Question One
The basic accounting research question that Adenosine Therapeutics needs to answer is the appropriate accounting method for salary increases. On this note, it is important to note that the organization does not incur the expenses of salary rises until it reaches a given milestone. Therefore, it is not allowed to account the salary increment as an expense because this would mean that the company would be exempted from taxes for expenses that have not been incurred. Therefore, the company has three alternatives. One of the alternatives is not expensing the salary raises until the organization starts paying the new salary rates. However, this alternative will need the company to expense the accrued salaries paid in bulk at the achievement of the targeted milestone. The other alternative is applying probability on weighing the unpaid salaries and expensing the expected value. In addition, the firm has the option of documenting monthly expenses and its inabilities to pay the accrued salaries over the projected timeframe. The research question requires the CFO to evaluate the three alternatives and come up with one that is supported by the accounting standards. Furthermore, the chosen alternative should reflect on ethical reporting principles that the firm must adhere to as stipulated by various regulatory bodies. On this note, honesty is paramount in the decision-making process.
Question Two
AT is based in the United States and therefore it must consider the applicable standards in the country. In addition, the firm should ensure that all its decisions are based on the ethical and moral aspect of accounting principles. On this note, it is imperative to note that the country uses generally accepted accounting principles (GAAP) as a guidelines for accounting processes. The GAAP provides a set of rules that include legalities, complexities, and details of corporate accounting. Tersely, the Financial Accounting Standards Board (FASB) applies GAAP as the fundamental guideline because it is comprehensive and includes pertinent rules regarding accounting practices and methods.
Delegate your assignment to our experts and they will do the rest.
On this note, a number of standards the organization should consider are highlighted in the country’s accounting methods. One of the standards that must be considered is regularity, which states that accountants should strictly adhere to the rules and regulations instituted by the regulatory agencies. In addition, it imperative for the organization to ensure that the principle of sincerity is crucial because GAAP requires that the reporting should be accurate and impartial and does not favor any party. In addition, the utmost good faith indicates is essential in ascertaining that the firm is acting honestly (Bloom & Kamm, 2014). Periodicity is also crucial for AT primarily because the accrued salaries are subject to be reported when they are expensed and therefore should be within the standard accounting periods like fiscal years and quarters.
Question Three
The best approach for AT is not expensing the salary raises until they are paid. On this note, it is imperative to note that the organization will not need to expense the accrued salaries primarily because it is not incurring the cost at the time of reporting. Therefore, accounting for the expenses will be unethical because it will not be truthful in its reporting. Furthermore, due to the principle of periodicity, expensing the accrued salaries will imply that the organization will not have adhered to the GAAP guidelines of reporting (Laux & Stocken, 2018). On this note, the company should refrain from adding the accruing salaries on its expenses account.
On the other hand, the company should ensure that it expenses the bulk payments that the employees will receive after the milestones has been achieved. On this note, it is imperative to note that the firm will incur considerable expenses that must be deducted from the taxable income. In this regard, the firm will ensure that it does not have to pay additional taxes because the increased expenses related to the compensation method will have negatively affected its income.
Question Four
The rationale for not expensing the accrued salaries before they have been paid is that the organization has to comply with some of the requirements of GAAP. On this regard, the principle of regularity is crucial in ascertaining that AT’s accountants and auditors must observe to the institutes regulations and rules. On this note, it is considered illegal to expense some costs that have not been incurred by the organization (Prather-Kinsey, Boyar, & Hood, 2018). Therefore, since the firm has not yet incurred the losses, it is imperative for the organization to desist from expensing the additional salaries that are to be paid after the company achieves the projected milestone.
In addition, the organization should be guided by the principle of sincerity. On this note, there is a need for the organization to impartial in its reporting. For the purpose of the employees’ tax return, highlighting the fact that they have been paid while they have not means that they will be taxed for an income that they did not earn. Succinctly, this can lead to a poor relationship between the organization and the employees because it is unfair to the workforce to pay taxes for income that they have not earned.
References
Bloom, R., & Kamm, J. (2014). Revenue recognition: how we got here and where it will take us. Financial Executive , 30 (3), 48-53.
Laux, V., & Stocken, P. C. (2018). Accounting standards, regulatory enforcement, and innovation. Journal of Accounting and Economics , 65 (2-3), 221-236.
Prather-Kinsey, J., Boyar, S., & Hood, A. C. (2018). Implications for IFRS principles-based and US GAAP rules-based applications: Are accountants’ decisions affected by work location and core self-evaluations?. Journal of International Accounting, Auditing and Taxation , 32 , 61-69.
