'…When Profit Is Derived from Changes in Fair Values More

question 5

Essay

'…when profit is derived from changes in fair values more difficult questions arise for the auditor …' J.Godfrey,et el,'Accounting Theory',7^th Ed.p.150.
Discuss the implications for auditors of the shift in the focus of profit measurement from matching revenues and expenses to assessing changes in the fair value of the net assets.

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Definitions:

Direct Labor-Hours

The total time workers spend producing a product or performing a service, specifically those directly involved in manufacturing.

Activity-Based Costing

A technique for determining costs that discerns activities in an organization and charges the cost of these activities to all products and services, based on the real amount each consumes.

Unit Product Cost

The total cost incurred to produce a single unit of product, including direct materials, direct labor, and overhead.

Traditional Costing System

An accounting method that allocates overhead costs to products based on a predetermined rate, typically using a single overhead pool.