ACC 499 WEEK 10 ASSIGNMENT 3 CAPSTONE PROJECT
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ACC 499 WEEK 10 ASSIGNMENT 3 CAPSTONE PROJECT
Due Week 10 and worth 440 points
Assume you are the partner in an accounting
firm hired to perform the audit on a fortune 1000 company. Assume also
that the initial public offering (IPO) of the company was approximately five
(5) years ago and the company is concerned that, in less than five (5) years
after the IPO, a restatement may be necessary. During your initial evaluation
of the client, you discover the following information:
- The client is currently undergoing a three (3) year
income tax examination by the Internal Revenue Service (IRS). A
significant issue involved in the IRS audit encompasses inventory
write-downs on the tax returns that are not included in the financial
statements. Because of the concealment of the transaction, the IRS is
labeling the treatment of the write-down as fraud.
- The company has a share-based compensation plan for
top-level executives consisting of stock options. The value of the options
exercised during the year was not expensed or disclosed in the financial
statements.
- The company has several operating and capital leases in
place, and the CFO is considering leasing a substantial portion of the
assets for future use. The current leases in place are arranged using
special purpose entities (SPEs) and operating leases.
- The company seeks to acquire a global partner, which
will require IFRS reporting.
- The company received correspondence from the Securities
and Exchange Commission (SEC) requesting additional supplemental
information regarding the financial statements submitted with the IPO.
Write an eight to ten (8-10) page paper in
which you:
- Evaluate any damaging financial and ethical
repercussions of failure to include the inventory write-downs in the
financial statements. Prepare a recommendation to the CFO, evaluating the
negative impact of a civil fraud penalty on the corporation as a result of
the IRS audit. In the recommendation, include essential internal control
procedures to prevent fraudulent financial reporting from occurring, as
well as the major obligation of the CEO and CFO to ensure compliance.
- Examine the negative results on stakeholders and the
financial statements of an IRS audit which generates additional tax and
penalties or subsequent audits. Assume that the subsequent audit and / or
additional tax and penalties result from the taxpayer’s use of an
inventory reserve account, applying a 10 percent reduction to inventory
over three (3) years.
- Discuss the applicable federal tax laws, regulations,
rulings, and court cases related to the inventory write-downs, and explain
the specific relevance of each to the write-down.
- Research the current generally accepted accounting
principles (GAAP) regarding stock option accounting. Evaluate the current
treatment of the company’s share-based compensation plan based on GAAP
reporting. Contrast the financial benefits and risks of the share-based
compensation stock option plan with the financial benefits and risks of a
share-based stock-appreciation rights plan (SARS). Recommend to the CFO
which plan the company should use, and provide the correct accounting
treatment for each.
- Research the reporting requirements for lease reporting
under GAAP and International Financial Reporting Standards (IFRS). Based
on your research, create a proposal for future lease transactions to the
CFO. Within the proposal, discuss the use of off-the-balance sheet
financing arrangements, capital leases, and operating leases, and indicate
the related business and financial risks of each.
- Create an argument for or against a single set of
international accounting standards related to lease accounting based on
the global market and cross border leases of assets. Examine the benefits
and risks of your chosen position.
- Examine the major implications of SAS 99 based on the
factors you discovered during the initial evaluation of the company.
Provide support for your rationale.
- Analyze the potential for a material misstatement in the
financial statements based on the issues identified in your initial
evaluation. Make a recommendation to the CFO for the issuance
of restated financial statement
restatement. Identify at least three (3) significant issues that can
result from the failure to issue restated financial statements.
- Examine the economic effect of restatement of the
financial statements on investors, employees, customers, and creditors.
- Use five (5) quality academic resources in this
assignment. Note: Wikipedia and other Websites do not
qualify as academic resources.
Your
assignment must follow these formatting requirements:
- Be typed, double spaced, using Times New Roman font
(size 12), with one-inch margins on all sides; citations and references
must follow APA or school-specific format. Check with your professor for
any additional instructions.
- Include a cover page containing the title of the
assignment, the student’s name, the professor’s name, the course title,
and the date. The cover page and the reference page are not included in
the required assignment page length.
The
specific course learning outcomes associated with this assignment are:
- Analyze accounting situations to apply the proper
accounting rules and make recommendations to ensure compliance with
generally accepted accounting principles.
- Analyze business situations to determine the
appropriateness of decision making in terms of professional standards and
ethics
- Use technology and information resources to research
issues in accounting.
- Analyze business situations and apply advanced federal
taxation concepts.
- Write clearly and concisely about accounting using
proper writing mechanics.
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