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Finance and Accounting: WorldCom and Enron - Research Paper Example

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"Finance and Accounting: WorldCom and Enron" paper argues that officials and managers of a public company are accountable to ensure that the working out and content of financial statements completely and precisely portray the company’s financial situation. …
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Finance and Accounting: WorldCom and Enron
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Accounting Research Paper al Affiliation Accounting Research Paper Question A prime concern in accounting for inventoriesis the determination of the cost at which inventories are carried in the financial statements until the allied revenues are recognized. If the record of Inventory or stock indicates a small loss this could be reported as part of cost of goods sold and if this amount is big then it is crucial to report in separate row on the income statement. In addition, such things generally produce to be a infringement, for examples WorldCom case, Enron case etc. “IAS 1” (Epstein & Jermakowicz, 2010, p. 31) includes preparation of Financial Statement and consistent with this, it is essential for firms to reveal separately in the statement of income for the record of the inventories which has been small persistence thing. Additionally, this rule also demands for sufficient data which influences the important measures with that data which can additional support in accepting a situation. The risk of not including the inventory write-down in the financial statement is that the investors may over-anticipate income firmness and thus lead to decisions that may create strong unethical situations. Beside this, such condition can direct towards many ethical and financial problems for example excessive manager’s payments, concealment fraud penalties, losing investors self-assurance in organization with loosing value of brand in addition to goodwill. Accountants who do not consider complete according standards while making financial statement, are not only breaching the according standards but also are breaching the trust and ethics which is considered as inevitable in the “professional behavior” (Little, 2008, p. vii) of the people. As being element of Practicing Business, it is suggested that CEO and CFO of the business should think such influence of the “Internal Revenue Service” (Internal Revenue Service Data Book, no date, p. 32). Negative Assessments Question 2 This IRM gives an outline and common knowledge of GAOs annual Financial Statement Audit of the “Internal Revenue Service” (Internal Revenue Service Data Book, no date, p. 32) (IRS). As the country’s tax collector, the IRS has the liability of collecting taxes, enforcing the nation’s tax laws and processing tax return. The GAO performs annually audits of the financial statements of IRS in keeping the CFO Act of 1990, as extended by the “Government Management Reform Act of 1994” (Guthrie et al., 2005, p. 357) Appropriate to this Act, the General Accounting Office (GAO) opines on the fiscal statements of the IRS in the report financial review of IRS’s Fiscal Years and Financial Statements. As well as opining on the financial reports of the IRS, the GAO also informs on the position of internal controls and any drawbacks recognized throughout their audit. Taxpayers are paid interest on the payment of taxes and for some situations the IRS pays interest to taxpayers when they make over payment for their taxes. Generally, the interest or payments results by the settlement of the liability of tax are for the previous year’s tax returns. When an IRS audit happens by the taxpayer with the payment of additional tax for a previous year tax, the IRS may charge the tax payer interest upon the value of further tax from the actual due date to the payment date of tax. If the results of audit provides a refund, interest may be paid to the tax payer depends on the amount of refund. The IRS may also enforce a non deductible penalty based on the amounts of non paid portion of the calculated tax. For the tax of present year tax a tax payer may not be paying the interest on the refund resulting from the overpayment of calculated tax on the current year tax. Question 3 The federal trial, U.S. Tax Court that concentrates in disputes of tax, issues three kinds of decisions. They are Summary Decisions, Regular Decisions and Memorandum Decisions. Summary decisions are issued in cases ventured under the diminutive case proceedings and have no precedential worth. The U.S. Tax board Appeals was the forerunner to the Tax Court previous to the year 1942. Generally, for objectives of Federal income tax, taxpayers have to account for stocks if the purchase, production or sale of goods is an affair of income-producing facet to the taxpayer. Under the Last in First out (LIFO) method, it is understood that the last things entered into the stock are the first things sold. For the reason that the most lately produced or acquired units are believed to be sold first, cost of sales is esteemed at the majority current costs. Compared to FIFO method, LIFO creates net income that more directly reflects the variations among sale profits and present market price of inventory. When there is a rise in expenses, LIFO method calculations often show a higher cost of goods sold and a consequential lesser measure of profits comparing with FIFO method. The benefit due inflation which the business experiences in its inventory is not experienced by the business in its inventory is generally not usually reflected in its income, but stays in finale inventory as a tardy gain till a phase in which sales go over purchases. The suggestion revokes the LCM