Assignment 3: Capstone Research Project

Assignment 3: Capstone Research ProjectAssume 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 taxpayer’s 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 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.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 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 ethicsAnalyze 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.Attached is the Grading Rubic to assist with the answers needed to write this paper.
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Assignment 3: Capstone Research Project
Criteria
Unacce
ptable
Below
60% F
1. Evaluat
e any
damaging
financial
and
ethical
repercuss
ions of
failure to
include
the
inventory
writedowns in
the
financial
statement
s.
Prepare a
recomme
ndation to
the CFO,
evaluating
the
negative
impact of
a civil
fraud
penalty
on the
corporatio
n as a
result of
the IRS
audit. In
the
recomme
ndation,
include
essential
internal
control
procedure
s to
prevent
fraudulent
financial
reporting
from
occurring,
Did not
submit or
incomplet
ely
evaluated
any
damaging
financial
and
ethical
repercuss
ions of
failure to
include
the
inventory
writedowns in
the
financial
statement
s. Did not
submit or
incomplet
ely
prepared
a
recomme
ndation to
the CFO,
evaluatin
g the
negative
impact of
a civil
fraud
penalty
on the
corporatio
n as a
result of
the IRS
audit. In
the
recomme
ndation,
did not
submit or
incomplet
ely
Meets Minimum
Expectations
Fair
Proficient
Exemplary
60-69% D
70-79% C
80-89% B
90-100% A
Insufficiently
evaluated any
damaging financial
and ethical
repercussions of
failure to include the
inventory writedowns 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 writedowns 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 writedowns 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.
as well as
the major
obligation
of the
CEO and
CFO to
ensure
complianc
e.
Weight:
10%
2. Examin
e the
negative
results on
stakehold
ers and
the
financial
statement
s of an
IRS audit
which
generates
additional
tax and
penalties
or
subseque
nt audits.
Assume
that the
subseque
nt 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
included
essential
internal
control
procedure
s to
prevent
fraudulent
financial
reporting
from
occurring,
as well as
the major
obligation
of the
CEO and
CFO to
ensure
complianc
e.
Did not
submit or
incomplet
ely
examined
the
negative
results on
stakehold
ers and
the
financial
statement
s of an
IRS audit
which
generates
additional
tax and
penalties
or
subseque
nt audits.
Did not
submit or
incomplet
ely
assumed
that the
subseque
nt audit
and / or
additional
tax and
penalties
result
from the
taxpayer’
s use of
an
inventory
Insufficientlyexamin
ed 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.
Satisfactorilyexamin
ed 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.
Thoroughlyexamine
d 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.
over three
(3) years.
Weight:
10%
3. Discus
s the
applicable
federal
tax laws,
regulation
s, rulings,
and court
cases
related to
the
inventory
writedowns,
and
explain
the
specific
relevance
of each to
the writedown.
Weight:
10%
4. Resear
ch the
current
generally
accepted
accountin
g
principles
(GAAP)
regarding
stock
option
accountin
g.
Evaluate
the
current
treatment
of the
company’
s sharebased
reserve
account,
applying
a 10
percent
reduction
to
inventory
over three
(3) years.
Did not
submit or
incomplet
ely
discussed
the
applicable
federal
tax laws,
regulation
s, rulings,
and court
cases
related to
the
inventory
writedowns;
did not
submit or
incomplet
ely
explained
the
specific
relevance
of each to
the writedown.
Did not
submit or
incomplet
ely
researche
d the
current
generally
accepted
accountin
g
principles
(GAAP)
regarding
stock
option
accountin
g. Did not
submit or
incomplet
ely
evaluated
Insufficiently
discussed the
applicable federal
tax laws,
regulations, rulings,
and court cases
related to the
inventory writedowns; insufficiently
explained the
specific relevance of
each to the writedown.
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 writedowns; satisfactorily
explained the
specific relevance of
each to the writedown.
Thoroughly
discussed the
applicable federal
tax laws,
regulations, rulings,
and court cases
related to the
inventory writedowns; thoroughly
explained the
specific relevance
of each to the writedown.
