Company A has only been in existence for two full years as a public company. Prior to this, it was a segment of large multinational and was spun off as stand alone, public company. It commenced its first year of operations as a public company on January 1, 20X1, and its fiscal year end is on December 31. Also, Company A acquired 100% of the stock of Company B at November 1 20X1 for $200M. Company B has a fiscal year that ends on October 31. At the acquisition date, Company B becomes a fully consolidated subsidiary of Company A.
Company A was issued a qualified audit opinion resulting in a material weakness, by it s external, independent auditors due to a litany of accounting problems as noted below. Company A, has engaged your firm, a CPA advisory firm, to help it navigate the process of evaluating its income statement and balance sheet.
You need to evaluate Company A’s financial statements and also determine whether to restate prospectively or retrospectively, if at all, and whether to use the Iron Curtain method or Rollover Method as provided by by the SEC. After your study and analysis, you write an accounting memo answering the following.
A. Does Company A need to restate its F/S? B. Define and discuss Iron Curtain vs. Rollover C. Define and discuss prospective vs. retrospective D. Which approach(es) should be used for error correction, if at all? E. Pick 4 of the items below and also No. 8 for a total of 5 items. Identify the errors, if any, and determine the correcting entries, as appropriate , that should be made at Dec. 31, 20X2 for Company A, under the recommended approaches in (2) above. Explain why you think an error exists. Where necessary, make any defensible, reasonable assumptions to apply your approach. If corrections are made, present entries for both the Income Statements and the Balance Sheets for each of the two year as appropriate. F. Cite authoritative literature and explain to the management of Company A what needs to be Anna to rnrrArt and nactata itc Fit if npreccan, and annrnnriate.
Attachments:
Acct memo.pdf