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L20 Notes_Part_7 - those stated on the balance sheet Lack...

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Going Concern Assessment Problem Events in the Middle East has increased the price of gas which has hurt the auto industry in Detroit. The Automotive Supply company has been particularly hard hit and has experienced significant financial difficulty during the year due. Their current liabilities exceed their current assets by $300,000,000 and even if at historical cost valuations, the net worth is slightly negative. Interest on a long-term debt has not been paid and a product lawsuit resulting from a faulty brake alleges damages of $200,000,000. 90% of the company’s assets are located in the company town, so the auditor believes that if the company goes bankrupt, the valuation of the company’s sizeable land holdings will decrease 70% from
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Unformatted text preview: those stated on the balance sheet. Lack of Consistency Change in accounting principle Change in reporting entity Correction of an error in principle Changes Affecting Consistency Change in accounting estimate Correction of an error that does not involve an accounting principle Changes Not Affecting Consistency Change in classification and reclassification Change expected to have a material future effect 2 nd Reporting Standard v. 3 rd reporting standard. Since 1988, consistency has been presumed. Issue: Earnings management Common: companies change operations, increase stock holdings of other companies, FASB changes rules etc....
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