c) In 2019, Zain Oil company was being sued for damages the seaside because its chemical material dropped to the sea. The settlement of which could threaten the financial stability of the company. The company decided to choose non-disclosure with the hope that its lawyer may win the case at court. d) In 2018 AXA Company faced serious liqu
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b) Oman Flour Company provides its top managers with bonus on the basis of reported
profit. During 2018 the management showed a decline in the final profit. In order to
continue paying bonus the company attempt to adopt different accounting policies that
resulted in higher profits.
c) In 2019, Zain Oil company was being sued for damages the seaside because its
chemical material dropped to the sea. The settlement of which could threaten the
financial stability of the company. The company decided to choose non-disclosure with
the hope that its lawyer may win the case at court.
d) In 2018 AXA Company faced serious liquidity problems. Management decided to
window dress the financial statements in a manner that improved the company's
ratios
You are required to identify and explain in brief the suitable qualitative characteristics of
useful financial information for each case.
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Solved in 2 steps
- The auditor worked for this client for years. But before accepting or continuing with the client, What are the reasons the auditor or audit firm should or should not retain this existing client this time around using the information below about the client? What risks could the client, its business, and its environment pose to the auditor or audit firm? The client: Although client cash flows have been stable, the disruption caused by the 2020 global pandemic made it difficult for retail lessors to pay their rent on time. Due to the company's tenant-friendly approach, retail clients were allowed to renegotiate their lease and temporarily pause rent payments between June 2020 and July 2021, shifting those payments to the last 12 months. Most of these leases will expire in the next two years, including all retail companies unable to pay their rent. However, they estimate that they will receive all the lost cash flow from these tenants within a couple of years. Currently, the company is a…In 2022, management at Pink Paper Company increased the estimated useful lives of its equipment by 50%. In 2024, it was determined that the service lives had been overestimated in order to decrease depreciation expense and boost net income over the budgeted targets. The increase in net income allowed top executives to earn maximum bonuses in 2022 and 2023. What is the proper accounting treatment in this situation? Answer a. The information should be disclosed in the notes to the 2024 financial statements, but no restatement or adjustment is required. b. No adjustment or disclosure is required for the 2024 financial statements. c. A change in estimated useful lives is a change in estimate that should be accounted for prospectively. No disclosure is required. d. Prior period adjustment and restatement of the 2022 and 2023 financial statements is required. Disclosure in the notes to the 2024 financial statements is required.XYZ Corp. is a manufacturer of generators. The domestic market for this products is currently not doing well, and therefore many entities in this business are switching to export. As per audited financial statements for the year ended December 31, 2021, the entity had a net loss of P 2,000,000. At December 31, 2021, its current assets aggregate to P 20,000,000 and current liabilities aggregate to P 25,000,000. Due to expected favorable changes in the government policies for this industry, the entity is projecting profits to the coming year. Furthermore, the shareholders of the entity have arranged alternative additional sources of financing for its expansion plans and to support its working capital requirements in the next 12 months. Should ABC Corp. prepare its financial statements under the going concern assumption? Explain.
- Penco Ltd’s board of directors are looking into expanding the company’s business operations. Before investing in a new product, the board conducted one focus group, and based on this one bit of feedback, invested $5m of company funds to develop the product. Within two years, the company had lost $8m due to poor sales. Shareholders are furious and wish to hold directors personally liable for this loss. Analyse the likely outcome for directors if shareholders were to accuse the board of breaching CA s 180.Walmart Inc. recently announced an agreement to sell their retail operations in Argentina. Due to this decision to divest of this business, Walmart will record a non-cash loss of approximately $1 billion, after tax, in the third quarter of fiscal 2021 What impact will this have on the fiscal 2021 earnings quality? Question 29 options: a) Weakens due to substance issues b) Strenthens due to substance issues c) Strengthens due to sustainability issues d) Weakens due to sustainability issuesThe auditor worked for this client for years. But before accepting or continuing with the client what factors should the auditor consider looking at the given information below? The client: Although client cash flows have been stable, the disruption caused by the 2020 global pandemic made it difficult for retail lessors to pay their rent on time. Due to the company's tenant-friendly approach, retail clients were allowed to renegotiate their lease and temporarily pause rent payments between June 2020 and July 2021, shifting those payments to the last 12 months. Most of these leases will expire in the next two years, including all retail companies unable to pay their rent. However, they estimate that they will receive all the lost cash flow from these tenants within a couple of years. Currently, the company is a privately held REIT that hopes to go public in the next six months. It follows Generally Accepted Accounting Principles (GAAP) and has a strong internal audit department. As a…
