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Uploaded by multanikaramveer12
To: Lionel Major
From: CPA
RE: Razor Edge Laser Cutting Inc. Accounting Issues
Going Concern Issue
As per IFRS conceptual framework, the financial statements are prepared based on a
going concern assumption that the business will continue to operate for the foreseeable
future. Whether Razor Edge would continue to operate on a going concern basis is the
issue and we need to access any indicators that might suggest Razor would not be a
going concern and given found any strong factors, some additional disclosers will be
required for financial statements. Factors impacting the Going-Concern Assumption:
Razor lost a key customer this year and there is a major decline in the overall sales
and profitability.
There was an operating loss of $340,000 in the last year and due to the decline in
sales, Razor is expected to be in a loss situation again.
Customers are slow in paying the invoices and one of the major customers is also
short paying, which can result in a cash flow situation and Razor might not be able to
pay the suppliers and creditors on time.
Doyle Enterprises, the parent company of Razor has also refused to provide future
funding to Razor and is demanding $500,000 to be paid back within six months.
The current liabilities of Razor seem to be high and given the tight cash flow
situation Razor might not be able to pay its current liabilities on time.
Razor has not been able to maintain its minimum covenant for the last two quarters,
therefore, there could be a potential that the bank would demand its loan back as
per the agreement and Razor could potentially lose its borrowing from the lender.
Two major suppliers of Razor have also requested financial statements, which
indicates that there can be changes of suppliers putting a credit hold on Razor and
changing their credit terms due to late payments.
There is no active market for the patent secured by Razor which could result in
impairment of value of the Patent as the discounted cash flow related to the patent
has also declined.
There is a new competing technology in the market which has negatively impacted
Razor’s sales.
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Related Questions
Customers who want to know if a company will stay in business in the long term to honour warranties are considered ________ of accounting information.
Select answer from the options below
external users
primary users
indirect users
internal users
arrow_forward
Which of the following is a valid assumption from an accounting perspective?
O A company that has declared bankruptcy is referred to as a going concern.
O Financial statements should be prepared on a calendar-year basis.
O Financial statements are prepared for a specific entity that is distinct from the entity's owners.
O The results of customer satisfaction surveys should be reported in the financial statements because such results could impact decisions of financial statement users.
arrow_forward
Which of the following is not correct about Going Concern?
a. The concept of going concern is an underlying assumption in the preparation of financial statements
O b. The financial statements presume that the entity is a going concern and will continue its operations for the foreseeable future
O C. Assume that the business will continue to operate long enough to carry out its current obligations, objectives and commitments
O d. The concept of going concern is a conservative in the preparation of financial statements
arrow_forward
Active
In order for a company to distribute its financial statements to the public, it is required to follow the "generally accepted accounting principles" (GAAP). GAAF
assumptions, and methods. A company generally lists the significant accounting policies as the first note in the financial statements. Review the financial stat
Statement Analysis Report. Select two of the significant accounting policies and discuss how each policy impacts the financial reporting for that entity. To part
to a peer's discussion post, and identify how the reporting standards are different or similar for the company the peer is reporting on.
arrow_forward
Which of the following statements is correct in relation to the contents of the IASB Conceptual Framework (2018):
(i) Comparability is a fundamental qualitative characteristic of useful financial information
(ii) An entity shall apply the "going concern" assumption if it is entering bankruptcy in the current quarter.
(iii) The concept of physical capital maintenance requires applying the current purchasing power measurement basis
(iv) The concept of prudence implies that in preparing financial statements management should seek to overstate assets and income and to understate liabilities and expenses
a. (iv)
b. (iii)
c. (i)
d. None of the statements is correct
e. (ii)
arrow_forward
Consider FASB Concepts Statement No. 8, as amended. What are the conceptual issues underlying financial reporting in determining how the coronavirus event should be reported and disclosed in the financial statements? How does it relate to the measurement of potential costs to the business including contingencies?
Explain the accounting and auditing issues related to the coronavirus event with respect to accurately determining reportable amounts and disclosures of events.
Which group(s) represent the public interest with respect to accounting for the events surrounding the coronavirus and what are their interests?
