Conceptual Framework. Noeleen Auto Mall, Ltd. recently completed an initial public offering (IPO) for $23,003,000 by listing its common shares on the New York Stock Exchange. Prior to its IPO, Noeleen was a privately held family business. As a public company, Noeleen faces increased reporting requirements, particularly those sanctioned by the Securities and Exchange Commission (SEC). Noeleen’s Controller, Donald Lierni, was surprised to learn that a Form 10-Q was required to satisfy the company’s first-quarter filing requirements with the SEC. Lierni lacked sufficient time to develop the “actual” numbers needed to prepare the report, meaning that he needed to make significant estimates before the 10-Q filing due date. In addition, Noeleen now must satisfy a new group of financial statement users with additional information needs. Noeleen expended resources to meet the new reporting requirements and assess what information and disclosures to include/exclude from the financial reports. Lierni also learned that privately held companies are not subject to U.S. GAAP requirements like a publicly traded entity. That is, the company now must follow additional U S. GAAP standards and is required to change several of its accounting methods. When considering his options, Lierni decides to take a “safe” approach and report the lowest income possible by adopting income-reducing standards. Here, the Controller proposes taking excessive write-downs for obsolete inventory and potentially impaired assets. He also decides to expense the cost of a significant investment in office equipment.
Finally Noeleen created a separate legal entity to handle its auto financing, Benedict Arnold Credit Company, during the same year it went public. The separate entity is not consolidated with the primary financial statements. Lierni decides to keep this entity off of the balance sheet and does not see any need for disclosure of Noeleen’s relationship with Benedict Arnold Credit.
Based on the information provided, list and explain the application of the relevant components of the conceptual framework of accounting. Identify seven issues and use the following table to present your solution.
Issue | Conceptual Framework |
1.__________ | 1.__________ |
2. __________ | 2. __________ |
3. __________ | 3. __________ |
4. __________ | 4. __________ |
5. __________ | 5. __________ |
6. __________ | 6. __________ |
7. __________ | 7. __________ |
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Intermediate Accounting (2nd Edition)
- 21. Imagine you are an audit manager for KPAG and partners – an audit firm based in Muscat. You have just been asked by one of your existing clients, SOHAR corporation, for help in compliance with corporate governance guidelines because they are about to obtain a stock exchange listing. They have sent you the following information. At present Mr. Omar al Balushi is both Chairman and CEO (Chief Executive Officer) of SOHAR corporation. You are required to identify from the following, whether it is a corporate governance weakness or strength and choose the correct recommendations. a. Yes, it is a weakness and chairman and CEO should not be Mr. Omar al Balushi b. Yes, it is a weakness, however if external auditors agree Mr. Omar al Balushi can continue c. None of the options d. No, it is not a weakness so no recommendation requiredarrow_forwardMonicker Co. engaged the audit firm of Gasner & Gasner to audit its financial statements that Monicker was going to use in connection with a public offering of its securities. Monicker's stock regularly trades on the NASDAQ. The audit was completed and the auditor issued an unqualified opinion on the financial statements, which Monicker submitted to the SEC along with the registration statement. Three hundred thousand shares of Monicker common stock were sold to the public at $13.50 per share. Eight months later, the stock fell to $2 per share when it was disclosed that several large loans to two "paper" companies owned by one of the directors were worthless. The loans were secured by the stock of the borrowing corporation and by Monicker stock owned by the director. These facts were not disclosed in the financial statements. The director and the two corporations are insolvent. Considering these facts, indicate whether each of the following statements is true or false, and briefly…arrow_forwardMonicker Co. engaged the audit firm of Gasner & Gasner to audit its financial statements that Monicker was going to use in connection with a public offering of its securities. Monicker's stock regularly trades on the NASDAQ. The audit was completed and the auditor issued an unqualified opinion on the financial statements, which Monicker submitted to the SEC along with the registration statement. Three hundred thousand shares of Monicker common stock were sold to the public at $13.50 per share. Eight months later, the stock fell to $2 per share when it was disclosed that several large loans to two "paper" companies owned by one of the directors were worthless. The loans were secured by the stock of the borrowing corporation and by Monicker stock owned by the director. These facts were not disclosed in the financial statements. The director and the two corporations are insolvent. Considering these facts, indicate whether each of the following statements is true or false, and briefly…arrow_forward
