Mary Brown is the assistant chief accountant at Tacos Grill, Inc. a nationwide M
ID: 2333431 • Letter: M
Question
Mary Brown is the assistant chief accountant at Tacos Grill, Inc. a nationwide Mexican restaurant chain. Their fiscal year just ended so Mary is preparing financial statements and gathering the data needed for their audit so that the annual financial statements can be prepared and released to management and the regulatory agencies The CFO, Bil Greene, reminds Mary that their building which originally cost S350,000, now has a value of S600,000. He also told her to make sure to include the value of their satisfied customers as assets so that their assets increase in comparison to the prior year. In order to fuill their plans of expansion, the company needs more cash so wants to ensure their financial statements look appealing to new investors and stockholders. Mary knows that Bill's reminders are not in accordance with GAAP but she fears that if she doesn't abide by his recommendations that she will lose her job. REQUIRED . What are the ethical issues and possible GAAP violations? (at least 2) 2 Who are the stakeholders? (at least 3) What are Mary's alternatives? (at least 3) What would you do? ExplainExplanation / Answer
ANs 1) As per GAAP, fixed assets has to be accounted at its correct acquired price (cost) not at the current market price, hence accounting of Building should be done at its actual cost not at the market rate. Secondly, the inclusion of the value of their satisfied customer as a part of goodwill is also not correct, since the calcuation of Goodwill under GAAP does not allow to include the customer's satisfaction as goodwill. SO adjusting the figure according to CFO is definately a violation of GAAP accounting rules.
Ans 2) Here the stake holders are customers, investors, creditors, Government, employees. Since the finacial result will definately impact these stakeholders in some way, and will have an impact in their decision making.
Ans 3) Mary's alternative is firstly try to convince the CFO that it is not good idea to violate teh GAAP rules and should refrain making such accounting adjustment. If CFO does not get convinced, Mary can go to Audit borad and borard of directors to report this violation. She should not worry about loosing her job. Since she should not violate accounting principles.
Ans 4) If I had been at Mary's position I would have also denied to make such changes as requested by CFO since it would have been a clear violation of accounting principles and I would have also reported the same back to Borad of directors and Audit committee and would have waited for their decision. But In any case I would prefer loosing my job rather than violating the accounting principles.