Internalcontrol systems in accounting refer to procedures and policies bymanagement geared towards ensuring complete and accurate recording ofthe financial accounts. It is clear that the Microsoft management didnot implement Generally Accepted Accounting Principles (GAAP) in therecording of its accounts and proper documentation of the records.The application of management controls such as supervision,authorization, and documentation of records would have been veryhelpful in detecting these errors and establishment of in-houseinternal control department that checks and implements new internalcontrol systems of the organization. The internal control presentcould not detect the error as there was no supervision and properdocument even application of GAAP. Example, Microsoft reserveaccounts were not reconciled to the general ledger, in addition, thereserve were captured in the books of accounts without properrecording and documentation.
Seniormanagement is the image of the organization both inside and outsidethe organization. How these personnel behaves in the organizationmatters allot as they represent parents in a big family organizationjust as parents are responsible for shaping the character and imageof their children so are the senior management in influencingindividual behaviors in an organization. They set the direction,values, and the standards of the organization, integrity and honest.A Company is defined by its ethics as they serve as the principlesupon which that organization is established. Lack of ethics blinds anorganization and results to lack of clear vision and irresponsibilityin the organization. For instance, when there no code of ethicsdefining employees relationship in the group, there might be sexualharassment cases, dishonest issues in accounting department andinsubordination just to mention a few.
Netoperating loss (NOL) occur when business deductions are more than theincome, also result when non-business deductions are in more thanincome taxable in a year. Tax allows C Corporation to carry NOlsforward and claim a refund for the loss for less than 20years.Advantages of corporation B acquiring Corporation A, it is possibleto transfer an asset from one corporation to another withouttriggering tax on gain for the company that receives the asset. Itcan also benefit in understating profits through reduction by othercompany’s loss. Help in centralization, reporting and paying tax.
Disadvantagesrights of the minority have to be respected regarding law and ethicsthis might result in a situation that affect negatively affiliategroup. In addition, losses of company A that minimize tax liabilitydecrease corporate B corporate B taxis basis. This serves to reduceor increase loss by company B on the sale of its subsidiary. CompanyA will benefit by having its NOL being carried forward to subsequentyears. Company B will serve as an agent on all tax details.Recognition of income is deferred. On the other hand its losses alsoare deffered , there also cost associated with tax consolidation. Itis required to change its tax year. Thus, it might result in thecreation of short year for the purpose of carry back or carry overs.Tax issues to consider are whether the corporation is eligible forTax consolidation and the type of corporation or affiliate group.
CorporationA and B should become members of parent group and a consent by allmembers signed by the organization within the group. Such That A, B,C, P and S are members of the consolidated group. This group willexist as long as parent corporation has 80% of voting power andmembers have signed form 1122.
Ting, A.(2013). TheTaxation of Corporate Groups under Consolidation.New York: Cambridge University Press.
26CFR 1.1502-75 – Filing of consolidated returns. | US Law | LII /Legal Information Institute. (n.d.). Retrieved fromhttps://www.law.cornell.edu/cfr/text/26/1.1502-75