will reduce or increase. Therefore, get real deals to run your business successfully. The manager or entrepreneur has to check on the marketing efforts of the business. This includes advertisement and promotion methods applied. They should be reliable in promoting the product. Technology is the last but important factor to consider for reduction of operating cost. You have to apply appropriate technology to reduce means of production as well as other costs. However, you have to select cheap technology which your business can handle successfully.

Money refers to any means of exchange used for intention of economics. There are three main uses of money. Firstly, money is used as a means of exchange. Secondly, it is used as component of account. Thirdly, money is used as a measure of value. There are specific characteristics which allow coins, demand deposits and paper money be referred to as money. Acceptability means that every person in the entire economy has to accept the means of exchange in use. This is in all services offered and goods exchanged. The second characteristic of money is divisibility. Money is divided into small denominations to enhance transaction. This means that it has to be broken down into fewer amounts depending on the transaction at hand. Uniformity makes money look similar in a particular economy. This characteristic ensures that money is measure and counted accurately. Portability means that money should be easy to carry around. This eases transactions as people can move with money from one place to another comfortably.

In economics, money supply contains a standardized depiction with three components namely: M0, M1 and M2. M1 is used by economists to measure the circulating money. It refers to liquid cash of the supply cash and other assets which can be easily converted into cash. It represents money which has not been banked. Foreign currency for domestic transactions is also included in M1. On the other hand, M2 expands liquid assets to cover a wider range including interest earnings like time deposits, saving deposits and fixed deposits. It entails M1 components, deposit certificates, short term investments, repurchase agreements and foreign money deposits.

The Federal Reserve System originated from the Federal Reserve Act in 1913. It started to function in 1914. The Federation is a mixture private and public element. The Board of Governors is the nationwide component of this federation. It is also referred to as Federal Reserve Board, and is located in Washington DC. This board has seven members who are appointed by the President of the State, and then incorrigible by the Senate. The board serves for fourteen years with the chairperson and his vice selected after every four years. The main responsibilities of the board are to guide monetary policies, analyze international and domestic financial and economic conditions, and to guide committees dealing with current issues. Apart from the board of directors, there are twelve Federal Reserve Banks with twenty five branches nationwide. The Board of Governors oversees the functioning of these banks. The banks act as central banks’ operating arms. Each Reserve bank functions in its region. They are all named according to their headquarters. The serve the treasury directly while the public is served indirectly (Larson et al., 1996).

About thirty eight percent of commercial banks in USA are full affiliates of the Federal Reserve System. It is compulsory for all national banks to be members. Other banks are allowed to join if they attain certain requirements. All members of the Federal Reserve System must have three percent of current assets as stock in the federation. Depository institutions in America which provide the people with banking services are not official members of the Federal Reserve System. However, the federation recognizes them and they can access the System services easily. They are also subjected to the regulations of the System. The Federal Open Market Committee makes policies for the federation. This body formulates policies and promotes economic growth as well as stable prices in the nation.  It simply manages money supply in the nation. There are three advisory councils which advise the board of directors. These include Consumer Advisory, Federal Advisory, and Thrift Institutions Advisory Councils. Members of these counsel are selected from the twelve 12 Federal Districts.

In finance and economics, it is accepted that money contains time value. This concept is based on the concept that the coin you receive today is more valuable than the one you will get tomorrow. This is because you will invest the dollar today; therefore tomorrow the dollar will have multiplied. The main reasons why money is considered top have value are: uncertainty and risk, inflation, investment opportunities and consumption. This principle is very vital in making financial decision.

Securities are documents which represent a right or interest in something. They are not utilized like traditional consumer commodities. The government regulations protect consumers from harmful articles, deceptive advertisements or unfair prices. Securities laws ensure investors have accurate information regarding the Value and of interest they want to purchase. There are many types of securities including, bonds, debentures, notes, stock, investment contracts and transferable shares. Securities are usually traded in stock markets. Sellers and buyers reveal their interest where executive transactions take place. The trade makes are vulnerable to deceptive and manipulative practices such as insider trading and price manipulation. Securities laws have antifraud provision aime3d at preventing this risk. Securities are debentures or equities of openly traded companies. They are sold or bought via brokerage firms. Securities and Exchange Commission regulates securities offering no return for return on investment. Securities oscillate in value, posing a risk to the investment (Larson et al., 1996).

Securities Exchange Commission was formed in America in 1934. America had experienced stock market crash in 1929 which made the government to initiate a commission to restore public trust in stock markets. This commission had a number of functions to perform. The main purpose was to protect investors as well as advance stability in financial market. This could only be achieved through enforcement of security laws. Securities Exchange Commission has specific functions which are divided into various departments. The Corporate Finance department oversees efficiency of financial disclosures for public corporations.  Investment Management oversees investment advisors and investment companies.  Market Regulation produces regulatory policy. Enforcement department accuses violators of securities laws.

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