Discussions W6
Discussion #1
No later than Wednesday, post a list of at least three unresolved accounting problems that will serve as suggested future research related to your topic. Toward the end of a research paper, a list of suggested future research typically is presented. One research paper is not expected to answer all of the problems. Addressing at least one current accounting problem within your topic area for each of the basic accounting areas (e.g., financial, managerial, tax, auditing and forensic) incorporating both United States (i.e., domestic) and international aspects per research paper meets expectations.
Comment #1
Auditing has been an ever-changing discipline since its birth over a century ago and has continued to bring challenges to auditors with new implementations. Among many problems in accounting, I selected for discussion three unresolved accounting problems that I would say more likely auditing problems and related to my research topic: how many tests and sampling is enough to support an opinion, should auditing standards be more principles-based or rules-based, and the ethical consideration associated with illegal acts by clients.
1. An audit process includes a series of tests and sampling in the volume of less than 100% of the items within financial reports. Selection of less than 100% of data allows auditors to perform and complete audits timely and at a reasonable cost. Many auditors rely on their professional judgment based on their years of experience, some termed it judgmental sampling, and others rely on a concept as coverage. The term judgmental sampling is no longer be correctly used to describe audit procedures that failed to meet the foregoing definition (Levy, 2016, para. 23). The use of sampling regulated by SAS 39 but many auditors continued to shy away from it, most likely because they believed it often required sample sizes that were too large (Levy, 2016, para. 25). They continued to use their professional judgment to determine how many items to test.
2. There are still debates during recent years among standards setters about whether professional standards should be rule-based or principle-based. In a regulatory framework, rule-based standards prevail over principle-based with many unconditional or presumptively mandatory requirements that are to be followed with little or no consideration of how the rules may be relevant to a particular situation (Levy, 2016, para. 17). In contrast to rule-based standards, principle-based auditing standards are described as guidelines with certain requirements that auditors must follow in each particular situation. While there has no decision made by standards setters of what exactly auditing standards should be, U.S. GAAS as issued by the AICPAs Auditing Standards Board (ASB) is seen by many as more principles-based than those standards recently issued or proposed by the PCAOB, which are frequently seen by many as being too rules-based(Levy, 2016, para. 17).
Both types of standards have advantages and disadvantages for auditors. For example, rule-based standards provide clarity and understanding of audit standards and procedures. These standards also lead to uniformity which makes it easy to monitor audit performance. However, rule-based standards do not guide how to apply professional judgment in a particular situation. Professional judgment is the cornerstone of auditor skills, and the auditor must constantly exercise it for professional improvement.
3. Due to the nature of work, auditors’ ethics will be always a subject of disputes. Because of my research topic about auditors consideration of non-compliance with laws and regulations, I will discuss this problem as unresolved, even if that auditing standards have been reviewed, updated, and still arise many questions. One of the questions is how should auditors respond to non-compliance with laws and regulations if they are bound by professional standards to keep confidential client information in confidence?
Under the AICPA proposal, because of confidentiality laws, members would not be permitted to disclose a suspected NOCLAR to an outside authority unless required to do so by law or with the clients consent. Under the IESBA standard, a member might be able to override confidentiality and disclose a NOCLAR to an authority. It depends on various circumstances and factors to consider (Whitehouse, 2017, para. 12).
According to the above, there is no clarification about when it is appropriate to override the clients confidentiality. Because there are no specific requirements, the auditor might feel that they are too responsible for identifying illegal acts. But since the auditors are not legal experts, they cannot determine what acts can be illegal. Otherwise, they will be in the position of having to engage in the unauthorized practice of law. This could also heighten their exposure to lawsuits for failing to detect fraud and failing to advise the client to take appropriate remedial action (Whitehouse, 2017, para. 22).PCAOB AS 2405,Illegal Acts by Clients,currently under discussion by the Board if there is a need for improvements to existing standards. Staff considerations include auditors’ responsibilities related to illegal acts under existing auditing standards and the federal securities laws, as well as the requirements of other standard setters and regulators (PCAOB, 2018, para. 2).
Comment #2
One unresolved accounting problem related to my research topic is the effect that the Tax Cuts and Jobs Act has had on international business especially non-U.S. companies investing in the U.S. It is expressed that the TCJA included various provisions that increase burdens on non-U.S. multinational corporations that are investing in the U.S. (Wagman et al. 2018). Among some of these provisions are the base erosion and anti-abuse tax, an anti-hybrid rule that eliminates deductions by US companies for interest or royalty payments to non-US affiliates, and the expanding of the scope of the United States controlled foreign corporation (CFC) rules (Wagman et al. 2018). Individuals and U.S. businesses are not the only ones that can be affected by U.S. tax reform. Future research could be done to determine what was the purpose of these provisions, if the provisions had the expected effect and results, and how it affected both U.S. multinational corporations and non-U.S. corporations investing in the U.S.
Another unresolved accounting problem is whether Congress will allow the scheduled tax changes of the TCJA to occur or will it extend some provisions. Many tax changes are expected in the next couple of years, the most significant ones expected to occur at the end of 2025 when the temporary provisions of the TCJA expire. It is expressed that lawmakers have the tendency to prevent the expiration of temporary tax provisions (Greenberg, 2018). It is explained that a large majority of the provision brought by the Bush tax cuts were made permanent through an extension of these and subsequent passing of the American Taxpayer Relief Act of 2012 (Greenberg, 2018). It is possible that lawmakers and Congress will prevent the expiration of at least some of the temporary provisions of the TCJA. Uncertainty with respect to these tax provisions can difficult the tax planning of taxpayers in the next couple of years.
