Intermediate Accounting II at the beginning of class
Respond to the following prompts. Please type using a word processing program and bring a printed copy to class. Write as much or as little as you feel necessary to answer each question to the best of your ability. You may use all available resources to complete this case – e.g., lecture slides, notes, your book, and the Accounting Standards Codification. Collaboration with others in your group is vital. How you work together is up to you – however, I encourage everyone in the group to take at least some part for both questions. Please turn in only one finished assignment for each group. Groups will be randomly assigned with three or four participants each and can be found on Canvas. Consider each prompt separately.
For grading, I will focus primarily on the analysis and communication that you provide. There is not necessarily a “right answer” that I will be looking for and I will not grade based on that your opinion, as long as it is well-justified and communicated. Instead, I want to be able to follow your own accounting and ethical decision-making clearly and to be able to not just understand what your decision(s) should be, but also why you feel that they are best, considering the impact on ALL the entity’s stakeholders, including yourself.
Question 1 (25 points):
You are the Chief Financial Officer of a large public Silicon Valley corporation. Your corporation regularly keeps a large amount of cash on-hand, in excess of $250,000, at several banks in order to meet payroll and vendor obligations. With the sudden collapse of SVB and Signature Bank, you are suddenly concerned about the possibility of your corporation’s bank account suddenly being inaccessible or illiquid. In addition, you are suddenly concerned about whether other investments your company has made, to keep its resources growing and valuable, are now as valuable as they were.
Using the ASC, discuss what accounting may be necessary for these situations.
Question 2 (50 points):
On June 28, 2022, the Securities and Exchange Commission (SEC) announced that it had charged Ernst & Young LLP (EY) for cheating by its audit professionals on the ethics component of Certified Public Accountant (CPA) exams and on various continuing professional education courses required to maintain licensure (https://www.sec.gov/news/press-release/2022-114). EY also withheld evidence from the SEC when investigating the matter. EY was not the first accounting firm to be charged with the SEC for cheating. KPMG LLP was charged with altering past audit work and with receiving stolen information about inspections that would be conducted by the Public Company Accounting Oversight Board (PCAOB) and fined $50 million (https://www.sec.gov/news/press-release/2019-95).
Answer the following questions to the best of your ability, providing support for each:
- Are ethics exams important?
- Who, if anyone, is harmed by accountants cheating on ethics exams?
- Who, if anyone, is harmed by accountants cheating to pass continuing education courses?
- In general, is cheating bad, and why?
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