I. What was the last official pronouncement of the Financial Accounting Standards Board in the year 2011? Briefly describe the pronouncement in your own words.
II. You are conducting an audit for ABC Corporation for the year ended December 31, 2011.
Several items come to your attention:
a. On January 15, 2012, while you are doing the audit fieldwork, the company suffers an uninsured loss estimated to be $2,000,000 due to an earthquake.
b. One of the company's major customers filed for Chapter 11 bankruptcy protection on February 15, 2012. The company cited 'general economic conditions' as the reason. As of December 31, 2011, the customer owed the client $28,000. The company controller was not aware of any financial difficulties at this supplier prior to the bankruptcy announcement.
Your audit supervisor informs you that these occurrences are known as 'subsequent events' in auditing and asks you to research the appropriate accounting literature to determine how this should be handled. Describe the relevant accounting treatment referencing the appropriate accounting literature. Also describe the specific accounting treatment that you would recommend for each item and the specific accounting principles, assumptions or constraints involved.
III. You have obtained your first professional accounting position as a staff accountant at Southwest Airlines. Your supervisor informs you that the company is about to engage in a major renovation of its fleet of planes. This will include adding newer, more comfortable seats and installing TV's on the back of seats so that the company can compete better with Jet Blue. Your boss would like you to research the appropriate accounting for these renovations. Write a brief memo to your boss responding to his request citing the appropriate codification references in your memo.
IV. The We Like Chicken Company raises chickens from hatching until they become productive hens. The company is preparing financial statements for its first year of operations and has come to you for assistance on the proper accounting for the chickees. Each hen has a useful life of two years, after which they are sold to Campbell's Soup Company, with the exception of one hen who receives a Presidential pardon each year at Easter. The President of the Company believes that the cost of the egg producing hens should be included in inventory because they represent 'goods available for resale'. The Controller believes that the hens should be classified as property, plant and equipment because they are like machinery that is used to produce the inventory of eggs. Using the codification system, research the issue for your client
Last pronouncement by Financial Accounting Standards Board
The last pronouncement done by Financial Accounting Standards Board is an accounting standards update that was carried out on September 2011. The pronouncement is referred to as intangibles, goodwill and other (topic 350) and concerns testing goodwill for impairment. The update aims at simplifying how entities test goodwill for impairment whereby it provides entities with an option to first assess qualitative factors in order to determine whether the existence of circumstances leads to the conclusion that is more like than not that the fair market value is less than the carrying amount. An entity is allowed not to perform the two-step impairment test when it is not more likely that the fair value is less than carrying amount. An entity can skip the qualitative assessment and carry out the first step provided in the two step goodwill impairment test. The pronouncement provides events and circumstances that an entity should factor in when evaluating whether it is more likely than not that fair value is less than carrying amount. The amendment provides that an entity should consider the degree to which adverse events or circumstances affect the comparison between fair value and carrying amount (FASB, 2011).
Subsequent events are termed as events that occur in after the balance sheet has been prepared but before financial statements are issued. FASB (2008) provides that an entity can recognize subsequent events in financial statements when such events provide additional information or evidence about conditions existing at the date of the balance sheet. An entity should disclose the date through which evaluation was done on subsequent events and whether the date is similar to date ...
Accounting codification for FACB in 2011 for intangibles, goodwill and impairments are examined.