[회계] 제록스의 외부압력 회계감사 사례(영문)

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레포트 > 경제경영계열
2010.02.11
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[회계] 제록스의 외부압력 회계감사 사례(영문)에 대한 자료입니다.

I. Introduction & Case Analysis
II. Answers to Questions
1.According to the article, Xerox increased sales by recognizing rentals as equipment sales. Why does this increase revenue in the current period?
2.By recognizing rentals as equipment sales in the current period, does this increase or decrease Xerox’s sales revenue in the future period?
3.What are “exposed receivables?”
4.What is the journal entry needed to estimate and recognize the uncollectibility of some accounts receivables?
5.When Xerox posted the entry in “3)” for some of its subsidiaries in Mexico and throughout Latin America, what was its effect on Xerox’s assets? Net income?
6.If you were a Xerox investor or creditor, would you be concerned about these faulty accounting practices, even if they occurred outside the United States? Why?
7.What should Xerox do to regain the confidence of investors?
8.Would you invest these kinds of companies in the future? Under what conditions would you invest in a company that has used problematic accounting methods?
9.Explain the role of auditing in preventing this kind of situation.
III. Conclusion

본문내용

2. By recognizing rentals as equipment sales in the current period, does this increase or decrease Xerox’s sales revenue in the future period?
Since such creative accounting is basically moving up future revenue boost current revenue, Xerox’s revenue in future periods is expected to decrease. If dealt properly, Xerox would have recorded revenue by $10 each month However, if Xerox records it in the first period at once as sales, it would not have any revenue to record in the later months of the contract because by that entry, Xerox does not own that equipment any more as its lease asset nor does provide any goods or services with it. However, in reality, Xerox is providing rental services each month. These manipulations had the effect of accelerating Xerox's recognition of revenue at the expense of future periods

3. What are “exposed receivables?”
Exposed receivables are account receivables that have become uncollectible. Since Xerox has been recognizing rentals as sales, trying to pump up the short-term sales revenue, the total amount of rentals that was supposed to be received during the contract period has been recognized as account receivables at once. If Xerox managed to receive the total amount of rental-fees during the contract period, the account receivables would have been fully collected. However, if some contracts were not fulfilled and the rentals were stopped from being collected, then all the pre-recognized account receivables would have to turn into exposed receivables.
Some subsidiaries of Xerox throughout Latin America was found to have exposed receivables, and the reason for this could be because of these faulty accounting procedures for recognizing rentals as sales. One major problem that could be caused by excess of exposed receivables is that the company can face liquidity problems. A drop in account receivables implies a decrease in quick assets, and such decrease maybe critical for some companies that does not have enough financial resources to pay back the upcoming current liabilities. This is why Xerox announced that it has set aside reserves for these subsidiaries, in an attempt to alleviate the investors’ anxiety about the company’s liquidity.

4. What is the journal entry needed to estimate and recognize the uncollectibility of some accounts receivables?
When account receivable is recognized to be uncollectible, it means that this account should decrease its book value. Therefore, the contra-account, the allowance for bad debts or the provision for bad debts, should recognized as much as the uncollectible account receivables.
There are two methods that are used to estimate bad debts: the percentage of credit sales method and the percentage of account receivables method. The first method estimates the amount of bad debts during the period as a certain percentage of credit sales, and the second one estimates by targeting the ending balance of bad debts as a certain percentage of total account receivables. By these estimations, the amount of bad debts during the period is determined, and this value is adjusted at the end of the period to a bad debt expense.

5. When Xerox posted the entry in “3)” for some of its subsidiaries in Mexico and throughout Latin America, what was its effect on Xerox’s assets? Net income?
When Xerox posted the journal entry for “exposed receivables” after they have admitted it, it would have meant a decrease in the book value of account receivables. Because a portion of account receivables have turned uncollectible, the contra-account, the allowances for bad debts, should be debited as the account receivables are credited. The total asset value would decrease in consequence of performing this entry. Since the book value of account receivables is diminished as the allowance for bad debt is recognized, the bad debt expense account will have to be debited in order to credit the allowance, which would result in decreasing revenues. A decrease in revenues leads to a decrease in net income.
If investigators have not found the “exposed receivables” of Xerox, then Xerox would have kept the exposed receivables as ordinary receivables. Since they are incorrectly acknowledging more account receivables than the actual amount of account receivables that they should, their shareholder’s equity became higher (due to an increase in net income), and thus the debt-to-equity ratio as well as the liquidity ratios of the company improved. These, in consequence, provide inaccurate information to the

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