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Baap 500 Week 2 Assignment 1

Good Essays

Airline
Fictitious reductions of expenses improve the bottom line on financial statements and can mask true losses and debt. (Crumbley, Heitger and Smith, 2013). An airline has a large fleet of aircraft that require extensive routine maintenance costs. In times of unprofitability, the airline might improve earnings by recording additional upgrades to planes as expenses by deferring losses to future periods. GAAP section 39.200 provides details around how capital assets should be recorded on the balance sheet and the associated depreciation should be recorded (GAAP, 2015).
Auditors should reference FASB codification section 360-10-30 for requirements around initial measurement of capital assets. This section explains that …show more content…

This usually results in unfair advantage to one of the parties and can open up fraudulent behavior if the party uses influence to increase earnings.
FASB ASC 850-10 considers related party transactions key terms affiliate, control, immediate family, management, and principle owners (FASB, 2015). GAAP provides examples of transactions that can occur between related parties, which include transfers of personal or real property, consulting or other administrative services, sales or purchases, lending or borrowing, and filing consolidated income tax returns. If any of these types of transactions are present within the financial statements then a corresponding disclosure is required to inform the public of the relationship and to be transparent of details around transactions included in the relationship (GAAP, 2016). Details of compensation arrangements around related party transactions are important in disclosures. While the name of the related party is not required by law to be published in the disclosure, it may show good stewardship to disclose as much information as possible to demonstrate that the relationship is done in good faith and is profitable for business growth. In addition, if transactions are eliminated in consolidated statements then the financial statements of the related party should be included in disclosers as required by GAAP practice (GAAP,

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