What key categories of ratios were affected by the restatement (liquidity, solvency, profitability, efficiency)? Use ratio definitions in the Appendix as a reference. Please provide details on ratio definition and calculations in your report. For each of the categories affected, choose 1 or 2 key ratios, compute the ratio, and discuss changes in the ratio from pre- to post-restatement. Compute and compare these ratios for each year affected by the restatement.

10K/A http://www.sec.gov/Archives/edgar/data/885639/000119312511246851/d221132d10ka.ht m 10Q/A http://www.sec.gov/Archives/edgar/data/885639/000119312511246857/d221130d10qa.ht m Leases KOHLS Corp* 885639 9/13/11 2/1/05 4/30/11 1. Explain the underlying accounting issue(s) behind the restatement. If there was more than one cited reason for the restatement, be sure to discuss each underlying accounting issue. Make sure you study and cite the relevant accounting literature (ASC). (Brandon) In 2011, Kohls determined a need to restate their financial statements to fix numerous accounting errors in regards to leases. The restatement dates back to 2008, which resulted from \"improper application of the saleleaseback provisions\" of ASC 840. (10K) Kohls is heavily invested in the construction of leased stores. During construction, Kohls typically covers construction cost overruns and additional improvements, such as roofing costs. Thus for accounting purposes, Kohls was determined to be the \"owner\" during the construction period, and forced to capitalize construction costs on their Balance Sheet. Once construction was completed, ASC 840 requires Kohls to do a saleleaseback analysis to find out if Kohls can eliminate the assets from their Balance Sheet. Kohls typically reimburses a portion of the costs by adjusting rental and cash payments, or had terms that fixed the rental payments for a significant portion of the leased asset's useful life. These were usually deemed \"continuing involvement\GROUP RESTATEMENT CASE This case requires you to research and analyze the assigned restatement. You can use the SEC company data web site (http://www.sec.gov/edgar/searchedgar/companysearch.html) to find all company filings related to the restatement. You could also search online for media coverage on the subject. Capital IQ, accessible through the Market Information Lab located on the first floor of BIF, provides user-friendly interface to company background, SEC filings, financial statements in Excel format, stock market information and news releases. Please address the following questions. Required: 1. Explain the underlying accounting issue(s) behind the restatement. If there was more than one cited reason for the restatement, be sure to discuss each underlying accounting issue. Make sure you study and cite the relevant accounting literature (ASC). 2. What was the impact of the restatement on the financial statements? Your company's amended forms (10-Q/A and 10-K/A)1 should provide a reconciliation or tabular presentation of the original and restated financial statement amounts. a. Prepare vertical income statement(s) (all items in percentage of total sales) and vertical balance sheet(s) (all items in percentage of total assets) for the years and amounts presented in the originally filed 10-K (10-Q) and for years and amounts presented in the 10-K/A (10-Q/A) i.e., for all years affected by the restatement. What key accounts did the restatement affect? Use changes in the vertical statement amounts to respond to this question. b. What key categories of ratios were affected by the restatement (liquidity, solvency, profitability, efficiency)? Use ratio definitions in the Appendix as a reference. Please provide details on ratio definition and calculations in your report. For each of the categories affected, choose 1 or 2 key ratios, compute the ratio, and discuss changes in the ratio from pre- to post-restatement. Compute and compare these ratios for each year affected by the restatement. 3. Explain the nature of the restating firm's initial misreporting (i.e. fraudulent, unintentional mistakes or due to changes of accounting standards). Please provide supporting arguments for your conclusion, such as evidence for fraudulent behavior or incentives for intentional misreporting. 4. Propose changes to the existing GAAP in the subject area that could potentially preclude this type of misreporting and explain your reasoning behind it. If you believe no GAAP changes can prevent this type of misreporting, please explain why. Please refer to Appendix B for the restatements assigned. 1 Some of the firms included the restatement in their next Form 10-Ks, so no formal amendments were filed. Appendix A Ratio Definitions Ratio definitions here could be slightly different from the definitions in the textbook. Liquidity - Meet current obligations (current, quick, cash) Current: CA/CL Quick: (CA - Inventories)/CL OR (Cash + Marketable Securities + Accounts Receivable) / CL Cash: (Cash + Marketable Securities or Short Term Investment) / CL Solvency - Meet long-term debt payments (interest coverage, financial leverage) Interest Coverage: Operating Income / Interest Expense Financial Leverage: Total Assets / Total Equity (book value) Profitability - Margins (gross margin, profit margin) Gross Margin: Gross Profit / Revenues Profit Margin: Net Income / Revenues Efficiency - How efficiently is a company using its assets (return on equity, return on assets, asset turnover, inventory turnover, A/R turnover) ROE: Net Income / Equity_Avg ROA: Net Income / Assets_Avg Asset Turnover: Revenues / Assets_Avg Inventory Turnover: Inventory / (COGS / 365) A/R Turnover (days): A/R / (Revenues / 365) Appendix B. Restatements Topic NAME Investments Chanticleer Holdings, Inc. Leases KOHLS Corp* COMPANY_ FKEY 1106838 885639 FILE_DATE For Amended Statement 9/9/09 9/13/11 RESTATED PERIOD_ BEGIN_DATE 1/1/08 2/1/05 RESTATED PERIOD_ END_DATE 3/31/09 4/30/11 *Kohl's only restated the last 3 years + the first quarter of the most recent year. Previous years were not formally restated, but Kohl's made a cumulative adjustment to cover it. You only need to cover 2008, 2009, 2010, and the 1st quarter of 2011