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Audits of Agricultural Producers and Agricultural Cooperatives - AICPA Audit and Accounting Guide

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Description

Updated for the new risk assessment standards, this Audit and Accounting Guide as of May 1, 2007 summarizes applicable practices and delivers "how-to" advice for handling almost every type of financial statement. It describes relevant matters, conditions and procedures unique to the agriculture industry — and illustrates treatments of financial statements and reports to caution auditors and accountants about unusual problems.

Table of Contents

  • Introduction
  • Background Information
  • Financial Reporting Information Systems, Internal Control, and Other Accounting Considerations
    • Financial Reporting Information Systems
    • Internal Control
    • Cost Accounting and Cost Allocations
      • Partial Replanting
      • Complete Replanting
      • Double-Cropping
      • Extended-Period Crops and Methods
    • Normal Costs Versus Abnormal or Excessive Costs
  • General Auditing Considerations for Agricultural Producers
    • Overview
    • Planning and Other Auditing Considerations
      • Audit Planning
      • Audit Risk
      • Planning Materiality
      • Tolerable Misstatement
      • Qualitative Aspects of Materiality
    • Use of Assertions in Obtaining Audit Evidence
    • Understanding the Entity, Its Environment, and Its Internal Control
      • Risk Assessment Procedures
      • Discussion Among the Audit Team
      • Understanding of the Entity and Its Environment
      • Understanding of Internal Control
      • Use of Information Technology
    • Assessment of Risks of Material Misstatement and the Design of Further Audit Procedures
      • Assessing the Risks of Material Misstatement
      • Identification of Significant Risks
      • Designing and Performing Further Audit Procedures
      • Overall Responses
      • Further Audit Procedures
    • Evaluating Misstatements
  • Inventories
    • Accounting for Inventories
    • Net Realizable Value
    • An Overview of the Audit of Inventories
  • Specific Accounting Principles and Auditing Considerations
    • Field and Row Crops
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
    • Orchards and Vineyards
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
    • Intermediate-Life Plants
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
    • Breeding and Production Animals
      • Background and Unique Characteristics
      • Accounting Principles for Breeding Animals
      • Auditing Considerations for Breeding Animals
      • Accounting Principles for Production Animals
      • Auditing Considerations for Production Animals
    • Animals Held for Sale
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
    • Land Development Costs
      • Background and Unique Characteristics
      • Regional Differences
      • Accounting Principles
      • Auditing Considerations
    • Research and Development Activities
    • Investments in and Transactions With Cooperatives
      • Investments in Cooperatives
      • Transactions With Cooperatives
    • Government Loans and Agricultural Programs
      • Loan Programs
      • Income Replacement and Subsidy Programs
      • Cost-Sharing Program
    • Income Taxes
  • Introduction
    • History
    • Organizational Characteristics and Functions
  • Background Information
    • Types of Cooperative Organizations and Services
    • Relationships With Members and Patrons
    • Related-Party Transactions
    • Federal Income Taxes and Cooperative Operations
    • Regulatory Commissions
    • Market Orders and Government Support Programs
  • General Auditing Considerations for Agricultural Cooperatives
    • Overview
    • Planning and Other Auditing Considerations
      • Audit Planning
      • Audit Risk
      • Planning Materiality
      • Tolerable Misstatement
      • Qualitative Aspects of Materiality
    • Use of Assertions in Obtaining Audit Evidence
    • Understanding the Entity, Its Environment, and Its Internal Control
      • Risk Assessment Procedures
      • Discussion Among the Audit Team
      • Understanding of the Entity and Its Environment
      • Understanding of Internal Control
      • Use of Information Technology
    • Assessment of Risks of Material Misstatement and the Design of Further Audit Procedures
      • Assessing the Risks of Material Misstatement
      • Identification of Significant Risks
      • Designing and Performing Further Audit Procedures
      • Overall Responses
      • Further Audit Procedures
    • Evaluating Misstatements
  • Special Accounting and Auditing Considerations
    • Accounting by Marketing Cooperatives Operating on a Pooling Basis
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
    • Accounting for Losses
      • Background
      • Accounting Principles
      • Auditing Considerations
    • Departmental and Functional Accounting
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
  • Specific Accounting Principles and Auditing Considerations
    • Inventories
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
    • Investments in Other Cooperatives
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
    • Equities and Members’ Investments
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
    • Current and Deferred Income Taxes
      • Background and Unique Characteristics
      • Accounting Principles
      • Auditing Considerations
  • Other Accounting Principles and Auditing Considerations Applicable to Agricultural Producers and Agricultural Cooperatives
    • Use of Derivative Instruments and Hedging Activities
      • Background
      • Accounting for Derivative Instruments and Hedging Activities
      • Auditing Considerations
    • Asset Retirement Obligations
    • Consolidation of Variable Interest Entities
    • Audit Documentation
      • Audits Conducted in Accordance With GAAS
      • Audits Conducted in Accordance With PCAOB Standards
    • Auditing Fair Value Measurements and Disclosures
    • State License Regulations
  • Consideration of Fraud in a Financial Statement Audit
    • The Importance of Exercising Professional Skepticism
    • Discussion Among Engagement Personnel Regarding the Risks of Material Misstatement Due to Fraud
    • Examples of Fraud Risk Factors
    • Obtaining the Information Needed to Identify the Risks of Material Misstatement Due to Fraud
      • Considering Fraud Risk Factors
    • Identifying Risks That May Result in a Material Misstatement Due to Fraud
      • A Presumption That Improper Revenue Recognition is a Fraud Risk
      • A Consideration of the Risk of Management Override of Controls
      • Key Estimates
      • Assessing the Identified Risks After Taking Into Account an Evaluation of the Entity’s Programs and Controls That Address the Risks
      • Responding to the Results of the Assessment
      • Evaluating Audit Evidence
      • Responding to Misstatements That May Be the Result of Fraud
      • Communicating About Possible Fraud to Management, the Audit Committee, and Others
      • Documenting the Auditor’s Consideration of Fraud
      • Practical Guidance
  • Appendix
    • A - Reserved.
    • B - Illustrative Financial Statements
    • C - Statement of Position 85-3, Accounting by Agricultural Producers and Agricultural Cooperatives
    • D - Information Sources
    • E - Major Existing Differences Between AICPA Standards and PCAOB Standards
    • F - Comparison of Key Provisions of the Risk Assessment Standards to Previous Standards
    • Schedule of Changes Made to the Text From the Previous Edition
    • Glossary

