...2014. Prior to the current fiscal year, Burnaby Wholesalers was audited by another public accounting firm. The client changed auditors immediately after completion of the audit for the year ended September 30, 2013, following the predecessor firm’s issuance of a qualified (GAAP) opinion on the financial statements because the auditors were not satisfied with the valuation of the client’s inventories. KEY USERS & CONCERNS: The main users of Burnaby Wholesalers include: * Owners/Shareholders who are concerned about profitability and sustainability of the company. * Management/CEO of the company who would be interested in showing increased earnings and profitability of the company to earn bonuses/incentives, etc. * Investors/Bankers whose primary concern is the profitability and cash flow of the company to ensure a return on their investment and recovery of the principal investment. ENGAGEMENT RISK/INHERENT RISK FACTORS: * Burnaby Wholesalers Ltd is a new client—first time audit of the client. * Prior auditors issued a qualified (GAAP) opinion on last year’s audit due to misstatements in valuation of inventory. * Client operates in a competitive industry. * Profit margins and sales have been decreasing over the last few years—management...
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...international transactions between related parties (between parent company and their affiliates or between affiliates) are playing an increasingly significant role in world trade and economy. As multinational enterprises are said to account for about 60% of world trade, transfer pricing has become the number one issue in the international tax arena (Ping and Silberztein 36). There are several different methods utilized to determine transfer pricing. There are strong opinions on the most accurate method to document and report transfer pricing. The most preferred is the arm’s length principle, stating, “it should reflect the prices that would have been set, had those transactions taken place among independent entities” (Houston and Gracon 12). In this paper, I will discuss the difficulty in comparable pricing, the differences of direct tax and customs rules, and firms costly transfer pricing documentation that are all controversial challenges with the arm’s length principle. The Arm’s length principle, most preferred for many years, lacks the ability for a firm to acquire accurate comparable pricing. As Gareth Green, director of Transfer Pricing Solutions in the UK says: ‘Often the only real comparisons are commercially proprietorial transactions, which competing companies will do their utmost not to disclose. So, often a company will simply use its own transactions with third parties, or a database of the financial results of third-party companies, which are sold commercially...
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...Coyle vs. Schwartz Issue: Is Coyle legally entitled to the stock purchasing price of $250? (Is the stock-valuation provision in the cross-purchase agreement considered a penalty?) Rule of Law: Limited Partnerships; Agency Law & Limited Liability, Dissolution, Winding Up, and Termination of a General Partnership Application: Case Facts: * March 21, 1986: Coyle and Schwartz execute a share-transfer agreement wherein Schwartz transferred 2% of his American Scale share to Coyle. * Coyle then owned 51%; Schwartz owned 49% Coyle is majority shareholder and it was specifically stated in the argument. * August 25, 1988: Both agreed upon a buy-sell agreement that they titled, “Stockholder’s Cross-Purchase Agreement” * The agreement provided for the repurchase of a shareholder’s stock in the event of death, disability, or voluntary withdrawal of that shareholder. * Specifically: * It stated that if Coyle or Schwartz died or otherwise attempted to dispose of his shares, the other shareholder would have the right to purchase those shares. * Also, the agreement gave the majority shareholder an option to purchase all of the minority shareholder’s stock at any time upon a 60-day written notice. * As of August 25, 1988, the fair market value of each share was $250 after a stock-valuation method was completed. * Case states: “UNLESS ALTERED AS HEREIN PROVIDED, for the purpose of determining the purchase price...
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...the public interest. The fundamental ethical principles that apply to all members of the professional bodies are to act with integrity, objectivity, professional competence and due care, confidentiality and professional behaviour (APES 110, 100.4). The requirement to act in the public interest means that auditors should consider how their actions impact the client and their employer. They must also consider the impact of their actions on others such as the client’s employees, investors, credit providers, and those without direct financial interests in the client such as the broader business and financial community and members of the public. All these people could be reliant on the quality of the auditor’s work, even though they are not party to the contract between the client and the audit firm. The reliability of the financial reports and the audit report is potentially damaged if the auditor does not act with integrity (honesty), objectivity (being independent), with professional competence and due care (executing the work with the required level of skill and attention), confidentiality (discussing the client’s affairs with others inappropriately), and professional behaviour (protecting their reputation and the profession’s reputation). A dishonest auditor could knowingly help publish a materially false, misleading, or reckless financial report. Auditors...
