Two independent cases given below violate some parts of the conceptual framework of accounting. For each case. Explain:

1. The nature of the incorrect accounting and reporting
2. What parts of the conceptual framework are directly violated?

• Case A. The financial statements of Raychem Corporation included the following note; "During the current year plant assets were written down by $8,000,000. This write-down will reduce future expenses. Depreciation and other expenses in future years will be lower and, as a result this will benefit profits of future years."
• Case B. During an audit of The Silvona Company. Certain liabilities, such as taxes, appear to be overstated. Also some semi obsolete inventory items seem to be undervalued, and the tendency is to expense rather than to capitalize as many items as possible.

Management states that "the company has always taken a very

conservative view of the business and its future prospects.

' Management suggests that they do not wish to weaken the company by

reporting any more earnings or paying any more dividends than are

absolutely necessary, because they do not expect business to continue to

be good. They point out that the lower valuations for assets and so on, do

not lose anything for the company but do create reserves for ' hard times".