Chapter 17 - Solution Manual

Ending on or after consequently was the

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ending on or after December 15, 2004; consequently December 31, 2004 was the effective filing date for most of these companies. Companies that did not meet the definition of accelerated filers were initially required to comply with SOX’s provisions for fiscal periods ending on or after July 15, 2006. Case 17-7 a. The Securities Act of 1933 regulates the initial public distribution of a corporation's securities. Issuing securities to the public for the first time is termed going public. The Securities Exchange Act of 1934 regulates the trading of securities of publicly held companies. Periodic reporting for publicly held companies is termed being public. b. The main items now required to be analyzed and discussed by management are: 1. Unusual or infrequent events that materially affect the reported amount of income. 2. Trends or uncertainties having or expected to have a significant impact on reported income. 3. Changes in volume or price and the introduction of new products that materially affect income. 4. Factors that might have an impact on the company's liquidity or ability to generate enough cash to maintain operations. 5. Commitments for capital projects and anticipated sources of funds to finance these projects. 6. Companies are encouraged but not required to provide financial forecasts. Case 17-8 a. The accounting profession, similar to all professions, has a responsibility to provide quality service to the public. Because the body of knowledge in any profession is complex, the public often cannot evaluate the quality of a professional person's service. By establishing rules of conduct, a profession assumes self-discipline beyond the requirements of law. In auditing, users of financial statements cannot be expected to always understand generally accepted accounting and auditing standards, and other complex areas of accounting and auditing knowledge. Through a code of professional ethics, CPAs provide assurances that quality services have been provided. b. Public accounting firms are generally required to be organized as sole proprietorships or partnerships. Corporate organizational forms do not protect the public interest (That is, they shield the firm's personnel from liability). Although the legal liability question is now receiving a great deal of attention in the press through public statements by officials in large public accounting firms, attempts to limit legal liability through the formation of corporations have not yet been successful. The legal liability issue will continue to be an important topic in the near future. Case 17-9 Unknown Deleted: Unknown Deleted:
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367 a. From Mason Enterprises’ perspective, the lease is in substance a purchase of an asset, financed by debt. Capital leases embody the acquisition of future benefits similar to those acquired by purchases of long-term fixed assets. The fair value of the leased asset should be recorded because the benefits acquired meet the definition of an asset. The asset is controlled by the entity and results from a transaction, the initiation of the lease agreement.
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