- Accounting treatment for contingencies Analyze the following independent situations. Weaver, Inc. is being sued by a former employee. Weaver believes that there is a remote chance that the employee will win. The employee is suing Weaver or damages of $40,000. Gulf Oil Refinery had a gas explosion on one of its oil rigs. Gulf believes it is likely that it will have to pay environmental Clean-up Costs and damages in the future due to the gas explosion. Gulf cannot estimate the amount of the damages. Lawson Enterprises estimates that it will have to pay $75,000 in-warranty repairs next year. Determine how each contingency should be treatedKaren Johnson, CFO for Raucous Roasters (RR), a specialty coffee manufacturer, is rethinking her company’s working capital policy considering a recent scare she faced when RR’s corporate banker, citing a nationwide credit crunch, balked at renewing RR’s line of credit. Had the line of credit not been renewed, RR would not have been able to make payroll, potentially forcing the company out of business. Although the line of credit was ultimately renewed, the scare has forced Johnson to examine carefully each component of RR’s working capital to make sure it is needed, with the goal of determining whether the line of credit can be eliminated entirely. In addition to (possibly) freeing RR from the need for a line of credit, Johnson is well aware that reducing working capital can also add value to a company by improving its EVA (Economic Value Added). In her corporate finance course Johnson learned that EVA is calculated by taking net operating profit after taxes (NOPAT) and then…Karen Johnson, CFO for Raucous Roasters (RR), a specialty coffee manufacturer, is rethinking her company’s working capital policy considering a recent scare she faced when RR’s corporate banker, citing a nationwide credit crunch, balked at renewing RR’s line of credit. Had the line of credit not been renewed, RR would not have been able to make payroll, potentially forcing the company out of business. Although the line of credit was ultimately renewed, the scare has forced Johnson to examine carefully each component of RR’s working capital to make sure it is needed, with the goal of determining whether the line of credit can be eliminated entirely. In addition to (possibly) freeing RR from the need for a line of credit, Johnson is well aware that reducing working capital can also add value to a company by improving its EVA (Economic Value Added). In her corporate finance course Johnson learned that EVA is calculated by taking net operating profit after taxes (NOPAT) and then…
- Karen Johnson, CFO for Raucous Roasters (RR), a specialty coffee manufacturer, is rethinking her company’s working capital policy considering a recent scare she faced when RR’s corporate banker, citing a nationwide credit crunch, balked at renewing RR’s line of credit. Had the line of credit not been renewed, RR would not have been able to make payroll, potentially forcing the company out of business. Although the line of credit was ultimately renewed, the scare has forced Johnson to examine carefully each component of RR’s working capital to make sure it is needed, with the goal of determining whether the line of credit can be eliminated entirely. In addition to (possibly) freeing RR from the need for a line of credit, Johnson is well aware that reducing working capital can also add value to a company by improving its EVA (Economic Value Added). In her corporate finance course Johnson learned that EVA is calculated by taking net operating profit after taxes (NOPAT) and then…A company has suffered operating losses for some time but is now operating profitably and expects to continue to do so. Current and projected income, however, will not be sufficient to eliminate the deficit in the near term. It also appears that plant assets are overstated considering current prices and economic conditions. After receiving permission from government authorities and approval from the shareholders, the board of directors of Boeing Corporation decided to restate the company’s assets and paid-in capital balances in order to remove the deficit. A balance sheet for the company just prior to this action is presented as follows: A Company Statement of Financial Position As of the year ended December 31, 2021 Current assets P 250,000 Property, plant and equipment 1,500,000 Accumulated Depreciation (600,000) Total assets P 1,150,000 Liabilities P 300,000 Ordinary Shares, 10 par, 100,000 shares…A company has suffered operating losses for some time but is now operating profitably and expects to continue to do so. Current and projected income, however, will not be sufficient to eliminate the deficit in the near term. It also appears that plant assets are overstated considering current prices and economic conditions. After receiving permission from government authorities and approval from the shareholders, the board of directors of Boeing Corporation decided to restate the company’s assets and paid-in capital balances in order to remove the deficit. A balance sheet for the company just prior to this action is presented as follows: A Company Statement of Financial Position For the year ended December 31, 2021 Current assets P 250,000 Property, plant and equipment 1,500,000 Accumulated Depreciation (600,000) Total assets P 1,150,000 Liabilities P 300,000 Ordinary Shares, 10 par, 100,000 shares…