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Accounting Changes in Air Methods Corporation
Accounting Changes in Air Methods Corporation(Author’s name)
(Institutional Affiliation)
Discuss the primary reason for the restatement and the impact to the financial results for the company you selected.
Air Methods Corporation is the largest company dealing in the air transportation of medical supplies in the world. The company announced on 22 December 2011 that it had completed the restatement of its financial statements covering the year ended in December 2010 and for the first three quarters of year 2011. The corporation indicated that it had filed amended quarterly and annual reports for the applicable years with the exchange commission (SEC). The corporation specifically filed a 10-K/A form for the fiscal year that ended on 31 December 2010 in addition to a 10 Q/A form for the quarters that ended on 31 March, 30 June and 30 September 2011 (Air Methods Corporation, 2011).
The company, as previously disclosed, restated its financial statements after it received some guidance from the SEC concerning the appropriate GAAP interpretation of the ASC 840-10-25-14 that affected the presentation of the company’s aircraft leases. The implications of this financial restatement were within the ranges that the company had disclosed previously. As it follows, the company is now current with its filling requirements as stipulated by the SEC. The corporation expects to regain compliance with the appropriate and applicable NASDAQ listing regulations promptly with the filings restated (Air Methods Corporation, 2011).
Discuss management responsibility to the investors and stakeholders for the financial restatement.
Restating financial statements usually leads to a wide range of market responses, but in most cases, the market tends to have negative reactions towards such news. However, on the positive light, restatements of finances usually pin point which items were reported inappropriately in the original statement. This correction makes it possible for investors and other stakeholders and users of the financial statement to study the marginal essentiality of such items on the operations of the company and market cap (Cross, Robinson, Salhus & Zepralka, 2004).
Generally, restatements reflect negatively on the management and give stakeholders and shareholders the impression or idea that the management is incompetent or knowingly trying to defraud them. Previous studies have indicated that restatements are directly related to a decrease in the value of the company, a decline in the future earnings and an inflated cost of capital. The first most common immediate response to financial restatements is a considerable drop in the stock price of the concerned company and market capitalization. It is, therefore, the responsibility of the management to assure investors and shareholders that there is no foul play in the restatement of the financial statements. It is also the responsibility of the management to restore investor confidence in the company’s stock, and ensure that the value of the company’s stock is restored and improved (Cross, Robinson, Salhus & Zepralka, 2004).
Discuss what changes you would expect the company leadership to make related to internal controls, accounting principles, or other initiatives, as a result, of the need to restate the financial statements.
The self- regulatory structure prevails on the corporate governance concept. Directors and managers of a public company are responsible for making sure that the content and preparation of financial statements accurately and fully depict the financial condition of the company and the results of all its activities. However, the audit committee and the internal auditor of the public company play critical roles in oversight. The key role of the corporate board of directors is to direct and oversee the management of the corporation and uphold the interests of its investors and shareholders. The internal auditors offer another check on the control systems and operations of the company. Independent auditors usually provide additional protection in connection with all public corporations and numerous other entities (Hribar & Jenkins, 2004).
All public corporations are registered with SEC and are required to audit their financial statements using independent auditors. Although the management of a public company is responsible for the content and preparation of the financial statements of the company, the independent external auditor has a role of auditing the statements according to the GAAS. The purpose of an audit is to present reassurance that the financial statements of a company are shown fairly in all respects and in accordance to GAAP (Hribar & Jenkins, 2004).
Independent audits ensure public confidence that financial statement issuers are reliable and ensure an efficient market for securities of public companies. This sense of confidence and assurance only takes place if reasonable investors see auditors as expert and independent professionals who have no curiosity about the audited entities or other conflicting interests. Investors and other entities expect these professionals to bring about independence, integrity, professional competence and objectivity to the reporting process of the finance, and to prevent the issuance of financial statements that are misleading. There are number of ways the management can use to scrutinize the company’s financial statements to lead to restatements (Hribar & Jenkins, 2004).
One of these processes begins with leads to errors, which can be found through press reports, surveillance activities, or investor complains. Leads that are promising have a potential to become inquiry matters, which are then conducted to evaluate and determine whether an investigation is required. If the inquiry leads to evidence that merits an investigation, the enforcement staff is required to carry it out by reviewing trading data, records and books and other relevant information. The results from the investigation are what determines the next causes of action, whether a civil action or an administrative proceeding (Hribar & Jenkins, 2004).
Discuss the impact to the trustworthiness of the company’s leadership team based on the need to restate the financial statements
As already mentioned, restating of financial statements have numerous negative implications for the value of the stock of the concerned public company. Studies have shown that most of the restatement announcements lead to the loss of millions of dollars in the market capitalization segment, and the stock price, on average, of a company making an initial financial restatement fell by more than 18 percent from sixty trading days prior to through sixty trading days after the restatement. These studies have found that during a period of 6 months, the total loss of capitalization of markets of restating companies more than doubled to more than 240 billion dollars (Palmrose, Richardson & Scholz, 2004).
Not only so financial restatement announcements seem to have a negative impact on the stock prices of a company, but there also seems to be evidence suggesting that these announcements and the questions that arise about certain accounting practices of the company may have negative impacts on overall confidence of the investor. Investor confidence is not easy to quantify because it cannot be directly measured and because investors consider a wide variety of factors before making investment decisions. Nevertheless, numerous studies indicate that financial restatements will have a negative effect on the confidence of investors and the value of the company’s stock (Palmrose, Richardson & Scholz, 2004).
References
Air Methods Corporation. (2011). Air Methods completes restatement of financial statements. Yahoo Finance. Retrieved from http://finance.yahoo.com/news/Air-Methods-Completes-pz-1347935173.html
Cross, M.B., Robinson, E., Salhus, K. & Zepralka, J. (2004). Restatements of Financial Statements: Selected Legal and Accounting Issues. The Newsletter of the Committees on the Federal Regulation of Securities, 9 (1).
Hribar, P. & Jenkins, N. T. (2004). The Effect of Accounting Restatements on Earnings Revisions and the Estimated Cost of Capital. Review of Accounting Studies 9, 337-356.
Palmrose, Z., Richardson, V. J. & Scholz, S. (2004). Determinants of Market Reactions to Restatement Announcements. Journal of Accounting Economics 37, 59-89.
Capital Punishment
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Capital Punishment
According to the rule of law, any form of crime against the constitution is punishable. Different forms of punishment have been established after an individual has been proven guilty by a court of law. In the United States, capital punishment has been a major issue that has arose various debates on whether to legalize the punishment model for relentless capital offenses, among other serious crimes (Sigler 74). Capital punishment, also known as the death penalty, is a form of punishment where an individual is executed through the legal state’s process for justice for the crime committed. Scholars indicate that capital punishment is a legal action taken by the criminal justice department or the state whereby an offender is put to death as a sign of justice or punishment for the crime/offense committed. In some cases, capital punishment is confused with extrajudicial executions. Still, capital punishment is a legal process different from extrajudicial execution, which is carried out without any due legal process of law.
Research indicates that various methods/ways of capital punishment can be utilized to execute lawbreakers or criminals. These methods include lethal injection, gas chamber, hanging, and electrocution, among other various methods. However, based on humanitarian and moral grounds, capital punishment as a form of crime regulation is subjected to various controversies, not only at the national level (Rocker 589). Still, it is also utilized on global/international platforms. Capital punishment began to be used in the United States in the 18th century to punish individuals who were committing criminal offenses and were proven guilty by the legal court process. Statistics indicate that 33 states in the United States have legalized the use of capital punishment because it has played a significant role in regulating individuals from committing a capital form of crimes such as treason and murder, among other crimes.
Capital punishment, or the death penalty, has been part of the justice system of various civilizations and primal tribal methods. This form of punishment emerged due to the evolution of the prison system as a way of regulating or keeping individuals in confinement for a certain period due to harmful wrongdoing in society (Gilbert et al. 546). According to criminal and justice, the report indicates that capital punishment was adopted to regulate grievous offenses such as: brutal and inhumane acts such as increased mass killing, murder, and rape, among other actions determined by the grimness of the crime committed, provides a reason for execution. For instance, capital punishment was adopted in the 20th century when a mass killing left millions of people dead during the war between nations or states. Therefore, this form of punishment was adopted and practiced to maintain discipline among people. Historically, capital punishment or the death penalty was applied for criminal offenses in various religious beliefs and was highly used with the support of religious hierarchies. However, capital punishment has been fully left to the judiciary system to award the punishment under special circumstances, and no religious faith is associated with its morality (Gilbert et al. 549).
Capital punishment brings about justice’s retaliation, which has been known to be an effective form of punishment. The punishment protects society ethically by guaranteeing that those who have perpetrated horrific deeds have paid the price proportionate to the harm they have inflicted (Walsh and Virginia 269). It serves as a means of bringing victims’ families and society together. The belief that the death sentence is the only option for bringing justice to the victims’ families and society is common. Capital punishment has been established to restrain violence in our societies. This is because this form of business has strongly depicted eye-for-an-eye justice, a vicious act in and of itself. This form of punishment has been seen as the only way to restrict criminals and other lawbreakers, create general safety in our society, and establish primary responsibility for all (Walsh and Virginia 275).
In the United States, capital punishment has raised various debates in various states, which led to the establishment of movements to abolish it. However, despite a movement to abolish the form of punishment for criminals and other lawbreakers, many states have accepted and retained capital punishment. In contrast, others have completely rejected its implementation. Some states accepted this form of punishment because they claimed that offenses are only punishable by death, and such offenders cannot be allowed to stay in society due to their moral decay. However, research indicates that some countries/states imposed or implemented the death penalty or capital punishment for individuals due to various economic crimes such as: corruption and bribery of public servant officials, currency speculation, theft of much capital, or the embezzlement of public funds.
Further, scholars denote that 34 states and the federal government in the United States have retained capital punishment in their criminal justice system processes (Davis and Tracy 1). However, some countries do not allow the execution of minors or people below 18 years. In other countries, the law allows the execution of minors when they commit crimes that are punishable through capital punishment. However, the Convention on the Rights of the Child prohibits the execution of minors under civil and political rights (Joseph 361).
Constitutionally and per the law, the Supreme Court of the United States has been empowered to rule over the death penalty. This is because, traditionally, states have been held the responsible arm in policing and criminal prosecution, which is why many criminal trials are carried out within state courts. The execution has been suspended for some time, especially during President Obama. But in a few years since 2019, during President Trump, the capital or death penalty has gained public attention after declaring the resumption of execution for lawbreakers (Dieter 15). Capital punishment has gained popularity because, according to the constitution article I, congress has legislative powers that empower them to make some decisions under the necessary and proper clause under article I. And as a result of the necessary and proper clause, capital punishment at the federal level is established for crimes. And as a result, states that consists of various federal courts have power over crime and punishment.
According to various considerations of the constitution, Supreme Court denotes that capital punishment does not violate or breach the eighth amendment that restricts any cruel and unusual punishment/penalty for any offense. This is because the eighth amendment does not control procedural terms on when the jury should impose the death penalty. The US is the only advanced Western democracy that does not perceive death penalty as a significant human rights violation because the constitution has empowered it (ACLU para 1). Every criminal offense is punishable by law. Death penalty in the US is supported because it is believed to serve as an appropriate retribution, a deterrent, and allows individuals repent for their crimes before they are executed (Waldo and Wesley 574). It has helped much in regulating some criminal crimes in many states since offenders’ fear losing their lives when convicted or proven guilty in a court of law. However, studies have proved that capital punishment is performed considering capital punishment ethics before this form of sentencing is arrived at and executed.
Work cited
American Civil Liberties Union (ACLU). Death Penalty 101 (2022). https://www.aclu.org/other/death-penalty-101Davis, Elizabeth, and Tracy L. Snell. “Capital punishment, 2016.” Stafisfical Brief (2018).
Dieter, Richard C. “Introduction: international perspectives on the death penalty.” Comparative Capital Punishment. Edward Elgar Publishing, 2019. https://doi.org/10.4337/9781786433251.00008Gilbert, J. Valentine, Lucie Parker, and Aaron Chalfin. “Capital Punishment Research.” The Encyclopedia of Research Methods in Criminology and Criminal Justice 2 (2021): 546-550. https://doi.org/10.1002/9781119111931.ch109Joseph, Sarah. “Extending the right to life under the International Covenant on Civil and Political Rights: General Comment 36.” Human Rights Law Review 19.2 (2019): 347-368.
Rocker, Dixie. “Deterrence research.” The encyclopedia of research methods in criminology and criminal justice 2 (2021): 589-595. https://doi.org/10.1002/9781119111931.ch116Sigler, Mary. “Principle and Pragmatism in the Death Penalty Debate” Criminal Justice Ethics 37.1 (2018): 72-86. https://doi.org/10.1080/0731129X.2018.1449996Waldo, Gordon P., and Wesley Myers. “Criminological research and the death penalty: Has research by criminologists impacted capital punishment practices?.” American journal of criminal justice 44.4 (2019): 536-580.
