From the instructor: "The purpose of these Discussion Board Responses is to create dialog that will challenge you to think critically, express your positions, challenge and/or support the position of others, listen to others, and enhance the overall learning experience. You should add to the original discussion by offering new ideas, concerns, strategies, models, or frameworks that agree with or are in contrast to the author’s position. Your Responses need to present a critical analysis of the Posts to demonstrate a graduate-level depth of critical thinking and analysis. Use the material covered in your textbook readings, instructional videos, and other course material to evaluate the information provided and write two graduate-level responses in the DB Response."
Assignment: Respond to the following Discussion Board Post
(The post should be at least 500 words and include 2 or more academic references.)
Decision Case 5-10
The president of SOS Inc. is concerned that the net income at year-end will not reach the expected figure. When the sales manager receives a large order on the last day of the fiscal year, the president tells the accountant to record the sale but to ignore any inventory adjustment because the physical inventory has already been taken. How will this affect the current year's net income? next year's income? What would you do if you were the accountant? Would your answer differ if your company followed IFRS rather than U.S. GAAP? Assume that SOS uses a periodic inventory system.
First, the paper will answer the question of how this will affect the current year’s net income.The answer is; since the sale has been included, but the inventory adjustment has been ignored, the ending inventory will include the inventory for the sale recorded.Thus, the cost of goods sold will be understated.Therefore, the current year’s net income will be overstated.However, the net income of next year will be understated.This is due to; the ending inventory for the current year will become the beginning inventory for next year therefore, the inventory for which sales has been recorded in the current year will appear in the beginning inventory for next year.Since the were already sold, the inventory will not appear in the ending inventory of next year at the time of the physical count, therefore the cost of goods sold will be overstated by the cost of inventory sold that was included in the beginning inventory.
The second part of this question is, what would you do if you were the accountant? This does raise some ethical questions.In my opinion, the accountant has an ethical responsibility to report the correct amount of profits in the financial statements.Therefore, it is imperative to utilize the matching principle and assign the correct value to inventory at the point of sale.In response to practices such as this, the European Commission (2014) of the European Union, cited increased accountability as a major justification for requiring large and societally relevant organizations to disclose non-financial information in their annual reporting (Dillard & Vinnari, 2018).In the United States, legislation such as the Sarbanes-Oxley Act (2002) and the Dodd-Frank Act (2010) expand disclosure and accountability requirements in response to various financial crises, and the Securities and Exchange Commission requires some environmental risk information to be included in its 10 K filings (Dillard & Vinnari, 2018).Moreover, from a biblical perspective, we are called upon as Christians to always be honest and tell the truth.This can be substantiated by Proverbs 12:19 (ESV):
“Truthful lips endure forever, but a lying tongue is but for a moment.”
Regarding the third question, would your answer differ if your company followed IFRS rather than U.S. GAAP?The answer to this is that it would not matter if SOS followed IFRS instead of the GAAP principle because both follow the matching principle.This means that both principles require matching the revenues with the costs acquired to earn those revenues in the same period.
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