Analysis of Accounting and Financial Issues in Entertainment Industry

This report examines accounting issues, focusing on the challenges faced by actors in the entertainment industry regarding taxation and financial planning. The first part analyzes an article discussing how actors are incorporating to save money due to new tax laws, and it explores the implications and costs associated with this decision. It further delves into relevant accounting theories, including positive accounting theory, agency theory, and normative accounting theory, to explain the context of the issues. The second part of the report analyzes the FASB exposure draft concerning accounting standards for cloud computing arrangements, including implementation costs and the implications for financial reporting. It highlights the key amendments, public interest considerations, and feedback from stakeholders like Hertz Global Holdings, Inc. This report offers a comprehensive overview of accounting practices and their impact on the entertainment industry.

Running head: ISSUES IN ACCOUNTING THOUGHT 1
Issues in Accounting Thought
Name
Institution

ISSUES IN ACCOUNTING THOUGHT 2
Question 1
Article
Stapinski, H. (22 March 2018). The Actor incorporates. Retrieved from
https://www.nytimes.com/2018/03/22/nyregion/the-actor-incorporates.html?rref=collection
%2Ftimestopic%2FAccounting%20and%20Accountants
Introduction
This newspaper article explains the problem that actors and actresses face when they
want to save their coins and how taxation impacts on this. It talks about how may prefer to
incorporate and how accountants can help them to ensure that they include their money well.
Body
Due to the new tax law in America, millions of actors and actresses in New York City
have been going to their accountant's offices with an agenda to incorporate their money to save.
James Yaegeshi who is an actor has also found himself going to his accountant's office to
include. Craig Manzino, who is an accountant that specializes in the entertainment industry, says
that it has been non-stop and everyone wants advice (Schaltegger & Burritt, 2017).
The tax rate has dropped by 3%, and the standard deduction has doubled. However, the
people that work in the entertainment industry cannot deduct the significant expenses that
contribute to their success. In the new tax law expenses like taking acting classes, buying scripts
for auditions and voice lessons are not deductible (Price, 2017). Mr. Manzino said that many
actors are spending 20% to 30% of their income to generate jobs. However, if one is a trainer,
lawyer or works for the Yankees, then they do not have to worry about these expenses (Seele &
Gatti, 2017).

ISSUES IN ACCOUNTING THOUGHT 3
Adam Donshik who is an actor decided to form his entity in December said that for him
he was used to deducting haircuts, headshots, clothing and travel expenses. After the new tax
law, he had to make some changes if he wanted to make a living wage because it was the only
way to survive. Incorporating helps the hidden expenses to be canceled out. As much as
combining is an excellent way to save money it also has costs of its own. The initial fees usually
cost around $1000, but there are other costs that a person must pay when they are newly
incorporated. These costs include social security, Medicare, corporate taxes and bookkeeping
and accounting costs. All summed up it usually adds up to $20000.
People in the entertainment industry should also know that once they are incorporated,
they will no longer receive unemployment benefits if they are out of work. Generally, Mr.
Manzino says that organizing is not for everyone and it will not save money for everyone
because of different situations. Some factors that need to be considered before incorporating are
such as if one is single, married, rents or owns and also the income. For an entertainer that earns
$200000 then they are encouraged then they are highly encouraged to incorporate as compared to
those that make $38000 which is the standard salary for most actors and actresses.
This excludes actors that have support jobs such as working at Starbucks because their
income cannot include this. For most New York workers earning money that is worth
incorporating means lucrative commercial work or steady gigs such as in television series. Mr.
Yagaeshi says that he knew a lot of his friends that combined but only decided to make it official
after the new tax laws. He says that working in a show means leaving in New York and since he
has a family in New York he has to pay for two shows which create a dent in his pocket, thus
deciding to incorporate (Kaya, 2017).

ISSUES IN ACCOUNTING THOUGHT 4
Accountants have also encouraged their clients to put money in retirement plans because
it saves money on taxes, but not everyone can afford to do this. Mr. Manzino says that one of the
problems of advising clients this year is that the Internal Revenue Service has not issued
guidelines on interpreting the new law hence the organization is left guessing. Another challenge
that they face is trying to figure out if an actor's income will remain the same as the previous
year to cancel out costs for incorporating (Smith, 2017).
Theories that relate to the issues in the article
Positive accounting theory
The positive accounting theory's primary aim is to explain and predict what would
happen in an accounting practice and therefore it is not prescriptive. For example in this case,
when the accountant wants to incorporate, he or she will have to predict the actor's income in the
next year. Therefore this shows that they do not know what the salary ought to be but rather what
it will be.
Another issue that this theory relates to is when actors have to try and predict if
incorporating will save them money or not. For some, it will not depend on factors such as
marital status and for others, it will. That's why instead of trying to figure out what will happen,
actors are streaming into the offices of accountants to figure out a plan (de Villiers & Maroun,
2017).
Some of the assumptions in this theory are
It is not prescriptive. The theory tries to predict and explain what will happen in an
accounting practice rather than describing it. For example, the accountants will have to predict
the future earnings of an actor to commence incorporation.

