Determining the Accounting for Receivables from Officers and Directors Essay

Philadelphia communications Inc. (Philly) is a public friendship that completed an initial public offering (IPO) a few months ago. John Sigar is the current chief operating officer and member of the board of directors. He is the plainly family member involved in the business and owns significant get along of the federations stock. While, we were doing audit testing for accounts receivable we came across tote up of Notes Receivable from several Mr Sigars cousins. They withdraw taken advances frequently departd never failed to pay when they came due. The notes are secured by shares of Phillys convertible like stock, which were purchased by the family members following IPO.The receivable support provided by the client doesnt specify interest payment monetary value for these notes. During our preparation to test accounts receivable we reviewed the monetary Accounting Standards Board (FASB) Accounting Standards codifications (ASC) and identified special intro and disclosure r equirements for these sorts of receivables. We alike reviewed above described situation from transnational Financial Reporting Standards (IFRS) standpoint. When find the accounting for receivables from officers and directors, special treatment of these cases must be accorded.The case for Philly refers to think parties exertions, which would require special disclosure in the monetary reports. The receivables that is provided by Philadelphia communications Inc. does not give specification concerning both the terms of payment and the interest payable on these notes. Testing for Accounts Receivable in Philly Case. According to Financial Accounting Standards Board (FASB) codifications, there are a number of codification quotations that are applicable to the Philly case. One applicable character is FASB ASC 850-10-50-1 on related party legal proceeding.The FASB code 850 discusses the disclosures that are required to be made concerning related parties. This informant provides the legal and applicable definition of what related party transaction entails. This reference also outlines the disclosure that is required to be made. One of the disclosures is the nature of the involved relationship. The description of the transaction including the dollar amounts, extremity of transaction, amounts due, and the due date must be dis close-fitting. Disclosing transactions in monetary statements that were eliminated while preparing consolidated monetary statements is not mandatory.FASB ASC 850-10-50-2 is another codification reference that is applicable to this case. This reference discusses the notes and accounts receivables. This is the principal and direct reference that relates to the Philly case in question. The notes and accounts receivable mentioned under this codification reference are particular to the employees, officers or other entities that are affiliated to the company. For the case of Philly, notes are transacted between Philadelphia communications In c. CEO and the cousins. FASB ASC 850-10-50-2 requires notes or accounts receivable from related parties to be separately shown.every effects that arise from a change in method of determining the terms of transaction from the previous period must be disclosed. It states that this transaction should not be included under notes and accounts receivable general heading. Philadelphia Communications Inc. October 19, 2013 Page 2 Another applicable reference is FASB ASC 850-10-15-2. This codification reference stresses on the requirement that the guidelines on disclosure for related parties is applicable to altogether entities. It does not matter if it is a private entity or public company like in this case.The financial reports must provide disclosure for the transactions. FASB ASC 850-10-50-5 discusses electric outlet concerning disclosure of transactions that occur at an encircles distance base. This reference states that it cannot be presumed that related parties transaction are unde rtaken on an arms length basis. This is because the market conditions that competitive and free might not exist. This describes the relationship evident in the case of Phillys transaction with the CEOs cousins. Any form of representations concerning CEOs cousins and Philadelphia Communications Inc.does not mean that, the transactions were executed on terms applicable at arms length. It can only be presumed so if and only if the representations of the transactions can be substantiated. The company management should supply more additional information concerning the notes and receivable concerning related parties for further clarifications. The management should provide the names of the parties issued with the notes that are secured by convertible preferred stock purchased by family members. This is per the requirement of FASB ASC 850-10-50-4.The management should also provide information concerning related parties transactions to help in comparison of financial results with the past. The payments terms and the interest accruing to such notes and receivables should be specified and provided by Philly. IFRSs Standpoint. The International Financial Reporting Standards (IFRS) also recognises related party transactions. This is given as per the explanation under IFRS International Accounting Standards (IAS) 24. It describes a related party as involving an entity that is heavily influenced by a person transacting with a close family member.The Member of the family transacting with the entity must have significant influence on the person by the one having willpower in the company. For this case, the cousins have significant influence on the CEO of the company thus establishing a related party relationship. IFRS IAS 24 requires the firm to tie certain disclosures. It requires that the total amount involved, and the nature of the transaction be disclosed in the financial statements. The outstanding amounts should also be revealed stating the terms and any conditions relating securing and settling of the notes and receivables.The disclosures should also include information regarding the guarantees made. The IFRS also demands that any planning made for doubtful debts arising from this transaction should be disclosed. Conclusion The Philadelphia Communications Inc. in its operation, have related party transactions. These transactions involve the issuance of notes to close relatives of the CEO of the company. The Financial Accounting Standards Board (FASB) requires that activities must be disclosed. The Philadelphia Communications Inc. October 19, 2013 Page 3FASB has well explained the information that the management should consider when presenting their financial statements. The management should also improve its operations and provide further entropy concerning the parties they are regularly trading. Adoption of the FASB and IFRSs will ensure that all financial statements are truly and fairly presented. References FASB. Related Party Disclosur es. Retrieved from Accounting Standards Codification https//asc. fasb. org IASB. Related party disclosures. Retrieved from IFRS http//www. ifrs. org