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Discuss the applicable federal tax laws, regulations, rulings, and court cases related to the inventory

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 six (6) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources. (Include 3 Online 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
  • 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.

 

Grading for this assignment will be based on answer quality, logic / organization of the paper, and language and writing skills, using the following rubric.

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Rubric:

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

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