ISSUES IN ACCOUNTING THOUGHT 5
It only explains what a person might do and not what they should do. Since the theory is
based on predictions, then actions will also be based on this, and thus there is a possibility that
the actions will not be done because the projections might not come to be. In this case, when the
accountant predicts one's future salary, they will come up with an incorporating plan based on
this. Thus the methods may not be used because they are not what should be done Silva,
Sancovschi & Santos, 2017).
It assumes that every agent's and principal's actions have self-interest motive.
Agency theory
This theory only takes into account two relationships that are the relationship between the
agent and the principal of business. The primary aim of this theory is to solve any conflict that
would be present between the agent and the principal. The agent, in this case, is the accountant
and the principal is the actor. The dispute between these two parties at most times arises due to
diversity regarding objectives and interests.
The theory relates to this article in the relationship between the accountant and the actor.
At most times the actor will follow the advice of the accountant on whether to incorporate or not.
Tension may arise when the actor wants to incorporate when their salary does not allow it despite
being advised by the accountant not to. This will result in conflict between the two (Shogren,
Wehmeyer & Palmer, 2017).
The assumptions in this theory are
One assumption is that it does not take into consideration risks involved. For example, if
the actor does not incorporate, then they will face substantial money losses in tax. This risk only
applies to the principal and at most time's agents do not incur any risks (Trottier & Gordon,
2017).

ISSUES IN ACCOUNTING THOUGHT 6
Another assumption is that parties can only consist of two. For example, in this case, the
parties are three: the actor, the accountant, and the Internal Revenue Service. However, the
theory does not apply to relationships with more than three parties like the one above.
Normative accounting theory
The normative accounting theory primarily deals with accounting systems and is based
on the notion that one accounting system can be superior to another. It tries to explain why
people choose an accounting system over another and which is the most appropriate in a given
situation. The issue in this article that relates to this theory is when the actor tries to choose a
system that will ensure they save most of their money.
The theory has the following assumptions
It assumes that one accounting system can be superior to another. This is not correct
because each accounting system is excellent in its way because each can be used to achieve
different objectives. For example for some actors incorporating will ensure they save their
money but this will not work for other actors. Hence it is wrong to assume that the systems can
be categorized regarding which is more appropriate (Beams, Brozovsky & Shoulders, 2017).
Another assumption in this theory is that it is scientific when it is not.
Conclusion
Mr. Manzino advises people in the entertainment industry to consider incorporating
especially if they are earning a salary of $200000. He says that incorporating is the best solution
for such people if they want to save money and also they should consider putting money in
retirement plans. Also, Mr. Manzino asks actors to seek advice first before incorporating their
cash because what works for one may not work for another. This is due to different factors such
as the marital status and whether they own a home or not.

ISSUES IN ACCOUNTING THOUGHT 7
Question 2
Exposure Draft
Introduction
The Financial Accounting Standards Board has issued the following exposure draft for
online commenting to solicit proposed changes to Subtopic 350-40 of the FASB Accounting
Standards Codification. The Board hopes that the proposed amendments have included the
changes that were asked for in the previous draft.
Body
The FASB exposure draft addresses the following issues
In April 2015, the FASB issued accounting standards update that was aimed at helping
organizations evaluate the fees paid by a customer in a hosting arrangement. The board did this
by guiding determine when the arrangement includes a license. In the amendments, when an
arrangement consists of a license to the internal-use software, then the customer accounts for it
(Levi-Faur, 2017). This means that the license is recognized as an intangible asset and also it is
liable to the extent that the payments are attributable to it. Under Subtopic 350-40 if a cloud
computing arrangement does not include a license, then it is accounted for by the entity
(organization) (Hayes & Reckers, 2017).
After the issuance of the 2015-05 draft, some comment letters requested for additional
guidance on accounting costs for implementation activities in an arrangement. This is because
the one in the Accounting Standards Codification was not explicit in the area. The amendments
thus decided that the accounting for implementation activities applies to an entity that is a
customer. Also, the qualitative and quantitative disclosures about set up costs apply to the body

ISSUES IN ACCOUNTING THOUGHT 8
that capitalizes the implementation costs. This is following the internal-use software guidance
(Dubos, 2017).
In the proposed Update, it spells out the requirements needed to capitalize
implementation and upfront costs that are obtained in an arrangement and also those obtained in
internal-use software. Also, it requires a customer to follow the guidance to know which costs
for implementation would be capitalized as an asset (Manish & O'Reilly, 2018). The costs to
develop or obtain the internal-use software cannot be capitalized as an asset under Subtopic 350-
40. The customer expenses the costs for implementation activities during the term of the
contract.
The amendments in the proposed Updates also require specific qualitative and
quantitative information to be disclosed about implementation costs associated with internal-use
software in an arrangement. This will increase the information for users of financial statements
(Kelsen, 2017).
Is it introduced in the public interest?
Yes, it is. The proposed Update aim at helping entities to evaluate the fees paid by a
customer in a hosting arrangement thus the draft ensures that all its amendments cater to the
public (bodies).
Comment letters
ONE
By Hertz Global Holdings, Inc
This comment letter has the following views

