1. The revenue recognition principle states that, under the accrual basis of accounting, you should only record revenue when an entity has substantially completed a revenue generation process; thus, you record revenue when it has been earned. Therefore $12 million revenue should not be recorded in 2013 because the lawyers did not sign off on the transaction until January 2014 and the product was no shipped until January 2, 2014. Recording the revenue when it has not been earned violated the revenue recognition rules. 2. As professional accountants, they shall comply with the fundamental principles including integrity; objectivity, professional competence and due care confidentiality and professional behavior. In this case, accountants should be straightforward and honest in all professional and business relationships and avoid bias, conflict of interest, or undue influence of others to override professional or business judgments. 3. Boss’s gambling problem is an undue influence threat resulting from an attempt by the management to coerce the CPA to do something wrong. Helen’s childcare situation and the threatened cutoff of reimbursements are also undue influence threat and a financial self-interest threat. To avoid violating the independence standard, Helen should not consider Boss’s gambling problem and her childcare situation when solving the ethical issue. She should report the accurate revenue of 2013 and refused to backdate the sales invoice to December 30 because it is CPA’s responsibility to keep independence.
1. In all the three round trip transactions, the company fraudulently inflated or otherwise misrepresented its earnings for the fourth quarter of its FY2003 and each quarter of FY2004. The company should have devised and maintained a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statement in accordance with...
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