This is a memo.

All instructions are in the uploaded file.To make it easier for me, could you please also basically bullet th points you make on each page so I understand.

Project 1: The Accounting
Framework
P r o j e c t Br i e f
Key Tasks:
After reviewing the emails from the Senior Associate, you are now ready to complete the
assignments. This project has two parts:
•
For Part 1, you will complete the research assignment outlined in the first
email from the Senior, with the subject “New Research Assignment”.
•
For Part 2, you will complete the revenue recognition assignment outlined in
the second email, with the subject “Revenue Recognition”.
Part 1: Research Memo on Accounting Changes to
Financial Statements
Write a 4-5 page memo to the Senior Associate that addresses each of the companies
listed in their email. For each company, your memo should describe the specified
accounting change, the reason for the change, and its impact.
Use the research tools at your disposal within your organization to search for
guidance to specifically address following items for each company in your memo:
1. Using EDGARLinks to an external site., download the financial reports (e.g.,
10Q, 10K) for the time period of the accounting change. (Alphabet CIK:
0001652044, Chipotle CIK: 0001058090, Papa John’s CIK: 000901491)
2. Identify (by section title and page number of the report) the section(s) of the
financial report(s) that discuss the specific accounting change.
3. Describe the accounting change, in your own words, in a few short
sentences.
4. Identify the GAAP pronouncement(s) that govern the accounting change
relevant to the company? Make sure to list the number and name of the
pronouncement(s).
5. List the financial statements (e.g., balance sheet, income statements,
statement of cash flows, etc.) that the accounting change impacts. Also
specifically list which accounts on these statements the change impacts.
6. Describe the numerical effect of the accounting change to the company’s
financial statements. What would have the company’s numbers been if they
had not made the accounting change?
7. In your own words, using guidance and your professional judgement, write a
short paragraph that assesses whether the company was required to make
the change, and if not, whether the change is positive for the company,
investors, and other stakeholders.
Part 2: Revenue Recognition Memo to File
Write a 2-3 page memo to the file that describes how the new revenue
pronouncement applies to software companies.
Use the research tools at your disposal within your organization to search for
guidance and specifically address the following:
1. Summarize the 5 steps to recognize revenue per ASC 606.
2. Write a paragraph explaining both the methodology in your own words, and
why the company should use this methodology to recognize revenue. Use
the guidance in ASC 606 to justify your explanation.
3. Calculate how much revenue the company should recognize by their fiscal
year-end, which is the end of the calendar year.
What to Submit:
You will submit two separate memos – one memo to address Part 1 of the project, and
the other to address Part 2.
•
•
Part 1: Submit a 4-5 page memo (longer is acceptable) to the Senior
Associate that assesses the accounting changes in Google, Chipotle, and
Papa John’s. The memo must be double-spaced, Times New Roman, 12
point font.
Part 2: Submit a 2-3 page memo (longer is acceptable) to the file. The
submission must be double-spaced, Times New Roman, 12 point font.
Part 1 Email
To: PwC Employee
From: Senior Associate
Subject: New Research Assignment – Review GAAP to understand changes at
the following three companies
Hi PwC Employee,
While we wait to get started on our next engagement, I thought you could
use the research tools at your disposal to practice researching GAAP and
understand how companies use GAAP to make sure their financial
statements best reflect their performance, while following accounting
regulations.
I’ve selected three public companies that demonstrate the three types of
accounting changes our clients often face:
1. Change in accounting estimate – Google: Google changed the way
they estimate the useful life of its servers and other equipment in
Q1 2021. (Alphabet CIK: 0001652044)
2. Change in accounting principle – Chipotle: FASB changed the way
that operating leases are recognized, and this change took effect in
2019. It has had a major impact on Chipotle’s financial statements
starting Q1 2019. (Chipotle CIK: 0001058090)
3. Error in accounting guidance application – Papa John’s: Papa John’s
found some accounting errors that affected several years of
financial statements in 2019. (Papa John’s CIK: 000901491)
For each of the companies, please summarize the relevant GAAP guidance,
identify the financial statements that were impacted by the accounting
change(s), identify the quantitative impact to the financials due to the
accounting change, and assess whether you think the company applied
GAAP guidance properly, and why. Let me know if you have any questions or
need me to point you in the right direction. I look forward to seeing what
you come up with.
Thank you,
Senior Associate
Part 2 Email
To: PwC Employee
From: Senior Associate
Subject: Revenue Recognition – How to account for a new revenue stream
Hi PwC Employee,
We have a new client, a start-up called Spark Software. This is their first
year with us, and we must make sure they recognize their revenue properly.
Spark Software offers customers an inventory management app. They
charge customers up front for a one-year subscription, and customers can
cancel their subscription anytime within the first 60 days to receive a full
refund. Customers can renew their subscriptions each year, 2 months before
the subscription expires.
Spark Software so far has 3 clients. Below are the dates on which each client
signed up and paid for the app, and the amount each paid (different
customers get different pricing based on negotiations with the sales team):
Customer A
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Joined: January 1, 2020
Paid: $20,000
Renewed: May 31, 2021
Paid: $10,000
Customer B
•
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Joined: March 15, 2020
Paid: $10,000
Cancelled: April 15, 2020
Customer C
•
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Joined: June 30, 2020
Paid: $10,000
Renewed: May 31, 2021
Paid: $10,000
How and when should Spark Software recognize revenue for each of these
customers’ purchases?
Take a look at how the new revenue pronouncement, ASC 606, applies to
software companies. Also take a look at ASC 606 itself.
Summarize the 5 steps to recognize revenue per ASC 606, then write a
paragraph explaining the methodology Spark Software should use to
recognize revenue. How much revenue will Spark Software have recognized
by their fiscal year-end on December 31, 2020?
Let me know if you need any help.
Senior Associate