Gaap Rules

Running Head: GAAP RULES

GAAP Rules

Jeffrey A. Baker

Strayer University

ACC-499 Undergraduate Accounting Capstone

Professor Calvin Thomas

December 9, 2012

GAAP Rules

Introduction

Management and accountants of an organization have liability to perform their duties with utmost good faith and apply due care and diligence. Any inconsistency or breach of the set standards by these parties will attract disciplinary action either from the profession regulating body, the organization or even from a court of law depending on the impact of the fraudulent activity on the organization.

This paper will try to explore and address fraudulent activities that I have noticed in my recent audit in an organization based on GAAP rules and regulations hence, to determine whether they amount to irregularities; to explore my opinion, as a body of FASB, if these rules and regulations are sufficient to minimize these irregularities; explain the consequences of these irregularities and give recommendations to prevent them from occurring in the future; and recommend internal controls that will stop and prevent these frauds from occurring again in the future. These fraudulent activities include the following:

i. Leases on technology assets seem inflated.

ii. Understatement of e-commerce state tax payments.

iii. Fictitious employees receiving post-employment benefits.

iv. Hiding cash in order to help in the future quarters where earnings do not meet analyst’s expectations.

v. Concealing inventory shrinkage because it seems low for the industry.

GAAP rules affecting the irregularities

a) Prudence Principle

This rule requires that the value of assets and revenue should be recorded at the least realizable value while expenses and purchases should be recorded as the maximum expected value when preparing financial statements. If these...