EPS accuracy 4 Essay

Submitted By kazmania123
Words: 832
Pages: 4

Role: Controller
A.
Adjust Reserve for Losses
As the controller of the company I would adjust the reserve for losses based on the historical flexibility allowed in this line item. Management has been responsible for setting the reserve balance and if adjustments are justifiable and reasonable the corrections should be made. If this balance was historically adjusted to adapt to the new operating environment, the reserve should continue to be adjusted as the firm continues to operate
Use of Longer Depreciable Lives
Extending the life of the depreciated asset would be beneficial to the financial statements and would provide better information to investors. Providing more accurate deprecation rates to account for the economic useful life of the asset is more important that decreasing net income for the tax benefits. It is more ethical to accurately portray the deprecation of the asset to match the revenue generating portion of the assets life.
Adoption of Straight-Line Depreciation
While this may be a change from historical accounting practices for the firm, it may be one of the costs of going public. When the competition has predictable stable depreciation rates, it makes it easier for analysts to understand and project financial statements on a forward looking basis. This would provide Hutchins Clothiers Inc. the opportunity to be compared with industry peers on a standardized basis and without the accounting bias that may have deflated the earnings numbers for Hutchins. However, it would be of importance to the investors to have the accounting change disclosed.
Increase Expected Return on Pension Plan Assets
I would not increase the eps based on earnings projections on accretion of pension plan assets. This is not a part of the daily operations of the company and to have such a large increase in EPS based on expected returns is a violation of management’s commitment to provide accurate information. This would falsely portray the firm to have a better quarter without any true numbers to facilitate sustainable growth. It would also force management to continue with the projected returns for years to come otherwise forcing a drop in EPS in subsequent quarters.
Deferral of Maintenance
The deferral of maintenance would be an action that I support in the move to going public. This maintenance cost does not drastically change the operations of the company as it is part of it. While the maintenance was originally scheduled for Q4 of 2013, the majority of the benefits from maintenance would most likely be enjoyed throughout the operating period of 2014. Additionally, if the deferral of 1 month of maintenance does not have a material effect on the operating ability of the company there is no reason why we would not be able to wait until 2014. It is important to match the expenses to the period where the benefits are to be derived
Deferral of Advertising
The delay in advertising coincides with very similar mentality of differing the maintenance costs. The majority of the benefits are to be derived in 2014 and through the matching principle, expenses should be tied to the period in which revenues are generated. This provides an accurate depiction of the margins as well as providing accurate and improved EPS for 2013. However, this advertising campaign should be mentioned in the notes to financial statements or in the management’s discussion and analysis. This is…