Finance Assignment Help Examples: Reasons of Financial Reporting Failure

The recent financial reporting failures that have come to the foreground are due to the following factors. The write-up discusses why such failures took place and also gives examples for the same.

Inaccurate accounting

Financial reporting failures begin with inaccurate reporting at the preparation level itself. Be it deliberate or unknowing, the firms’ failure to prepare financial statements accurately is putting stability and future of the financial world in jeopardy (Bhattacharya, 2006). As per our finance assignment help online experts , after the analysis of the financial statements of 49 law companies belonging to the UK market has revealed that 20 percent of these companies have such accounting policies that conflict with the treatment of figures in the profit and loss account and balance sheet, while a further 10% are unclear because of inadequate narratives, according to a new report released on 22 November 2010 (Grant Thornton, 2010). Such a poor level of reporting has potential effect on banking relationships and funding opportunities of the subject companies.

Lack of internal controls

Lack of internal controls has had severely negative effect on financial reporting levels in the recent past. A glaring example of this is the 10-K filed by Costco Wholesale in Oct 16, 2009, where it clearly accepts that fact that it was due to their failure of internal controls over the way financial reporting took place, otherwise they could have reported accurate reports in timely manner as per the analysis done by our Financial Management Assignment Help team. Internal controls over financial reporting includes maintaining records in reasonable details to reflect each transaction fairly, providing reasonable assurance to the user of records that receipts and expenditures of assets  have been made in accordance with the authorization of the management and that the usage of or the disposal of any assets would be made or has been made in such a manner that any related transactions that could have material effect on the financial statements would be made with utmost care and any wrongful use and disposition would be detected and avoided in the timely manner.

Companies themselves admit that internal controls are inherently limited and thus cannot provide absolute assurance that any misstatements can be ruled out and any such inability would necessarily lead to financial reporting failure (Botzem, 2012).

Fudging of accounts

Deliberate fudging of accounts, as in case of Satyam Technologies, a giant Indian IT company, is a renowned case of financial reporting failure of recent times and also one of the most analyzed work by our corporate finance assignment help team. On January 2009, the CEO of the public company, Mr Ramalinga Raju, confessed to the shareholder, serious frauds committed in accounts and revealed that it added upto Rs 7800 crore (Papadopoulos, 2011).  He revealed in his letter that his attempt to buy Maytas companies was his last attempt to “fill fictitious assets with real ones”. He admitted in his letter, “It was like riding a tiger without knowing how to get off without being eaten”. Satyam’s promoters, two brothers B Ramalinga Raju and B Rama Raju were arrested by the State of Andhra Pradesh police and the Central government took control of the tainted company. The brothers were then booked for breach of trust, cheating, criminal conspiracy and forgery under the Indian Penal Code (Steve, 2010).

Lack of external audits

Lack of external audits was also confessed by PWC pr Price Waterhouse Coopers. The company admitted that the audit report is submitted was wrong and that it was based on wrong financial statements provided by the management at Satyam (Steve, 2010). In 2009, the Chief Financial Officer of Satyam also confessed that he had fudged the number of employees and showed an increase of 10, 000, which, the external auditors also confessed to. Such a confession by a reputed external auditor indicates a widespread lack of ethics in external audit industry. You can get more ideas about this from our expert of auditing assignment help team. (Margarida & Faustino, 2008).

Financial reporting failures have left a mark on the face of the financial industry for centuries to come, corporate governance, a subject unheard of, just few years back, has come to the forefront of study and analysis just due to lack of proper financial reporting (Oppermann, 2009).

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Taxation Homework Help Examples: Grace GIFT Tax Analysis

Case Analysis

 

The case is regarding whether the 51% share given by Grace to her family members should be termed as Gift or not. Before analyzing case let’s first understand the term Gift in terminology of IRS.

What is GIFT Tax?

 

The giving of gift, either financial or property based, from one individual to other is termed as “gift tax”. As per our taxation homework help experts it implies the taxation imposed by IRS on gifts. The type of transactions between two individuals in which one sells an item or property to another person at a rate less than the assessed value of that item or property then such transactions are also liable to the same taxation.

