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Celeste plants to prepare minimal note disclosure

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Celeste limited is a private company, incorporated 20 years ago under federal legislation, was audited for the first time in he year ended December 31 2013, by an auditor who issued a qualified audit opinion on the basis Celeste did not record depreciation. During the current year the vp-finance had indicated that the company wished to have an unqualified audit opinion for the year ended December 31 2014 as he anticipates that the company will go public in the near future. Management believed that a pattern of smooth earnings will be the most attractive to potential shareholders.;The vp-finance has provided you, an accountant who works in Celeste finance department a list of contentious accounting issues facings he company.;Required write a report to the vp-finance that addresses the contentious accounting issues. Provide support for your recommendations;1. Celeste has not recorded depreciation on its capital assets. The presidents's feelings about this subject were noted in last years report to the shareholders as follows "our capital assets are increasing in value, not decreasing. In my opinion, the recording of a fictitious expense like depreciation makes our financial statements unreliable band less useful to investors and creditors;2.during 2014' Celeste was sued by a customer who incorporated one of Celeste's components in a manufactured product that were subsequently returned by its customers due to the failure of the Celeste component. Celeste refute this claim. The amount in dispute is $250,000. Correspondence indicate that a settlement of $100,000 would be acceptable to the customer, Celeste has not agreed to this. Court proceedings will commence late in 2015. The claim has not been recorded in Celeste books;3. Celeste included expenditures of approximately $400,000 related to refining an existing product, which is now expected to have a significantly longer life thus increased as sales. Celeste plans to defer this cost and amortize it over a period of 10 years. The product life cycle has rarely been longer than 5 years in this line, but management Is optimistic in this particular case that the product will have a sales life of 10 years;4.during the year, Celeste sold a building at a gain of $200,000. The $1.4 million sales price has been included in sales, which the$1.2 million net book value has been included in cost of goods sold.;5. Celeste plants to prepare minimal note disclosure, as has been its practice in the past to reduce the time and effort that the accounting staff have to demote to preparation of the annual report

 

Paper#25746 | Written in 18-Jul-2015

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