Today's question: AUD

An accountant's standard report on a compilation of a projection should not include:

A)   A separate paragraph that describes the limitations on the presentation's usefulness

B)   A statement that a compilation of a projection is limited in scope

C)   A disclaimer of responsibility to update the report for events occurring after the report's date

D)  A statement that the accountant expresses only limited assurance that the results may be achieved

Correct Answer: D

Explanation: The accountant's standard report on a compilation of prospective financial statements should include an identification of the financial statements, a statement that the accountant compiled the statements in accordance with AICPA standards, a statement that a compilation is limited in scope and does not enable the accountant to express an opinion or any other form of assurance, a caveat that the results may not be achieved, a statement that the accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report. When the presentation is a projection, the report should include a separate paragraph that describes the limitations on the usefulness of the presentation.

Today's question: REG

Burn Manufacturing borrowed $500,000 from Howard Finance Co., secured by Burn's present and future inventory, accounts receivable, and the proceeds thereof. The parties signed a financing statement that described the collateral and it was filed in the appropriate state office. Burn subsequently defaulted in the repayment of the loan and Howard attempted to enforce its security interest. Burn contended that Howard's security interest was unenforceable. In addition, Green, who subsequently gave credit to Burn without knowledge of Howard's security interest, is also attempting to defeat Howard's alleged security interest. The security interest in question is valid with respect to _________________

A)   both Burn and Green.

B)   neither Burn nor Green.

C)   Burn but not Green.

D)   Green but not Burn.

Correct Answer: A

Explanation: A creditor with a security interest will have rights against a debtor when attachment has occurred. Three elements are required for attachment: an agreement between the debtor and the creditor, value must be given by the creditor and the debtor must have rights in the collateral. Howard will have rights against Burn (debtor), because there was a written security agreement, value was given by Howard ($500,000) and the debtor had rights in the collateral (inventory and accounts receivable). When two creditors are fighting over the same collateral, usually the first creditor to perfect wins. Since Howard perfected by filing before Green gave credit, Howard's security interest has priority over Green.