Assume you are the partner in an accounting firm hired to perform the audit on a fortune 1000 company.  Assume also that the initial public offering (IPO) of the company was approximately five (5) years ago and the company is concerned that, in less than five (5) years after the IPO, a restatement may be necessary. During your initial evaluation of the client, you discover the following information: The client is currently undergoing a three (3) year income tax examination by the Internal Revenue Service (IRS). A significant issue involved in the IRS audit encompasses inventory write-downs on the tax returns that are not included in the financial statements. Because of the concealment of the transaction, the IRS is labeling the treatment of the write-down as fraud. The company has a share-based compensation plan for top-level executives consisting of stock options. The value of the options exercised during the year was not expensed or disclosed in the financial statements. The company has several operating and capital leases in place, and the CFO is considering leasing a substantial portion of the assets for future use. The current leases in place are arranged using special purpose entities (SPEs) and operating leases. The company seeks to acquire a global partner, which will require IFRS reporting. The company received correspondence from the Securities and Exchange Commission (SEC) requesting additional supplemental information regarding the financial statements submitted with the IPO. Write an eight to ten (8-10) page paper in which you: Evaluate any damaging financial and ethical repercussions of failure to include the inventory write-downs in the financial statements. Prepare a recommendation to the CFO, evaluating the negative impact of a civil fraud penalty on the corporation as a result of the IRS audit. In the recommendation, include essential internal control procedures to prevent fraudulent financial reporting from occurring, as well as the major obligation of the CEO and CFO to ensure compliance. Examine the negative results on stakeholders and the financial statements of an IRS audit which generates additional tax and penalties or subsequent audits. Assume that the subsequent audit and / or additional tax and penalties result from the taxpayer’s use of an inventory reserve account, applying a 10 percent reduction to inventory over three (3) years.  Discuss the applicable federal tax laws, regulations, rulings, and court cases related to the inventory write-downs, and explain the specific relevance of each to the write-down. Research the current generally accepted accounting principles (GAAP) regarding stock option accounting. Evaluate the current treatment of the company’s share-based compensation plan based on GAAP reporting. Contrast the financial benefits and risks of the share-based compensation stock option plan with the financial benefits and risks of a share-based stock-appreciation rights plan (SARS). Recommend to the CF ...

1. Assume you are the partner in an accounting firm hired to
perform the audit on a fortune 1000 company. Assume also that
the initial public offering (IPO) of the company was
approximately five (5) years ago and the company is concerned
that, in less than five (5) years after the IPO, a restatement may
be necessary. During your initial evaluation of the client, you
discover the following information:
The client is currently undergoing a three (3) year income tax
examination by the Internal Revenue Service (IRS). A
significant issue involved in the IRS audit encompasses
inventory write-downs on the tax returns that are not included
in the financial statements. Because of the concealment of the
transaction, the IRS is labeling the treatment of the write-down
as fraud.
The company has a share-based compensation plan for top-level
executives consisting of stock options. The value of the options
exercised during the year was not expensed or disclosed in the
financial statements.
The company has several operating and capital leases in place,
and the CFO is considering leasing a substantial portion of the
assets for future use. The current leases in place are arranged
using special purpose entities (SPEs) and operating leases.
The company seeks to acquire a global partner, which will
require IFRS reporting.
The company received correspondence from the Securities and
Exchange Commission (SEC) requesting additional
supplemental information regarding the financial statements
submitted with the IPO.
Write an eight to ten (8-10) page paper in which you:
Evaluate any damaging financial and ethical repercussions of
failure to include the inventory write-downs in the financial
statements. Prepare a recommendation to the CFO, evaluating
the negative impact of a civil fraud penalty on the corporation
as a result of the IRS audit. In the recommendation, include