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- In 2004, Google fi led a Form S-1 registration statement with the US SEC to register its initial public off ering of securities (Class A Common Stock). In addition to a large amount of fi nancial and business information, the registration statement provided a 20- page discussion of risks related to Google’s business and industry. Th is type of qualitative information is helpful, if not essential, in making an assessment of a company’s credit or investment risk. Which of the following is least likely to have been included in Google’s registration statement? A . Audited fi nancial statements. B . Assessment of risk factors involved in the business. C . Projected cash fl ows and earnings for the business.arrow_forwardThe Public Company Accounting Oversight Board (PCAOB) was created as part of a series of accounting reforms in the Sarbanes-Oxley Act of 2002. The PCAOB is a Government-created entity with expansive powers to govern an entire industry. Every accounting firm that audits public companies under the securities laws must register with the PCAOB, pay it an annual fee, and comply with its rules and oversight. The PCAOB may inspect registered firms, initiate formal investigations, and issue severe sanctions in its disciplinary proceedings. While the Securities and Exchange Commission (SEC) appoints PCAOB members and has oversight of the PCAOB, it cannot remove PCAOB members at will, but only “for good cause shown,” “in accordance with” specified procedures. The SEC Commissioners, in turn, cannot themselves be removed by the President except for “inefficiency, neglect of duty, or malfeasance in office.” Parties with standing have challenged the constitutionality of the Sarbanes-Oxley Act’s…arrow_forwardYou have recently been appointed as auditor to Johnson Plc; a company whose shares are traded on the Stock Exchange. The Directors of Johnson Plc have recommended that you perform the following services . (i) The statutory audit of the annual financial statements. (ii) Taxation services, and (iii) Consistency services in respect of the implementation of a new information technology system Your firm has not acted for Johnson Plc before but does act as auditor for one of the major competitors. Required. (a) Identify and explain the professional and ethical issues that should have been identified by your firm in relation to the provision of the services outlined above, and describe the safeguards that should be in place in order to address these issues. (Include citations to support work). (b) What are the fundamental principles of ethics? Briefly explain their meaning (Include citations to support work). (c) A client’s affairs should not be disclosed to third parties. However where a…arrow_forward
- Below is a summary of the SEC corporate governance requirements of companies publicly-listed in the stock exchange. For each requirement, state how it is intended to help to address the risk of fraud in publicly traded organizations. a. Boards need to consist of at least independent directors or 1/3 of the board which is higher.arrow_forwardYou have just started work for Warren Co. as part of the controller's group involved in current financial reporting problems. Jane Henshaw, controller for Warren, is interested in your accounting background because the company has experienced a series of financial reporting surprises over the last few years. Recently, the controller has learned from the company's auditors that there is authoritative literature that may apply to its investment in securities. She assumes that you are familiar with this pronouncement and asks how the following situations should be reported in the financial statements. Situation 1: Trading debt securities in the current assets section have a fair value that is $4,200 lower than cost. Situation 2: A trading debt security whose fair value is currently less than cost is transferred to the available-for-sale category. Situation 3: An available-for-sale debt security whose fair value is currently less than cost is classified as noncurrent but is to be…arrow_forwardXYZ Company is an electronic company. Its board members are independent directors. The company receives auditing and tax consultancy services from MNO Company. Also, XYZ hired former MNO partners as senior financial executives. 1) What is your opinion about the above case? 2) What recommendation(s) would you give to the board of directors? Explain your answer.arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningBusiness Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage