Requirement – 1
Performance obligation
Performance obligation is the promise made by the seller to supply the goods and service to the customer on or before the contract.
The revenue recognition principle
The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.
To discuss: The manner in which S Company’s 1997 “bill-and-hold” strategy might have contributed to artificially high earnings in 1997.
Requirement – 2
To discuss: The manner in which the strategy have led to the unusually high accounts receivable.
Requirement – 3
To discuss: The manner in which the S Company’s 1997 bill-and-hold strategy might have constituted to a 1998 earnings decline.
Requirement – 4
To discuss: The manner in which the earnings management affects earning quality.
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INTERMEDIATE ACCOUNTING
- sh7 please help me Thankyou The Sarbanes-Oxley Act of 2002 was a necessary response to the corporate accounting scandals of the early 2000s. It brought much-needed reform to the regulatory framework for corporate accounting and reporting and increased the accountability of public companies and their auditors. While there are concerns about the costs of compliance and the impact on competitiveness, there is evidence to suggest that SOX has helped prevent fraudulent reporting and improve the quality of financial reporting. Nonetheless, there may be room for further improvement in the act's implementation to address any remaining issues and to ensure continued investor confidence in the US financial markets.arrow_forwardMINISCRIBE (LO 1, 2) As reported in the Wall Street Journal (September 11, 1989), MiniScribe, nc., inflated its reported profits and inventory through a number of schemes designed to fool the auditors. At that time, MiniScribe was one of the major producers of disk drives for personal computers. The newspaper article reported that MiniScribe used the following techniques to meet its profit objectives: • An extra shipment of $9 million of disks was sent to a customer near year-end and booked as a sale. The customer had not ordered the goods and ultimately returned them, but the sale was nor reversed in the year recorded. • Shipments were made from a factory in Singapore, usually by air freight. Toward the end of the year, some of the goods were shipped by cargo ships. The purchase orders were changed to show that the customer took title when the goods were loaded on the ship. However, title did not pass to the customer until the goods were received in the U.S. • Returned goods were recorded as usable inventory. Some were shipped without any repair work performed. • MiniScribe developed a number of just—in—time warehouses and shipped goods to them from where they were delivered to customers. The shipments were billed as sales as soon as they reached the warehouse. For each of the techniques described, identify the audit evidence that might have enabled the auditor to uncover the fraud.arrow_forwardSolve the Dilemma LO 14-6 Assess a company's financial position using its accounting statements and ratio analysis. Exploring the Secrets of Accounting You have just been promoted from vice president of marketing of BrainDrain Corporation to president and CEO! That's the good news. Unfortunately, while you know marketing like the back of your hand, you know next to nothing about finance. Worse still, the "word on the street" is that BrainDrain is in danger of failure if steps to correct large and continuing financial losses are not taken immediately. Accordingly, you have asked the vice president of finance and accounting for a complete set of accounting statements detailing the financial operations of the company over the past several years. Recovering from the dual shocks of your promotion and feeling the weight of the firm's complete accounting report for the very first time, you decide to attack the problem systematically and learn the "hidden secrets" of the company, statement by…arrow_forward
- UTSTARCOM, INC. (LO 2, 3, 4, 5, 6, 8) UTStarcom is a global leader in the manufacture, integration, and support of networking and telecommunications systems. The company sells broadband wireless products and a line of handset equipment to operators in emerging and established telecommunications markets worldwide. The following excerpt was obtained from the 2004 10-K of UTStarcom. Inc., which reported material weaknesses in the company’s internal controls. In describing the company’s remediation efforts, the company stated that “planned remediation measures are intended to address material weaknesses related to revenue and deferred revenue accounts and associated cost of sales.” These material weaknesses were evidenced by the identification of six separate transactions aggregating approximately $5 million in which revenue was initially included in the company’s fourth-quarter 2004 financial statements before all criteria for revenue recognition were met. In addition, there were other transactions for which there was insufficient initial documentation for revenue recognition purposes but which did not result in any adjustments to the company’s fourth-quarter 2004 financial statements. If unremediated, these material weaknesses have the potential of misstating revenue in future financial periods. The company’s planned remediation measures include the following: “The Company plans to design a contract review process in China requiring financial and legal staff to provide input during the contract negotiation process to ensure timely identification and accurate accounting treatment of nonstandard contracts.” “In March 2005, the Company conducted a training seminar regarding revenue recognition, including identification of nonstandard contracts, in the United States and, in April 2005, the Company conducted a similar seminar in China. Starting in May 2005, the Company plans to conduct additional training seminars in various international locations regarding revenue recognition and the identification of nonstandard contracts.” “At the end of 2004, the Company began requiring centralized retention of documentation evidencing proof of delivery and final acceptance for revenue recognition purposes.” a. What features of this case should have indicated to the auditor a potentially heightened risk of fraudulent financial reporting? b. Using the previous disclosures as a starting point, identify challenges regarding internal controls that a company may face in doing business internationally. c. The company had disclosed its planned remediation efforts for 2004. How might the auditor have used that information in planning the 2005 audit? d. Considering potential analytical procedures relevant to the revenue cycle, identify analytics that the auditor might use in 2005 to provide evidence that the problems detected in 2004 have been remedied. e. Considering potential substantive tests of revenue, identify procedures that might be applied in 2005 to provide evidence that the problems detected in 2004 have been remedied.arrow_forward12 When a company routinely sells on credit, it is inevitable that some of its customers will not pay the amount owed. Group starts True or Falsearrow_forwardQuestion 11 of 12: InsureCo salespeople talk to each other using insurance industry jargon. Which adverse business effect can using "industry gibberish" have on InsureCo's operations? Select an answer: Communication will not always be clear among other employees. Older workers will make generalizations about younger workers. Jargon does not have a specific meaning within the company. New employees cannot be onboarded in that type of environment.arrow_forward
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