method and the note down for substandard goods. Suitable wash-sale rules would be provided to prevent taxpayers from circumventing the prohibition. The existing law does not recommend documenting of income or loss unless it’s comprehended. While considering a tax payer who sells goods, the profit and loss can be calculated only after the sale of the goods. If the Tax payer, does not file the appeal to modify the way of accounting a penalty which will be supplementary to the tax will be obligatory on the tax payer. Moreover the tax return preparer or consultant will also have to pay the preparer penalty. But the penalties will not be charged when a tax payer moves from an unacceptable method of accounting to an acceptable one by obeying all the applicable provisions of this earning practice. Question 4 The LCM method and the write down of “substandard goods” (Description of Revenue Provisions Contained in the President’s Fiscal Year 2010 Budget Proposal: Part Two: Business Tax Provisions, 2009, p. 79) under the existing law symbolize exemption to the realization standards by allowing the acknowledgment of losses without the occurrence of transactions. Moreover these methods can be considered as biased as they permit the acknowledgment of losses, and not gains, even though the objects of inventory recuperate their worth in a successive year. However, lowest common multiples (LCM) method and the write down of subnormal goods has been customary in harmony with the generally accepted accounting principles GAAP and used in the practice of financial statements .It has been also permitted by Treasury conventions for tax purpose from 1918. Furthermore, the conservatism standard of GAAP normally necessitates the utilization of the LCM method and the write down of subnormal goods therefore the inventory reproduced on a company’s balance sheet shall not be showy comparative to the practicable values. Question 5 Leasing is a significant activity for several organizations. Under accessible accounting principles, a preponderance of leases is not described in the lessee’s balance sheet. Moreover, the accessible accounting models for leases necessitate lessees and lessons to categorize their leases into either capital leases (for example, a lease of apparatus for almost entire of its profitable life) or operating leases (for example, a lease of workplace area for 10 years) along with accounting these differently. For capital leases, lessees make out lease assets and liabilities on the balance sheet. For operating leases, a lessee does not make out lease assets or liabilities on the balance sheet. The prevailing standards are often criticized for its weakness to fulfill the wants of the users of financial statements as they sometimes fail to provide a realistic illustration of leasing dealings. As a result of this criticism, the International Accounting Standards Board (IASB) or Financial Accounting Standards Board (FASB) instigated a combined project to perk up the fiscal exposure of leasing activities under International Financial Reporting Standards (IFRSs) and U.S. Generally Accepted Accounting Principles (GAAP) for almost all real estate leases, a lessee shall account a simple and clear lease expense in its income statement. In the case of other leases, as machineries or vehicle, a lessee shall account paying back of the asset independently as of interest on the lease liability. The Boards are also suggesting revelations that should facilitate investors and other beneficiaries of financial reports to recognize the sum, timing, and vagueness of cash flows taking place from leases. Question 6 It’s obvious that everyone will be aware of the rising warning indications regarding the expected movement in the direction of International Financial Reporting Standards (IFRSs) as a solitary set of internationally recognized accounting standards. And this was planned to endow with uniformity in financial reporting standards and amplified internationalization of companies. This also resulted in noteworthy hard work in the areas exterior to financial reporting, such as information expertise and human resources, and a demand for the consideration of corporate executives and leaders throughout the organization. Similar to any noteworthy business decision, shaping the moment and speed of change to IFRS need a perceptive of the probable expenses and profits. It is significant to create a well-versed preference based careful analysis of the FASB’s task is to perk up financial accounting standards of U.S. for the advantage of current and probable financiers and other consumer of financial statements. The companies, auditors and investors in the U.S. financial reporting system ought to gain advantage from this augmented comparability which will be the consequence of these globally congregated accounting standards. Added similarity standards will lessen the costs to users and preparers of financial statements. Benefits Conversion offers a new look for the old outdated accounting practices. It can be a medium for reformation and merging. IFRSs give a chance to employ standard accounting principles and takes initiative to open the door of the global market. Risks Under IFRS, lease categorization is based on like standard as U.S. GAAP, but lacking the bright-line guidance. The fundamental IFRS rule is that if the lease does not convey significantly all risks and rewards subsidiary to possession to the lessee, the lease is classified as an operating lease. Normally, for U.S. GAAP under “SAB Topic 13” (Sondhi & Taub, 2009, p. 2.06), “Revenue Recognition” (p. 24) deliverance is obligatory to have occurred to offer enough data to facilitate risks and rewards of ownership have conceded. IAS 18, income accepts that deliverance is not forever essential for profits