Question

Your elder brother Kazim has been hired as CFO in Sohar Power Company SAOG. Sohar Power
company SAOG owns and operates the largest power generation and water desalination plant in
the Sultanate. Sohar Power is incorporated in 2004. Since then, the company has built and owns
the 585 MW electricity generation and 33 MIGD seawater desalination plant. Sohar Power has a
history of research and development in the field of power generation and water purification. It has
a long established policy for the treatment of expenditure on research and development, on which
it spends huge amount annually.
Recently, Kazim becomes aware that an investment of OMR 100,000 which was made last year
for research and development programme, has not been properly evaluated. Although in aggregate
OMR 1 million has been spent, but Kazim thinks that the criteria for the investment was not fair
and clear. The director for the research committee did not assess properly and the output of the
investment was poor. Kazim enquires Mr. Abid, the director of research committee to justify the
investment. Abid replies by saying that they will satisfy the auditors in any way.
However, the financial year end is only two months away and OMR 1 million in write-off at this
late stage in the financial year would cause Kazim and his team in difficulties. The company has
to finalize the year-end report. Kazim called the meeting of directors and discussed the issue.
During the meeting they have serious reservations on research committee. One of the directors
suggested that this amount will be considered as an asset and it will be presented on the financial
statement for this year and it would be write off in the next financial year.
a. In your opinion, what decisions will be taken by Kazim to satisfy the auditors and board of
directors of the company? How this transaction would be reflected on financial statement of Sohar
Power?
b. Abid, working on a high position in a company thinks that auditors can be satisfied in an
unethical manner. How could such an unethical behavior be a learning experience for the rest of
the employees? In your opinion, who is to be blamed for this incident in Sohar Power and why?

Answer 1

solution:-

given data about the "sohar power" company SAOG.

a)

let us think about GAAP (sound accounting standard) with IFRS(international money related detailing standards)under IFRS rules. inquire about spending is treated as a cost every year similarly likewise with GAAP.

• though advancement cost can be promoted if the conpany i.e "Sohar Power" can demonstrate that the advantages being developed will turn out to be economically practical.
• the advantage of IFRS approach is that probably some innovative work cost can be benefited from the company ballance sheet as opposed to being caused as a costs on the announcement of benefit and misfortune ( P&L)
• Research and improvement in OMR is a drawn out speculation for Sohar Power may bring about numerous long periods of income, Thus theoratically ought to be promoted as a benefits, not expensed.
• Form a financial point of view it appears to be sensible that innovative work expenses ought to be promoted despite the fact that its hazy how much future advantage they will make.
• in our case "Sohar Power Company SAOG" can assess its ecnomic life and utilize that as a supposition for the amortigation time frame.

For Example-If the benefit is given a business Life of 7 Years. at that point the R&D costs in every one of those 7 years must be obtained.So, the opinion of one of the course is supported and kazim can fulfill the auditers and boad. with above clarification and models.

b)

• No, auditors can not be fulfilled in an unethical way. Abid isn't right and his expectation were as well.
• This kind of practices which can prompt troublesome circumstance for "Sohar power Co. unethical practices are considered as misepresentation of data and realities and can pull in punishment and corrective arrangement additionally for the SOAG.
• Unethical acts of miss driving data can profit in the short run yet for the drawn out development and sucess it ought to be maintained a strategic distance from, and if not they were found over the long haul.
• For the remainder of employees this circumstance might possibly unfavorably affect this trest toward SOAG. since No employees need to work in an unethical association where ethical practices ethically, code of behaviors are maintained a strategic distance from.
• So these tyoe of practices ought to be rebuffed and dispensed with to make worth and advantage and trust for different employees
• in my opinion Kazim more established sibling is answerable for this R&D costs the explanation could be different yet in the event that Sohar power has a past filled with R&D than how it turns out badly. at the point when it has a since quite a while ago settled arrangement.
• May be Kazim senior sibling isn't capable each R&D will make estimation of produce income is noe important the sucess of Research and advancement will rely upon may factors. there may be a circumstance of win-win or misfortune.

I hope it helps you

please thumn up

Thank You _/\_