Based on what you know to date, evaluate whether the crisis has been handled properly by the various stakeholders. Use ethical reasoning to support your view.
arrow_forward
The objective of general-purpose financial reporting is?
to provide users with financial information that implies total freedom from error
to provide companies with the option to select information that favors one set of interested parties over another
O to provide financial information about the reporting entity that is useful to present and potential equity investors, lender
and other creditors in making decisions in their capacity as capital providers
to provide a metric for financial information used to determine when the boundary between two or more entities should
disregarded and the entities considered to be a licensing arrangement
arrow_forward
Why is an entity permitted to change an accounting policy?
a. The change would allow the entity to present a more favorable profit picture.
b. The change would result in the financial statements providing more reliable and relevant information about financial position, financial performance and cash flows
c. The change is made by the internal auditor
d. The change is made by the CPA (Certified Public Accountant)
arrow_forward
Risk Management in Accounting: ABC Insurance Company is evaluating its financial risks. Discuss the
identification and assessment of financial risks in the insurance industry. Propose risk mitigation strategies
and explain the role of internal control systems in managing risks. How can risk management contribute
to the stability of an insurance company?
Objective Type Question: What is the primary purpose of risk mitigation strategies in accounting? a) To
eliminate all risks b) To transfer risks to external parties c) To reduce the impact or likelihood of risks d) To
ignore potential risks
arrow_forward
Indicate whether the following statements about the conceptual framework are true or false. If false, provide a brief explanation supporting your position.
a. Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements.
b. General-purpose financial reports are most useful to company insiders in making strategic business decisions.
c. Accounting standards based on personal conceptual frameworks generally will result in consistent and comparable accounting reports.
d. Capital providers are the only users who benefit from general-purpose financial reporting.
e. Accounting reports should be developed so that users without knowledge of economics and business can become informed about the financial results of a company.
f. The objective of financial reporting is the foundation from which the other aspects of the framework logically result.
arrow_forward
How do you distinguish between Financial Reporting for GAAP, and full Disclosure.
What is Management Discussion and Analysis. Access a public company annual report and analyze its MD&A section and how it helps the investors in their decision making process.
arrow_forward
Why is an entity permitted to change an accounting policy?
A. The change would allow the entity to present a more favorable profit picture.B. The change would result in the financial statements providing more reliable and relevant information about financial position, financial performance and cash flowsC. The change is made by the internal auditorD. The change is made by the CPA
arrow_forward
Accounting information provides useful information about business transactions and events. Those whoprovide and use financial reports must often select and evaluate accounting alternatives. The Conceptual
Framework examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may
necessitate trade-offs or sacrifices among the characteristics of useful information.For each of the following pairs of information characteristics, provide a hypothetical situation in which inwhich one of the characteristics may be sacrificed in return for a gain in the other. Explain the situationand criterion should be used to evaluate trade-offs between information characteristics? give your opinionsthati) Relevance and faithful representation.ii) Comparability and consistency.iii) Relevance and consistency.iv) Relevance and understandability.
arrow_forward
Accounting concepts form the fundamental principles upon which financial accounting is based. These concepts provide a framework for recording, reporting, and interpreting financial transactions in a consistent and meaningful manner. One of the key accounting concepts is the principle of conservatism, which dictates that when faced with uncertainty, accountants should err on the side of caution by recognizing potential losses immediately while delaying the recognition of potential gains until they are realized. This concept ensures that financial statements provide users with a reliable representation of an entity's financial position and performance, even in the face of uncertainty
Question:
How does the principle of conservatism contribute to the reliability of financial statements?
arrow_forward
Financial Reporting Analysis:
a) Evaluate Massy’s latest annual financial statements (balance sheet, income statement, and cash flow statement) and comment on the company's financial performance and position. In your response, use the requirements of IAS 1 as a guide.
b) Identify and discuss key accounting principles and standards applied in the Massy’s financial reporting process indicating their reasons for choosing these and how they were applied. Comment briefly on the appropriateness of the choices made given the company’s industry, location and type (e.g. MNC, regional conglomerate, etc.)
c) Critically analyze any significant accounting policies and estimates disclosed in the notes to the financial statements. In your answer, indicate whether the company complied with the accounting standards and conventions.
