...Dear Mr. Isaacs: Below are the two proper accounting treatments regarding tangible assets and goodwill as well as the effects of these treatments. Impairment exists when the carrying amount of an asset exceeds its fair value and the impairment loss is the difference between the carrying value and fair value of that asset. The impairment test rules applied to impairment of property, plant, and equipment are different from those used in measuring goodwill. For tangible assets to be held and used, a recoverability test is performed when possible impairment exists, to determine whether an impairment has occurred. The first step of the test is to estimate the future net cash flow expected from the use of that asset and its eventual disposition. If the future cash flow is less than the carrying amount of the asset, the asset is impaired. Conversely, if the future net cash flow is equal to or greater than the carrying amount of the asset, no impairment has occurred. For example, if an asset has a carrying value of $600,000, and the future net cash flow from using and disposing this asset is to be $650,000, therefore, no impairment has occurred. However, if the future net cash flow is less than the carrying amount of the asset, it’s only $550,000, there is an impairment loss, which is the amount the carrying value of the asset exceeds the asset’s fair value. In the example, if the fair value of that asset is $500,000, the impairment loss would be $100,000 ($600,000-$500,000). What...
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...Dear Mr. President, This letter is in response to your request for information on how to account for the Referral Credit offered to existing Runway Discount customers. Both US GAAP and IFRS provide similar guidance on accounting for the credit offered for attracting new customers. After researching US GAAP, code section 605-50-25-3 describes the Referral Credit offered by Runway Discount as a voluntary sales incentive that becomes redeemable as a result of a single transaction. The cost of the Referral Credit should be recognized at the latter of the following situations: The date at which the related revenue was recognized or the date at which the sales incentive was offered. In your situation, most Referral Credits will be recognized at the date of receiving the related revenue. Most customers will not use the $25 credit the date issued, but rather use it at their convenience. In addition to researching US GAAP, the IFRS provided similar guidance on accounting for the $25 Referral Credit. International Accounting Standard 18 paragraph 19 offers guidelines that match corresponding revenue with expenses. Runway Discount provides the existing customer incentive due to a specific transaction by a referred new customer. With the credit being a specified amount of $25, the IFRS states that the liability must be recognized with the corresponding revenue. In conclusion, the Referral Credit offered by Runway Discount should be accounted for under US GAAP until adopting IFRS...
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...My name is Paula Smith, and I am the Senior Auditor, in charge of your account. I will be working with you throughout the process of our engagement. I would also like to take this opportunity to highlight some details for you to make the audit process a smooth one. First, you can expect an engagement letter from us within the next 5 days from the date of this letter. The engagement letter will outline our agreement to the type of audit you have selected and what our role and responsibilities will be in performing the audit as well as your own. The engagement letter is more than a letter, it also a contract that outlines the limits of the audit as well as details the scope of services we will provide based on your selection, our fees and billing, how and what communication is needed between our firm and you, and if a dispute arises how we hope to resolve that. I recommend carefully reviewing the engagement letter and discussing it with legal counsel before signing the engagement letter. After reviewing and signing the engagement, please provide a signed copy to our firm so we can begin the audit and ensure deadlines are met. Once receiving the signed engagement letter, our office will call to set up a time for me to tour your facilities so that I may use this information in planning your audit and tailor our services precisely to Apollo Shoes, Inc. Additionally, I will need access to all company files during the audit, as well as a list of related parties and subsidiary...
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...“economic consequences” in accounting standard-setting? A. Accounting standards can have detrimental impacts on the wealth levels of the providers of financial information. Financial accounting is objective; if a company is not doing well, that's what the financial statements must present. "Economic consequences" is meant the impact of accounting reports on the decision making behavior of business, government, unions, investors and creditors. It is argued that the resulting behavior of these individuals and groups could be detrimental to the interests of other affected parties. And, the argument goes, accounting standard setters must take into consideration these allegedly detrimental consequences when deciding on accounting questions. 2. What economic consequences arguments are used in this letter? A. The economic consequences arguments that are used in this letter is the considerations of the wide range of concerns that have been expressed about the derivatives and hedging proposal, including concerns related to the potential impact on the capital markets, the weakening of companies’ ability to manage risk and others. The letter is suggesting for fairness and transparency with regard to the proposal of FASB and be open for public debate and comments as this is important in businesses, the customer’s and the economy as a whole. 3. What do you believe is the main point of the letter? A. The main point of the letter is to postpone the issuance...
