That one secretary handles servicing three lawyers. She costs $90,000 a year all in ($20,000 for benefits, her 225 square feet of office space, insurance, phone, and whatnot...$5,000 for IRA matching thing, and $65,000 in salary). Her costs are then applied to those three lawyers as $30,000 a year in their overhead. That would be "fair" reporting of overhead.
So then...what would be the "under" for overhead? Well, if in calculating the costs of those lawyers to the firm, the firm's accountant just looked at the secretary's salary in applying her real costs, that would be underapplied overhead. Politicians do this all the time when they quote various public servants' salaries or "costs," conveniently omitting the costs of their pensions and benefits and all the other stuff.
Related or Semi-related Video
Finance: What is Adverse Audit Opinion?27 Views
Finance a la shmoop. What is an adverse audit opinion and you know deficiency
letter. Okay people this is not good you thought you had good grades but when [Report card is thrown onto the desk]
you got your report card your teachers had opinions adverse to yours... [Report card has bad grades in it]
They sent your parents a deficiency letter you know the one with all those [Mom looks shocked]
D's on it well when it's a company's audit that has similarly gone awry it's [Boss looks angry and employee looks shocked]
the nice way to say it well then it means they didn't count the beans
properly when they gave their financial reports to their investors or whoever
the auditors were serving usually this implies that companies overstated how [Employee counting coffee beans]
profitable they really were or how well they were really doing so tens of
thousands of investors if you know the company was public when this all [Big line of people waiting to invest]
happened paid twenty seven dollars and 32 cents a share when with the real
numbers the stock probably should have been trading more at like you know
fourteen dollars and 27 cents a share big difference well basically an auditor
is saying that yours are not bread-and-butter misstatements no oops [Bean report with the numbers crossed out]
it's more of a dude there were material ie important
mistakes and they were pervasive like everywhere math, science, english, history
your failure it's no mystery that's how auditors talk really
all right well then there are massive losses to massive numbers of people who hire [Protesters on a street]
massive numbers of lawyers who sue you.. massively.. in the world of finance an
adverse audit opinion is a bit like running over everyone's favorite dog [Car goes over a bump]
several times only you're the one who is likely dead meat [Guy reverses and runs the dog over again and the owner comes to fight]
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