Monday, September 17, 2012

The Foreign Corrupt Practices Act of 1977 lists several sanctions for offering bribes, kickbacks, etc.


The Foreign Corrupt Practices Act of 1977 lists several sanctions for offering bribes, kickbacks, etc.  While this is the rule for accounting in the United States, other countries have no such laws.  How does the International Accounting Standards Board (IASB) compensate for this inconsistency in accounting rules, if at all?  How would you compensate for this difference in accounting standards?  Do you believe that allowing bribes, kickbacks, etc. is necessarily unethical?

The Foreign Corrup Practices Act (FCPA) of 1977 was establish to deter bribes to political officials outside of the United State and to make it a requirement for all public companies to fairly reflect financial activity and maintain reasonable records and properly recording of transactions (p.568). Other than the ISBA issuing ISA No. 1 "Presentation of Financial Statements" and IAS No. 34, "Interim Financial Reporting", the IASB does not have any ruling or regulations for bribery or kickbacks. If it were up to me, to avoid such kickbacks or briberies of foreign officials I would have the ISBA adopt a law similar to FCPA. I doubt that it would go through, since they allow the individual nations to enforce IAS No. 34 or the frequency of reporting to be decided by the each countries national law. 
If bribes or kickbacks were not view as unethical, then there would not be any need for the FCPA. I think that both the company and the individual(s) involved in the bribes are unethical, they are the only ones benefiting from these acts. Let's take a major shoe company going into a third world nation, they offer the governent official a large quantity of cash and incentives for the ability to establish a plant in the country, who will benefit? The individual and the shoe company. Either will claim that they have people working, but they are working for pennies a day. Yet the official enjoys perks and lots of money, while they company will sell the cheap shoes for hundreds of dollars. The bribe and kickback is very unethical.

Friday, December 16, 2011

Explain the advantages and limitations of the four major research designs. Provide an example of a social group situation that you believe would be best studied by each type of design.


Sociologists use four major research designs: surveys, observation, experiments, and existing sources. The advantages and limitations of each of the four major research designs are as follows. A survey is a study, generally in the form of an interview or questionnaire, which provides researchers with information about how people think and act. The main advantages of surveys are less expensive, surveys can be sent by email, mail or over the phone, and surveys are useful in describing the characteristics of a large population. Some limitations with using surveys are that a lot of research must be conducted to develop questions relevant to the needed information and surveys are not as flexible as other means because the initial study design has to remain unchanged. An example of survey is sent via email or the end of class surveys that we take. Observation is a way to collect information through direct participation and by closely watching a group or community. Some advantages of observation are it allows sociologists to examine certain behaviors and communities that could not be investigated through other research techniques and observation can be the only way to gain certain types of information. Some limitations of observation are the observer must not become attached to the people he or she observes and it becomes hard to maintain confidentiality. An example of an observation is ethnography which is the study of an entire social setting through extended systematic observation. An experiment is an artificially created situation that allows a researcher to manipulate variables. Some advantages of experiments are direct measures of people’s behavior and experiments are the only means by which cause and effect can be established. Some limitations of experiments are ethical limitations on the degree to which subject’s behavior can be manipulated and most experiments are conducted in laboratories and do not always represent real life situations. An example of an experiment is the deliberate manipulation of people’s behavior.  Existing sources are previously collected and publicly accessible information and data. Some advantages of existing resources are tends to be nonreactive and it does not influence people’s behavior and researchers can avoid the Hawthorne affect by using secondary analysis. An example of existing resources is census data compiled by the government. Some limitations of existing sources are if the researcher who relies on data collected by someone else may not find exactly what is needed.

Friday, August 5, 2011

What is the rationale for requiring an investor to pay accrued interest when a bond is purchased between interest payment dates?

Bonds are very often issued between payment dates because the issuer requires the investor to pay the market price for the bonds plus accrued interest since the last interest date. At the next interest date, the corporation will return the accrues interest to the investor by paying the full amount of interest due on outstanding. Collection of accrued interest at the issuance date allows the company to pay a full period's interest to all bondholders at the nest interest payment date. The corporation as the issuer does not have to determine the individual amount of interest due each holder based on the time each bond had been outstanding.If bonds are not sold with accrues interest, the issuer would have to keep track of the purchaser and the date of purchase to ensure that each bondholder received the correct amount of interest. it is both simpler and less expensive for the issuer to sell the bonds with accrued interest.

