Ch.7 Financial Reporting Issues

Question 1

Step 1

Answer 1

Assess the Situation
-synopsis of the issue :
what issue
y it is a financial reporting issue
see if u can seperate the issue into smaller parts -> if yes then do it= simpler
-which GAAP is being used for analysis and where it is in CPA handbook

Question 2

Step 2

Answer 2

capture the Handbook requirements/guidance/criteria in your response
link case facts to those requirements in order to analyze how the requirements/guidance/criteria fit the scenario
= link each section to a case fact

Question 3

Step 3

Answer 3

provide a recommendation for each financial reporting issue (or sub-issue)
eg. how should the transaction be reported?
-clearly, state which opinion/alternative u recommend and why u choose that
-be consistent w step 2
-state quantity-wise how it will impact key financial statement elements eg. increase/decrease assets/liab/net income/impact covenants
consider goals of FS users
Is the organization seeking financing from a bank or other source?
• Is there a debt covenant?
• Is there a borrowing limit?
o Results-driven formulas
• Are performance measures affected by financial reporting methods, such as a manager bonus based on net income?
• Will the financial statements be used for a valuation (for example, buying or selling shares)?
• Are there any decision-making constraints imposed either internally or externally?

Question 4

IGAR

Answer 4

issue
GAAP
analysis
recommendation