to be documented, since the risks and rewards of ownership might be reassigned to the buyer even if the goods have not so far been supplied. Question 7 The provisions of “SAS No. 99” (Foelak, 2008, p. 24) give emphasis on Consideration of Fraud in a Financial Statement Audit, which is effectual for audits of financial statements for phase beginning on or after December 15, 2002. The most remarkable variations in the new innovative standard are as follows: Obligatory planning negotiations amid audit team members relating to deception risks and keen expert cynicism. Prolonged inquiry of management and others to make out material fraud risks; Enlarged supervision for evaluating risks of material miss facts as a result of fraud. Prolonged management on income recognition fraud risks and measures to tackle the risk of management domination on internal controls. In 1997 when the “Auditing Standards Board” (Foelak, 2008, p. 2) issued SAS 82, Consideration of Fraud in a Financial Statement Audit, it committed in observing the result of that standard on performance and reviewing the requirement for additional assistance and “Fraud Task Force” (Ryder, 2014, p. 147) was formed in September 2000 to compile this assessment. The task force suggested better concentration on the responsibility of the external auditor, audit committees, management and controllers in fighting, identifying, and stopping fraud. The ASB took action by issuing “SAS No. 99” (Foelak, 2008, p. 24), also titled Consideration of Fraud in a Financial Statement Audit, in October 2002. It gives additional ultimate auditing standards, anticipated to get better auditor performance and thus enhance the probability that auditors will spot counterfeit financial reporting. Question 8: Risks of “material misstatement” (Foelak, 2008, p. 24) will take place from a range of sources, that include external factors and the nature of the company, its actions, and domestic control of fiscal reporting. For example, external or company-specific factors can influence the decisions implicated in shaping estimates relating to accounting or generate pressures to maneuver the financial statements to attain definite financial objectives. Also, risks of “material misstatement” (Foelak, 2008, p. 24) may be due to personnel’s who lack the essential economic reporting skills, information systems that fall short in confining business dealings, or financial reporting practices that are not effectively allied with the necessities in the related financial reporting agenda Issues The call for maintaining an inquiring mind all through the audit and to put into effect professional cynicism in meeting and assessing proof, as described in AU sec.316. The necessity to be attentive for information or supplementary situations that may influence the evaluation of deception risks If these information’s point out that a material misstatement due to deception has taken place , the requirement to investigate the issues, attain extra proof as necessary, and discussion with rest of the team associates should be carried out. Question 9) A financial statement restatement arises when a company, either willingly or impelled by auditors or regulators, modifies public “financial information” (Foelak, 2008, p. 28) which was formerly account. An irregularity of accounting is an occurrence in which a company replicates its financial statements as they were not moderately presented in harmony with GAAP. Standard and Poor’s long-term credit evaluation for Critical Path’s debt pointed out that Critical Path’s responsibility were further susceptible to default than higher-rated companies but that it presently has the competence to meet up its financial liabilities on compulsion. Moreover, such a rating pointed out that unpleasant business, monetary, or financial conditions will likely weaken “Critical Path’s capacity” (Financial Statement Restatements: Trends, Market, Impacts, Regulatory Responses, and Remaining Challenges, 2002, p. 139) or readiness to convene its assurance on the responsibility. However, its evaluation also shows that unfavorable financial conditions or shifting state of affairs were more expected to guide to a destabilized ability to meet financial obligations. The self-regulatory structure is the based on the perception of corporate governance. And so officials and managers of a public company are accountable to ensure that the working out and content of financial statements completely and precisely portray the company’s financial situation and the consequences of its actions. Reference List Epstein, B. J., Nach, R. & Bragg, S. M. (2009). Wiley GAAP 2010: Interpretation and Application of Generally Accepted Accounting Principles. Canada: John Wiley & Sons, Inc. Financial Statement Restatements: Trends, Market, Impacts, Regulatory Responses, and Remaining Challenges. (2002). DIANE Publishing. Foelak, C. (2008). Kevin Hall, CPA, and Rosemary Meyer, CPA: Securities and Exchange Commission. DIANE Publishing. Guthrie, J., Humphrey, C., Jones, L. R. & Olson, O. (eds.) (2005). International Public Financial Management Reform: Progress, Contradictions, and Challenges. USA: Information Age Publishing Inc. Internal Revenue Service Data Book. (no date). U.S: Internal Revenue Service. Little, T. L. (2008). Defining and Imparting Professional Behavior in Physical Therapist Educational Programs: Perspectives of Selected Senior Faculty. California: ProQuest. New York State Sales and Use Tax Law and Regulations: As of January 1, 2009. (2009). USA: CCH State Tax Law. Ryder, N. (2014). The Financial Crisis and White Collar Crime: The Perfect Storm?. UK: Edward Elgar Publishing Limited. Sondhi, A. C. & Taub, S. A. (2009). Revenue Recognition Guide. USA: CCH. Read More
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