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Excerpts

Preface

This guide has been prepared to assist the independent auditor in auditing and reporting on financial statements of agricultural producers and agricultural cooperatives by describing relevant matters unique to the industry. It is intended:

  • To provide background information on the nature and characteristics of the agricultural industry.
  • To assist agricultural producers and cooperatives in applying generally accepted accounting principles.
  • To assist the independent auditor in applying generally accepted auditing standards and knowledge of generally accepted accounting principles to determine whether generally accepted accounting principles have been applied by management, which has the primary responsibility for financial statements.

Generally accepted auditing standards (GAAS) and accounting principles (GAAP) are applicable to all types of agribusiness. The general application of these standards and principles is not discussed herein; rather, this guide focuses on the special problems inherent in auditing and reporting on the financial statements of agricultural producers and agricultural cooperatives.

This guide contains some suggested auditing procedures, but detailed internal control questionnaires and audit programs are not included. The nature, timing and extent of auditing procedures are matters of professional judgment and should be responsive to the assessed risks of material misstatement. This guide also includes information regarding statutory rules and regulations applicable to the industry and illustrations of the form and content of financial statements of agricultural producers and agricultural cooperatives and the independent auditor's reports thereon.

Statement of Position (SOP) 85-3, Accounting by Agricultural Producers and Agricultural Cooperatives, is included as an appendix to this document, and its recommendations on accounting for agricultural producers and cooperatives are an integral part of this guide. SOP 85-3 and the accounting provisions of this guide do not apply to personal financial statements of agricultural producers or statements prepared on a comprehensive basis of accounting other than generally accepted accounting principles (for example, the income tax or the cash basis of accounting). They also do not apply to growers of timber; growers of pineapple and sugarcane in tropical regions; raisers of animals for competitive sports; or merchants or noncooperative processors of agricultural products that purchase commodities from growers, contract harvesters, or others serving agricultural producers.

Effective Date

The provisions for this guide shall be effective for audits of financial statements for periods ending on or after December 31, 1987.

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Paperback 2007
Product# 012687
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