2. essential internal control procedures to prevent fraudulent
financial reporting from occurring, as well as the major
obligation of the CEO and CFO to ensure compliance.
Examine the negative results on stakeholders and the financial
statements of an IRS audit which generates additional tax and
penalties or subsequent audits. Assume that the subsequent
audit and / or additional tax and penalties result from the
taxpayer’s use of an inventory reserve account, applying a 10
percent reduction to inventory over three (3) years.
Discuss the applicable federal tax laws, regulations, rulings,
and court cases related to the inventory write-downs, and
explain the specific relevance of each to the write-down.
Research the current generally accepted accounting principles
(GAAP) regarding stock option accounting. Evaluate the current
treatment of the company’s share-based compensation plan
based on GAAP reporting. Contrast the financial benefits and
risks of the share-based compensation stock option plan with
the financial benefits and risks of a share-based stock-
appreciation rights plan (SARS). Recommend to the CFO which
plan the company should use, and provide the correct
accounting treatment for each.
Research the reporting requirements for lease reporting under
GAAP and International Financial Reporting Standards (IFRS).
Based on your research, create a proposal for future lease
transactions to the CFO. Within the proposal, discuss the use of
off-the-balance sheet financing arrangements, capital leases,
and operating leases, and indicate the related business and
financial risks of each.
Create an argument for or against a single set of international
accounting standards related to lease accounting based on the
global market and cross border leases of assets. Examine the
benefits and risks of your chosen position.
Examine the major implications of SAS 99 based on the factors
you discovered during the initial evaluation of the company.
Provide support for your rationale.
Analyze the potential for a material misstatement in the

3. financial statements based on the issues identified in your
initial evaluation. Make a recommendation to the CFO for the
issuance of restated financial statement restatement.
Identify at least three (3) significant issues that can result from
the failure to issue restated financial statements.
Examine the economic effect of restatement of the financial
statements on investors, employees, customers, and creditors.
Use six (6) quality academic resources in this assignment.
Note:
Wikipedia and other Websites do not qualify as academic
resources.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size
12), with one-inch margins on all sides; citations and references
must follow APA or school-specific format. Check with your
professor for any additional instructions.
Include a cover page containing the title of the assignment, the
student’s name, the professor’s name, the course title, and the
date. The cover page and the reference page are not included in
the required assignment page length.
The specific course learning outcomes associated with this
assignment are:
Analyze accounting situations to apply the proper accounting
rules and make recommendations to ensure compliance with
generally accepted accounting principles.
Analyze business situations to determine the appropriateness of
decision making in terms of professional standards and ethics
Analyze business situations and apply advanced federal taxation
concepts.
Use technology and information resources to research issues in
accounting.
Write clearly and concisely about accounting using proper
writing mechanics.

4. Grading for this assignment will be based on answer quality,
logic / organization of the paper, and language and writing
skills, using the following rubric.
Rubric
Points: 440
Assignment 3: Capstone Research Project
Criteria
Unacceptable
Below 60% F
Meets Minimum Expectations
60-69% D
Fair
70-79% C
Proficient
80-89% B
Exemplary
90-100% A
1.
Evaluate any damaging financial and ethical repercussions of
failure to include the inventory write-downs in the financial
statements. Prepare a recommendation to the CFO, evaluating
the negative impact of a civil fraud penalty on the corporation
as a result of the IRS audit. In the recommendation, include
essential internal control procedures to prevent fraudulent
financial reporting from occurring, as well as the major
obligation of the CEO and CFO to ensure compliance.
Weight: 10%
Did not submit or incompletely evaluated
any damaging financial and ethical repercussions of failure to
include the inventory write-downs in the financial statements.

5. Did not submit or incompletely prepared a recommendation to
the CFO, evaluating the negative impact of a civil fraud penalty
on the corporation as a result of the IRS audit. In the
recommendation, did not submit or incompletely included
essential internal control procedures to prevent fraudulent
financial reporting from occurring, as well as the major
obligation of the CEO and CFO to ensure compliance.
Insufficiently evaluated
any damaging financial and ethical repercussions of failure to
include the inventory write-downs in the financial statements.
Insufficiently prepared a recommendation to the CFO,
evaluating the negative impact of a civil fraud penalty on the
corporation as a result of the IRS audit. In the recommendation,
insufficiently included essential internal control procedures to
prevent fraudulent financial reporting from occurring, as well as
the major obligation of the CEO and CFO to ensure compliance.
Partially evaluated
any damaging financial and ethical repercussions of failure to
include the inventory write-downs in the financial statements.
Partially prepared a recommendation to the CFO, evaluating the
negative impact of a civil fraud penalty on the corporation as a
result of the IRS audit. In the recommendation, partially
included essential internal control procedures to prevent
fraudulent financial reporting from occurring, as well as the
major obligation of the CEO and CFO to ensure compliance.
Satisfactorily evaluated
any damaging financial and ethical repercussions of failure to
include the inventory write-downs in the financial statements.
Satisfactorily prepared a recommendation to the CFO,
evaluating the negative impact of a civil fraud penalty on the
corporation as a result of the IRS audit. In the recommendation,
satisfactorily included essential internal control procedures to
prevent fraudulent financial reporting from occurring, as well as

