Suppose that you are Dear FASB, the question-and-answer person for a magazine called Rural Business. Rural...

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Suppose that you are Dear FASB, the question-and-answer person for a magazine called Rural Business. Rural Business is a magazine devoted to serving the needs of small and medium sized businesses in rural communities. Readers of your magazine are invited to submit letters to Dear FASB, who offers advice in "Dear Abby" style in a special section of the magazine. Your editor's policy is to require revision whenever she believes a nonaccountant would have difficulty understanding a response. One day you receive the following letter: Dear FASB: Yesterday, my stock broker told me that the accounting rules prevent businesses from reporting their true investment potential. His comment arose when we were discussing Loren Industries, a manufacturer of small electronic components. The stock is currently selling for $5.50 per share and the broker stated that this is a "bargain" and I need to buy a large block of stock immediately. My previous analysis of the financial statements revealed that the company had reported a $3.5 million loss on sales of $20 million last year and had a book value of $1.95 per share. Furthermore, the company has been in business for three years and has yet to report a profit. The broker responded that start-up businesses generally do report losses when beginning operations and that the accounting rules ignore a lot of profit potential. An example he pointed out was that the fact that the company signed a $50 million contract last November to deliver parts for the Artemis Human Landing System beginning in October 2023. The company's press release indicated that earnings over the two-year contract would be approximately $10 million dollars. However, my broker stated that the financial statements did not report any of this revenue "because the accounting rules are bound by conservatism and intentionally ignore legally binding agreements which result in future profits to a company." Another of my broker's example of the "conservatism" bias was that the asset values reported on the balance sheet were significantly below market value. He pointed to the president's letter in the annual report which stated that the company's land had increased in value to $20 million from $1.5 million since operations began. Thus, the company's true value was at least $4 above the reported book value. The broker stated that the accountants ignored this value change because "their mission is to be pessimistic and provide a conservative valuation. Furthermore, "my job as your stock broker is to discover 'investment gems' which the accounting profession intentionally hides with its conservative bias." I'm confused and would appreciate your help to sort out this situation. Should I put my faith in the financial statements audited by accountants or the analytical ability of my stock broker? Your clarification of this situation will be invaluable. Sincerely, Supremely Confused Required: Your task is to write an answer to Uncertain New Owner. Because space in your magazine is limited, restrict your answer to 230 words in the body of the response. The document must have reasonable margins and font setting. Suppose that you are Dear FASB, the question-and-answer person for a magazine called Rural Business. Rural Business is a magazine devoted to serving the needs of small and medium sized businesses in rural communities. Readers of your magazine are invited to submit letters to Dear FASB, who offers advice in "Dear Abby" style in a special section of the magazine. Your editor's policy is to require revision whenever she believes a nonaccountant would have difficulty understanding a response. One day you receive the following letter: Dear FASB: Yesterday, my stock broker told me that the accounting rules prevent businesses from reporting their true investment potential. His comment arose when we were discussing Loren Industries, a manufacturer of small electronic components. The stock is currently selling for $5.50 per share and the broker stated that this is a "bargain" and I need to buy a large block of stock immediately. My previous analysis of the financial statements revealed that the company had reported a $3.5 million loss on sales of $20 million last year and had a book value of $1.95 per share. Furthermore, the company has been in business for three years and has yet to report a profit. The broker responded that start-up businesses generally do report losses when beginning operations and that the accounting rules ignore a lot of profit potential. An example he pointed out was that the fact that the company signed a $50 million contract last November to deliver parts for the Artemis Human Landing System beginning in October 2023. The company's press release indicated that earnings over the two-year contract would be approximately $10 million dollars. However, my broker stated that the financial statements did not report any of this revenue "because the accounting rules are bound by conservatism and intentionally ignore legally binding agreements which result in future profits to a company." Another of my broker's example of the "conservatism" bias was that the asset values reported on the balance sheet were significantly below market value. He pointed to the president's letter in the annual report which stated that the company's land had increased in value to $20 million from $1.5 million since operations began. Thus, the company's true value was at least $4 above the reported book value. The broker stated that the accountants ignored this value change because "their mission is to be pessimistic and provide a conservative valuation. Furthermore, "my job as your stock broker is to discover 'investment gems' which the accounting profession intentionally hides with its conservative bias." I'm confused and would appreciate your help to sort out this situation. Should I put my faith in the financial statements audited by accountants or the analytical ability of my stock broker? Your clarification of this situation will be invaluable. Sincerely, Supremely Confused Required: Your task is to write an answer to Uncertain New Owner. Because space in your magazine is limited, restrict your answer to 230 words in the body of the response. The document must have reasonable margins and font setting.