Insufficiently
researched the
current generally
accepted accounting
principles (GAAP)
regarding stock
option
accounting.Insufficie
ntlyevaluated the
current treatment of
the company’s
share-based
compensation plan
based on GAAP
reporting.Insufficient
lycontrasted the
financial benefits
and risks of the
share-based
compensation stock
option plan with the
financial benefits
Partially
researched the
current generally
accepted
accounting
principles (GAAP)
regarding stock
option
accounting.Partiall
yevaluated the
current treatment
of the company’s
share-based
compensation
plan based on
GAAP
reporting.Partiallyc
ontrasted the
financial benefits
and risks of the
share-based
compensation
Satisfactorily
researched the
current generally
accepted accounting
principles (GAAP)
regarding stock
option
accounting.Satisfact
orilyevaluated the
current treatment of
the company’s
share-based
compensation plan
based on GAAP
reporting.Satisfactori
lycontrasted the
financial benefits
and risks of the
share-based
compensation stock
option plan with the
financial benefits
Thoroughly
researched the
current generally
accepted
accounting
principles (GAAP)
regarding stock
option
accounting.Thoroug
hlyevaluated the
current treatment of
the company’s
share-based
compensation plan
based on GAAP
reporting.Thoroughl
ycontrasted the
financial benefits
and risks of the
share-based
compensation stock
option plan with the
compens
ation plan
based on
GAAP
reporting.
Contrast
the
financial
benefits
and risks
of the
sharebased
compens
ation
stock
option
plan with
the
financial
benefits
and risks
of a
sharebased
stockappreciati
on rights
plan
(SARS).
Recomme
nd to the
CFO
which
plan the
company
should
use, and
provide
the
correct
accountin
g
treatment
for each.
Weight:
10%
5. Resear
ch the
the
current
treatment
of the
company’
s sharebased
compens
ation plan
based on
GAAP
reporting.
Did not
submit or
incomplet
ely
contraste
d the
financial
benefits
and risks
of the
sharebased
compens
ation
stock
option
plan with
the
financial
benefits
and risks
of a
sharebased
stockappreciati
on rights
plan
(SARS).
Did not
submit or
incomplet
ely
recomme
nded to
the CFO
which
plan the
company
should
use, and
provided
the
correct
accountin
g
treatment
for each.
Did not
submit or
and risks of a sharebased stockappreciation rights
plan
(SARS).Insufficiently
recommended to the
CFO which plan the
company should
use, and provided
the correct
accounting
treatment for each.
stock option plan
with the financial
benefits and risks
of a share-based
stock-appreciation
rights plan
(SARS). Partiallyr
ecommended to
the CFO which
plan the company
should use, and
provided the
correct accounting
treatment for
each.
and risks of a sharebased stockappreciation rights
plan
(SARS).Satisfactoril
yrecommended to
the CFO which plan
the company should
use, and provided
the correct
accounting
treatment for each.
financial benefits
and risks of a
share-based stockappreciation rights
plan
(SARS).Thoroughly
recommended to
the CFO which plan
the company
should use, and
provided the correct
accounting
treatment for each.
Insufficiently
researched the
Partially
researched the
Satisfactorily
researched the
Thoroughly
researched the
reporting
requireme
nts for
lease
reporting
under
GAAP
and
Internatio
nal
Financial
Reporting
Standards
(IFRS).
Based on
your
research,
create a
proposal
for future
lease
transactio
ns to the
CFO.
Within the
proposal,
discuss
the use of
off-thebalance
sheet
financing
arrangem
ents,
capital
leases,
and
operating
leases,
and
indicate
the
related
business
and
financial
risks of
each.
Weight:
10%
incomplet
ely
researche
d the
reporting
requireme
nts for
lease
reporting
under
GAAP
and
Internatio
nal
Financial
Reporting
Standard
s (IFRS).
Based on
your
research,
did not
submit or
incomplet
ely
created a
proposal
for future
lease
transactio
ns to the
CFO.
Within the
proposal,
did not
submit or
incomplet
ely
discussed
the use of
off-thebalance
sheet
financing
arrangem
ents,
capital
leases,
and
operating
leases,
and
indicate
the
related
business
and
financial
risks of
each.
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.
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.
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.
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
internatio
nal
accountin
g
standards
related to
lease
accountin
g based
on the
global
market
and cross
border
leases of
assets.
Examine
the
benefits
and risks
of your
chosen
position.
Weight:
10%
7. Examin
e the
major
implicatio
ns of SAS
99 based
on the
factors
you
discovere
d during
the initial
evaluation
of the
company.
