Financial Reporting analysis - Case Study Example

The Generally Accepted Accounting Principles (GAAP) also play a major role in the solving of the issues at hand (Epstein and Nach 77). The case involving Philadelphia Communications Inc. first of all presents the issue of disclosures before, during and after an Initial Public Offer. Since Philly had just recently completed an IPO, the SEC, FASB and IFRS requirements require certain disclosures concerning this process. Another issue arising out of Philly’s case is the testing and verification of receivables to the company.

These too require certain considerations under the SEC, FASB and IFRS provisions. Revenue recognition needs to receive keen focus at this stage. The fact that the receivable support provided by the client does not specify interest or payment terms for the notes receivable from several of the company’s chief executive officer’s cousins is another issue of great concern. The bodies stated above, namely the SEC, FASB and the IFRS have provisions and requirements for these kinds of transactions and thus need to be followed (Shamrock 11).

The family members, being considered related parties, need to have more disclosures besides those stated above. The family, though only actively represented by Mr. Sigar in his position as the company’s chief executive and chairman, still owns a large part of the company hence the need to put into consideration its role in the firm’s operations. The fact that there is dependence on records from another party from the previous year presents another issue to be put into consideration. The Generally Accepted Accounting Principles play a serious role in this area; enabling the auditor draw clear conclusions from the information available.

Options and Solutions to the Issues a. Initial Public Offer Philadelphia Communications Inc. became a public company through the Initial Public Offer. The Securities and Exchange Commission, upon receiving an application from any company willing to go public, compels the company to apply all accounting standards to which the company subscribes (Epstein and Nach 55). These include the IFRS requirements, among others. The information disseminated in this period includes the share of the company owned by the individual participants.

This serves to ensure there is transparency and accountability. The information from Philly’s IPO doesn’t state the ownership in terms of the number of shares owned. This type of non-disclosure is against the SEC and GAAP requirements and should be adhered to. b. Receivables The other issue involves receivables and in this particular case from shareholders. This basically is the money received from shareholders in their purchase of a company’s shares. It is an investment into the company hence keenness is required in handling this issue.

The SEC provisions and GAAP in place concerning receivables from shareholders are that the shareholder should be in the know concerning the type of shares purchased and their amount. The notes receivable from Mr. Sigar’s cousins should have clearly stated interest rates and payment terms. This applies to all other shareholders’ notes (Shamrock 23). For transparency’s sake, interest rates and payment terms on all notes receivable should be stated beforehand. According to the Financial Accounting Standards Board, the risk level to which shareholder’s receivables are exposed to should also be known by the