The rationale for requiring an investor to pay accrued interest when a bond is purchased between interest payments dates is that a bond is constantly accruing interest. Between the payments dates the interest is constantly accruing until it is paid. This is the matching principle. When an investor purchases a bond in the middle of a payment period, the books must account for the time since the latest payment. The investor now owns the bond and must be responsible and pay any interest that has accrued. If the bond was purchases on the payment date, no interest had been accrued and therefore the investor does not pay any interest.

Thursday, August 4, 2011

Identify the financial statement effects of an overstatement

Errors occasionally occur when physically counting inventory items on hand. Identify the financial statement effects of an overstatement of the ending inventory in the current period. If the error is not corrected, how does it affect the financial statements for the following year?


  • An error in the beginning inventory will have a reverse effect on net income
    • Overstatement of inventory results in understatement on net income
  • An error in ending inventory will have a similar effect on net income
    • Overstatement of inventory results in overstatement of net income


If ending inventory errors are not corrected in the next period, their effect on net income for that period is reversed, and total net income for the two years will be correct.

If inventory is overstated during a period, the net affect is that shareholder equity is also overstated. When inventory is overstated, it implies that the cost of goods sold is understated since less inventory was sold compared to the whole. When cost of good sold is understated then net income would be overstated, which would be included in the share equity account. The result is that shareholder equity is overstated. This account is not zero out at the end of the period; it carries it's balance from one period to the next. Therefore, in the next period shareholder equity would still be overstated if the error was not corrected.

Wednesday, August 3, 2011

Mary Bolton believes revenues from credit sales may be earned before they are collected in cash

Mary Bolton believes revenues from credit sales may be earned before they are collected in cash.

In basic accrual accounting: revenue is recognized when it is earned and this could be before or after payment is received from a customer or company. In a basic transaction, like a purchase in a store, the income is earned at the time the sale while at the cash register. When merchandise is shipped the invoice will dictate if the revenue is earned at time of shipment or at the time of receipt by the customer. There’s COD, prepaid, and payment when fulfilled.

According to the revenue recognition policy, revenue must be realized or realizable and earned to be recognized on the income statement as income. Realization is when cash or the right to cash is received. Therefore, revenue can be accrued to match the expenses that were incurred to render the service but not recognized on the income statement until payment is received. Mary is correct but it an accrued revenue that is accounted for and not income.

"Financial Times" Guide to Personal Tax 2007-2008

Identify the contra accounts that have normal debit balances and explain why they are not considered expenses


A contra account is an account that is matched or paired to a related account and subtracted from it. Therefore, its normal balance is the opposite of the related account. Contra-revenue accounts are where you enter transactions that reduce gross earnings. Examples are Sales Discounts and Sales Returns and Allowances. Contra-revenue accounts have a normal debit balance. Sales Returns and Allowances is a contra revenue account and the normal balance is a debt. Sales Discounts is a contra-revenue account to Sales. Contra revenue accounts are offset against a revenue account on the income statement. Contra accounts always have a normal balance that is opposite to what they are contra to.

Tuesday, August 2, 2011

Why are LIFO and FIFO so popular?

A survey of major U.S. companies revealed that 77% of those companies used either last in, first out (LIFO) or first in, first out (FIFO) cost flow methods, whereas 19% used average cost, and only 4% used other methods. Why are LIFO and FIFO so popular?


When prices are rising, FIFO results in lower cost of goods sold and higher net income than the LIFO method. LIFO results in the lowest income taxes because of lower net income. In the balance sheet, FIFO results in an ending inventory that is closest to the current value. LIFO is farthest from the current value.


For example, in a period of rising prices the FIFO method would provide the highest net income. Since FIFO uses the flow of goods to account for the cost of goods sold, the first goods that were in finished goods are the first expenses to be expensed in cost of goods sold. When prices are rising, the oldest goods would the lowest costs; therefore, net income would be high. Sometimes companies do not want high net income because that would incur higher taxes for that period. Therefore during times of rising prices, the LIFO method provides the lowest net income because it uses the most recent expenses in cost of good sold. Using weighed average has no real benefit because it falls in the middle of both LIFO and FIFO. Weighted average would never provide the highest or lowest net income.
The Key Concepts of Accountancy