6. the major obligation of the CEO and CFO to ensure compliance.
Thoroughly evaluated
any damaging financial and ethical repercussions of failure to
include the inventory write-downs in the financial statements.
Thoroughly prepared a recommendation to the CFO, evaluating
the negative impact of a civil fraud penalty on the corporation
as a result of the IRS audit. In the recommendation, thoroughly
included essential internal control procedures to prevent
fraudulent financial reporting from occurring, as well as the
major obligation of the CEO and CFO to ensure compliance.
2.
Examine the negative results on stakeholders and the financial
statements of an IRS audit which generates additional tax and
penalties or subsequent audits. Assume that the subsequent
audit and / or additional tax and penalties result from the
taxpayer’s use of an inventory reserve account, applying a 10
percent reduction to inventory over three (3) years.
Weight: 10%
Did not submit or incompletely examined
the negative results on stakeholders and the financial statements
of an IRS audit which generates additional tax and penalties or
subsequent audits. Did not submit or incompletely assumed that
the subsequent audit and / or additional tax and penalties result
from the taxpayer’s use of an inventory reserve account,
applying a 10 percent reduction to inventory over three (3)
years.
Insufficiently
examined
the negative results on stakeholders and the financial statements
of an IRS audit which generates additional tax and penalties or
subsequent audits. Insufficiently assumed that the subsequent
audit and / or additional tax and penalties result from the

7. taxpayer’s use of an inventory reserve account, applying a 10
percent reduction to inventory over three (3) years.
Partially
examined
the negative results on stakeholders and the financial statements
of an IRS audit which generates additional tax and penalties or
subsequent audits. Partially assumed that the subsequent audit
and / or additional tax and penalties result from the taxpayer’s
use of an inventory reserve account, applying a 10 percent
reduction to inventory over three (3) years.
Satisfactorily
examined
the negative results on stakeholders and the financial statements
of an IRS audit which generates additional tax and penalties or
subsequent audits. Satisfactorily assumed that the subsequent
audit and / or additional tax and penalties result from the
taxpayer’s use of an inventory reserve account, applying a 10
percent reduction to inventory over three (3) years.
Thoroughly
examined
the negative results on stakeholders and the financial statements
of an IRS audit which generates additional tax and penalties or
subsequent audits. Thoroughly assumed that the subsequent
audit and / or additional tax and penalties result from the
taxpayer’s use of an inventory reserve account, applying a 10
percent reduction to inventory over three (3) years.
3.
Discuss the applicable federal tax laws, regulations, rulings,
and court cases related to the inventory write-downs, and
explain the specific relevance of each to the write-down.
Weight: 10%
Did not submit or incompletely discussed the applicable federal

8. tax laws, regulations, rulings, and court cases related to the
inventory write-downs; did not submit or incompletely
explained the specific relevance of each to the write-down.
Insufficiently discussed the applicable federal tax laws,
regulations, rulings, and court cases related to the inventory
write-downs; insufficiently explained the specific relevance of
each to the write-down.
Partially discussed the applicable federal tax laws, regulations,
rulings, and court cases related to the inventory write-downs;
partially explained the specific relevance of each to the write-
down.
Satisfactorily discussed the applicable federal tax laws,
regulations, rulings, and court cases related to the inventory
write-downs; satisfactorily explained the specific relevance of
each to the write-down.
Thoroughly discussed the applicable federal tax laws,
regulations, rulings, and court cases related to the inventory
write-downs; thoroughly explained the specific relevance of
each to the write-down.
4.
Research the current generally accepted accounting principles
(GAAP) regarding stock option accounting. Evaluate the current
treatment of the company’s share-based compensation plan
based on GAAP reporting. Contrast the financial benefits and
risks of the share-based compensation stock option plan with
the financial benefits and risks of a share-based stock-
appreciation rights plan (SARS). Recommend to the CFO which
plan the company should use, and provide the correct
accounting treatment for each.
Weight: 10%
Did not submit or incompletely researched
the current generally accepted accounting principles (GAAP)
regarding stock option accounting. Did not submit or
incompletely evaluated the current treatment of the company’s

