Respond 8
Question 1
You are a new cost accountant for EAON Corp. Your first project is a capital investment proposal to purchase state of the art hardware and software for engineering's new product. The VP of engineering is excited to begin R & D on this new product. He has made it clear to you that he believes in this product and wants your proposal to be approved "with no questions asked".
You prepare your analysis using the company's cost of capital and timeline developed by the VP of engineering. When you dig deeper into the cash flow estimates you can see much latitude has been used in predicting the cash inflows. The VP of engineering has estimated the return on investment and believes a lower discount rate should be used in the PV calculations. You are following company protocol by using the cost of capital as the discount rate.
According to the IMA's Standards of Ethical Conduct, what are your responsibilities in this case?
Since this is a R&D project, could you justify using a lower discount rate?
What will you say to the VP of engineering?
Will you stick by your original estimates or make the changes so the VP of engineering can get started on his project?
Respond to this…As a professional, I would follow the protocol of the company and use the correct method of estimation, cost of capital. It is my responsibility, according to the IMA’s Standards of Ethical Conduct, to show Competence, Confidentiality, Integrity, and Credibility.
Competence – I must use my knowledge to provide information that is succinct, clear, precise and efficient that also uses relevant laws, regulations, and technical standards. If I chose to go along with the VP of Engineering’s cost of capital and timeline, the figures being used to show returns on investment would not be accurate to the best of my knowledge and I would be violating this simple standard.
Confidentiality – If I comply with the company protocol, nothing is in violation in this area.
Integrity - As the accountant, the financials are my business at hand. If the VP of Engineering is wanting me to use numbers that could potentially hurt the company financially, I cannot comply. The integrity of the accounting profession would be at risk if I were to use a proposal with numbers that were incorrect or inferior just to get a project approved.
Credibility – If for some reason the VP of Engineering’s proposal of the R&D project is accurate but could have potential flaws, I would prepare an alternative proposal that would show two comparison proposals and communicate my opinion, by profession, on both.
In using all the standards above, I would tell the VP that I will use the numbers he has proposed along with my second proposal with my recommendations for both. Being that it is a Research and Development project, it may get some latitude in the estimations.
References:
http://www.investopedia.com/ask/answers/052715/what-difference-between-cost-capital-and-discount-rate.asp
Jiambalvo, J. (2016). Managerial Accounting, 6th Edition. [Bookshelf Ambassadored]. Retrieved from https://ambassadored.vitalsource.com/#/books/9781119227892/
Question 2
Accounting for goodwill changed in June 2001 for financial reporting purposes in the United States. Differences in reporting still exist throughout the world. Conduct research to determine how goodwill is reported in the financial statement of the country that you chose for your final project. For your main post, summarize the source and add a short paragraph stating how this method of financial reporting impacts the financial statements. What are the similarities and differences in reporting for goodwill between the United States and your chosen country? How does this affect the bottom line of your company?
Respond to this…The country I am doing my project on is Canada. IFRS is used for public companies while Canadian GAAP is used for private enterprises.
Edelkoort Smethurst Schein Chartered Professional Accountants LLP a firm located in Burlington, Ontario Canada. The services the firm offers are: audit & review assurance, tax planning & guidance, year-end accounting and consulting (Home, n.d.). They are fully licensed with CPA Ontario, registered as tax preparers with the Canadian Revenue Agency and IRS. (IFRS vs Canadian GAAP - Goodwill, n.d.). The link to the differences between Canadian GAAP and IFRS is https://es-cpas.com/ifrs/ifrs-vs-canadian-gaap-goodwill. I also found Deloitte’s page that lists the key differences between U.S. GAAP and IFRS. The link is https://www.iasplus.com/en-us/standards/ifrs-usgaap/goodwill.
Canadian GAAP requires recognized goodwill to be tested for impairment every year (IFRS vs Canadian GAAP - Goodwill, n.d.). Effective October 1, 2008 under IFRS goodwill is to be tested separately as it’s allocated to a reporting unit; but the reporting unit may not result in assessment at as low a level as the cash-generating unit utilized (IFRS vs Canadian GAAP - Goodwill, n.d.).
Under IFRS impairment of assets, goodwill is allocated to cash generating units. The test is on the entire cash generating units. There is no separate test for goodwill under IFRS. The company must identify which cash generating units the goodwill applies to. Only if the carrying amount of the cash generating unit which the goodwill has been allocated exceeds the recoverable amount of the cash generating unit an impairment lost is recognized (IFRS vs Canadian GAAP - Goodwill, n.d.).
U.S. GAAP – The lowest level for goodwill impairment testing is one level below the operating segment (Goodwill and Other Intangible Assets - Key Differences Between U.S. GAAP and IFRSs, n.d.).
U.S. GAAP - A two-step impairment test for goodwill can be performed (Goodwill and Other Intangible Assets - Key Differences Between U.S. GAAP and IFRSs, n.d.).
“Under IFRS, it is not permissible to reverse impairments previously recognized for goodwill” (IFRS vs Canadian GAAP - Goodwill, n.d.). “Canadian GAAP does not permit a reversal of an impairment loss or a write-down if the fair value increases for any asset” (IFRS vs Canadian GAAP - Goodwill, n.d.).
The impairment testing affects the bottom line because any impairment expense directly reduces the net income. The amount of impairment may be different from on accounting standard to the next. This could give different amounts for the impairment expense; which means the net income could be different.
Goodwill and Other Intangible Assets - Key Differences Between U.S. GAAP and IFRSs. (n.d.). Retrieved from Deloitte: https://www.iasplus.com/en-us/standards/ifrs-usgaap/goodwill#level-of-impairment-testing-for-goodwill
Home. (n.d.). Retrieved from Edelkoort Smethurst Schein Chartered Professional Accountants LLP: https://es-cpas.com/
IFRS vs Canadian GAAP - Goodwill. (n.d.). Retrieved from Edelkoort Smethurst Schein Chartered Professional Accountants LLP: https://es-cpas.com/ifrs/ifrs-vs-canadian-gaap-goodwill
Question 3
Theory without an effective and efficient implementation remains just a theory. The same holds true for strategy. In order for the strategy to materialize and be successful, it has to be implemented.
Please discuss the importance of "alignment" in strategy implementation. What are the people factors that need to be aligned? How can the "management style" of senior executives be a barrier to implementation? What can be done to overcome this barrier?
Respond to this…Alignment is a very important part of implementation because it is necessary for success. Strategic alignment, to me, means that objectives are clearly identified and strategies clearly communicated. Everyone knows and understands their part in the implementation of a new strategy. People are a huge part of strategic alignment. Employees need to know and understand the role they play in strategy implementation and its success, and work hard to achieve it.Managers need to understand and effectively apply tools to motivate their employees. And most importantly, all departments and hierarchies need to embrace transparency and communicate efficiently providing feedback and encouragement.
Manager style leadership may be detrimental to the successful implementation of business strategies because it encourages absent dictation from above. If managers feel they need only dictate the rules employees will not be motivated to perform as needed. Mangers need to understand their responsibility to the team and to the organization. They should give clear instruction, provide incentives, and communicate performance. Only through collaboration and involvement from all departments can business strategies be truly aligned. Each person needs to understand how their work and attitude affects performance, even management.
References
Myler, L. (2012, Oct). Strategy 101: It’s All About Alignment. Forbes. Retrieved from
http://www.forbes.com/sites/larrymyler/2012/10/16/strategy-101-its-all-about-alignment/#2480cbc82257
