Discussion Board
Discussion Board
Randy’s decision to omit both the assets and the pending payments is because he wants the company’s financial statement to look good when the creditors assess at the company’s financial records. If he acted ethically and put the assets without having paid for them the creditors would most likely decline to give the company the loan, due to the outstanding debt. In this regard, I think Randy’s decision was ill intended and was misleading to the company’s creditors (Hogan, Rezaee, Riley, & Velury, 2008).
Explain the circumstances under which Randy’s decision would be acceptable under GAAP and circumstances under which it would definitely be unacceptable.
Under the GAAP Randy’s decision could be unacceptable on the grounds that he has forged a fictitious representation of the balance sheet. The balance sheet is an important document for stakeholders and intentional misrepresentation of financial books is a fraudulent way of acquiring an advantage in the market.
In addition, Randy’s decision is wrong because in accordance with the Generally Accepted Accounting Principles (GAAP), costs and revenue incurred in a particular financial period should be recorded in that period. In this sense, Randy committed a fraud for understating the liabilities of the company and also failing to adhere to the full disclosure clause as required by the Generally Accepted Accounting Principles (GAAP).
On the same note, Randy’s decision could be accepted under GAAP because he chose to omit both the debit and credit entries resulting from the last week’s transaction. Although he flouted the matching principle by not charging the receipt of assets and their related payment during their period of receipt as required by the GAAP, the action resulted in a zero net effect on the balance sheet (Ilter, 2014).
References
Hogan, C. E., Rezaee, Z., Riley, R. A., & Velury, U. K. (2008). Financial statement fraud: Insights from the academic literature. Auditing, 27(2), 231–252. http://doi.org/10.2308/aud.2008.27.2.231
Ilter, C. (2014). Misrepresentation of financial statements. Journal of Financial Crime, 21(2), 215–225. http://doi.org/10.1108/JFC-04-2013-0028
