Wag Memo

In: Business and Management

Submitted By abs6544
Words 1259
Pages 6
Memorandum
To: Wiki Art Gallery, Inc. – Stephen Conley
CC: Rob Wilco
From: Andrew Schechter Accounting Firm
Date: [ 11/8/2012 ]
Re: Financial Reporting Evaluations
Confidential
To whom it may concern,

Our firm was given the task of identifying and evaluating the financial reporting choices attributable to the current financial condition of Wiki Art Gallery, Inc. (WAG). Our opinions/recommendations are unbiased and we believe are representative of Generally Accepted Accounting Principles (GAAP). After reviewing the significant events for fiscal years 2010 – 2011, the following recommendations were determined (please see subsequent paragraphs & Exhibit A for revised 2011 income statement).

During September fiscal year 2011, two sales were recorded for artwork that was undelivered and not paid for as of year-end. GAAP states that revenues should only be recorded when they are earned (goods are transferred or services are rendered). Our recommendation, in accordance to GAAP, is that WAG not recognizes these sales until the goods are transferred. Recognizing the sales before they are delivered (not in accordance with GAAP) would overstate net income. Revenues from ‘Artwork Sales’ should be restated at $30,600.

As a direct result of sales being adjusted due to revenue recognition issues in accordance to GAAP, the ‘Cost of Artwork Sold’ needs to be adjusted as well. The company currently states that the average cost per piece sold is $1,000. This amount (cost) is subjective and no relative market value is given. In the future if the company continues to record its inventory at the lower of cost or market it would be advisable to have a financial accountant assess the current cost of inventory or, have readily available, the market value of relative items. If WAG does not adjust the cost of artwork sold by the amount of inventory not sold…...

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