Case Study
I am doing a case study for an international acct class that I am taking and I need some 'expert' opinions on it. Here is an overview of it:
The CEO of a corporation is speaking to the CFO about changing their accounting over to international from domestic GAAP so a loss does not show up while he is the CEO of the company. The country that they are in allows both GAAP and international standards. Should they do this?Why? And what should the CFO say in response to the CEO??
5 Comments:
If I were the CFO, I would tell the CEO that we cannot change an accounting policy on the spot. This is contrary to consistency principle. And Accounting standards need a disclosure for it. Instead, I advise that we focus more on the marketing side to boost sales and increase net income.
It is inherent to an accountant to be objective and transparent in financials to better help companies.. That's what we do!
I completely agree with the previous comment but based on different reasoning. The change of an accounting system from one GAAP to another usually requires immense resources and is in plain text just expensive. This costs to be incurred do not only include the change of accounting policies, which can simply be understood as writing an entirely new accounting policy guide for the firm. It more over requires extensive process and IT-implementation (ERP). As an answer for the case study, the CFO should simply confront the CEO with additional costs of switching from one GAAP to another. Depending on the amount of loss that the CEO wants to defer the trade off might change immidiately.
Whatever the final decision will be, the situation must be disclosed to the shareholders. Changing accounting policies for the sake to mislead the shareholders is unethical.
The company cannot simply change their accounting policy, because of the consistent reason, the company should maintain the consistency up to the certain extent and the company should has the reasonnable reason for that,for example, the requirement by the law of regulation. Moreover, changing the accounting policy may mislead the public or shareholder, because the profit level has increase significantly.
I agree with all the above comments but in this situation a CFO should ask by self why GAAP.He should write advantage and disadvantage of it and make compare both and it should be based on ethical aspects.Change doesn't mean taking burden on it can b blessing sometime to analyse you have to be practical.
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