Question

You are a CPA and XYZ Company has just hired you as their controller. XYZ is a brand-new company and their head office is located in Moose Jaw, Saskatchewan. The shares in XYZ are currently privately held by two individuals who are both Canadian citizens. The shareholders expect that within four to five years they will be ready to take the company public. They aren’t sure at this time whether they want to have XYZ’s shares listed on the Toronto Stock Exchange (TSE) or the New York Stock Exchange (NYSE). There are currently forty employees working at the company. XYZ was approved for a loan and line of credit from Western Bank. Western Bank is requiring that XYZ’s financial statements must be audited. You are responsible for preparing the financial reports for XYZ and must decide on the GAAP used to prepare the financial reports. Required: Please provide brief answers to the following questions on the word document provided and upload your assignment to the Group Drop Box in Blackboard. You must use full sentences for your answers, not point form. As this is a group assignment you will only submit one document per group.

1. What are the GAAP options available to XYZ for preparing their financial reports? 2. Which GAAP would you recommend that XYZ use and why? 3. What is the main responsibility of XYZ’s auditors in relation to the financial reports? 4. Who are the main stakeholders of XYZ Company at the present time?

Answer 1

1)Financial statements need to reflect certain basic features they are :fair precentation, going concern, accrual basis, materiality, and aggregation and no offsetting.Financial statements must be prepared at least annually,must include comparative information from the previous period and must be consistent.

principle of utmost good faith:The accounts must be prepared by true and fair means and all involving parties are assumed to be acting honrstly.

principle of prudence:Speculation should not influence the reporting of financial data.Epected losses can be anticipated but no gains should be.

Principle of continuity:All the asset valuation should be made in an assumption that the organisations operations will continue.and may not end in near future that is the business will be a going concern.

Principle of non compensation:All aspects of an organisation "s performance ,whether positive or negative ,are fully reported with no prospect of debt compensation.

2)The XYZ entity should use the principle of continuity.The organisation is a going concern and the assets should be valued in such a way that the organisation continues to go on with its operations and does not cease to exist in the near future.

3)GAAP is only a set standerd .Although these principles work to improve the transparency in financial statements,they do not provide any guarentee that the company's financial statements are free from errors or omissions that are intended to mislead inveators.There is plenty of room within GAAP for unscrupulous accountants to distort figures .So ,even when a company uses GAAP ,you still need to scrutinize its financial statements.The auditor should be unbiased and the audited financial reports are relied by both internal and external users thus those reports must be prepared in a true and fair view.

4)The major stakeholders of the compant are as follows:

FUNDERS/OWNERS: The owners are one of the most interested party in the working of the firm ,They have a pecuiliary interest in the efficient working of the firm.Future profits and expansion of the business are prioritized goals of owners .

Employees: The employees are the backbone of a business they contribute a lot for the development and well functioning of the business .They support the business and in return expect benefits and increased payouts .They cooperate with the business by not resorting to strikes and lockouts.

Customers: Customers are the stakeholders of a business as the need quality products and may have substancial interest in the company if the services or products are satisfactory.

Creditors:Creditors are interested in the functioning of the business as the debts will be paid off only if the business is financially sound and have enough resources to repay the creditors.