Conservative Recognition

Topics: Finance, Generally Accepted Accounting Principles, International Financial Reporting Standards Pages: 3 (1111 words) Published: August 4, 2013
(1)summarizes the factual situation

The company was started off by Amelia. The company is a family software company that Aunt Amelia started. She started working in a spare room in her house and was able to bring other relatives together to invest together and form a company. The company was a success that is became part of Wall Street just three years ago. The company has being profitable and there haven’t being any issues associated with the accounting records or any financial data associated with the company since it become publically traded. Aunt Amelia does not have any accounting background and therefore does not really know what is going on in her company when it comes to financials. She just knows that a launch is coming up and is interesting and meeting all projections and to ensure that the Wall Street analyst are happy with her business.

Amelia hired her nephew Nick to start working with her couple months after his graduation. He does not have any on hand accounting experience, but finds something in the financial statement with which he is not comfortable with. He believes that there may be an error or that maybe it should be check to ensure that everything is being done to standards. He thought to himself that maybe he was overlooking at the issues because he knew Aunt Amelia was honest and Aunt Amelia trusted Lee and saw him as an honest person. Nick also knew that his aunt was not an accounting savvy and therefore wouldn’t know if something was being done incorrectly. He also took into account the fact that they their accounting controls were effective and the audit committee was composed of five business community members. Although the company was mainly owned by his family any decision regarding material aspect was always discussed with the audit committee. Finally, outside auditors had given a clean opinion.

(2)identifies the issues/questions in the case
Nick goes and asks the CFO some questions regarding the first issue which is...
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