ISSUES IN ACCOUNTING THOUGHT 9
The Hertz Company supports the proposed amendments and believes that the treatment
of the implementation costs of an arrangement as described is appropriate. However, they would
like additional clarification on the proper balance sheet line item for the capitalization of the
implementation costs. Also, they would like further explanation on the treatment of hosting and
maintenance fees during development phase (Van Gunsteren, 2018).
Also, they believe that the impairment model in Subtopic 350-40 can be applied to cloud
computing arrangements and thus an alternative model is not necessary.
This comment letter is against the regulation because it believes that the draft needs to
include some additional information. For example, they want FASB to clarify on the appropriate
balance sheet for implementation costs to be capitalized.
TWO
By RSM US LLP
Overall, the company supports the Board's efforts to address the issue of customers
accounting for implementation costs concerning the diversity in practice. They believe that the
proposed Update eliminates the variation in practice. The company also agrees with the
amendments that the implementation costs should be capitalized using the guidance in Subtopic
350-40.
Also, the company does not believe that additional guidance is needed to determine
whether the amendments apply to minor hosting arrangements. The company also agrees with
the disclosures for implementation costs because they think it will provide more information for
both entities. Also, applying the impairment model for implementation costs it is a reasonable
approach (Friedman, 2017).

ISSUES IN ACCOUNTING THOUGHT 10
The letter is for the regulation. The company fully supports the proposed Updates and
would like for the amendments to be put to use. For example, they agree with the disclosures and
the impairment model and believe they will be appropriate.
THREE
By Exelon Corporation
Exelon supports the Board's objective to provide specific and clear guidance on the
accounting for costs of implementation activities in an arrangement. The company believes that
the proposed Update addresses the diversity in practice and provides the value generated when
such charges are incurred. However, they would like the board to make the following
adjustments. First, to identify an accounting model for future projects that accommodates
economic value for arrangements. Second, the company believes that the disclosures in the
Updates are not consistent and need to be changed. Lastly, the presentation of amortization is not
consistent and needs to be (Lin, 2017).
The company is against the regulation because they believe some adjustments should be
made before adopting the amendments. For example, the company wants the disclosures for
implementation to be made consistent.
FOUR
By HP
The comment letter expresses the following views
HP supports the FASB's effort to provide additional guidance concerning accounting for
implementation activities incurred in an arrangement. The company also supports the effort to
align the requirements to capitalize implementation cost obtained in a hosting arrangement. The
HP Board believes that amendments aligned achieve this goal (Mansbridge, 2018).

ISSUES IN ACCOUNTING THOUGHT 11
However, the company does not support the FABS' proposal to provide specific
incremental disclosures because some information is vital to the company.
The company is both for and against the regulation. Hp is for the regulation because it
fully supports the Updates to align the requirements for capitalizing the implementation costs.
HP is also against the regulation because they do not support the decision for disclosures because
the information is vital to the company.
Theories
Public interest theory
The public interest theory is based on the assumption that companies or organizations
seek to act in the interest of their customers. A company will thus ensure that their set strategies
and goals cater to their customers. The second comment letter has utilized this theory in that they
agree with the disclosures. With this, they hope that they can help their customers with all the
information they need for capitalizing implementation costs. This theory, however, is the least
effective in explaining the comment letters because most of them are against the regulation of the
proposed amendments because they do not cater to the interest of the company (Grunig, 2017).
Private interest theory
In the private interest theory, agents are usually self-interested. For example, if a
company is formed, then it ensures that its goals and objectives are for the betterment of the
company. The company is self-interested in that in whatever it does it will make sure that the
company has to profit or gain. The fourth comment letter has utilized this theory. This is because
they do not agree with the disclosures for the implementation costs. The company does not want
specific crucial information about the company to be in the hands of the entities (customers).
They do not want this because of their self-interest. They want to protect the company first. This

ISSUES IN ACCOUNTING THOUGHT 12
theory is the most effective in explaining the comment letters because most of them are against
the regulation because it does not cater to the interest of the company (Deegan, 2013).
Capture theory
This theory explains that regulation is made based on the demand of the interest groups to
maximize the income of its members. For example, the government forms the regulation laws
and a company can ‘capture' them to set regulation in a way that benefits the organization. This
theory is the least effective in explaining the comment letters, and none have used it (Gans &
Ryall, 2017).
Conclusion
The Financial Accounting Standards Board issued the exposure draft as an update from
the previous draft, and they aimed at ensuring all the adjustments that were requested are
included. The main aim of the proposed accounting standards in this exposure draft is to help
organizations evaluate the fees paid by a customer in a cloud computing arrangement. The draft
also provides guidelines in Subtopic 350-40 on the requirements for capitalizing implementation
costs for an arrangement that is a service contract. It explains in details when an arrangement can
be classified as an asset and when liability is recognized. The Board hopes that the amendments
will cater to all companies and the adjustments are appropriate.