Course Project

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CUNY Queens College *

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101

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Accounting

Date

Nov 24, 2024

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docx

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Uploaded by KidHeron3168

Kevin Rosas Course Project Question 1 :The personnel of Arthur Anderson were in accounting. They had a duty to adhere to GAAP. They failed to perform what they were required to do, which was to carry out their accounting responsibilities, which constituted a violation of the expected norms of integrity, trustworthiness, and objectivity. They violated GAAP by failing to follow them by failing to inform management of the problem with the inadequate profits and losses of the company. They violated the rules of integrity by trashing documents related to Enron's audit in order to conceal evidence. Question 2 : The additional regulations that followed the Enron scandal are sufficient. To limit the potential for accounting scams like the Enron case, it was established. The SOX strives to control publicly traded corporations and enhance the transparency and accountability of their financial data. In the interest of the public, it is essential. Such legislation makes sure that businesses must follow internal controls, and any non-compliance will subject them to criminal prosecution. Question 3 : In order to safeguard investors from the potential for fraudulent accounting practices by firms, the Sarbanes-Oxley Act of 2002 (SOX) was approved by the US Congress in 2002. To enhance corporate financial transparency and stop accounting fraud, it imposes stringent reforms. Section 302 and Section 404 are the Sarbanes-Oxley Act's two most important sections. Senior management must certify the veracity of the reported financial statement in accordance with Section 302. Furthermore, Section 404 mandates that management and auditors implement internal controls and ensure their effectiveness, as well as provide reports on those effectiveness. Setting up and maintaining the internal controls that are necessary for publicly traded corporations is expensive.Additionally, the SOX stipulates extra conditions for an IT department for electronic records. The three regulations that impact record keeping are outlined in Section 802 of the Sarbanes-Oxley Act of 2002. The first rule addresses the loss and falsification of records, the second specifies the time frame for keeping records, and the third specifies the particular kinds of business records that must be kept, including electronic communications. In this aspect, The SOX Act specifies which corporate records must be kept on file and for how long, rather than outlining a set of business practices. Question 4: Liquidity: Current Ratio: Year 1999 = 1.07 Year 2000 = 1.07 For the corporation, the current ratio has stayed essentially constant.

Accounts Receivable Turnover: Year 1999 = 15.76 times Year 2000 = 15.01 times Although the ratio has somewhat decreased, the performance may still be considered under control. Solvency: Debt to assets ratio: Year 1999 = 0.42 Year 2000 = 0.56 The corporation should take precautions to prevent additional growth and maintain the debt to assets ratio under control as it has dramatically expanded. Times interest earned: Year 1999 = 3.04 times Year 2000 = 2.96 times The company's interest coverage ratio performance has decreased. Profitability: Profit margin: Year 1999 = 2.23% Year 2000 = 0.97% There is serious concern about how much the profit margin has decreased. Earnings per share: Year 1999 = $1.17 Year 2000 =$1.22 Liquidity: Current Ratio:

Current ratio = Current Assets / Current Liabilities Year 1999: $7,255 / $6,759 = 1.07 Year 2000: $30,381 / $28,406 = 1.07 The current ratio reveals a company's ability to fulfill its immediate obligations. Though it varies from industry to industry, a current ratio measure of 1 is typically regarded as desirable. A current ratio below one implies risk and potential payment default, while one above one demonstrates adequate liquidity to cover current commitments with current assets. The company's current ratio suggests that it has enough liquidity. business indicates that business is well-positioned to settle its short-term debts as and when necessary. For both years, it is essentially the same. Accounts Receivable Turnover: Average Accounts Receivable = (Accounts Receivables at the beginning + Accounts Receivables at the end) / 2 Year 1999: ($2,060 + $3,030) / 2 = $5,090 / 2 = $2,545 Year 2000: ($3,030 + $10,396) / 2 = $13,426 / 2 = $6,713 Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable Year 1999: $40,112 / $2,545 = 15.76 times Year 2000: $100,789 / $6,713 = 15.01 times A company's ability to efficiently and rapidly collect debts due to it by its clients is shown by the accounts receivable turnover ratio. High efficiency is reflected in ratios that are higher, and vice versa. For the accounts receivable turnover ratio, there is no set ideal value. The business, however, might evaluate it in relation to industry norms or its prior performance. Poor credit policies or an ineffective collection strategy may be to blame for a low turnover rate for accounts receivable. By adopting a cautious strategy or providing discounts, it can be raised. Though it has decreased slightly, the company's accounts receivable turnover still appears to be adequate.

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Solvency: Debt to assets ratio: Total Debts = Short-term debts + Long-term debts Year 1999: $6,759 + $7,151 = $13,910 Year 2000: $28,406 + $8,550 = $ 36,956 Debt to assets ratio = Total Debts / Total Assets Year 1999: $13,910 / $33,381 = 0.42 Year 2000: $36,956 / $65,503 = 0.56 A debt to assets ratio indicates how much of the assets are financed by debt as opposed to equity. increased debt equals increased leverage and investment risk. Typically, a ratio less than 0.5 is regarded as favorable. The ratio can be compared by the business to industry norms. A ratio greater than one indicates heavy reliance on debt and a high risk of default. The company should continue to work to reduce its debt to assets ratio by lowering its reliance on debt and raising equity because it has increased from the previous year, which may prove to be problematic for investors. Times interest earned: Times interest earned = Earnings before interest and tax / Interest expense Year 1999: $1,995 / $656 = 3.04 times Year 2000: $2,482 / $838 = 2.96 times The operating income to tax burden ratio shows how many times the operating income is adequate to cover the tax liability. A larger ratio indicates a greater ability to pay and a lower likelihood of default, and vice versa. The company's interest coverage ratio has marginally decreased from the prior year, but it must take care to prevent further deterioration.

Profitability: Profit margin: Profit margin = (Net Income / Net Sales) * 100 Year 1999: ($893 / $40,112) * 100 = 2.23% Year 2000: ($979 / $100,789) * 100 = 0.97% When all costs have been subtracted from sales, a profit margin shows the relative income that has been created. As any business's primary goal is to maximize profits, the bigger the margin, the better. The company's profit margin is too low, and it fell too much in 2000. Since it is less than 1% and not even half of what it was the year before, the business must concentrate on its operations in an effort to cut costs and boost profitability. Earnings per share: Earnings per share = Earnings on Common stock / Weighted average number of shares Year 1999: $827 / 705 =$1.17 . Year 2000: $896 / 736 = $1.22 A measure that reveals how much each share of the available income for shareholders has made is called earnings per share. The better the position and the greater the market value of the shares, the higher the ratio. This is a good indicator because the earnings per share have improved compared to last year. This is a result of an absolute increase in profits, and the business should continue to work to boost profits and, in turn, earnings per share. Citation: The Sarbanes-Oxley Act explained: Definition, purpose, and provisions. (n.d.). CSO Online. https://www.csoonline.com/article/570121/the-sarbanes-oxley-act-explained-definition-purpose- and-provisions.html