Today the topic of our accounting podcast is Auditing Standard AU-C 320, which discusses Materiality.  We’ll answer such questions as, What is materiality?  How is it determined?  What has to be documented?
To provide some context to our conversation, we’ll relate the discussion to AU-C 200, which discusses the overall objectives and conduct of an audit, and we'll discuss how materiality relates to audit risk. 

AU-C 320: Materiality

Bridge the GAAP is a blog and podcast that presents conversational discussion about topics in accounting and auditing in an attempt to bridge the gap between theory and practice.

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Bridge the GAAP is a blog and podcast that presents conversational discussion about topics in accounting and auditing in an attempt to bridge the gap between theory and practice.
In this episode we build a bridge that connects the following three topics: the Republican Presidential Debates, Auditing Standard AU-C 530, and the Heisenberg Uncertainty Principle.  
They’re all connected by the fact that they address some of the challenges in using measurements to make judgements.

Accounting for the Republican Debates

Today the Bridge the GAAP – Accounting Podcast discusses recent volatility in securities markets.  We’re going to discuss the topic by building a bridge that connects the dramatic drop in the Dow Jones Industrial Average earlier this past week, Accounting Standard ASC 830, and the Ghost in the Machine.
We start off by discussing the dramatic sell-off activity in the markets this week, including the fact that on Monday, August 24th, the DJIA at one time was down by more than 1,000 points, representing more than a 6.5% drop in value.  In order to frame the discussion, we start of by describing exactly how the Dow is calculated and give a little bit of history on the subject.  Then we look at Apple's drop on Monday and calculate its portion of the DJIA's drop.
While analysts and economists have been attempting to explain the activity, much of the conversation has included the Federal Reserve Rate, Asian markets, commodities prices, and the devaluation of the Yuan, China's currency.  So for our conversation, we focus on that devaluation factor.
The factor is discussed within the framework of Accounting Standards Codification Topic 830, which addresses how to account for foreign currency matters.  So we take a hypothetical transaction from Apple's perspective and look at how the devaluation of the Yuan would impact that single transaction, using actual exchange rates, in order to provide an illustration for how this can affect companies in the DJIA and others as well.
Finally, the podcast includes a discussion of Arthur Koestler's book The Ghost in the Machine in order to present some of the psychology behind panicked reactions.
 

Accounting for Panic

Today the Bridge The GAAP – Accounting Podcast discusses challenges faced by rapidly advancing technology.  We discuss the topic by building a bridge that connects a hacker ring in Ukraine, SEC Rule 10b-5, and the hacktivist community called "Anonymous."
We start off by discussing a complaint filed by the SEC on August 10, 2015, that charged 32 people in a securities fraud scheme involving hackers in Ukraine partnering with stock traders in the U.S. who allegedly realized illegal gains of $100 million over a five year period.
In attempt to answer the question of whether or not this qualifies as insider trading, we take a closer look at the Securities and Exchange Act of 1934, Section 16(b) and Section 10(b).  We also examine SEC Rule 10b-5, Rule 10b5-1 and Rule 10b5-2 in order to gain a further understanding of when insider trading is prohibited and when it is allowed.
This conversation leads to the broader topic of how rapid technological advances are outpacing our regulations and our preconceptions.
The podcast ends by discussing Anonymous, the global community of hackers and activists, which has brought some of these issues into the public conscience.
 

Accounting for Hackers

Today the topic of our Bridge The GAAP – Accounting Podcast is logical relationships.  We’re going to discuss the topic by building a bridge that connects the ideas of Forrest Gump (Tom Hanks), Auditing Standard AU-C 520, and synchronicity.
We start off by discussing the Davie-Brown Index, which is a survey conducted by a marketing agency in order to measure different attributes of celebrities and popular personalities, including trustworthiness.  Tom Hanks repeatedly shows up at the top of the list, raising the question "What's so trustworthy about Forrest Gump?"
In attempt to answer the question, we turn to the famous study performed by social psychologists Hamilton and Gifford, which introduced the term "illusory correlation" while explaining how we form illogical judgments and stereotypes.  As accountants, understanding this process is important because we so often rely on analytical procedures.
This conversation leads into a discussion of Auditing Standard AU-C 520, which addresses the auditor's requirement for using analytical procedures at the end of an audit and discusses the requirements for the use of substantive analytical procedures as audit evidence.
The podcast ends by recalling Carl Jung's work to develop the concept of synchronicity, which is a relationship of events that is other than causal.

Accounting for Forrest Gump

Today the topic of our Bridge The GAAP – Accounting Podcast is faithful representation.  We’re going to discuss the topic by building a bridge that connects the ideas of testing artificial intelligence, Topic 840 of the Accounting Standards Codification, and skyscrapers in Chicago.
We start off by discussing Alan Turing's famous "Imitation Game," which is now typically called the "Turing Test," and is used as a measurement of artificial intelligence.  The approach that Turing used to answer the question serves as a tool to relate the three topics of this podcast.
As we discuss Accounting Standard ASC 840, we will cover the difference between capital leases and operating leases, including the four criteria that are considered in determining for a lessee whether a lease is a capital lease.  We'll also discuss direct financing type leases and sales type leases from the perspective of the lessor.
The podcast includes a brief discussion about Louis Sullivan, who is considered to be the "Father of the Skyscraper" and some of his thoughts regarding the consideration that form follows function.
 

AU-C 320: Materiality

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