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...BEST PRACTICES FOR THE HEDGE FUND INDUSTRY ~~~~~ REPORT OF THE ASSET MANAGERS’ COMMITTEE TO THE PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS January 15, 2009 * * * THE ASSET MANAGERS’ COMMITTEE Eric Mindich, Chair (Eton Park Capital Management) Anne Casscells (Aetos Capital, LLC) Marc Lasry (Avenue Capital Group) William Von Mueffling (Cantillon Capital Management) Anne Dinning (D. E. Shaw & Co., L.P.) Jonathon S. Jacobson (Highfields Capital Management) James S. Chanos (Kynikos Associates LP) Daniel S. Och (Och-Ziff Capital Management) Daniel H. Stern (Reservoir Capital Group) Edward Mulé (Silver Point Capital, L.P.) COUNSEL TO THE ASSET MANAGERS’ COMMITTEE Sullivan & Cromwell LLP Schulte Roth & Zabel LLP * * * Table of Contents EXECUTIVE SUMMARY ............................................................................................... i BEST PRACTICES ...........................................................................................................1 Disclosure and Investor Protection ..................................................................................1 I. II. Disclosure of Material Information to Investors ...................................................1 Ongoing Information Provided to Investors..........................................................5 A. B. V. I. II. Side Letters....................................................................................................10 Parallel Managed Accounts...
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...Company Investment existence and valuation Succint: Institutional Investor Company (IIC) is a for-profit conglomerate consisting of multiple business lines operating in a variety of industries throughout the United States. IIC is being audited under audit standards established by the AICPA. IIC is highly profitable and manages an investment portfolio of approximately $500 million that is used to fund operations as needed. Management is unsatisfied with the historical returns on IIC’s investment portfolio and therefore is looking to diversify by investing a portion of the portfolio in alternative investments, which seem to promise higher returns. (Alternative investments represent investment vehicles that are not listed on national exchanges or over-the-counter markets, or for which quoted market prices are not available; e.g., hedge funds, real estate funds, and private equity funds.) While management has been monitoring developments in the investment industry and is concerned with the additional risk, it believes the risk can be managed and, therefore, has decided to move forward with the plan. The investment amount is considered material to IIC’s financial statements. Management anticipates that it will use at least two different fund managers to manage IIC’s alternative investments. Management is currently considering several potential fund managers. In addition, management intends to use its current third-party record keeper’s expertise to perform...
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...Mark X Company is in a precarious financial position- It is overextended, and unless the company can persuade its bank to continues present loans and also grant substantial additional credit, Mark X may well go under. Credit Analysis The accruals currently (that is, at the end of 1992) consist of $5 million of accrued taxes and $2331000 of accrued wages. The wages were all earned within the past 2 weeks, and no single employee is due more than $2000. Long-term bank loans actually consist of two different loans: $5 million in straight unsecured debt, plus another $4563000 in loans that are subordinate to the $5 million loan. In recent times, with the financial markets strengthening up, more and more people entering this financial market as players, there arises the need to further increase the scope of the financial markets which primarily dealt in stocks and debt. This lead to the rise of the product: derivatives. Derivatives are those financial instruments which derive its value from its underlying asset, the asset can be anything. The scope of derivatives has been really widening. So, this assignment also focuses on some of the derivatives like futures, options, forward rate agreements and swaps. These derivatives were earlier designed to cover the risks from uncertain conditions, or rather for the purpose of hedging; however they have been widely used for further purposes like speculation, different forms of trading, arbitraging, etc. Of course, future...