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...COURSE OBJECTIVES Financial and management accounting are more closely linked in practice than one might expect from reading traditional textbooks and the problems to be resolved often have income tax and auditing consequences as well. This seminar is designed to provide you with opportunities to apply general concepts and principles learned in intermediate and advanced financial accounting courses to new economic transactions and business decisions. Cases will be used to permit you to practice the skills you will need as a professional accountant whether in public accounting or private industry. In particular, this course is intended to refine your skills in researching the professional accounting literature to solve particular accounting problems, to arrive at defensible solutions where GAAP is vague or nonexistent, and to present your research conclusions in a professional manner. You will have opportunities to present your work orally and in writing. REQUIRED MATERIALS: A recent Intermediate Accounting text (Kieso used in Acct 315 & 414 would be fine) A recent Advanced Accounting text (whatever was used in for Acct 415-515 would be fine) On-line access to FASB’s ASC (accounting standards codification). The Department has purchase academic license so you can use the $850 “professional” version rather than the free version which has fewer bells and whistles. You can log on from fasb.org but it will take you to http://aaahq.org/ascLogin.cfm where you enter...
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...Journal of Accounting and Economics 55 (2013) 66–90 Contents lists available at SciVerse ScienceDirect Journal of Accounting and Economics journal homepage: www.elsevier.com/locate/jae Towards an understanding of the role of standard setters in standard setting$ Abigail Allen, Karthik Ramanna n Harvard Business School, USA a r t i c l e in f o abstract Article history: Received 15 September 2010 Received in revised form 24 May 2012 Accepted 25 May 2012 Available online 7 June 2012 We investigate the effect of standard setters in standard setting. We examine how certain professional and political characteristics of FASB members and SEC commissioners predict the accounting ‘‘reliability’’ and ‘‘relevance’’ of proposed standards. Notably, we find FASB members with backgrounds in financial services are more likely to propose standards that decrease ‘‘reliability’’ and increase ‘‘relevance,’’ partly due to their tendency to propose fair-value methods. We find opposite results for FASB members affiliated with the Democratic Party, although only when excluding financialservices background as an independent variable. Jackknife procedures show that results are robust to omitting any individual standard setter. & 2012 Elsevier B.V. All rights reserved. JEL classification: D72 D78 G18 K22 L51 M41 Keywords: Accounting FASB Politics Relevance Reliability Standard setting 1. Introduction As the Financial Accounting Standards Board (FASB) closes...
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...Sherron Watkins—Revelations of a Letter Who Is Sherron Watkins? Sherron Watkins gained fame as the so-called “whistle-blower” in the Enron accounting scandal. “Enron hid billions of dollars in debts and operating losses inside private partnerships and dizzyingly complex accousnting schemes that were intended to pump up the buzz about the company and support its inflated stock price.” Watkins wrote two letters, one anonymously, to Enron’s chairman, Kenneth Lay. In those letters she “exposed top officials—perhaps including Lay himself—who for months had been trying to hide a mountain of debt, and started a chain reaction of events that brought down the company.” Watkins had a “flair for numbers” and the training and expertise to recognize a “funny accounting scheme.” She received an accounting degree from the University of Texas at Austin in 1981 and a master’s degree in accounting in 1982, after which she went to work for Arthur Andersen’s Houston office. Watkins transferred to Andersen’s New York City office and then subsequently returned to Houston in the early 1990s to work for Enron. Eight years after joining Enron, Watkins had risen to the position of vice president for corporate development. According to one retrospective account of the Enron scandal, Watkins “understood that something very bad was going on, something everyone else seemed to think was perfectly okay, and that public revelation would be disastrous.” Somehow Watkins “was able to escape the groupthink...