Accounting case study Statement of Cash Flows (IAS 7)
Accounting case study: Statement of Cash Flows (IAS 7)
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TOC o “1-3” h z u Introduction PAGEREF _Toc386518425 h 3The Statement of Cash Flows PAGEREF _Toc386518426 h 3Objective, use and purpose of International Accounting Standard 7 (IAS 7) PAGEREF _Toc386518427 h 3Key Terms PAGEREF _Toc386518428 h 4Operating Activities PAGEREF _Toc386518429 h 4Investing Activities PAGEREF _Toc386518430 h 4Financing Activities PAGEREF _Toc386518431 h 5Calculating Net Cash Flow from Operating Activities PAGEREF _Toc386518432 h 5Direct method PAGEREF _Toc386518433 h 5Indirect approach PAGEREF _Toc386518434 h 6Treating peculiar items PAGEREF _Toc386518435 h 6Evaluation PAGEREF _Toc386518436 h 7References PAGEREF _Toc386518437 h 9
Introduction
Financial statements should be prepared frequently so that the financial position of the company can be noted and if corrections need to be made it is much easier to make them (International Accounting Standards Board 2010, 2). There are various financial statements that are prepared periodically. They include the consolidated statements of Earnings, The balance sheet and the statement of cash flows. The IAS 7 requires that the business organization presents the Statement of Cash Flows together with other primary statements.
The Statement of Cash FlowsThe Statement of Cash Flows is used to show, trace and track the movements of cash and the cash equivalents in an entity over a given period. The focus is on the movements of cash held at hand, in banks, in short term liquid instruments and any investments in demand deposits. The cash equivalents that are listed in the Statement of Cash Flows should be easily and readily convertible without any significant fall in the current value. The standard maximum maturity date for cash equivalent is three months. The IAS 7, 7-8 require that overdrafts payable on demand and equity investments with substance of a cash equivalent such as preferences shares acquired by an entity three months to the date of redemption be included in the Statement of Cash Flows.
Objective, use and purpose of International Accounting Standard 7 (IAS 7)
The IFRS Board defines the objective of IAS 7 as, “the objective of this Standard is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flow which classifies cash flows during the period from operating, investing and financing activities” (International Accounting Standards Board 2012, 1).
The purpose of the IAS 7 is to analyze and present any change that have occurred to cash and cash equivalents in an entity during a given period. The statement outlines the changes in the most liquid assets such as cash, demand deposits and money market instruments that can be liquidated in less than three months.
Key TermsThere are 3 sections in the cash flow statement as per the IAS 7, 10 are the cash flows from operating, investing and financing activities.
Operating Activities The cash flows from operating activities which deals with flows of all cash from operations such as the sale of goods and services less the cost of the those goods if the difference is positive then the business is going up and vice versa (Cross 2012, 20). The operating activities form the base of revenue generation in many companies. The segment reflects cash (inflow) received from the customers for good supplied or services rendered. The segment also has cash (outflow) paid to suppliers as well we the employees.
Investing Activities
Cash flows from investing activities entail the amount of cash that has been used to purchase capital goods for investment purposes. The section reflects the movements of cash as a result of either acquisition or disposals of investments that generate income to the entity. After a period of time the equipment will depreciate thus generating a depreciation expense. If re – investment occurs the high inflows are registered and the reverse is true.
Financing ActivitiesCash Flow from Financing Activities includes inflow of cash that is generated from outside financing activities such as selling of bonds and stock shares. Paying a loan and dividend payments in this case will be cash out flow. The financing activities entail actions that change the equity capital and the company’s borrowing structures.
Calculating Net Cash Flow from Operating Activities
The calculation Net Cash Flow from Operating Activities can be done in two ways. The approaches are direct and indirect methods.
Direct method
The direct method is mainly used in the calculation of the Net Cash Flow from Operating Activities (Walton 2009, 56). The direct method shows each of the classes of gross cash payments and receipts. The Net Cash Flow from Operating Activities can be calculated as shown below;
Cash received from sales (clients)xxxx
Cash paid for supplier’sxxxxCash payments to employeexxxx
Cash payments for other operating expenses xxxx
Interest paid xxxx
Income taxes payments xxxx
Net Cash Flow from Operating Activitiesxxxx/ (xxxx)
Indirect approach
The indirect approach entails adjustments of the accrual basis net profit/ loss to reflect the noncash events. The Net Cash Flow from Operating Activities is calculated using the indirect approach as shown below;
Earnings before interest and income taxes xxxx
Depreciation expenses (added back)xxxx
Amortization of goodwill (added back)xxxx
Increases in receivables xxxx
Decreases in stock xxxx
Increases in payables xxxx
Interest expense xxxx
Deduct accrued interests, not paid xxxxInterest paid xxxx
Paid Income taxesxxxx
Net cash from operating activities xxxxx/ (xxxxx)
Treating peculiar items
The IAS 7 has certain provisions in the classifications of the different elements of the cash flow statement. Cash movements from the interests and dividends may fall in any of the above classifications provided the classification is consistent for each of the periods, IAS 7, 31 (International Accounting Standards Board 2012, 2). The cash movements from taxes’ income fall under the operating activities, unless the items can be directly related to either financing or investing activities; IAS 7, 35((International Accounting Standards Board 2012, 2).