Finally, another unresolved accounting problem is the effect of the current situation of a world pandemic with COVID-19 on the TCJA and future tax legislation. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted as a response to the COVID-19 pandemic to provide economic relief to some businesses and individuals (EY Americas, 2020). Although this act is not as extensive as the TCJA, it did make some changes to the provisions of the TCJA. Among some of the changes brought by the Cares act that affect provisions of the TCJA are the changes to net operating loss (NOL) deductions and expanded business interest expense deductions (EY Americas, 2020). The pandemic also had a negative effect on the economy and will have a significant effect on the results of the TCJA. The TCJA was enacted with the purpose of improving the economy by encouraging the growth of businesses, however, many businesses have suffered significantly due to the pandemic and not even tax reforms have been able to compensate for the losses.
Discussions #2
No later than Wednesday,post one or more hypothesis(i.e.,guess as to how the problem will be resolved and/or addressed in the future) regarding what you expect your original research to reveal.Start with your research question as included in your IRB Review Application and revise it based on the work that you have completed subsequently to submitting the application.Briefly explain how the background and history of your research topic lead you from the question(include as part of your posting)to your one or more research hypotheses.
Eight weeks is a very short period of time to complete a research paper.It takes five weeks to build an adequate foundation for you to develop your hypothesis or hypotheses.As you are not writing a dissertation,the classic approach is not taken regarding a hypothesis or hypotheses.You are to make educated guesses as to the current status and future potential changes or debates regarding your topic.
You will present your arguments and/or opinions throughout your report that reflect your educated guesses.You will be adding original writing about your arguments and/or opinions throughout your report related to material that you have collected and included prior to week6.You are now an expert regarding your topic even though there is still more to learn about your topic.We never stop learning.
One cannot research forever without drawing conclusions and presenting opinions.Conclusions and opinions may change in the future,but you are to present your conclusions and opinions based on the work that you have completed.
A minimum of3value-adding postings are required on3different days with the initial posting made no later than Wednesday.
Comment 1
My research topic was the effects of the tax provisions of the Tax Cuts and Jobs Act on businesses and individuals. A hypothesis regarding my research would be that the TCJA had a positive effect on individuals and/or businesses. Tax reforms are usually made with the purpose of having a positive effect on taxpayers, businesses, and/or the economy. Another hypothesis would be that the TCJA had a negative effect on individuals and/or businesses. Although lawmakers and economists attempt to predict the effects that the proposed tax provisions will have, it is not possible to accurately determine if these will be successful in accomplishing their goals. The TCJA has been in effect for two years only, 2020 is the third, but its effects had already started to show. Although many individuals and businesses have been able to benefit from some of the tax provisions brought by this act, these tax savings have not had the uses and effects expected by the government and lawmakers.
The Tax Cuts and Jobs Act was enacted with four goals in mind including tax relief for middle-income families, simplification for individuals, economic growth, and repatriation of overseas income (White House, 2018). Significant changes were made to provisions for individuals but many of these are set to expire in the future resulting in only temporary relief for middle-income taxpayers unless these provisions are extended. On the other hand, economic growth was expected by allowing companies to keep a greater share of profits to stimulate investments (Knott, 2019). The tax cuts provided to businesses were also expected to flow through to individuals in the form of increased wages and job opportunities. However, the first response by businesses was to increase stock buybacks significantly and not so much investments (Knott, 2019).
The effects of the provisions of the TCJA and the subsequent expiration of some significant ones will continue to be examined throughout the next couple of years. Additionally, new challenges are faced by individuals businesses and the economy as a result of the COVID-19 pandemic. If there was a positive outlook for businesses and the economy as a result of the TCJA, it is likely that it will be significantly affected by COVID-19. There is a lot of uncertainty with regards to future changes to the permanent provision of the TCJA as new tax reforms are likely to be introduced in response to the pandemic. Changes such as the modification to the TCJA provisions with regards to net operating losses carrybacks and carryforwards by the CARES Act can also change the effect of the TCJA on individuals and business in the next years (EY Americas, 2020).
Comment #2
While working on the research, which is very creative work, I think about the final decision that could be made by standards setters. I have two hypotheses of how the issue in the research project can be solved. They are not perfect and might require further research but still have some potential.
The first hypothesis is updating of auditors responsibilities regarding noncompliance with laws and regulations (NOCLAR). Reviewing of auditing standards of AICPA and PCOAB revealed the difference between auditors responsibilities, procedures, and disclosure associated with NOCLAR. I can assume that the standards-setting boards may develop and implement one set of standards regarding NOCLAR. The standards would contain the following requirements:
– list of possible illegal acts including acts that required legal assistance with further procedures;
– detailed procedures for each identified possible illegal acts;
– auditors are not responsible for detection and identifying illegal acts, but required to give an opinion if possible illegal acts have a direct and material effect on the determination of financial statement amounts;
– if auditors detect and identify illegal acts, they required to consult with legal counsel and disclose such acts outside the client including authorities and third parties – the users of the clients financial statements.
The second hypothesis, despite the current or modified in future mentioned above standards, is to update the Code of Ethics. According to the current standards, auditors might have a dilemma to whom and when to report or disclose illegal acts. In some cases, auditors can withdraw from engagement if the client committed or get involved in illegal activities and not taking any steps to solve the problem. Professional ethics put some restrictions on auditors in part of confidentiality duty and often will preclude the auditors to do the right thing. The auditing standards and Code of Ethics could require auditors to whistleblow suspected NOCLAR cases internally and externally to authorities, including anonymous. Having such requirements will protect auditors from conflicts with the auditor’s ethical and legal obligations for confidentiality (PCOAB, 1989, para. 23). Also, the auditors may collaborate with investigators and not disclose illegal acts according to legal procedures.
