Accounting Discussion Questions (3)

#1
In recent years, quite a few companies have been involved in highly publicized accounting scandals
simply because they did not follow GAAP principles. It is important to study companies involved in
such scandals to learn from their mistakes and prevent future ones.
Visit the following website on the ten worst corporate accounting scandals of all time: Top
Accounting Scandal Links to an external site.. Select one of the scandals that you find interesting on
this site.
In your original post, create a one-to-two page report to address the following questions:
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What was the name of the company involved in the scandal you chose?
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What was the accounting scandal? What wrongdoing occurred?
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Specifically, which one of the four accounting GAAP principles did the company violate?
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Why do you think this principle was violated? Explain your answer.
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In the financial statements, there are several accounts: assets, liabilities, equity, revenue,
and expense. What account type was involved in this scandal? For example, did they
overstate revenue, did they understate expenses, etc.?
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How was the company penalized? Do you think the penalty was enough to prevent future
scandals?
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What additional penalty would you have applied? Explain your answer.
#2
Daniel bought a brand-new truck for his landscaping business. He paid $30,000—the full amount—
upfront. Assuming there would be no salvage value, he planned to use it for 10 consecutive years.
His assistant recorded this transaction on the balance sheet as equipment for $30,000 on the day of
the purchase.
After two years of owning his truck, Daniel decided to apply for a loan and met with Mr. Thompkins,
the bank loan officer. A few minutes into the appointment, Daniel gave him his company’s balance
sheet. Mr. Thompkins asked Daniel several questions about how the information was provided.
Daniel said he would get back to him in a few days with the requested information. The balance
sheet showed the remaining value of the truck as $30,000 after two years. Daniel claimed that he
was using GAAP. Help Daniel to answer the loan officer’s questions. Provide your assistance
in your initial post:
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Which accounting method was used? Explain why you believe this method was used.
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Has his assistant recorded equipment correctly? Explain your answer. If not, what does the
assistant need to do to record this correctly?
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Please explain the GAAP principle that applies to this scenario.
#3
Fraud is intentional deceit or trickery that results in a misstatement of the financial
statements. Management is responsible for taking steps to reduce the risk of fraud. After
quite a few instances of fraud in many large, publicly owned companies in recent years, a
number of accounting reforms have been instituted to safeguard against fraud. One major
change was the Sarbanes-Oxley Act (SOX) of 2002.
SOX included a set of reforms that toughened penalties for corporate fraud, restricted the
types of consulting that CPAs can perform for audit clients, and created the Public
Company Accounting Oversight Board (PCAOB). SOX requires publicly-traded companies
to follow government policies and procedures.
Since cash is the most liquid of all assets, it needs to be safeguarded. Both large and small
companies are susceptible to fraud and other unethical activities without proper
controls in place. Managers and business owners can protect against fraud by using
an internal control system to protect their assets. An effective control system can also
help businesses to conduct reliable accounting, operate efficiently, and encourage
employees to follow company policies.
To ensure that the internal controls implemented around cash are designed properly,
there should be a segregation of duties:
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Recordkeeping
Custody
Authorization
Reconciliation
In an ideal situation, there should be one individual assigned the responsibility of only one
component. The record-keeping function of an asset should be separated from the
custody of an asset. In addition, the individual responsible for authorizing a transaction
related to cash should not be the same person that has custody of that cash or performs
the recordkeeping. Furthermore, reconciliations should be completed by different
individuals to ensure that the internal controls are working effectively. This includes doing
physical audits, checks, and reviews of internal control procedures that are in place to
catch errors in time and to avoid fraud. We’ll dive into this further in this discussion.
In your original post, respond to the following prompts related to your small retail
business in your initial post:
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Identify the type of company you own and describe the nature of your business,
sharing details about the number of employees you have employed, their
responsibilities, and the role they play in implementing the internal controls put
in place to protect the assets. Perhaps you sell shoes, clothing, furniture, or
computers. You might own a restaurant or a small drug store or a small walk-in
health clinic.
Identify at least two kinds of internal control procedures that you can
implement to protect your cash.
o How would you protect the inventory in your warehouse?
o How would you protect the cash in your cash register?
o How would you protect your electronic data, such as banking
information?
How can internal controls help to protect these assets?
How can you use technology to implement an effective internal control system
to help your business? Explain your answers.