The document provides instructions for ACC 499 Week 10 Assignment 3, which involves analyzing various accounting issues discovered during an audit of a Fortune 1000 company. Students must write an 8-10 page paper evaluating: 1) the failure to disclose inventory write-downs and recommend internal controls; 2) the impact of an IRS audit related to inventory accounting; 3) stock option accounting and recommendation for share-based compensation; 4) lease accounting and off-balance sheet financing risks; 5) implications of SAS 99 and potential for financial misstatement; and 6) the need to restate financials and economic effects. Five academic sources must be used.

1. ACC 499 Week 10 Assignment
3: Capstone Research Project
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ACC 499 Week 10 Assignment 3: Capstone Research Project
Due Week 10 and worth 440 points
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.

2. 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 CFO which
plan the company should use, and provide the correct accounting treatment for each.

3. 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 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 five (5) 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.

4. Analyze business situations to determine the appropriateness of decision making in
terms of professional standards and ethics
Use technology and information resources to research issues in accounting.
Analyze business situations and apply advanced federal taxation concepts.
Write clearly and concisely about accounting using proper writing mechanics.