Auditing-Ongoing Project 3

Auditing-Ongoing Project 3

6-83

a. Consider Fords’ inventory account on the balance sheet, along with the accompanying footnote. What are the most relevant assertions that management is making with regard to its inventory? NOTE 8.    INVENTORIES

All inventories are stated at the lower of cost or market. Cost for a substantial portion of U.S. inventories is determined on a last-in, first-out (“LIFO”) basis. LIFO was used for 28%and 20% of total inventories at December 31, 2014 and 2013, respectively. Cost of other inventories is determined by costing methods that approximate a first-in, first-out (“FIFO”) basis.

Valuation or allocation: Assertions about valuation or allocation address whether accounts have to be included in the financial statements at appropriate amounts, the presentation of the balance sheet is complete and conforms to the applicable financial reporting framework. The figures are on the balance sheet correlate with the figures in Note 8. The market value is the amount that would have been paid to replace the merchandise. Lower of cost or market rule states that if the market value of ending inventory is lower than the book value of such inventory, the resultant loss must be recognized in the current period. Therefore, management is disclosing that they took a loss on the inventory. The inventories are disclosed and presented on the balance sheet, and footnote. The inventories are owned under rights/obligations. The amounts of the inventories do exists under the assertion of existence, and the existing amounts of the inventories are including under completeness.

b. There exists demand for both fuel-efficient/smaller cars as well as bigger pickups and SUVs. Read Fords’ Fords’ disclosure to understand the relative mix of these differing types of vehicles, changes in demand, and potential effects on valuation of assets used to produce these vehicles.

In recent years, we have made significant changes to our product cycle plan to improve the overall fuel economy of vehicles we produce, thereby reducing their GHG emissions. Management does specify the potential effects on valuation of assets used to produce the vehicles in the not: There are limits on our ability to achieve fuel economy improvements over a given time frame, however, primarily relating to the cost and effectiveness of available technologies, consumer acceptance of new technologies and changes in vehicle mix, willingness of consumers to absorb the additional costs of new technologies, the appropriateness (or lack thereof) of certain technologies for use in particular vehicles, the widespread availability (or lack thereof) of supporting infrastructure for new technologies, and the human, engineering, and financial resources necessary to deploy new technologies across a wide range of products and powertrains in a short time. The current fuel economy, CO2, and ZEV standards will be difficult to meet if fuel prices remain relatively low and market conditions do not drive consumers to purchase electric vehicles and other highly fuel-efficient vehicles in large numbers. The cost to comply with existing government regulations is substantial, and future, additional regulations or changes in consumer preferences that affect vehicle mix could have a substantial adverse impact on our financial condition and results of operations. For more discussion of the impact of such standards on our global business, see the “Governmental Standards” discussion in “Item 1. Business” (“Item 1”) above. In addition, a number of governments, as well as non-governmental organizations, publicly assess vehicles to their own protocols. The protocols could change aggressively, and any negative perception regarding the performance of our vehicles subjected to such tests could reduce future sales.

c. What assertions are implied in the Property, Plant, and Equipment account? NET PROPERTY AND LEASE COMMITMENTS Net Property

Net property is recorded at cost, net of accumulated depreciation and impairments.  We capitalize new assets when we expect to use the asset for more than one year.  Routine maintenance and repair costs are expensed when incurred.

Property and equipment are depreciated primarily using the straight-line method over the estimated useful life of the asset.  Useful lives range from 3 years to 36 years.  The estimated useful lives generally are 14.5 years for machinery and equipment, 3 years for software ( 8 years for mainframe and client based software), 30 years for land improvements, and 36  years for buildings.  Tooling generally is amortized over the expected life of a product program using a straight-line method.  

The assertions: existence, completeness, obligations, valuation and disclosure.

How would valuation be affected if the company decided to downsize and eliminate a line of pickup trucks?

Conditional Asset Retirement Obligations

Conditional asset retirement obligations relate to legal obligations associated with the retirement, abandonment, or disposal of tangible long-lived assets. Estimates of the fair value liabilities for our conditional asset retirement obligations that are recorded in Other liabilities and deferred revenue. Lease Commitments: We lease land, buildings, and equipment under agreements that expire over various contractual periods. Minimum non-cancellable operating lease commitments at December 31, 2014 and, Operating lease expense for the years ended December 31.

Long-Lived Assets and Goodwill

 

How valuation is affected: The Company reviews the carrying values of its long-lived assets, including goodwill, whenever events or changes in circumstances indicate that such carrying values may not be recoverable. An impairment charge is recorded in the event the net book value of such assets exceeds management’s estimate of the future undiscounted cash flows attributable to such assets. Such estimates are based on various assumptions and estimates regarding future operations and are highly judgmental. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

 

References:

Retrieved September 19, 2015 from http://www.sec.gov/Archives/edgar/data/34285/000119312505064646/d10k.htm#tx72272_8http://www.sec.gov/Archives/edgar/data/34285/000119312505064646/d10k.htm#tx72272_8

Retrieved September 19, 2015 from http://secfilings.nasdaq.com/edgar_conv_html%2f2015%2f02%2f13%2f0000037996-15-000013.html#F1231201410-K_HTM_SAE82631E6D04FB425600C1088137B381http://secfilings.nasdaq.com/edgar_conv_html%2f2015%2f02%2f13%2f0000037996-15-000013.html#F1231201410-K_HTM_SAE82631E6D04FB425600C1088137B381

Retrieved September 19, 2015 from http://corporate.ford.com/microsites/sustainability-report-2014-15/doc/sr14-form-10-k.pdf

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