Arbotech Case Essay

When an error of overstatement like this one happens, the financial statements have to be restated in order(ed) to bring net income to the correct amount. The Cost of goods sold should’ve been increased by $8 million and the same

6 which states, “Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events”. However, as per GAAP, line costs must be reported as an expense in the company’s income statement as these are fundamentally, operating expenses. It was put in the Balance Sheet as an accrued liability rather than in the income statement as an accrued expense. This resulted in falsely projecting income and profits; and concealing huge losses by wrongly capitalizing the line costs.

1. The inventory at your company consists of computer software that the company has developed and is selling. You capitalized (rather than expensed) the cost of duplicating the software, the instruction manuals, and training material that are sold with the software.

In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated?

f) To evaluate the material misstatement in the accounts, I think both of the consolidated income statement and the three financial statements are useful. We need to use the information properly from all the financial statements. However the consolidated income statement is the most useful one. If there is a significant change in an account balance comparing with preceding two years, the auditor will examine whether there a material misstatement exists. For instance, the bad debt expense as a percent of net sales in 2011, 2010 and 2009 are 0.56%, 0.70% and 0.69%, respectively. There should

2. Considering your answer to item 1, the first three exhibits, and related introductory discussion, is it likely that the accounting system may distort product profit significantly? Why? (Ignore general, selling, and admin expense.)

This can lead to an understatement of inventory, understatement of sales returns, and overstatement of accounts receivable which is the proposed collateral for the new loan.

Even though most of these expenses are not of big magnitude their value can add up and affect the company’s finances. Some of these items are accrued time for employees, bonuses, benefits, utilities, improvements and taxes. Some additional sources of working capital include; cash reserves, profits, equity loans, line of credit, and long term loans.

activities? Which function or program has the highest net cost? What kinds of general revenues are available to cover the net cost of governmental activities?

Inventories are in essence what organisations hold with an intention to sell, however directly or indirectly. For most businesses, this is how their profits are made, and it is reasonable to assume that these items account for much of an organisation’s activities. Such a big influence on indicators of financial performance and position warrants an equally large need for regulation to ensure that users of the financial statements are given a clear picture of the state the organisation is in. The Australian Accounting Standards Board (AASB) is responsible for developing the standards that govern the way reporting entities disclose their accounting figures. Despite much

b. The inventory write down recorded, as an expense by the company is $4.4 million. It is measured at lower of cost and net realizable value. Cost is measured by weighted average using standard cost method or

There is a corporate unallocated Other Income and Deductions (“OI&D”) account that includes charges that pertain to the different product lines.

* Comments relating to the adequacy of disclosures, the actual descriptions of rate reconciliation items, deferred tax assets and liabilities, uncertain tax positions, timing of reversals, or expiration of net operating losses in various jurisdictions.

3) Based on the data in Exhibit 7 and the definition of operating income gains given

- Inventory - A large number of items or high-volume turnover can cause major errors in tracking inventory. Errors in inventory control can result in lost sales and in the maintenance of unnecessarily high quantities of slow-moving products.