Assignment 3: Capstone Research 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:

1. 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.

2. 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. 

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. Examine the economic effect of restatement of the financial statements on investors, employees, customers, and creditors.

10. 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.

  

Points: 440

Assignment 3: Capstone Research Project

 

Criteria

Unacceptable

Below   60% F

Meets   Minimum Expectations

60-69%   D

Fair

70-79%   C

Proficient

80-89%   B

Exemplary

90-100%   A

 

1. 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.

Weight: 10%

Did not submit or incompletely   evaluated any damaging financial and ethical repercussions of   failure to include the inventory write-downs in the financial statements. Did   not submit or incompletely prepared 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, did not submit or incompletely   included 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.

Insufficiently evaluated any damaging   financial and ethical repercussions of failure to include the inventory   write-downs in the financial statements. Insufficiently prepared 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, insufficiently included 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.

Partially evaluated any damaging   financial and ethical repercussions of failure to include the inventory   write-downs in the financial statements. Partially prepared 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, partially   included 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.

Satisfactorily evaluated any damaging   financial and ethical repercussions of failure to include the inventory   write-downs in the financial statements. Satisfactorily prepared 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, satisfactorily included 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.

Thoroughly evaluated any damaging   financial and ethical repercussions of failure to include the inventory   write-downs in the financial statements. Thoroughly prepared 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, thoroughly   included 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.

 

2. 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.

Weight: 10%

Did not submit or incompletely   examined the negative results on stakeholders and the financial   statements of an IRS audit which generates additional tax and penalties or   subsequent audits. Did not submit or incompletely assumed 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.

Insufficientlyexamined the negative   results on stakeholders and the financial statements of an IRS audit which   generates additional tax and penalties or subsequent audits. Insufficiently   assumed 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.

Partiallyexamined the negative   results on stakeholders and the financial statements of an IRS audit which   generates additional tax and penalties or subsequent audits. Partially   assumed 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.

Satisfactorilyexamined the negative   results on stakeholders and the financial statements of an IRS audit which   generates additional tax and penalties or subsequent audits. Satisfactorily   assumed 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.

Thoroughlyexamined the negative   results on stakeholders and the financial statements of an IRS audit which   generates additional tax and penalties or subsequent audits. Thoroughly   assumed 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.

 

3. 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.
  Weight: 10%

Did not submit or incompletely discussed   the applicable federal tax laws, regulations, rulings, and court cases   related to the inventory write-downs; did not submit or incompletely   explained the specific relevance of each to the write-down.

Insufficiently discussed the   applicable federal tax laws, regulations, rulings, and court cases related to   the inventory write-downs; insufficiently explained the specific relevance of   each to the write-down.

Partially discussed the applicable   federal tax laws, regulations, rulings, and court cases related to the   inventory write-downs; partially explained the specific relevance of each to   the write-down.

Satisfactorily discussed the   applicable federal tax laws, regulations, rulings, and court cases related to   the inventory write-downs; satisfactorily explained the specific relevance of   each to the write-down.

Thoroughly discussed the   applicable federal tax laws, regulations, rulings, and court cases related to   the inventory write-downs; thoroughly explained the specific relevance of   each to the write-down.

 

4. 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.

Weight: 10%

Did not submit or incompletely   researched the current generally accepted accounting principles   (GAAP) regarding stock option accounting. Did not submit or incompletely   evaluated the current treatment of the company’s share-based compensation   plan based on GAAP reporting. Did not submit or incompletely contrasted 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). Did not submit or incompletely recommended to the CFO which plan the   company should use, and provided the correct accounting treatment for each.

Insufficiently researched the current   generally accepted accounting principles (GAAP) regarding stock option   accounting.Insufficientlyevaluated the current treatment of the company’s   share-based compensation plan based on GAAP   reporting.Insufficientlycontrasted 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).Insufficientlyrecommended   to the CFO which plan the company should use, and provided the correct   accounting treatment for each.

Partially researched the current   generally accepted accounting principles (GAAP) regarding stock option   accounting.Partiallyevaluated the current treatment of the company’s   share-based compensation plan based on GAAP reporting.Partiallycontrasted 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). Partiallyrecommended to the CFO which plan the company   should use, and provided the correct accounting treatment for each.

Satisfactorily researched the current   generally accepted accounting principles (GAAP) regarding stock option   accounting.Satisfactorilyevaluated the current treatment of the company’s   share-based compensation plan based on GAAP   reporting.Satisfactorilycontrasted 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).Satisfactorilyrecommended to the CFO which plan the company should   use, and provided the correct accounting treatment for each.

Thoroughly researched the current   generally accepted accounting principles (GAAP) regarding stock option   accounting.Thoroughlyevaluated the current treatment of the company’s   share-based compensation plan based on GAAP reporting.Thoroughlycontrasted   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).Thoroughlyrecommended to the CFO which   plan the company should use, and provided the correct accounting treatment   for each.

 

5. 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.

Weight: 10%

Did not submit or incompletely   researched the reporting requirements for lease reporting under GAAP   and International Financial Reporting Standards (IFRS). Based on your   research, did not submit or incompletely created a proposal for future lease   transactions to the CFO. Within the proposal, did not submit or incompletely   discussed the use of off-the-balance sheet financing arrangements, capital   leases, and operating leases, and indicate the related business and financial   risks of each.

