Answer & Explanation: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: 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 taxpayers 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 companys
share-ba
sed 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 students
name, the professors 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 Analyze business situations and apply advanced federal taxation concepts. Use technology and information resources to research issues in accounting. Write clearly and concisely about accounting using proper writing mechanics.