Capstone Research Project (5) Paper Example | Topics and Well Written Essays - 2000 words

Capstone Project (5) - Research Paper Example GAAP rule works in connection with SEC rules for public companies. GAAP rule emphasizes on covering financial statements presented in balance sheet for at least three years. GAAP need to work closely with SEC regulations in order to measure performance of companies. In accordance to GAAP guideline interim periods must be viewed as essential part of financial year. This guideline helps accountants to allocate cost elements for different financial period. GAAP also focuses on examining unscrupulous transactions in order to identify financial frauds. Although GAAP rules differ on the basis of accounting standards of different countries. Financial fraud is multi dimensional event in terms of variety of impact and nature of fraud. In many cases financial analysts of companies intentionally forecast inflated market capitalization value in order to fulfill dubious objective. Companies practicing unethical business tend to violate GAAP rules in order to gain personal objectives. Financial fr aud can impact various issues such as trade and sales, stock market valuation and investment banking contracts significantly. Many companies use street earning method to calculate earnings per share (EPS) while the method excludes important elements of accounting such as unusual items, extraordinary charges, Charges from mergers and depreciation (Ponzio, 2010, p. 32). Fraudulent companies change GAAP rules in accordance to their requirement in order to satisfy personal objective. Following section will try to explore relationship between GAAP rules and situation mentioned in the Capstone Research Project. 2.0 Leases on Technology Assets Seem Inflated 2.1 Current Lease Accounting GAAP suggests that Current Lease Accounting standard needs to classify their contract as operating lease (all leases except capital lease) or capital lease (this type of lease transfer risks as well as rewards to lessee due to ownership). Amount of capital lease such as payment of rental can be identified fr om examining the balance sheet. GAAP rule suggests that auditor needs to check capital lease by applying depreciation on assets while such thing is not possible for operating lease. According to GAAP in operating lease the lessee does not realize the amount of leased asset from balance sheet but the person can recognize operating lease expenses. Auditors have criticized the shenanigan approach of GAAP to ignore operating lease. Current lease accounting standard has not identified any special measure in case excessive operating lease. Sometimes operating lease can give rise liabilities such as rental payment hence auditors try to capitalize leased assets. Accountants need to follow criteria specified in ASC 840 (SFAS 13) of GAAP to investigate capital lease. According to GAAP rules capital lease needs to follow (ASC 840-10-25-1) (SFAS 13.7) guideline. Accountants need to check proper valuation of leased property in order to identify financial fraud. According to GAAP rules leased tem should not be less than seventy five percent