Question

VI. Communication: For this part of the assessment, you will prepare memorandums to upper management addressing certain scenarios or situations.

A. As the controller of Target Corporation, compose a memo to the CEO addressing the advantages and disadvantages of transitioning from GAAP to IFRS.

B. As the controller of Target Corporation, compose a memo to the CEO addressing the following scenario: Your biggest customer has just gone bankrupt, and you must inform the CEO how this will affect your accounts receivable. Assume that the accounts receivable balance is at least $100,000.

When writing your paper considers the following:

When discussing Accounts Receivable make sure you do consider whether Target Corporation uses the direct write-off method, or an allowance? How would handling this scenario be different based on the method used? What accounts would be affected based on the method used to account for bad debt?

Please do make sure you fully address each critical element with appropriate detail and that you defend your content in your paper with scholarly sources.

Support your arguments with at least three peer-reviewed sources cited in APA format

Answer 1

Part 1 - Advantages and Disadvantages of Converging from GAAP to IFRS

Target company follows GAAP. GAAP is followed in U.S.A. but Now IFRS language is used worldwide.

GAAP is more rule based Reporting language than IFRS.

Disadvantage -

1) One of the disadvantage is that IFRS does not allow the LIFO method of Inventort Valuation. It allows only FIFO, Average cost Method or Specific Identification Method.

Hence Companies following LIFO method would switch over to other method and resultantly it would effect the Taxable Income.

2) Financial Statements prepared under GAAP contain much more detailed Information.

3) since LIFO is not allowed in GAAP but LIFO track the earning potential since in it current revenue are matched with recent cost

Advantages

1) IFRS is not Rule based reporting language which gives much more flexibility in analysing and Interpretation and giving Much more valuable judgements.

2) IFRS does not follow specific format for presentation of financial statements but contain the minimal requirement guidelines which in turn allows more interpretation in presentation of financial statements.

3) IFRS does not allow for any extraordinary item for more clarity

4) IFRS recognise revenue only when sale is actually made as per its revenue recognition concepts.

5) IFRS allow average cost method. This method is great for company receiving inventory in larger quantities

6) under GAAP, if impairment is recorded, it cant be updated for higher value but in IFRS if impairment is recorded it can ve updated as per requirement.

Part 2 - Memo to CEO

Dear abc,

CEO, Target Company

3 days before, i have received information from accounts department that our biggest customer is gone bankrupt.

As per further analysis of event, we informed that customer has filed the bankruptcy code in the court and there are currently no conditions that such amount can be recovered.

Hence i advise as the controller of the company to write off the amount of as 'allowance for bad debt' under allowance method of accounting.

We will even try send the letter to our customer regarding the payment but i have a strong belief that they would not be able to repay the amount. Hence it is appropriate to write off the amount as per allowance method.

This would not have any effect on our bottom line and allowance for doubtful account will be created with $100000 and accounts receivable will be reduced by $100000.