Gift Tax Law- Florida State

 

In Florida gift tax is applied but importantly it is to be noted that generally this gift tax law is not specific to a particular state- the institute which sets the gift tax rules, that is IRS, is federal or central and these rules are applied in the entire US which includes Florida also. In Florida State, these gift and death taxes are not imposed on most of the gifts of value. Also there are no separate laws of state to be imposed on gift.

Whenever there is some property transfer the tax that the parties are liable to pay is equal to or is less than that amount which is imposed by the central government as per the analysis done by our experts from taxation assignment help from Florida states. In most of the states and in Florida, it is known as “pick-up tax”. Florida State has a pick-up system according to which the estate tax is not considered due unless or until the estate under consideration is not required by any law to file any kind of federal tax return. The information on this subject is contained in detail in IRS document which was referred to earlier, Publication 950. Hence, Grace will not be liable under any Tax as per Florida state but we will have to consider the US IRS law also pertaining to Gift tax.

Gift Tax- Analysis as per IRS terms

 

According to the United States Internal Revenue Service, a gift is defined as “Any direct or indirect transfer from one individual to other in which full consideration, which can be either of money or money’s worth, is not received in return.  A taxable gift can be made in the form of cash, stocks, real estate, or any physical or intangible property as per our US taxation assignment help service department.. In all these cases the tax is usually imposed on the donor, that is the one giving the gift, unless the interest is retained because of which the completion of gift is delayed. Hence as per IRS, Grace should be liable for Gift tax. Let’s further analyze the nature of transfer:-

There are two cases of transfer of gift. First case is when the donor, giving the gift, receives nothing in exchange for the given property, then such a case of transfer is known as “completely gratuitous”. Else the other case is when the donor receives some value back in return for the exchange but the value of the property received by the donor in return is substantially less than the value of the property given by the donor. Such a transfer is known as “gratuitous in part”. In the latter case, the difference is the amount of gift involved in the transfer. Chapter 12, Subtitle B of the Internal Revenue Code governs the gift tax in United States. Section 2501 of the code deals with the tax imposed. Hence, in this case the gift comes under first category.

Courts have defined gift in a different manner for the purpose of taxable income which is like this “gifts are the proceeds from a detached and disinterested generosity”. Gifts are given often for many reasons. It can be out of praise, admiration, affection, respect, charity or like impulses. In this case also it is given as act of gratitude. However,in general case, gifts are those gifts in which the interest in the property involved is transferred during the lifetime of the giver itself. Such a gift or transfers are not subjected to estate tax.

Congress modified the gift and estate taxes in 1976. This modification limited the ability of the giver to escape from the estate tax by giving the gift during his or her lifetime. Inspite of all this, there are still differences retained between estate and gift taxes. These differences include effective tax rate, the credit amount available against the tax and the basis of received property. However, none of them are applicable in this case.

In general following types of gifts are not subjected to taxes:

  • Those gifts whose monetary value does not exceed the annual exclusion of the calendar year. For the year 2015 this exclusion was $14000 per recipient for any one donor.
  • Gifts that are given to different political organization for their certain applications.
  • Gifts that are given for charity.
  • Gifts given to their spouse provided the donor be a US citizen.
  • All kinds of Tuition or Medical expenses paid directly to a medical or educational institution for someone, provided the donor has to pay the expenses directly. But the same payment is made through a check written by the donor to the donee and then donee pays the expense then such a gift may be subjected to tax.

Conclusion

 

In this case the grace allocation of 51% doesn’t come under any of the eligible exemption. Hence, she is liable for Gift Tax. However she can avoid the tax if:-

  1. First those gifts whose value is up to the annual exclusion, which was $14,000 per recipient in 2015, are free from taxes and also have no filing requirement. For using this married couples can split the gifts into two thus they can resist tax paying for twice this value of annual exclusion. It is to be noted that each pair of giver and receiver have their own unique value of annual exclusion; the giver can give gifts to numerous number of receivers. Also the exclusion is independent of the other gifts that the recipient may have received from other donors.
  2. Second are those type of gifts that fall under the category of value more than the annual exclusion. These type of gifts can also be tax free if their value is up to the lifetime estate basic exclusion amount, which was $5,340,000 in 2014 and $5,430,000 in 2015. The gifts can also be over this amount which can increase the estate taxes. Sometimes the taxpayers expecting to have a taxable estate, instead of saving the taxes as part of estate, rather prefer to pay the gift taxes as they occur.

 

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