Rump Organization

According to the FASB, guidance on contingent liabilities applies to all entities, therefore corporations and partnerships should approach damage estimates similarly. FASB specifies that contingencies be measured at

1. For the year-end December 31, 2007, financial statements, M should record $17 million as a liability.

However, the ruling in this case and others like it prove that employers can, in fact, be bound by articles written in an employee handbook when disciplining or discharging an employee. An abysmally written handbook can greatly jeopardize an employer’s right to terminate at will. Trends show that courts are increasingly acknowledging enforceable promises in the past employment practices of firms, in employer handbooks and in oral commitments. In addition to including an at-will disclaimer in employee handbooks, employers should also require employees to sign an acknowledgment confirming that they understand and agree to employment-at-will and that at-will employment can at any time be modified by a written agreement. Personnel manuals should explicitly state that the employer reserves the right to terminate employment at will. All written policies should also be free of any language that could be considered as a guarantee of job security. To be sure that these common pitfalls are avoided employers must retain the service of a labor attorney to draft and air-tight employee manual and acknowledgment

1. For the year-end December 31, 2007, financial statements, what amount should M record as a liability?

Due process is the ethical means by which ending employment contracts is best administered. It allows for repercussions for unfair firing practices on the part of the employer, who in all actuality, carries the power in the relationship. Due process allows for an appeal when an employee believes they were terminated without or with bad cause. In essence it polices the employer to act ethically in situations where a person’s wealth and career are at stake. At will contracts in the business world are often defended on the basis that they are equally beneficial to the employer and employee. This is quite obviously not the case in modern business and economic conditions. It is stated by Richard Epstein in “In Defense of the Contract at Will” that if a person enters into a disastrous and one-sided contract that they are free to exit the contract and pursue other means of employment.3 This is hardly the case, however, as when a person has a family, and of course themselves, to support leaving a disastrous situation is not always

1. Should the information pertaining to actual claims incurred as of the balance sheet date that became available after the balance sheet date be considered in determining management’s best estimate of the medical benefits payable? If so, how does this information impact the amount recognized or disclosed?

Thank you for bringing the following situations to my attention. I have completed my review of each case, and am providing my feedback accordingly. Please review the results below.

1. The company will recognize $17 million as the liability for the year ending December 31, 2007.

The company can opt for litigation in this charge by former employee alleging constructive discharge.

"After the Layoffs, What Next?" is a case study involving the aftermath of the downsizing of Delarks, a Midwestern clothing store chain. In this case Harry Denton, the architect of the downsizing, is able to orchestrate a considerable financial turnaround, but in so doing he alienates most of Delarks' remaining employees and most of Delarks' upper-management. Denton is an inexperienced CEO whose management experience rests solely in managing a national chain's flagship store in New York. Though Denton's restructuring of Delarks' business model will cause Wall Street to take notice and toast Denton's efforts, his inexperience may in the end eventuate in Delarks' collapse. Delark's downsizing was done in a rather abrupt way in which most laid-off employees were entirely unaware that they were about to lose their jobs. The problem Denton unknowingly faced was that the employee-pool at Delarks was very tight-knit where members felt as if they belonged to one big satisfied family, and the unexpected lay-offs caused great distress within the company.

When we are dealing with the employment relationship between employers and employees, ethical issues are most likely to emerge. Especially, if a manager fires a worker without a proper reason, critics will follow this employer’s behavior. In Patricia Werhane’s paper, “Employment at Will and Due Process”, discusses two doctrines which are Employment at Will (EAW) and Due Process. It also addresses some justifications and objections for EAW, and shows Werhane’s supportive view to Due Process. In contrast, EAW is defended by Richard Epstein in his article “In Defense of the Contract at Will”. In my paper, I will attempt to develop my argument in favor of Employment at Will that could improve flexibility and efficiency of

4. Currently management has two problems on their hands. The first and most pressing is the fact that they have to issue a restatement of previous years’ financial statements due to accounting errors associated with premature revenue recognition. The second problem, which may have contributed to the first problem, is the fact that the company’s revenue streams are drastically changing and they hope that they continue to evolve into lifetime revenue streams, which unfortunately defer revenue significantly. This change in revenue streams and the associated recognition of that revenue, at the appropriate time, has caused INVESTools the issue of having to make the restatement. Since both issues need to be addressed and can be at the same time, it might be in the company’s best interest to do so simultaneously. The company historically chose not to capitalize most expenses that could have been capitalized under SAB 104 since their business didn’t rely on many deferred revenue streams at the time. The company would have undoubtedly preferred to change their policy for expensing deferred-revenue contracts were it not for the SEC’s preference that such costs were treated consistently and for the additional fact that they would have to make their case to the SEC, gain their approval, and restate all previous year’s financial statements. Now that the company is facing having to restate past financial statements, they might as well approach

Based on this information, only an immaterial amount of companies actually accrue a liability in their financial statement. Therefore, M Corporation will simply provide disclosure of the contingency and an estimate of the possible loss or range of loss for the future pending litigation in its 2007 financial statement under Note: Contingencies and Commitments. If M Corporation accrued a liability on its 2007 financial statements, then the company becomes too transparent to opposing counsel and it could have serious adverse effects on M’s operations.

1. We conclude that Rump should recognize the liability for the expected employee termination benefits on the communication date, upon meeting all four criteria presented in ASC 420-10-25-4 and communicated to the employees, which is December 31, 2005. We believe that the termination of the employees is involuntary. We also concluded that the benefit arrangement is not to be treated as an enhancement to an ongoing benefit arrangement.

3. What potential implications arise for the accounting firm if they issue an unqualified report without the going-concern explanatory paragraph?