Question

List one use of additional capital. Explain the benefit in one paragraph.

Many changes in reporting standards have been enacted as a result of financial scandals. Identify one specific change in reporting standards or requirements and explain why this is important.  Identify the change by the title of the act or section number.  

NOTE: The Sarbanes-Oxley Act is the most frequently mentioned changed. It contains many individual provisions. Break it down to one provision that has not been mentioned by a classmate. There are a number of more recent changes to select from as well.

Answer 1

a) List the use of additional capital. Explain the benefit in one paragraph.

sol:- Capital Addition is nothing but the cost involved in improving existing asset or adding new asset within the business. It may be in the form of adding new features or parts that are expected to increase the expected and useful life of the asset or simply adding new asset in increase productivity and capacity. kindly note that repairs of the asset or the capital will be considered as merely maintenance but not capital addition. Capital addition enlarges a company or firm's fixed asset base, whereas any other expenditure would be considered as maintenance expense and would be charged that way on balance sheet. Although Capital addition is mostly used in the accounting context as discussed above but it can be used n different ways also. For example, capital addition may refer to capital investment in long term asset within the company. In banking addition capital means capital infusion in the bank to maintain the minimum regulatory capital or increase their asset base.

B )Many changes in reporting standard have been enacted as a result of financial scandals. Identify one specific change in reporting standards or requirements and explain why this is important. Identify the change by the title of the act or section number.

Sol:- It is true that government have introduced many financial reporting scandal to counter the financial manipulation the managers to present a rosy picture in front of the investors. One such change in reporting standard I feel important enough to mention here is that now companies have to report lease in their balance sheet. FASB (Financial Accounting Standard Board) issued a final rule that changes how companies account for most of their leases.

It is important because leases can considered as loans, Companies had long been permitted to exclude the lease from their balance sheet. It made investors not very confident about the company financial to make their accurate picture about the company's health. According to NYtimes, "this change could add $1 trillion of obligation to the liability side of the balance sheet of public companies trading in the united states."

The change in lease standard by FASB is Lease(Topic) Section B- Confirming amendments related to lease: Amendments to the FASB Accounting Standard Codification.

The Sarbanes-Oxley Act was enacted on 30 july 2002 by president Bush. It was designed to oversee the financial reporting landscape for financial professionals. The issues covered by this act are as follows:-

• establishing a public company accounting oversight board
• auditors independence
• corporate responsibility
• enhanced financial disclosure

It also significantly tighten the accountability for directors and officers, auditors, security analysts and legal counsel. Major provision of the Sarbanes-Oxley acts are:-

• Section 302 of SOX act, 2002 :- It made compulsory that senior corporate officer personally certify in writing that company's financial statement comply with SEC disclosure requirements and fairly present in all material aspect the operations and financial condition of the issuer.
• Section 404 of sox act,2002:- Management and auditors will establish internal control and reporting method to ensure adequacy of controls.
• Section 802 of SOX act,2002:- Contains three rules of record keeping. First deals with destruction and falsification of records. second deals with retention period of storing record. third deals with specific business record that a company needs to store, it includes electronic communication also.