9. share-based compensation plan based on GAAP reporting. Did
not submit or incompletely contrasted the financial benefits and
risks of the share-based compensation stock option plan with
the financial benefits and risks of a share-based stock-
appreciation rights plan (SARS). Did not submit or
incompletely recommended to the CFO which plan the company
should use, and provided the correct accounting treatment for
each.
Insufficiently researched
the current generally accepted accounting principles (GAAP)
regarding stock option accounting.
Insufficiently
evaluated the current treatment of the company’s share-based
compensation plan based on GAAP reporting.
Insufficiently
contrasted the financial benefits and risks of the share-based
compensation stock option plan with the financial benefits and
risks of a share-based stock-appreciation rights plan (SARS).
Insufficiently
recommended to the CFO which plan the company should use,
and provided the correct accounting treatment for each.
Partially researched
the current generally accepted accounting principles (GAAP)
regarding stock option accounting.
Partially
evaluated the current treatment of the company’s share-based
compensation plan based on GAAP reporting.
Partially
contrasted the financial benefits and risks of the share-based
compensation stock option plan with the financial benefits and
risks of a share-based stock-appreciation rights plan (SARS).
Partially
recommended to the CFO which plan the company should use,

10. and provided the correct accounting treatment for each.
Satisfactorily researched
the current generally accepted accounting principles (GAAP)
regarding stock option accounting.
Satisfactorily
evaluated the current treatment of the company’s share-based
compensation plan based on GAAP reporting.
Satisfactorily
contrasted the financial benefits and risks of the share-based
compensation stock option plan with the financial benefits and
risks of a share-based stock-appreciation rights plan (SARS).
Satisfactorily
recommended to the CFO which plan the company should use,
and provided the correct accounting treatment for each.
Thoroughly researched
the current generally accepted accounting principles (GAAP)
regarding stock option accounting.
Thoroughly
evaluated the current treatment of the company’s share-based
compensation plan based on GAAP reporting.
Thoroughly
contrasted the financial benefits and risks of the share-based
compensation stock option plan with the financial benefits and
risks of a share-based stock-appreciation rights plan (SARS).
Thoroughly
recommended to the CFO which plan the company should use,
and provided the correct accounting treatment for each.
5.
Research the reporting requirements for lease reporting under
GAAP and International Financial Reporting Standards (IFRS).
Based on your research, create a proposal for future lease
transactions to the CFO. Within the proposal, discuss the use of
off-the-balance sheet financing arrangements, capital leases,

11. and operating leases, and indicate the related business and
financial risks of each.
Weight: 10%
Did not submit or incompletely researched
the reporting requirements for lease reporting under GAAP and
International Financial Reporting Standards (IFRS). Based on
your research, did not submit or incompletely created a proposal
for future lease transactions to the CFO. Within the proposal,
did not submit or incompletely discussed the use of off-the-
balance sheet financing arrangements, capital leases, and
operating leases, and indicate the related business and financial
risks of each.
Insufficiently researched
the reporting requirements for lease reporting under GAAP and
International Financial Reporting Standards (IFRS). Based on
your research, insufficiently created a proposal for future lease
transactions to the CFO. Within the proposal, insufficiently
discussed the use of off-the-balance sheet financing
arrangements, capital leases, and operating leases, and indicate
the related business and financial risks of each.
Partially researched
the reporting requirements for lease reporting under GAAP and
International Financial Reporting Standards (IFRS). Based on
your research, partially created a proposal for future lease
transactions to the CFO. Within the proposal, partially
discussed the use of off-the-balance sheet financing
arrangements, capital leases, and operating leases, and indicate
the related business and financial risks of each.
Satisfactorily researched
the reporting requirements for lease reporting under GAAP and
International Financial Reporting Standards (IFRS). Based on
your research, satisfactorily created a proposal for future lease

12. transactions to the CFO. Within the proposal, satisfactorily
discussed the use of off-the-balance sheet financing
arrangements, capital leases, and operating leases, and indicate
the related business and financial risks of each.
Thoroughly researched
the reporting requirements for lease reporting under GAAP and
International Financial Reporting Standards (IFRS). Based on
your research, thoroughly created a proposal for future lease
transactions to the CFO. Within the proposal, thoroughly
discussed the use of off-the-balance sheet financing
arrangements, capital leases, and operating leases, and indicate
the related business and financial risks of each.
6.
Create an argument for or against a single set of international
accounting standards related to lease accounting based on the
global market and cross border leases of assets. Examine the
benefits and risks of your chosen position.
Weight: 10%
Did not submit or incompletely created
an argument for or against a single set of international
accounting standards related to lease accounting based on the
global market and cross border leases of assets. Did not submit
or incompletely examined the benefits and risks of your chosen
position.
Insufficiently created
an argument for or against a single set of international
accounting standards related to lease accounting based on the
global market and cross border leases of assets.
Insufficiently
examined the benefits and risks of your chosen position.
Partially created
an argument for or against a single set of international

