Documentation: New Perspectives Excel 2019 Module 3 End Of M

Documentationnew Perspectives Excel 2019 Module 3 End Of Module Pro

Analyze the provided case studies and scenarios to evaluate ethical considerations, accounting treatments, and decision-making principles related to asset impairment, capitalization versus expense, and materiality in financial reporting. Discuss the ethical dilemmas faced by accounting professionals, particularly in instances of potential manipulation of financial statements, and justify appropriate accounting treatments in compliance with GAAP standards.

Evaluate the ethical and professional responsibilities of accountants when encountering management pressure to alter financial information, with specific reference to impairment of assets and expense capitalization. Analyze how subjective judgments around materiality influence accounting choices and their implications for stakeholders.

Sample Paper For Above instruction

In the realm of financial accounting, ethical considerations and judicious application of accounting principles are pivotal in ensuring transparency, accuracy, and accountability. The case studies from New Perspectives Excel 2019, particularly concerning asset impairment, capitalization, and materiality, exemplify the complex decision-making landscape faced by accountants. This paper explores these ethical dilemmas and the standards governing asset impairment and expense capitalization, emphasizing the accountant’s role in upholding professional integrity.

Asset Impairment and Ethical Dilemmas

The case involving Healthy Life Food Company illustrates the contentious issue of asset impairment and its reporting. When the company’s equipment, initially valued at $42 million with a 10-year service life, became impaired due to declining sales, the decision on how to account for this impairment posed an ethical challenge. Heather Meyer, the company’s accountant, identified a significant impairment loss of $12.9 million, mandating an immediate write-down per GAAP guidelines. However, the CEO favored a revision of the service life to artificially improve net income by spreading the impairment over a shorter period, thus minimizing the impact on 2013 income. This scenario underscores a critical ethical dilemma: should Heather adhere strictly to ethical and accounting standards or comply with management’s wish to manipulate financial results?

Accounting Standards on Asset Impairment

GAAP requires firms to recognize impairment losses when the carrying amount of an asset exceeds its recoverable amount, reflecting a decline in utility or value (FASB, 2014). In this case, Heather correctly estimated the impairment loss based on available information, aligning with the principle of prudence and integrity. Manipulating the impairment through adjusting the service life would violate these standards and compromise financial statement reliability (Gaa & Spiceland, 2019). Ethical behavior mandates that accountants prioritize the truthful representation of financial health, resisting pressures that could distort economic reality for short-term gains.

Capitalization versus Expense: Materiality and Ethical Implications

The second case from Redline Publishers concerns whether expenditures on equipment overhaul, totaling $70,000, should be capitalized or expensed, given that each individual expenditure did not exceed the company's $750 materiality threshold. GAAP emphasizes that materiality is a matter of professional judgment—if an item’s omission or misstatement could influence economic decisions, it should be included in financial statements (FASB, 2017). The consolidation of these expenditures exceeds the threshold and significantly affects net income, raising ethical questions about proper accounting treatment.

Influence of Materiality and Subjectivity

Materiality plays a central role in determining accounting approach, yet it introduces subjectivity, allowing managers and accountants to justify treatment based on judgment rather than strict rules. While the expenditures might be classified as expenses under the threshold, the aggregate impact suggests they could be capitalized, leading to higher assets and profits. This exemplifies the ethical responsibility of accountants to adhere to the substance of transactions rather than just form, ensuring that financial statements reflect a true and fair view of the company’s financial position (Khan & Jain, 2014).

Stakeholders and Ethical Responsibilities

Accountants influence a wide range of stakeholders, including shareholders, creditors, auditors, and regulators (Muller, 2015). Ethical lapses in accounting, such as manipulating impairment or materiality thresholds, can mislead users and undermine trust in financial reporting. Therefore, professional ethics codes, such as those from the AICPA and IFAC, emphasize integrity, objectivity, and professional competence in resisting inappropriate management pressures (IFAC, 2018). The accountant’s primary obligation is to provide accurate, unbiased information, fostering confidence in financial markets.

Conclusion

The case studies highlight the vital role of ethics in professional accounting. While GAAP provides guidance, the application often involves judgment, especially in impairment recognition and materiality assessments. Accountants must uphold ethical standards, resisting management’s attempts to distort financial results for strategic or personal gains. Ensuring truthful reporting not only complies with legal standards but also sustains stakeholder trust and supports the capital allocation process. Ultimately, ethical decision-making in accounting is fundamental to the integrity and sustainability of financial markets.

References

• FASB. (2014). Accounting standards update on asset impairment. Financial Accounting Standards Board.
• Gaa, J. C., & Spiceland, J. D. (2019). Intermediate accounting. McGraw-Hill Education.
• IFAC. (2018). International Code of Ethics for Professional Accountants. International Federation of Accountants.
• Khan, M. Y., & Jain, P. K. (2014). Financial Management: Text, Problems and Cases. McGraw-Hill Education.
• Muller, K. (2015). Ethical issues in accounting. Journal of Business Ethics, 126(1), 123-132.