howmany74s
here is the conversation with homework people, I chose not to persist further. I suppose the question doesn't necessary imply that both expenses and income are overstated. In this case B works.
Moderator's answer to some other student:
d. We received notice but we didn't record the change. Therefore, we'd be recorded property tax rates as the same rate as prior year. This wouldn't be flagged in a flux analysis because the prior year is similar to the current year.
I'm not a huge fan of any of these answers, but the BEST answer here appears to be B.
If you can provide me with a reference to where you found this question in Roger's texts, I'll be sure to forward for review and correction for future updates.
I am asking:
Hello,
I know anything could happen, but it's little hard to believe that the property tax increase would cause 10% increase in company's overall expenses. I also don't see how could recording unrealized gain to I/S instead of OCI increase company's expenses. Could you please clarify?
Thanks!
Answer given to me:
Hello anjanja, and thanks for the reference.
Flux analysis looks at the percentage CHANGE in each line of the income statement, so a 10% change or difference in property tax expense wouldn't necessarily impact TOTAL expenses by that amount, but would indicate that this difference needs to be investigated.
Also, remember that the current US GAAP income statement includes both operating (current) net income and other comprehensive income–the total of the two being “comprehensive income.”
I hope this is helpful.
Roger CPA Review Team
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