I need help please with these 2 assignments of ul Uus Oll oo

I need help please with these 2 assignments.

of ul Uus Oll ook value mpact hical Dilemma What\'s an expense? differences nge over the ATC 6-5 Several years ago, Wilson Blowhard founded a communications company. The company became suc of its competitors. In fact, most , Wi cesful and grew by expanding its customer base and acquiring some f its growth resulted from acquiring other companies. Mr. Blowhard is adamant about continuing the company\'s growth and increasing its continue to increase at a rapid pace nal assets net worth. To achieve these goals, the business\'s net income must If the company\'s net worth continues to rise, Mr. Blowhard plans to sell the company and retire. -term assets licon micro- ften thought rms 10-K or ing require- tructions in bsite; Intel\'s He is, therefore, focused on improving the company\'s profit any way he can In the communications business, companies often use the lines of other communications compa nies. This line usage is a significant operating expense for Mr. Blowhard\'s company. Generally ac urred cepted accounting principles require operating costs like line use to be expensed as they are ino each year. Each dollar of line cost reduces net income by a dollar. After reviewing the company\'s operations, Mr. Blowhard concluded that the company did not cur rently need all of the line use it was paying for. It was really paying the owner of the lines now so that the line use would be available in the future for all of Mr. Blowhard\'s expected new customers. Mr. Blowhard instructed his accountant to capitalize all of the line cost charges and depreciate them over 10 years. The accountant reluctantly followed Mr. Blowhard\'s instructions and the company\'s net income for the cur- rent year showed a significant increase over the prior year\'s net income. Mr. Blowhard had found a way they are not plant, to report continued growth in the company\'s net income and increase the value of the company Required operty, a. How does Mr. Blowhard\'s scheme affect the amount of income that the company would otherwise eview the AICPA\'s Articles of Professional Conduct (see Chapter 4) and comment on any of the the fraud triangle discussed in Chapter 4 and comment on the features of the fraud triangle eer? re port in its financial statements and how does the scheme affect the company\'s balance sh Explain your answer standards that were violated that are evident in this case ssets 00%

Solution

ATC 6-5

Answer to Assignment 1 :

a. Operating expenses have to be charged to the Statement of Profit and Loss instead of treating it as a capital expenditure although the company did not utilise all of the expenses that it was paying for. The accountants treatment of operating expenses as capital expenditure will overstate profits particularly the EBIDTA of the enterprise. It will subsequently increase the retained profits in case the company is profitable in the year. Also, assets will be orreneously increased since the expenditure is treated as an asset.

b. The following articles were violated by the accountant :

(i) Article I , Responsibilties - This article states that every member must exercise due professional care and judgement in discharge of their activities which the accountant certainly did follow.

(ii) Article II, The Public Interest - As per this article members have to act in way that protects public faith and interest in the company. The accountant by fradulently reporting the expenses has broken public faith and interest in the company.

(iii) Article III ,Integrity and Article V, Due Care - The accountant did not exercise honesty which was required as per Article III. Also he violated the article of due care for while discharging his responsibilities as a part of his financial reporting process.

c. Fraud triangle involves three elements i.e. pressure, opportunity and rationalisation. Pressure is the motivation to commit a financial crime .Mr Blow Hard was under pressure to maintain the company\'s growth and increase the net income of the company until he retires. Opportunity is the means through which the fraudster see\'s that his aim is achieved .He had the opportunity to commit a fraud given the fact that he was the founder of the company and had direct control over the companys financial reporting. Rationalisation is the justification of the crime that has been created. Mr. Blowhard has reasons to defraud the public since he wants to make good money before he decided to retire and sell of the company.