Provide
support
for your
rationale.
Weight:
10%
Did not
submit or
incomplet
ely
created a
n
argument
for or
against a
single set
of
internatio
nal
accountin
g
standards
related to
lease
accountin
g based
on the
global
market
and cross
border
leases of
assets.
Did not
submit or
incomplet
ely
examined
the
benefits
and risks
of your
chosen
position.
Did not
submit or
incomplet
ely
examined
the major
implicatio
ns of SAS
99 based
on the
factors
you
discovere
d during
the initial
evaluatio
n of the
company.
Did not
submit or
incomplet
ely
provided
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.Insufficiently
examined 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.Partiallyex
amined 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.Satisfactorily
examined 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.Thoroughlye
xamined the
benefits and risks
of your chosen
position.
Insufficiently
examined themajori
mplications of SAS
99 based on the
factors you
discovered during
the initial evaluation
of the company.
Insufficiently
provided support for
your rationale.
Partially
examined themaj
orimplications of
SAS 99 based on
the factors you
discovered during
the initial
evaluation of the
company. Partially
provided support
for your rationale.
Satisfactorily
examined themajori
mplications of SAS
99 based on the
factors you
discovered during
the initial evaluation
of the company.
Satisfactorily
provided support for
your rationale.
Thoroughly
examined themajor
implications of SAS
99 based on the
factors you
discovered during
the initial evaluation
of the company.
Thoroughly
provided support
for your rationale.
8. Analyz
e the
potential
for a
material
misstatem
ent in the
financial
statement
s based
on the
issues
identified
in your
initial
evaluation
. Make a
recomme
ndation to
the CFO
for the
issuance
of
res
tated
financial
statement
restateme
nt.
Identify at
least
three (3)
significant
issues
that can
result
from the
failure to
issue
restated
financial
statement
s.
Weight:
10%
9. Examin
e the
economic
support
for your
rationale.
Did not
submit or
incomplet
ely
analyzed
the
potential
for a
material
misstate
ment in
the
financial
statement
s based
on the
issues
identified
in your
initial
evaluatio
n. Did not
submit or
incomplet
ely made
a
recomme
ndation to
the CFO
for the
issuance
of
res
tated
financial
statement
restateme
nt. Did
not
submit or
incomplet
ely
identified
at least
three (3)
significant
issues
that can
result
from the
failure to
issue
restated
financial
statement
s.
Did not
submit or
incomplet
Insufficiently
analyzed the
potential for a
material
misstatement in the
financial statements
based on the issues
identified in your
initial
evaluation.Insufficie
ntlymade a
recommendation to
the CFO for the
issuance
of
restated
financial statement
restatement.Insuffici
entlyidentified 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.Partiall
y made a
recommendation
to the CFO for the
issuance
of
restated
financial
statement
restatement.Partia
llyidentified 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.Satisfacto
rilymade a
recommendation to
the CFO for the
issuance
of
restated
financial statement
restatement.Satisfac
torilyidentified 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.Thoroug
hlymade a
recommendation to
the CFO for the
issuance
of
restated
financial statement
restatement.Thorou
ghlyidentified at
least three (3)
significant issues
that can result from
the failure to issue
restated financial
statements.
Insufficiently
examined the
economic effect of
Partially
examined the
economic effect of
Satisfactorily
examined the
economic effect of
Thoroughly
examined the
economic effect of
effect of
restateme
nt of the
financial
statement
s on
investors,
employee
s,
customer
s, and
creditors.
Weight:
5%
10. 5
reference
s
Weight:
5%
11.
Clarity,
writing
mechanic
s, and
formatting
requireme
nts
Weight:
10%
ely
examined
the
economic
effect of
restateme
nt of the
financial
statement
s on
investors,
employee
s,
customer
s, and
creditors.
No
reference
s
provided
restatement of the
financial statements
on investors,
employees,
customers, and
creditors.
restatement of the
financial
statements on
investors,
employees,
customers, and
creditors.
restatement of the
financial statements
on investors,
employees,
customers, and
creditors.
restatement of the
financial statements
on investors,
employees,
customers, and
creditors.
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.
More than
8 errors
present
7-8 errors present
5-6 errors present
3-4 errors present
0-2 errors present

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