Case 1: Conservative Recognition or Cookie Jar Reserves SUMMARY OF THE FACTS Parties Involved: Aunt Amelia – Founder of O’Brian Software, Nick’s aunt and inexperienced in accounting. Nick O’Brian – Junior Internal Auditor, recently college graduate, nephew of the Lee Marchetti – Chief Financial Officer of O’Brian Software. After recently graduating college two months prior, Nick O’Brian is hired as a Junior Internal Auditor for his Aunt Amelia’s company, O’Brian Software. O’Brian
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The financial statements of a global manufacturing firm differ from those in the service or merchandising industry primarily with transactions related to material, labor, and overhead. A manufacturing company has three basic inventory accounts: raw materials, work in process, and finished goods. (Goosen, pp. 31-46) Because the cost of goods manufactured is critical, a manufacturing company typically has a statement called cost of goods manufactured. The accounting for overhead in a manufacturing
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carried at no more than their recoverable amount, and to define how recoverable amount is determined. (Deloitte Touche Tohmatsu, 2009) Assertions: Option2 =the reversal of an impairment loss on intangible assets and goodwill should be recognised in the current period if, certain conditions are met: •an external event caused the recognition of the impairment loss in previous periods, and subsequent external events clearly and demonstrably reverse
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Current liabilities Noncurrent liabilities Total liabilities Total shareholder equity $ 6,500,000 28,250,000 $34,750,000 $ 4,500,000 13,750,000 $18,250,000 $16,500,000 The summary results of operations for the year ended December 31, 2010, included revenue of $10.7 million and net income of $1.2 million. Shakespeare is planning to issue its financial statements on March 20, 2011. On March 18, 2011, Shakespeare’s management will evaluate new information about one of its accruals and two subsequent events
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Current liabilities Noncurrent liabilities Total liabilities Total shareholder equity $ 6,500,000 28,250,000 $34,750,000 $ 4,500,000 13,750,000 $18,250,000 $16,500,000 The summary results of operations for the year ended December 31, 2010, included revenue of $10.7 million and net income of $1.2 million. Shakespeare is planning to issue its financial statements on March 20, 2011. On March 18, 2011, Shakespeare’s management will evaluate new information about one of its accruals and two subsequent events
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Current liabilities Noncurrent liabilities Total liabilities Total shareholder equity $ 6,500,000 28,250,000 $34,750,000 $ 4,500,000 13,750,000 $18,250,000 $16,500,000 The summary results of operations for the year ended December 31, 2010, included revenue of $10.7 million and net income of $1.2 million. Shakespeare is planning to issue its financial statements on March 20, 2011. On March 18, 2011, Shakespeare’s management will evaluate new information about one of its accruals and two subsequent events
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North Face Case Questions 1. Should auditors insist that their clients accept all proposed audit adjustments, even those that have an “immaterial” effect on the given financial statements? Defend your answer. No, clients are not required to accept all proposed audit adjustments that need to be made to the financial statements. However, the auditor is required to challenge management to justify not recording these adjustments. Regardless of the justification, the auditor needs to be aware that
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Assignment – SPRING INTRODUCTION Revenue recognition is one of the top causes for financial statement restatements (Whitehouse 2010). In addition, revenue recognition is an area commonly questioned by the Securities and Exchange Commission (SEC) staff in their review of public filings and resultant comment letter process (Deloitte 2009). Furthermore, revenue recognition is often prey to financial fraud (PricewaterhouseCoopers 2009). Coverage of revenue recognition in intermediate accounting courses
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have been suspended. Their suspension came after an investigation of accounting policies which led the company to overstate earnings by 402 million dollars. Essentially, Tesco was recognizing revenue before it was earned as well as delaying expense recognition. Tesco is currently being investigated by Deloitte. With these three recent suspensions the total amount of Tesco employees that have been suspended is now at 8. With these suspensions and investigations the price per share of Tesco has dropped
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violating the revenue recognition principle when preparing its financial statements. Management had inflated revenue in order to meet expectations. Basically, North Face was incorrectly recognizing revenue barter transactions. North Face’s CFO, Crawford, was a CPA and knew that if he kept these transactions under the materiality threshold, then the auditors would not look into the matter. Additionally, North Face arranged two large sales to inflate the company’s revenue; however
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