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...BUSINESS VALUATION Dt: March, 10, 2011 FACEBOOK Facebook Business Valuation Case Valuation Based on 5 year cash flow projections Facebook can be valued at 41.51 Billion dollars. Based on the analysis and the most likely scenario of projections the company can be fairly valued at 38.2 Billion Dollars but when superimposed on the dynamic pattern of internet businesses a valuation of 41.5 Billion dollars can be assumed a fair value. The company at present has a very strong impact and potential to grow in the near future but at the same time it faces a lot of risks that can put it out of business any time in the future. For Facebook to sustain it must diversify. In the light of new developments and information release regarding Facebook‘s business model, Goldman Sach‘s valuation of the company at 50 Billion dollars is opportunist. The reason for this discrepancy could be a conflict of interest as the company gets a priority while going public. This could also be because of the information limitation. Likelihood NPV (CF) NPV (TV) Facebook Valuation Optimistic Scenario 25% 50.31 10 Pessimistic Scenario 25% 27.68 2 Given the latest improvements and introduction of Facebook email and deals in April, 2011 and also potential talks of evolving it as a search engine with a one stop availability, the company can be valued up to 100 Billion dollars. Realistic Scenario 50% 33.02 5 41.51 *Values in Billion $s The scenarios...
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...of land, buildings, equipment, and other assets not generally held for resale. In addition, investing activities include the purchase and sale of financial instruments not intended for trading purposes (discussed in chapter 18). Financing activities include transactions and events whereby cash is obtained from or repaid to creditors (debt financing) or owners (equity financing). Financing activities would include, for example, acquiring debt, capital leases, issuing bonds, or issuing preferred or common stock. Financing activities would also include payments to retire debt, reacquiring stock (treasury stock), and the payment of dividends. 17-2. When auditing the investing and financing cycles auditors typically address the following issues: • What assets are necessary to support the operations of the entity, and what are management’s long-range plans for growing the entity’s asset base? Answering this question assists the auditor in developing expectations of long-term assets needed to support operations. • What assets were acquired, or disposed of, during the period? Answering this question confirms the auditor’s expectations regarding assets needed to operate effectively. It also assists the auditor in developing expectations of regarding financing activities. • How were newly acquired assets financed? Answering this question completes the audit of the investing and financing cycles. These cycles are often audited together due to the strong connection...
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...LT Debt | 0.56% | 0.72% | 0.96% | Total Current Liabilities | 39.09% | 34.73% | 19.25% | LT Debt & Obligations | 2.76% | 5.48% | 33.51% | Total Liabilities | 41.85% | 40.21% | 52.75% | Shareholders' Equity: | Common Stock | 0.00% | 0.00% | 0.00% | Paid-In Capital | 50.69% | 48.76% | 36.20% | Retained Earnings | 7.47% | 11.03% | 11.04% | Total Shareholders' Equity | 58.15% | 59.79% | 47.25% | Total Liabilities & SH' Equity | 100.00% | 100.00% | 100.00% | Based on the information given in the case, there are multiple high-risk financial statement items for the 1998 audit of Just for FEET, specifically regarding account balances and presentations and disclosures. Notably, inventory valuation, which increased from 35.47% of total assets in 1996 to 58.01% in 1998, and the accuracy and allocation of vendor allowances were...
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...assertions are also embodied in GAAP. The five main assertions are defined as: Existence/occurrence. The assets, liabilities, and equity interests exist and all transactions reflected in the financial statements actually occurred. Completeness. All assets, liabilities, equity interests, and transactions that should have been recorded have been recorded, i.e., nothing is left out of the financial statements. Rights/obligations. The entity holds or controls the legal ownership to assets, and liabilities are legally owed by the entity. Valuation/allocation. Assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. Presentation/disclosure. Assets, liabilities, and equity interests are appropriately classified on the financial statements, and are adequately described in the footnotes to the financial statements. 7-4. Valuation is usually one of the most important assertions to address in most audits. The intent of this question is to have the students think about the detail required by GAAP in forming specific assertions to be...
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...Australian School of Business ACCT5910 Business Analysis and Valuation Class 1: Introduction Lecturers • Peter VASSALLO – (Lecturer in Charge) – Office: Quad 3101 Tel: 9385 5840 – Email: p.vassallo@unsw.edu.au – Consultation Hour: Tue 2 – 4 pm Australian School of Business • Jeff COULTON – Office: Quad 3061 Tel: – Email: j.coulton@unsw.edu.au – Consultation Hour: Wed 3 – 5 pm 9385 5811 Focus of Acct5910 Australian School of Business Fundamental Analysis and Value 3 Success: Warren Buffett Australian School of Business Warren Buffett Australian School of Business • Born on August 30, 1930 • The richest person in the world 2008 with $62 billion, and the third richest in 2010 with 47 billion • Lives in the same house in the central Omaha that he bought in 1958 for $31,500 and today, it is valued at around $700,000 • Largest shareholder and CEO of Berkshire Hathaway • Recent News: – Invested aggressively during the current crisis – Lost $25 billion in 2008-2009 – Called for more income tax for rich Americans (but not necessarily investment tax) Warren Buffett Australian School of Business • Newspaper delivery boy at age of 13 • First investment in pinball machine at age of 15 • Graduated from Columbia and worked as an security analyst for 2 years • Started an investment partnership with $100 at age of 26; 13 years later, he cashed out with $25 million • Controlled Berkshire Hathaway and transformed it into an investment vehicle ...
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...whole would worth $198mm. Final ownership required = ������������������������������������������������ ������������������������������������ ������������������������������ ������������������������������������������������������������ ������������������������������ ������������������������������������������������ ������������������������������ Final ownership required = $167.8mm / $198mm = 84.34%. The required percent ownership after 6 years should be 84.34% “and it is equal to beginning percent ownership because the company doesn’t require any additional capital through 6 years” Computing Shares to Issue and Share Price Usually Companies Issue additional stocks after period of time of venture capitalists investment, diluting the ownership of pervious investors. So now if the company X has 800,000 shares outstanding and the VC must own 84.34% of company X, then the company should issue additional shares of amount:...
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...Financial Accounting Standards Board ORIGINAL PRONOUNCEMENTS AS AMENDED Statement of Financial Accounting Standards No. 157 Fair Value Measurements Copyright © 2010 by Financial Accounting Foundation. All rights reserved. Content copyrighted by Financial Accounting Foundation may not be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the Financial Accounting Foundation. FAS157 Statement of Financial Accounting Standards No. 157 Fair Value Measurements STATUS Issued: September 2006 Effective Date: For financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years Affects: Amends APB 21, paragraphs 13 and 18 Deletes APB 21, footnote 1 Amends APB 28, paragraph 30 Amends APB 29, paragraphs 18 and 20(a) Deletes APB 29, paragraph 25 and footnote 5 Amends FAS 13, paragraph 5(c) Amends FAS 15, paragraphs 13 and 28 Deletes FAS 15, footnotes 2, 5a, and 6 Amends FAS 19, paragraph 47(l)(i) Amends FAS 35, paragraph 11 and footnote 5 Deletes FAS 35, footnote 4a Amends FAS 60, paragraph 19 Deletes FAS 60, footnote 4a Amends FAS 63, paragraphs 4, 8, and 38 through 40 Amends FAS 65, paragraphs 4, 6, 9, 10, 12, and 29 Amends FAS 67, paragraphs 8 and 28 Deletes FAS 67, footnote 6 Amends FAS 87, paragraphs 49 and 264 and footnote 12 Deletes FAS 87, footnote...
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...Lookout Report from S&P Valuation and Risk Strategies Making The Case For Eight Consecutive Quarters Of Double-Digit Earnings Growth Michael Thompson Managing Director Valuation and Risk Strategies (1) 212-438-3480 michael_thompson@standardandpoors.com Robert Keiser Vice President Valuation and Risk Strategies (1) 212-438-3540 robert_keiser@standardandpoors.com Lisa Sanders Director Valuation and Risk Strategies (1) 212-438-3291 lisa_sanders@standardandpoors.com Although less than two weeks old, the third-quarter earnings season is shaping up to be a repeat of the second quarter, already suggesting that reported earnings will not break the seven-quarter streak of double-digit earnings growth. Although they were likely inspired by market concerns of a double-dip recession in the U.S. and threats of contagion stemming from the eurozone debt crisis, analysts may have underestimated the earnings power of U.S. companies. The Valuation and Risk Strategies (VRS) research team continues to expect slow GDP growth in 2011. As we said in the previous issue of the Lookout Report, if third-quarter earnings exceed analyst expectations--as they have for the past two years--we think the case for growth over recession will solidify. Heading into the third quarter, the Capital IQ mean estimate for S&P 500 companies declined sharply, with growth forecasts dropping from 17% at the beginning of the calendar quarter to 12.8% on Oct. 10, the day before Alcoa Inc.'s earnings unofficially launched...
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