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...Sherron Watkins—Revelations of a Letter Who Is Sherron Watkins? Sherron Watkins gained fame as the so-called “whistle-blower” in the Enron accounting scandal. “Enron hid billions of dollars in debts and operating losses inside private partnerships and dizzyingly complex accousnting schemes that were intended to pump up the buzz about the company and support its inflated stock price.” Watkins wrote two letters, one anonymously, to Enron’s chairman, Kenneth Lay. In those letters she “exposed top officials—perhaps including Lay himself—who for months had been trying to hide a mountain of debt, and started a chain reaction of events that brought down the company.” Watkins had a “flair for numbers” and the training and expertise to recognize a “funny accounting scheme.” She received an accounting degree from the University of Texas at Austin in 1981 and a master’s degree in accounting in 1982, after which she went to work for Arthur Andersen’s Houston office. Watkins transferred to Andersen’s New York City office and then subsequently returned to Houston in the early 1990s to work for Enron. Eight years after joining Enron, Watkins had risen to the position of vice president for corporate development. According to one retrospective account of the Enron scandal, Watkins “understood that something very bad was going on, something everyone else seemed to think was perfectly okay, and that public revelation would be disastrous.” Somehow Watkins “was able to escape the groupthink...
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...Management Representations 1941 AU Section 333 Management Representations (Supersedes SAS No. 19.) Source: SAS No. 85; SAS No. 89; SAS No. 99; SAS No. 113. See section 9333 for interpretations of this section. Effective for audits of financial statements for periods ending on or after June 30, 1998, unless otherwise indicated. Introduction .01 This section establishes a requirement that the independent auditor obtain written representations from management as a part of an audit of financial statements performed in accordance with generally accepted auditing standards and provides guidance concerning the representations to be obtained. Reliance on Management Representations .02 During an audit, management makes many representations to the auditor, both oral and written, in response to specific inquiries or through the financial statements. Such representations from management are part of the audit evidence the independent auditor obtains, but they are not a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit. Written representations from management ordinarily confirm representations explicitly or implicitly given to the auditor, indicate and document the continuing appropriateness of such representations, and reduce the possibility of misunderstanding concerning the matters that are the subject of the representations. [Revised, March 2006, to reflect conforming...
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...Accounting and Communication: Final Project I plan on graduating from Temple with a bachelors in science in Accounting. Afterward, I desire to enroll in Graduate school at Temple University to complete my Masters degree. Hoping I will be skilled enough (CPA test preparatory classes may be necessary) to pass the CPA (Certified Public Accountants) exam, I intend to apply to a private accounting firm. In order for an Accountant to internally do their job correct, they need to ensure that firms are efficiently run financially while also making business decisions that would lead to prevented loss/future profit. They prepare, analyze and verify financial documents that are recorded in an accounting journal, balance sheet, income statement, statement of cash flows and shareholders’ equity. Externally, an Accountant could be employed by a public corporation and sent out to off-premise locations to perform audits. The duties of an accountant depend on whether they are a private or public accountant and which department they work in. Public accounting for the most part has to do with auditing, taxation, and external duties. Private accountants are more internal and deal with budgeting, inventory, cost accounting and internal auditing. In 2009, the median annual wage for accountants and auditors was $60,340, according to the Bureau of Labor Statistics. Personally, I like the internal work that has to do with financial accounting, not managerial accounting. I’m more of a numbers type of...
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...9-110-045 REV: MARCH 31, 2011 EUGENE SOLTES A Letter from Prison On February 14, 2008, Stephen Richards, inmate #71320-053 at Taft Federal Correctional Institution, completed a letter to Eugene Soltes, a student at the University of Chicago Booth School of Business. Richards was the former global head of sales at Computer Associates. Exhibit 1 provides the list of questions Soltes asked Richards. Exhibit 2 is a copy of the letter Soltes received in return. ________________________________________________________________________________________________________________ Professor Eugene Soltes prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2009, 2010, 2011 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. Purchased by: CHUAN LAN llaass2@163.com on August 24, 2013 110-045 A Letter from Prison Computer Associates and Stephen Richards Computer Associates International, Inc. (CA) began as a four-person start-up in 1976. Its founder, Charles Wang, sought to...