Insufficiently researched the reporting   requirements for lease reporting under GAAP and International Financial   Reporting Standards (IFRS). Based on your research, insufficiently created a   proposal for future lease transactions to the CFO. Within the proposal,   insufficiently discussed the use of off-the-balance sheet financing   arrangements, capital leases, and operating leases, and indicate the related   business and financial risks of each.

Partially researched the reporting   requirements for lease reporting under GAAP and International Financial   Reporting Standards (IFRS). Based on your research, partially created a   proposal for future lease transactions to the CFO. Within the proposal,   partially discussed the use of off-the-balance sheet financing arrangements,   capital leases, and operating leases, and indicate the related business and   financial risks of each.

Satisfactorily researched the reporting   requirements for lease reporting under GAAP and International Financial   Reporting Standards (IFRS). Based on your research, satisfactorily created a   proposal for future lease transactions to the CFO. Within the proposal,   satisfactorily discussed the use of off-the-balance sheet financing   arrangements, capital leases, and operating leases, and indicate the related   business and financial risks of each.

Thoroughly researched the reporting   requirements for lease reporting under GAAP and International Financial   Reporting Standards (IFRS). Based on your research, thoroughly created a   proposal for future lease transactions to the CFO. Within the proposal,   thoroughly discussed the use of off-the-balance sheet financing arrangements,   capital leases, and operating leases, and indicate the related business and   financial risks of each.

 

6. 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.

Weight: 10%

Did not submit or incompletely   created 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. Did not submit or incompletely examined   the benefits and risks of your chosen position.

Insufficiently created 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.Insufficientlyexamined the benefits and risks of your chosen position.

Partially createdan 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.Partiallyexamined the benefits and risks of your chosen position.

Satisfactorily created 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.Satisfactorilyexamined the benefits and risks of your chosen position.

Thoroughly created 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.Thoroughlyexamined the benefits and risks of your chosen position.

 

7. 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.

Weight: 10%

Did not submit or incompletely   examined the major implications of SAS 99 based on the factors you   discovered during the initial evaluation of the company. Did not submit or   incompletely provided support for your rationale.

Insufficiently examined themajorimplications of SAS 99 based on   the factors you discovered during the initial evaluation of the company.   Insufficiently provided support for your rationale.

Partially examined themajorimplications of SAS 99 based on   the factors you discovered during the initial evaluation of the company.   Partially provided support for your rationale.

Satisfactorily examined themajorimplications of SAS 99 based on   the factors you discovered during the initial evaluation of the company.   Satisfactorily provided support for your rationale.

Thoroughly examined themajorimplications of SAS 99 based on   the factors you discovered during the initial evaluation of the company.   Thoroughly provided support for your rationale.

 

8. 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.

Weight: 10%

Did not submit or incompletely   analyzed the potential for a material misstatement in the financial   statements based on the issues identified in your initial evaluation. Did not   submit or incompletely made a recommendation to the CFO for the issuance   of        restated financial statement   restatement. Did not submit or incompletely identified at least three (3)   significant issues that can result from the failure to issue restated   financial statements.

Insufficiently analyzed the potential   for a material misstatement in the financial statements based on the issues   identified in your initial evaluation.Insufficientlymade a recommendation to   the CFO for the issuance of          restated financial statement restatement.Insufficientlyidentified at least   three (3) significant issues that can result from the failure to issue   restated financial statements.

Partially analyzed the potential   for a material misstatement in the financial statements based on the issues   identified in your initial evaluation.Partially made a recommendation to the CFO for the issuance   of        restated financial statement   restatement.Partiallyidentified at least three (3) significant issues that   can result from the failure to issue restated financial statements.

Satisfactorily analyzed the potential   for a material misstatement in the financial statements based on the issues   identified in your initial evaluation.Satisfactorilymade a recommendation to   the CFO for the issuance of          restated financial statement   restatement.Satisfactorilyidentified at least three (3) significant issues   that can result from the failure to issue restated financial statements.

Thoroughly analyzed the potential   for a material misstatement in the financial statements based on the issues   identified in your initial evaluation.Thoroughlymade a recommendation to the   CFO for the issuance of        restated   financial statement restatement.Thoroughlyidentified at least three (3)   significant issues that can result from the failure to issue restated   financial statements.

 

9. Examine the economic effect of restatement of the   financial statements on investors, employees, customers, and creditors.

Weight: 5%

Did not submit or incompletely   examined the economic effect of restatement of the financial   statements on investors, employees, customers, and creditors.

Insufficiently examined the economic   effect of restatement of the financial statements on investors, employees,   customers, and creditors.

Partially examined the economic   effect of restatement of the financial statements on investors, employees,   customers, and creditors.

Satisfactorily examined the economic   effect of restatement of the financial statements on investors, employees,   customers, and creditors.

Thoroughly examined the economic   effect of restatement of the financial statements on investors, employees,   customers, and creditors.

 

10. 5 references

Weight: 5%

No references provided

Does not meet the required number   of references; all references poor quality choices.

Does not meet the required number   of references; some references poor quality choices.

Meets number of required   references; all references high quality choices.

Exceeds number of required   references; all references high quality choices.

 

11. Clarity, writing mechanics,   and formatting requirements

Weight: 10%

More than 8 errors present

7-8 errors present

5-6 errors present

3-4 errors present

0-2 errors present