Financial Reporting Model
Phase 1: DB 2—Financial Reporting Model
Colorado technical University
ACCT300-1202B-01: Intermediate Accounting I I am a coworker and friend to Mr. Ethics. This morning at break, he appeared to look worried and under a lot of stress. Being his friend, I ask if he needed to talk. He told me that Mr. Fraud, the CEO of the company for which we work, called him into his office and asked him to adjust the books so that a spot of land purchased is recorded at book value of $50,000 rather than the price of $20,000 actually paid for the land. He also asked Mr. Ethics to reverse bad debt from the customer Mr. Bankrupt while ignoring the news about how Mr. Bankrupt’s company is experiencing financial trouble. Mr. Ethics continues to tell me that Mr. Fraud has requested that $30,000 of recorded unearned revenue be recorded as service revenue to increase company sales. Mr. Fraud states that if Mr. Ethics performs everything requested the company will be able to obtain a loan from the bank for new equipment. Anyone with good upbringing and training would know these are unethical acts of fraud for an accountant to perform. These actions violate several concepts of the Generally Accepted Accounting Principles (GAAP). According to GAAP, the recording of land value or any asset belonging to a company is to be reported based on the historical cost principle, which is the actual cost paid for the land and not fair market value (U. S. GAAP, n.d.). Jason P. Browning (2011), an eHow contributor states that an asset can never be restated in a way that reflects appreciation in value (an increase in value due to inflation, supply and demand, improvements, etc.). When it comes to bad debt, GAAP has stipulated a reporting requirement allowing for bad debts that parallel with the matching principle (“requires that expenses be matched with revenues” (Accounting Coach, Basic Accounting Principles and Guidelines, n.d.)), and the conservatism principle (“directs the accountant to choose the
Colorado technical University
ACCT300-1202B-01: Intermediate Accounting I I am a coworker and friend to Mr. Ethics. This morning at break, he appeared to look worried and under a lot of stress. Being his friend, I ask if he needed to talk. He told me that Mr. Fraud, the CEO of the company for which we work, called him into his office and asked him to adjust the books so that a spot of land purchased is recorded at book value of $50,000 rather than the price of $20,000 actually paid for the land. He also asked Mr. Ethics to reverse bad debt from the customer Mr. Bankrupt while ignoring the news about how Mr. Bankrupt’s company is experiencing financial trouble. Mr. Ethics continues to tell me that Mr. Fraud has requested that $30,000 of recorded unearned revenue be recorded as service revenue to increase company sales. Mr. Fraud states that if Mr. Ethics performs everything requested the company will be able to obtain a loan from the bank for new equipment. Anyone with good upbringing and training would know these are unethical acts of fraud for an accountant to perform. These actions violate several concepts of the Generally Accepted Accounting Principles (GAAP). According to GAAP, the recording of land value or any asset belonging to a company is to be reported based on the historical cost principle, which is the actual cost paid for the land and not fair market value (U. S. GAAP, n.d.). Jason P. Browning (2011), an eHow contributor states that an asset can never be restated in a way that reflects appreciation in value (an increase in value due to inflation, supply and demand, improvements, etc.). When it comes to bad debt, GAAP has stipulated a reporting requirement allowing for bad debts that parallel with the matching principle (“requires that expenses be matched with revenues” (Accounting Coach, Basic Accounting Principles and Guidelines, n.d.)), and the conservatism principle (“directs the accountant to choose the