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...Before You Sue The Accountants Daniel J. Hurson Even if it looks like a strong case, be careful—there are some surprising defenses. IN THE WAKE OF the corporate accounting scandals that have dominated the business news for the last few years, as well as recurring announcements of large settlements in class action suits against major accounting firms, the prospect of a malpractice case against an accounting firm would at first glance seem attractive. Juries are presumably more predisposed to view accountants with renewed skepticism, when hardly a news cycle passes without some reference to accounting fraud, investigations, and the occasional large-scale debacles like the demise of Arthur Andersen, not to mention the high-profile criminal prosecutions that have recently gone to trial. Daniel J. Hurson, formerly Assistant Chief Litigation Counsel at the SEC, practices securities enforcement and accounting malpractice law in Washington, D.C. His website is www.hursonlaw.com. 25 26 The Practical Lawyer April 2006 Accountant malpractice litigation is a minefield of arcane judicial doctrines layered over pleading and discovery traps that can bury the best plaintiffs’ counsel. Indeed, among the players in these sagas, the accountants sometimes offer the best litigation target. The companies themselves have often tanked; the errant executives dismissed, awash in legal problems, and without insurance coverage; but the accountants (Andersen notwithstanding)...
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...Letters Accountants write letters of variety of people, different types of accountant writes different letters to different types of people. There are some principles of good letter writing that are introduced in this chapter such as: organization, style, tone, and format. Before we start with the letter, we need to have a clear understanding of what the letter should cover so that we won’t forget something important. The length of the letter doesn’t matter although many letters are no longer than a page. We also need to analyze the purpose of the letter before we start writing it. It’s also important to think about the reader that we are writing to, the reader’s knowledge and experience should determine how much detail we should use in our business letters. Sometimes we much explain complex accounting procedures in the words that a non-accountant can understand. Our letter is organized into an introduction, a body, and a conclusion. The introduction of the letter should address the main idea that we are trying to express and the purpose of the letter that we are writing. The body of the letter is divided into different discussions of each topic. Arrange the topics in descending order of importance from the reader’s point of view, this is really important. The conclusion may be a conventional courteous closing: thank you very much for your help. The conclusion is also a good place to tell the reader what we want him or her to do, or what we will do to follow up on the subjects...
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... Week 3 Abstract The Financial Accounting Standard Board (FASB) was created in 1973 with the purpose of the board is to (according with FASB) establish standards of financial accounting that govern the preparation of financial reports by nongovernmental entities. Those standards are officially recognized as authoritative by the Securities and Exchange Commission (SEC) (Financial Reporting Release No. 1, Section 101, and reaffirmed in its April 2003 Policy Statement) and the American Institute of Certified Public Accountants (Rule 203, Rules of Professional Conduct, as amended May 1973 and May 1979). FASB Accounting Standards Codification (Accounting Standards Codification) which represents the source of authoritative standards of accounting and reporting, other than those issued by the SEC, recognized by the FASB to be applied by nongovernmental entities. Some of those standards are; ASC 830-230-55-1 - Statement of Cash Flows for Manufacturing Entity with Foreign Operations, ASC 926-330-35-1 - Products Held for Sale, ASC 954-440-25-2 - Continuing Care Retirement Community, ASC 505-20-50-1 – Equity, Stock Dividends and Stock Split and Disclosure, ASC 710-10-05-6 - Compensated Absences. FASB Accounting Standards Codification (Accounting Standards Codification) which represents the source of authoritative standards of accounting and reporting, other than those issued by the SEC, recognized by the FASB to be applied...
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...1. In delivering a sales presentation, you are asked to deliver a follow-up sales letter which summarizes your presentation. Would this be a persuasive letter? Why? One of the best ways to follow up a sales call or meeting is to write your prospect the next day and thank him or her for their time. This is one of the simplest and most effective ways to stand out from your competition and reconfirm your interest in the relationship you’re building. The purpose of this letter in my opinion is to thank your prospective client for the meeting and to reinforce the potential relationship with you a valuable partner. The follow up letter is only to reinforce the relationship and the spirit of cooperation, I do not believe the letter should be an attempt to close with your prospect. Speak in terms of possibilities of a successful partnership and plans for a follow up meetings where you pour on the charm and persuasiveness to close the sale. 2. You are a Marketing Specialist who deals with clients on a daily basis. You have just received the following email: “Bob- We have just found out that the Accounting Department has overcharged Client ABC $12,023 in May 2008. Please contact Sue Smith in Accounting to figure out what the ramifications are, which other clients might be affected, and what the best way to resolve this issue would be. Regards, Tom Smith, President” You have Sue Smith’s email address, desk location, and office number. Decide which...
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