The company has a share-based compensation plan for top-level executives consisting of stock options . The value of the options exercised during the year was not expensed or disclosed in the financial statements . The company has several operating and capital leases in place , and the CFO is considering leasing a substantial portion of the assets for future use . The current leases in place are arranged using special purpose entities ( SPEs ) and operating leases . The company seeks to acquire a global partner , which will require IFRS reporting . The company received correspondence from the Securities and Exchange Commission ( SEC ) requesting additional supplemental information regarding the financial statements submitted with the IPO . Write an eight to ten ( 8-10 ) page paper in which you : Evaluate any damaging financial and ethical repercussions of failure to include the inventory write-downs in the financial statements . Prepare a recommendation to the CFO , evaluating the negative impact of a civil fraud penalty on the corporation as a result of the IRS audit . In the recommendation , include essential internal control procedures to prevent fraudulent financial reporting from occurring , as well as the major obligation of the CEO and CFO to ensure compliance . Examine the negative results on stakeholders and the financial statements of an IRS audit which generates additional tax and penalties or subsequent audits . Assume that the subsequent audit and / or additional tax and penalties result from the taxpayer ’ s use of an inventory reserve account , applying a 10 percent reduction to inventory over three ( 3 ) years . Discuss the applicable federal tax laws , regulations , rulings , and court cases related to the inventory write-downs , and explain the specific relevance of each to the write-down . Research the current generally accepted accounting principles ( GAAP ) regarding stock option accounting . Evaluate the current treatment of the company ’ s share-based compensation plan based on GAAP reporting . Contrast the financial benefits and risks of the share-based compensation stock option plan with the financial