The Rump Organization Essay

Statement of Relevant Facts:

The Rump Organization. a SEC registrant. is be aftering a corporate restructuring program. On December 27. 2005 Ronald Rump. the Chief executive officer of the organisation. along with the Board of Directors approved a program to involuntarily end 100 of the organization’s employees. There is an option for each of the employees to subscribe a judicial proceeding release. which forfeits any right they have for legal action against Rump. In exchange for their voluntary sign language of the release. Rump will offer each employee a lump-sum hard currency payment equivalent to one month’s wage. If they refuse to subscribe the release they will non have any rupture benefits. The employees in inquiry will non be able to retain their occupation regardless of whether the release is or is non signed. There are a few extra facts presented along with the instance: The corporate restructuring program identifies the figure of employees to be terminated. occupation categorizations. and locations of the employees. The completion day of the month of the program is January 31. 2006 and employees are allowed to go forth Rump at any clip on or before the day of the month of completion. The employees must subscribe the release before this day of the month in order to claim their rupture benefits. On December 31. 2005 all of the employees affected by the program were e-mailed a sum-up of the plan’s footings and were informed about the option to subscribe the judicial proceeding release. Rump believes that there will be no important alteration to the program and asserts it will non be withdrawn before the executing. Rump does non hold a policy on rupture payments made to employees but in the yesteryear has offered benefits to employees being terminated due to workforce decrease programs.

Designation of Issues and Options:

The primary inquiry asked in the instance is if Rump should acknowledge a liability for the expected employee expiration benefits as of December 31. 2005. If the expiration is considered nonvoluntary. a liability will be recorded on the communicating day of the month. Alternatively. if the employee’s expiration is considered voluntary a liability will be recorded when the employee leaves the company ( ASC 712-10-25-1 ) . In order to reply this inquiry we need to set up the communicating day of the month in the instance. After set uping the communicating day of the month we need to find if all standards presented in ASC 420-10-25-4 are satisfied. An extra issue is if the past erstwhile rupture benefit offered to employees being terminated could be considered an sweetening to an on-going benefit agreement. If it is considered an sweetening. the liability would be recognized when it is likely that a future colony will be reached ( ASC 420-10-55-18 ) .

Decisions and Authoritative Reasoning:

Below is a sum-up of our decisions and important logical thinking for each of the commissariats: 1. We conclude that Rump should acknowledge the liability for the expected employee expiration benefits on the communicating day of the month. upon run intoing all four standards presented in ASC 420-10-25-4 and communicated to the employees. which is December 31. 2005. We believe that the expiration of the employees is nonvoluntary. We besides concluded that the benefit agreement is non to be treated as an sweetening to an on-going benefit agreement. a. Following is a treatment of the four standards presented in ASC 420-10-25-4: I. “Management. holding the authorization to O.K. the action. commits to a program of expiration. ” Rump. the CEO. and Board of managers approved the program on December 27. 2005. two. “Plan identifies the figure of employees to be terminated. their occupation categorizations or maps and their locations. and expected completion day of the month. ” Rump’s program includes 100 employees. the occupation categorization. location of each employee. and a January 31. 2006 completion day of the month. three. “The program establishes the footings of the benefit agreement. including the benefits that employees will have upon expiration in sufficient item to enable employees to find the type and sum of benefits they will have if they are involuntarily terminated. ” The program in the instance explicitly states that the employees will have expiration benefits upon subscribing the judicial proceeding release on or before January 31. 2006. four. “Actions required to finish the program indicate that it is improbable that important alterations to the program will be made or that the program will be withdrawn. ” Rump concludes it’s unlikely the program will hold major alterations or will be withdrawn. B. Based on the above standards being satisfied. ASC 420-10-25-8 provinces “if employees are non required to render services until they are terminated in order to have the expiration benefits ( regardless of when they leave ) … . a liability for the expiration benefits shall be recognized at the communicating day of the month. ” As stated above our communicating day of the month is December 31. 2005 established by this codification subdivision. after which employees can go forth anytime which means their services are non required for expiration benefits.

2. An alternate place we have considered:

a. Rump satisfies the above standards based on management’s averment that it is improbable that a important alteration will go on to the program and/or be withdrawn before completion. From an auditor’s position we need to be leery on management’s averment as to whether or non they are looking out for the best involvement of the employees. b. ASC 420-10-55-1 provinces “Absent grounds to the reverse. an on-going benefit agreement is presumed to be if an entity has a past pattern of supplying similar expiration benefits. ” I. It can be argued that since Rump had offered a erstwhile rupture benefits to employees in the past an on-going benefit agreement is presumed to be. However. since Rump varied the past rupture benefits based on the facts of each single state of affairs and does non hold a general policy sing rupture payments. we believe that this presents a weak statement for seeking to acknowledge the liability in this mode. We besides believe precedency or a formal written guideline would be needed for the company to seek this intervention. c. We believe the alternative’s statements are non strong plenty to act upon our determination on acknowledging a liability for the expected employee expiration benefits on another day of the month.

Future Standards Changes & A ; IFRS Impact:

In June 2005 exposure bill of exchange IAS 37 Provisions. Contingent Liabilities and Contingent Assets was published covering with expiration benefits of employees. On June 16. 2011 the IASB issued IAS 19 Employee Benefits which made finalized amendments to the exposure bill of exchange and became effectual on January 1. 2013. The board proposed to clear up the definition of expiration benefits to do clear that the benefits are in exchange for employee’s credence of voluntary redundancy. In our instance the benefits were in exchange for a release of any rights to register judicial proceeding against Rump. these benefits would so be considered postemployment benefits which would be handled otherwise than expiration benefits. Besides the board proposed that nonvoluntary expiration benefits would be recognized when communicated as portion of its program of expiration to the affected employees when it no longer has the ability to retreat an offer of those benefits. The deduction of this would be that the communicated electronic mail by Rump of a sum-up of the plan’s footings would hold to be seen as binding in that Rump could no longer retreat an offer of the benefits in order to acknowledge the benefits at the clip of this e-mail communicating.