Determining the Accounting for Receivables from Officers and Directors Essay
Philadelphia Communications Inc. ( “Philly” ) is a public company that completed an initial public offering ( IPO ) a few months ago. John Sigar is the current CEO and member of the board of managers. He is the lone household member involved in the concern and owns important sum of the company’s stock. While. we were making audit proving for histories receivable we came across figure of Notes Receivable from several Mr Sigar’s cousins. They have taken progresss often but ne’er failed to pay when they came due. The notes are secured by portions of Philly’s exchangeable preferable stock. which were purchased by the household members following IPO.
The receivable support provided by the client doesn’t specify involvement payment footings for these notes. During our readying to prove histories receivable we reviewed the Financial Accounting Standards Board ( FASB ) Accounting Standards Codifications ( ASC ) and identified particular presentation and revelation demands for these kinds of receivables. We besides reviewed above described state of affairs from International Financial Reporting Standards’ ( IFRS ) point of view. When finding the accounting for receivables from officers and managers. particular intervention of these instances must be accorded.
The instance for Philly refers to related parties minutess. which would necessitate particular revelation in the fiscal studies. The receivables that is provided by Philadelphia Communications Inc. does non give specification refering both the footings of payment and the involvement payable on these notes. Testing for Accounts Receivable in Philly Case. Harmonizing to Financial Accounting Standards Board ( FASB ) codifications. there are a figure of codification mentions that are applicable to the Philly instance. One applicable mention is FASB ASC 850-10-50-1 on related party minutess.
The FASB codification 850 discusses the revelations that are required to be made refering related parties. This mention provides the legal and applicable definition of what related party dealing entails. This mention besides outlines the revelation that is required to be made. One of the revelations is the nature of the involved relationship. The description of the dealing including the dollar sums. period of dealing. sums due. and the due day of the month must be disclosed. Unwraping minutess in fiscal statements that were eliminated while fixing amalgamate fiscal statements is non compulsory.
FASB ASC 850-10-50-2 is another codification mention that is applicable to this instance. This mention discusses the notes and histories receivables. This is the principal and direct mention that relates to the Philly instance in inquiry. The notes and histories receivable mentioned under this codification mention are peculiar to the employees. officers or other entities that are affiliated to the company. For the instance of Philly. notes are transacted between Philadelphia Communications Inc. CEO and the cousins. FASB ASC 850-10-50-2 requires notes or histories receivable from related parties to be individually shown.
Any effects that arise from a alteration in method of finding the footings of dealing from the old period must be disclosed. It states that this dealing should non be included under notes and histories receivable general header. Philadelphia Communications Inc. October 19. 2013 Page 2 Another applicable mention is FASB ASC 850-10-15-2. This codification mention emphasiss on the demand that the guidelines on revelation for related parties is applicable to all entities. It does non count if it is a private entity or public company like in this instance.
The fiscal studies must supply revelation for the minutess. FASB ASC 850-10-50-5 discusses issue refering revelation of minutess that occur at an arm’s length base. This mention states that it can non be presumed that related parties’ dealing are undertaken on an arm’s length footing. This is because the market conditions that competitory and free might non be. This describes the relationship evident in the instance of Philly’s dealing with the CEO’s cousins. Any signifier of representations refering CEO’s cousins and Philadelphia Communications Inc.
does non intend that. the minutess were executed on footings applicable at arm’s length. It can merely be presumed so if and merely if the representations of the minutess can be substantiated. The company direction should provide more extra information refering the notes and receivable concerning related parties for farther elucidations. The direction should supply the names of the parties issued with the notes that are secured by exchangeable preferable stock purchased by household members. This is per the demand of FASB ASC 850-10-50-4.
The direction should besides supply information refering related parties minutess to assist in comparing of fiscal consequences with the yesteryear. The payments footings and the involvement accruing to such notes and receivables should be specified and provided by Philly. IFRSs Standpoint. The International Financial Reporting Standards ( IFRS ) besides recognises related party minutess. This is given as per the account under IFRS International Accounting Standards ( IAS ) 24. It describes a related party as affecting an entity that is to a great extent influenced by a individual transacting with a close household member.
The Member of the household transacting with the entity must hold important influence on the individual by the one holding ownership in the company. For this instance. the cousins have important influence on the CEO of the company therefore set uping a related party relationship. IFRS IAS 24 requires the house to do certain revelations. It requires that the entire sum involved. and the nature of the dealing be disclosed in the fiscal statements. The outstanding sums should besides be revealed saying the footings and all conditions associating securing and subsiding of the notes and receivables.
The revelations should besides include information sing the warrants made. The IFRS besides demands that any proviso made for dubious debts originating from this dealing should be disclosed. Conclusion The Philadelphia Communications Inc. in its operation. have related party minutess. These minutess involve the issue of notes to shut relations of the CEO of the company. The Financial Accounting Standards Board ( FASB ) requires that activities must be disclosed. The Philadelphia Communications Inc. October 19. 2013 Page 3
FASB has good explained the information that the direction should see when showing their fiscal statements. The direction should besides better its operations and supply further informations refering the parties they are regularly trading. Adoption of the FASB and IFRSs will guarantee that all fiscal statements are genuinely and reasonably presented. Mentions FASB. Related Party Disclosures. Retrieved from Accounting Standards Codification: hypertext transfer protocol: //asc. fasb. org IASB. Related party revelations. Retrieved from IFRS: hypertext transfer protocol: //www. ifrs. org