Mary Brown is the assistant chief accountant at Tacos Grill, Inc. a nationwide M
ID: 2334406 • 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, B Greene, reminds Mary that their building which originally cost $350,000, now has a value of $600,000. 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 fulfill their plans of expansion, the company needs more cash so B 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 will lose her job. REQUIRELD . What are the ethical issues and possible GAAP violations? (at least 2) Who are the stakeholders? (at least 3) . What are Mary's alternatives? (at least 3) What would you do? ExplainExplanation / Answer
Solution 1. Ethical issues and Gaap Voilations are
Ethical Issues-
a) Over statement of value of assets.
b) Window dressing of financial statements to appeal investors.
GAAP Issues-
a) Overstatement of value of building - ASC 360 - Property Plants and Equipments and other assets states that assets should be recognised at their historical cost value in addition to the cost incurred to bring the asset to its useable state. Accordingly. recoding of building at FMV of $600,000 over its historical cost of $ 350,000 would result in a GAAP compliance issue.
Solution 2- Following are the stake holders
a) Board of directors of the company,
b) Investors of the company,
c) Society,
d) Government. etc.
Solution 3 - Marry's alternatives
a) Deny window dressing of assets.
b) Inform the stakeholder about the willfull window dressing of assets by the CFO of the company.
c) Prepare the financial statements that are in compliance with the GAAP requirements and submit the financial statements to the stakeholders.
Solution 4- What would I do?
I would prepare the financial statements that are in compliance with the GAAP requirments and inform various stakeholders about the CFO's intention to overstate the assets of the company and window dress the financial statements.