ISSUES IN ACCOUNTING EDUCATION
Question:
ISSUES IN ACCOUNTING EDUCATION American Accounting Association
Vol. 37, No. 1 DOI: 10.2308/ISSUES-2021-017
February 2022
pp. 79-90
Writing Accounting Research Memos: An Instructional Case to Introducethe Basics
Janet M. Huston
Texas Tech University
Janet A. Samuels
Arizona State University
ABSTRACT: This case introduces students to the basics of accounting research memo construction. Accounting research memos can overwhelm studentsbecause memos involveresearching the Accounting Standards Codification (ASC), analyzing the issue, and writing in a specific format using a professional tone. The case involves an audit clientwith a lawsuit-based contingent liability. The audit team recently receivedthe legal representation letter and needs to documentthe correct accounting for the lawsuit.The applicable ASC and requiredjournal entry are provided, allowingstudents to focus on memo construction. The case requiresstudents to writean accounting research memo using the provided information. Students learn the structure and creation of accounting research memos, how to paraphrase and analyze the ASC, and thus demonstrate professional writing skills. This case is appropriate for a course that introduces students to writingaccounting research memos with an assessment done by the instructor or the studentsthemselves.
Keywords: accounting research memo; educational case; writing to learn; graduate research course.
- CASE
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reg Dawson opened his first ''DawsonTea and Spice Shoppe'' (DTSS) in 2002 in Tempe, Arizona. DTSS originally specialized in selling loose leaf teas, bulk spices,and brewed tea beverages. Over the years,Greg opened additional stores and now has a total of 29 stores located throughout the Southwest. With the additional
stores, Greg also expanded the menu. DTSS now sells light breakfast items (scones, muffins, and croissants), sandwiches, salads,soups, and beverages(tea, coffee, espresso,and fresh fruit juices). DTSS continues to sell looseleaf tea and bulk and packaged spices.
In January 2019, more than 100 DTSS customers became very ill and required hospitalization. The Centers for Disease Control (CDC) determined this wasdue to salmonella poisoning that was associated with salads that customers purchased and ate at DTSS. The food poisoningwas so severe that some customers experienced kidney and/or liver damage. DTSS was usinga new vendor, Maria's Euro-Farms, for spinach and leafy greens in the salads, whichthe CDC determined was the cause of the salmonella poisoning. DTSS did not know much aboutMaria's Euro-Farms other than it had low prices on produce. DTSS had not reviewed Maria's Euro-Farms' controls and previous issues with salmonella, and DTSS also had not cleaned the produce they received from Maria's Euro Farms. Due to the salmonella issue, DTSS no longer uses this vendor and, in fact, Maria's Euro-Farms has gone out of business. However, DTSS has received undesirable publicity associated with the food poisoning. This has negatively affected revenue and DTSS is struggling to regain customers.
The customers who became ill are understandably upset and want DTSS to pay for their hospital costs as well as for their pain and suffering. Some customers also have chronicliver and kidneyissues and want compensation for their ongoingmedical
We thank Elizabeth Dreike Almer (senioreditor), Michaele Morrow(editor), two anonymous reviewers, and Maria Rykaczewski for their thoughtful comments and suggestions. We also thank Bret Scott and Bill Pasewark for using the case in their graduateresearch classes.
JanetM. Huston, Texas Tech University, School of Accounting, Lubbock, TX, USA; Janet A. Samuels, Arizona State University, W. P. Carey School of Business, Phoenix,AZ, USA.
Supplemental materialscan be accessed by clickingthe links in Appendix B. Editor's note: Accepted by Elizabeth Dreike Almer.
Submitted: February2021
Accepted: July 2021 Published Online: November 2021
79
80 Huston and Samuels
bills. Thus, class action legal proceedings startedin March 2019, with a lawsuit againstDTSS seeking $20 million in damages from the company.DTSS has a June 30 year-end. DTSS is self-insured and, thus, Greg is concerned about the lawsuitbecause the companywould be liable for any damages awarded.
DTSS is a privatecompany with bank loans relatedto their property,plant, and equipment. DTSS does not issue quarterly financial statements; however, the bank loans require DTSS to have annual audited financial statements. The accounting firm of Rossin, Pelling, and Mitchell is working on the audit for the June 30 financial statements, which have not yet been issued. As part of the audit procedures, in early August a letter of audit inquiry was sent to DTSS's legal counsel. On August 15, 2019, the auditors received the legal representation letter from DTSS's legal counsel. The letter indicates that, owing to developments in the case, it is probable that DTSS will be found liable. The lawyers estimate that DTSS can expect to pay between $2 million and $3 million in damages and that any number within that range is possible with one number no more likely than another.
You are a new staff personat Rossin, Pelling,and Mitchell and have been assigned to this client.Assume today is August 19, 2019. The senior in charge of the audit, Ted Lamoreaux, has given you the accounting research (see Exhibit 1) and resolution (see Exhibit 2) related to this lawsuitand wants you to write an accounting research memo for the 2019 audit file. It is important to address this question quickly as the goal is to issue financial statementsby August 31, 2019.
[Note: Unless your instructor indicates otherwise, you will not beaddressing the disclosure issue—only the accounting for the lawsuit.]
