Research of Emerging Accounting Issues

Research of Emerging Accounting Issues

Introduction

The novelty of the activities carried out by companies operating on the internet means that, sometimes, there is no legislation governing the treatment of certain transactions. So recently been warning of the danger of manipulation of certain items in the financial statements that, while no effect on the performance figures could mislead the show a much more positive image of the company activity.

Specifically, the financial press has accused the Internet companies employ accounting practices aimed at increasing the income figure, and of displacing certain expenditure items. As noted, creative accounting is that advantages the potential of standards (optional, subjectivity, regulatory gaps, etc.) to present some statements that reflect the desired image and not necessarily in actual (Harrison, 1995). Creative accounting is on the road between the truly correct and ethical practices and illegality or fraud, although it is difficult to pinpoint just where ethics and creativity begins and where it ends and begins the fraud.

The Internet companies can be encouraged to see benefit from the flexibility offered by the accounting regulations in various aspects and thus implement certain accounting practices. In this regard, note that the absence of benefits that shows most of these companies makes the rate of growth of net income is considered by many investors as an indicator of future profits, hence the interest of these companies to increase amount of income presented in the financial statements (Harrison, 1995).

Recognizing these issues, in the year 1999, the SEC issued a correspondence to the FASB - Financial Accounting Standards Board in which they demanded that in the course of the Emerging Issues Task Force (EITF), pay special attention to certain accounting practices often carried out by certain companies operating on the Internet. The letter listed 20 items that, in such opinion, are particularly relevant, assigning a score from 1 to 3 depending on the order in which they should be addressed. Some of these issues have already been regulated through the issuance of a number of specific regulations that now we shall discuss.

Income Adjustment

The practice refers to swaps of equal value services that take place between companies. In most cases, this action is related to the exchange of advertising, in which two companies agree to provide mutual advertising (banners, links, etc.) on their websites, without involving the entry or exit of funds for any of the two companies (Hintze, 2003).

For many companies recently created this form of advertising is a good opportunity to develop a brand without sacrificing large sums of capital. When two companies agree to exchange advertising space, each of which includes in its accounts an equivalent amount of revenue and expenditure for the advertising space sold and purchased space (Hintze, 2003). Thus, even though the transaction has no effect on the result, does increase the amount of income, this highly coveted target for Internet companies, as we have indicated above. This is the case of the Internet company L90, Inc., who, through the ad swaps with other Internet companies, overstated its revenues between the third quarter of 2000 and the ...