Kieso Case Solutions, 15edition

Chapter 1

Memorandum

To: Eric Conner and Phil Martin, CM Corporation

From: L. Harbach

Re: SEC Regulations and FASB Standards for Non-Public Companies

Date: January 2, 2013

(a) As a non-public company, CM Corporation is not subject to SEC regulations. The SEC has jurisdiction only over public companies whose stock is traded on a U.S. national exchange.

(b) Although CM Corporation is not required to have a formal audit that is required of companies registered with the SEC, an audit is a valuable service. An independent auditor’s verification of a non-public company’s financial statements provides various external users with credible evidence related to the company’s financial position and results of operations. External users of this information may include lenders and suppliers/vendors who may negotiate sales or credit terms based on the information presented in the financial statements. Audited financial statements provide these users with information to assess whether a company is creditworthy.

Non-public companies are not required to prepare their financials in accordance with GAAP. However, financial statements prepared in accordance with GAAP provide external users the ability to more confidently interpret and compare the financial position of a company. The use of GAAP also assists management in preparing forecasts and analyzing the company’s financial position and results of operations.

If CMC is considering listing securities on a national stock exchange in the future, the company might benefit from preparing its financial statements in accordance with GAAP and having those statements audited. These steps would ease CMC’s transition to public company status, since registering securities with the SEC requires audited comparative financial statements.

Chapter 2

Memorandum

To: Eric Conner and Phil Martin, CM Corporation

From: L. Harbach

Re: Elements of FASB Conceptual Framework

Date: January 4, 2013

(a) The objective of...