- REQUIREMENTS
Write a research memo using the format your instructor provided. Specifically, you should complete the memo in the following order:
- Complete the ''Issues/Questions'' sectionof the memo. Write researchquestions (issues) that are applicable to the case and answerable by the FASB Codification. Make sure to list the research questionsin a logical order.
- Complete the ''Analysis'' section of the memo. If there are multiple research questions, then separate each issue and organize them into the same order as they are listed in the ''Issues/Questions'' section. For each applicable ASC paragraphor criteria, do the following:
- Cite the applicable ASC reference from case Exhibit1;
- Paraphrase the ASC guidance in your own words;
- Identify relevantcase facts. Relevantfacts are those that are related to the specificASC;
- Link relevantcase facts to the ASC guidance; and
- Explain whether the relevantfacts meet the ASC guidanceand provide your conclusion.
After providinga conclusion for every applicableASC paragraph, write an overall conclusion for the research question.
- Complete the ''Background/Facts'' section of the memo, makingsure to includeall and only the relevantfacts used in the analysissection. Organize this in a coherent, logical fashion (typically chronological).
- Complete the ''Conclusion'' section of the memo using the followingorder:
- Concisely answer the researchquestion;
- Indicate the main reason[s]for your opinion. Do not reference any ASC guidance;
- Refer the reader to the journal entry in Exhibit 2, Presentation and Disclosure.
- Use any professional writing resources providedby your instructor to ensure that you are writing in a clear,concise, and professional manner.
The related TechnicalReference is Exhibit 1 and the Presentation and Disclosure with the resolutionis Exhibit 2. Your memo should have the followingcharacteristics:
- Write a maximum of three pages (excluding exhibits).
- Havepage numbers at the bottom,using double-spacing and a standard12-point font (e.g.,Times New Roman,Arial). Margins should be one inch (top, bottom, left, and right).
- Have the proper header information as well as the necessarymemo sections (see the blank memo format provided).
- Use proper grammar,spelling, and punctuation as well as follow good business writing rules.
- Paragraphs should be:
- coherent with a smooth, logical flow from one idea to the next,
- concise,
- show organization (use a topic sentence),
Issues in Accounting Education Volume 37, Number1, 2022
Writing Accounting Research Memos: An Instructional Case to Introducethe Basics 81
- have unity (all sentencesrelate to the topic sentence),and
- display development (fully explain the idea introducedin the topic sentence).
Note: This is an abbreviated research writing assignment. The primary purposeof this memo is not to have you do the research, but rather to have you work on your accountingresearch memo construction and writing skills.
EXHIBIT 1
Technical Reference
[Scope]
- : This Subtopicfollows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 450-10-15, with specific transaction exceptions noted below.
- : The followingtransactions are excludedfrom the scope of this Subtopic becausethey are addressedelsewhere in the Codification:
- Stockissued to employees(.. .)
- Employment-related costs (.. .)
- Uncertainty in incometaxes (.. .)
- Accounting and reporting by insurance entities(.. .)
ASC 450-10-15-1: The Scope Section of the Overall Subtopicestablishes the pervasivescope for all Subtopics of the Contingencies Topic. (.. .)
ASC450-10-15-2: The guidance in the Contingencies Topic applies to all entities.
[Recognition: Timing]
ASC 450-20-25-2: An estimated loss from a loss contingency shall be accrued by a charge to income if both of the followingconditions are met:
- Information available before the financial statementsare issued or are availableto be issued ... indicates that it is probable that an asset had been impaired or a liabilityhad been incurredat the date of the financial statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probablethat one or more future events will occur confirmingthe fact of the loss.
- Theamount of loss can be reasonably estimated. (.. .)
ASC 450-20-25-5:...... , when the condition in paragraph 450-20-25-2(a) is met with respect to a particularloss contingency and the
reasonable estimateof the loss is a range, the condition in paragraph 450-20-25-2(b) is met and an amount shall be accrued for the loss.
[Initial Measurement: Amount]
ASC 450-20-30-1: If some amount within a range of loss appears at the time to be a better estimate than any other amount within the range, that amount shall be accrued.When no amount within the range is a better estimate than any other amount, however,the minimum amount in the range shall be accrued.Even though the minimum amount in the range is not necessarily the amount of loss that will be ultimately determined, it is not likely that the ultimateloss will be less than the minimum amount.
EXHIBIT 2
Presentation and DisclosureRequired Journal Entry
Record the minimum range of the estimatedliability as of June 30, 2019: Debit Lawsuit Loss $2,000,000
Credit Estimated Lawsuit Liability $2,000,000
Issues in Accounting Education Volume 37, Number1, 2022
90 Huston and Samuels
Conclusion/Judgment
[This part of your memo (a) concisely answers the researchissue, (b) indicatesthe main reason[s] for your opinion, and
(c) refers the reader to the journalentry in Exhibit2, Presentation and Disclosure. This portion of the memo is typically prepared last.]
APPENDIX B
ISSUES-2021-017_Memo on BusinessWriting: http://dx.doi.org/10.2308/ISSUES-2021-017.s01 ISSUES-2021-017_Memo Template:http://dx.doi.org/10.2308/ISSUES-2021-017.s02
Modern Mathematical Statistics With Applications
ISBN: 9783030551551
3rd Edition
Authors: Jay L. Devore, Kenneth N. Berk, Matthew A. Carlton