13. accounting standards related to lease accounting based on the
global market and cross border leases of assets.
Partially
examined the benefits and risks of your chosen position.
Satisfactorily created
an argument for or against a single set of international
accounting standards related to lease accounting based on the
global market and cross border leases of assets.
Satisfactorily
examined the benefits and risks of your chosen position.
Thoroughly created
an argument for or against a single set of international
accounting standards related to lease accounting based on the
global market and cross border leases of assets.
Thoroughly
examined the benefits and risks of your chosen position.
7.
Examine the major implications of SAS 99 based on the factors
you discovered during the initial evaluation of the company.
Provide support for your rationale.
Weight: 10%
Did not submit or incompletely examined
the major implications of SAS 99 based on the factors you
discovered during the initial evaluation of the company. Did not
submit or incompletely provided support for your rationale.
Insufficiently examined
the
major
implications of SAS 99 based on the factors you discovered
during the initial evaluation of the company. Insufficiently
provided support for your rationale.

14. Partially examined
the
major
implications of SAS 99 based on the factors you discovered
during the initial evaluation of the company. Partially provided
support for your rationale.
Satisfactorily examined
the
major
implications of SAS 99 based on the factors you discovered
during the initial evaluation of the company. Satisfactorily
provided support for your rationale.
Thoroughly examined
the
major
implications of SAS 99 based on the factors you discovered
during the initial evaluation of the company. Thoroughly
provided support for your rationale.
8.
Analyze the potential for a material misstatement in the
financial statements based on the issues identified in your
initial evaluation. Make a recommendation to the CFO for the
issuance of restated financial statement restatement.
Identify at least three (3) significant issues that can result from
the failure to issue restated financial statements.
Weight: 10%
Did not submit or incompletely analyzed
the potential for a material misstatement in the financial
statements based on the issues identified in your initial
evaluation. Did not submit or incompletely made a
recommendation to the CFO for the issuance of restated

15. financial statement restatement. Did not submit or incompletely
identified at least three (3) significant issues that can result
from the failure to issue restated financial statements.
Insufficiently analyzed
the potential for a material misstatement in the financial
statements based on the issues identified in your initial
evaluation.
Insufficiently
made a recommendation to the CFO for the issuance of
restated financial statement restatement.
Insufficiently
identified at least three (3) significant issues that can result
from the failure to issue restated financial statements.
Partially analyzed
the potential for a material misstatement in the financial
statements based on the issues identified in your initial
evaluation.
Partially
made a recommendation to the CFO for the issuance of
restated financial statement restatement.
Partially
identified at least three (3) significant issues that can result
from the failure to issue restated financial statements.
Satisfactorily analyzed
the potential for a material misstatement in the financial
statements based on the issues identified in your initial
evaluation.
Satisfactorily
made a recommendation to the CFO for the issuance of
restated financial statement restatement.
Satisfactorily
identified at least three (3) significant issues that can result

16. from the failure to issue restated financial statements.
Thoroughly analyzed
the potential for a material misstatement in the financial
statements based on the issues identified in your initial
evaluation.
Thoroughly
made a recommendation to the CFO for the issuance of
restated financial statement restatement.
Thoroughly
identified at least three (3) significant issues that can result
from the failure to issue restated financial statements.
9.
Examine the economic effect of restatement of the financial
statements on investors, employees, customers, and creditors.
Weight: 5%
Did not submit or incompletely examined
the economic effect of restatement of the financial statements
on investors, employees, customers, and creditors.
Insufficiently examined
the economic effect of restatement of the financial statements
on investors, employees, customers, and creditors.
Partially examined
the economic effect of restatement of the financial statements
on investors, employees, customers, and creditors.
Satisfactorily examined
the economic effect of restatement of the financial statements
on investors, employees, customers, and creditors.
Thoroughly examined
the economic effect of restatement of the financial statements

17. on investors, employees, customers, and creditors.
10. 5 references
Weight: 5%
No references provided
Does not meet the required number of references; all references
poor quality choices.
Does not meet the required number of references; some
references poor quality choices.
Meets number of required references; all references high quality
choices.
Exceeds number of required references; all references high
quality choices.
11. Clarity, writing mechanics, and formatting requirements
Weight: 10%
More than 8 errors present
7-8 errors present
5-6 errors present
3-4 errors present
0-2 errors present