Financial reports:
https://massygroup.com/wp-content/uploads/2022/11/MASSY-DIGITAL-ANNUAL- REPORT-2022-updated.pdf
arrow_forward
Which of the following disclosures regarding new accounting standards provides the most meaningful information to an analyst? C . Management is still evaluating the impact.
arrow_forward
Case Study: Navigating the FASB Accounting Standards Codification (ASC)**
*Introduction:*
The FASB Accounting Standards Codification (ASC) serves as the authoritative source for U.S. generally accepted accounting principles (GAAP). It is a comprehensive system designed to organize and present accounting standards in a logical and accessible manner. In this case study, we explore the components included and excluded from the FASB ASC.
*Components of FASB ASC:*
1. **AICPA Statements of Position (SOP):**
- SOPs issued by the American Institute of Certified Public Accountants (AICPA) were included in the FASB ASC during its initial implementation. However, updates to the ASC may have modified this inclusion.
2. **FASB Statements:**
- FASB Statements are a core part of the FASB ASC. These statements represent authoritative guidance on various accounting topics, ensuring consistency in financial reporting.
3. **Accounting Research Bulletins (ARB):**
- ARBs were issued by…
arrow_forward
Accounting information provides useful information about business transactions and events. Those who provide and use financial reports must often select and evaluate accounting alternatives. The FASB statement on qualitative characteristics of accounting information examines the characteristics of accounting information that make it useful for decision-making. It also points out that various limitations inherent in the measurement and reporting process may necessitate trade-offs or sacrifices among the characteristics of useful information.
Instructions
a. Describe briefly the following characteristics of useful accounting information.
1. Relevance.
2. Faithful representation.
3. Understandability.
4. Comparability.
5. Consistency.
b. For each of the following pairs of information characteristics, give an example of a situation in which one of the characteristics may be sacrificed in return for a gain in the other.
1. Relevance and faithful representation.
2.…
arrow_forward
For entities reporting financial statements on the basis of IFRS, what sources of guidance should such entities consider with regard to the selection and application of accounting policies? Be sure to cite specific authoritative literature to justify your answer.
Don't
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Question 1
For each of the following scenarios, indicate whether in your opinion it is a violation of the
HKICPA Code of Ethics. Specifically, for each scenario, choose one of the following options:
(1)not likely to ·be a violation; (2) likely to be aviolation; or (3) clearly a violation. For each-
scenario, clearly explain your reasoning.
3. Chan and Mo, CPAS, perform the annual financial statement audit for SoCal Ltd. Ann Mo,
the partner in charge of the SoCal audit, owns shares in the Greenfield Investment Company.
Greenfieldowns approximately ten percent of the outstanding common stock of SoCal·Ltd.
Approximately 60percent of SoCal's common stock is owned by another large investment-
fund that is independent of Chan and Mo, CPAS. Consequently, Greenfieldcannot exert
significant controlover SoCal. The amount of Ann Mo's investment in Greenfieldis
immaterial to her net worth. ..
4. David Lam, CPA, is assignedto serve as the audit manager on the Safety Bank
engagement. Davidrecently…
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- The objective of general-purpose financial reporting is? to provide users with financial information that implies total freedom from error to provide companies with the option to select information that favors one set of interested parties over another O to provide financial information about the reporting entity that is useful to present and potential equity investors, lender and other creditors in making decisions in their capacity as capital providers to provide a metric for financial information used to determine when the boundary between two or more entities should disregarded and the entities considered to be a licensing arrangementarrow_forwardWhy is an entity permitted to change an accounting policy? a. The change would allow the entity to present a more favorable profit picture. b. The change would result in the financial statements providing more reliable and relevant information about financial position, financial performance and cash flows c. The change is made by the internal auditor d. The change is made by the CPA (Certified Public Accountant)arrow_forwardRisk Management in Accounting: ABC Insurance Company is evaluating its financial risks. Discuss the identification and assessment of financial risks in the insurance industry. Propose risk mitigation strategies and explain the role of internal control systems in managing risks. How can risk management contribute to the stability of an insurance company? Objective Type Question: What is the primary purpose of risk mitigation strategies in accounting? a) To eliminate all risks b) To transfer risks to external parties c) To reduce the impact or likelihood of risks d) To ignore potential risksarrow_forward
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