The IAS 7 25 requires that effective translations of currency exchanges take place to harmonize any foreign currency based transactions (Muthupandian 2008, 5). The date of the statement should act as the base rate for the currency translation in case of foreign currency dominated transactions. However, for the subsidiaries, the translations should take place using the prevailing rate on the date of the transaction.
Evaluation The purpose and use of the Statement of Cash Flows benefit to Hope Ltd
The Statement of Cash Flows is very vital for different stakeholders in an entity. From the above analysis, it is evident that the statement of cash flow is not only beneficial to the management but also to other stake holders such as the lenders, government, competitors, employees, customers among others in many ways ( Beatty, Ramesh and Weber 2002, 74).
Hope Ltd should start preparing the Statement of Cash Flows. The Statement of Cash Flows would help the company to know its liquidity status and meet the informational needs of its stakeholders (Wustemann and Wüstemann 2010, 2). For the investors of Hope Ltd, they need knowledge on where to invest their money and from the statement of cash flow it is easy to determine the most suitable place to invest expecting high returns on the investment based on net cash flows and ability to pay short term investment outcomes. In cash flow considerations, most investors are attracted to businesses that have a lot of free cash flow. Free cash flow is a sign that a business has ability to pay debt to lenders, pay dividends to shareholders, buy stock and enhance business growth. The employees of Hope Ltd need to know the stability and financial health of their employers. They want to know cash availability in order to have security in their employment. They need information about their remuneration for the current period Basu 1997, 24; Aboody and Liu 2003, 43). The short term lenders such as providers of demand bank overdrafts use the statement of cash flow to determine whether the overdrafts and interests will be paid in due time. The suppliers and trade creditors need to know the liquidity of the business in order to determine when they will be paid for the short term credit. Conclusion
Financial statements are tools that provide useful information that will be used during the decision making process by the managers of a business entity. Though the financial statements are based on historical data, the information gives the basis of the trend in the business and the business entity can easily predict the outcome of a decision they make regarding a financial decision made (Bellandi 2011, 12). The cash flow statement is a statement that shows how much cash flow in the business and how much cash flow out of the business over a given period of time in a year. Although the statement of cash flow may not provide all information to all users there are certain needs that it can meet to all users- the information on risk.
ReferencesAboody, D. and Liu, J., 2003. Earnings quality, insider trading, and cost of capital. Working Paper Series.
Basu, S., 1997. The conservatism principle and the asymmetric timeliness of earnings. Journal of Accounting & Economics, 24(1): 3-37.
Bellandi, F., 2012. The handbook to IFRS transition and to IFRS U.S. GAAP dual reporting interpretation, implementation and application to grey areas. Chichester: John Wiley.
Beatty, A., Ramesh, K. and Weber, J., 2002. The importance of accounting changes in debt contracts: The cost of flexibility in covenant calculations. Journal of Accounting and Economics, 33(2): 205-227.
Cross, M. B., 2012. The SEC speaks in 2012. New York, NY: Practising Law Institute.
International Accounting Standards Board. 2012. ‘IAS 7 Statement of Cash Flows: Technical
Summary’. [Online]. Available at: < http://www.ifrs.org/Documents/IAS7.pdf> [Accessed 28th April 2014].
International Accounting Standards Board, 2010.The Conceptual Framework for Financial Reporting. . [Online]. Available at <http://eifrs.ifrs.org/eifrs/files/319/EDU%20BOUND%20VOLUME%202012_Conceptual%20Fram ework_PART%20A_167.pdf> [Accessed 28th April 2014].
Muthupandian K., 2008. IAS 7, Statement of Cash Flows – A Closer Look. The Management Accountant, Vol. 43 No. 9.
Walton, P., 2009. An executive’s guide for moving from U.S. GAAP to IFRS. New York: Business Expert Press.
Wustemann, J. and Wüstemann, S. 2010. Why consistency of accounting standards matters: a contribution to the rules-Versus-Principles debate in financial reporting. Abacus 46 (1): 1-27.