Ch 1 Flashcards
(14 cards)
The FASB ASC is now the sole authoritative source for all US US GAAP.
What are the major goals of the FASB ASC?
- Simplify user access by codifying all authoritative US GAAPs in one spot.
- Ensure that the codified content accurately represented authoritative US GAAPs as of July 1, 2009.
- Create a codification research system that is up to date for the released results of standard setting activity.
The FASB ASC is now the sole authoritative source for all US US GAAP.
How is the FASB ASC expected to improve the practice of accounting?
- Reducing the amount of time and effort required to solve an accounting research issue.
- Mitigate the risk of noncompliance through improved usability of the literature.
- Provide accurate information with real-time updates as Accounting Standards Updates are released.
- Assist the FASB with the research and convergence efforts.
The FASB ASC is now the sole authoritative source for all US US GAAP.
What literature is now contained in the FASB ASC?
The Emerging Issues Task Force (EITF)
Derivative Implementation Group (DIG)
Accounting Principles Board (APB)
Accounting Research Bulletins (ARB)
Accounting Interpretations (AIN)
AICPA
The FASB ASC is now the sole authoritative source for all US US GAAP.
What should an accountant do if the guidance for a particular transaction or event is not specified within the FASB ASC?
First, consider viewing accounting principles for similar transactions or events within a source of authoritative US GAAP.
If no similar transactions are discovered, nonauthoritative guidance from other sources may be considered.
When the FASB issues new standards, the implementation date is often 12 months from the date of issuance, and early implementation is encouraged. Becky Hoger, controller, discusses with her financial vice president the need for early implementation of a standard that would result in a fairer presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the standard will adversely affect the reported net income for the year, he discourages Hoger from implementing the standard until it is required.
What, if any, ethical issue is involved in this case?
The financial vice president wants to hold off on implementing the new standards because it will impact the current year’s net income.
When the FASB issues new standards, the implementation date is often 12 months from the date of issuance, and early implementation is encouraged. Becky Hoger, controller, discusses with her financial vice president the need for early implementation of a standard that would result in a fairer presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the standard will adversely affect the reported net income for the year, he discourages Hoger from implementing the standard until it is required.
Is the financial vice president acting improperly or immorally?
Yes. The vice president is trying to protect the company and not the shareholders or investors.
When the FASB issues new standards, the implementation date is often 12 months from the date of issuance, and early implementation is encouraged. Becky Hoger, controller, discusses with her financial vice president the need for early implementation of a standard that would result in a fairer presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the standard will adversely affect the reported net income for the year, he discourages Hoger from implementing the standard until it is required.
What does Hoger have to gain by advocacy of early implementation?
Hoger would gain confidence in knowing that the company is in compliance with FASB’s new standards.
The public will have comfort in knowing that the financial statements are fairly presented.
When the FASB issues new standards, the implementation date is often 12 months from the date of issuance, and early implementation is encouraged. Becky Hoger, controller, discusses with her financial vice president the need for early implementation of a standard that would result in a fairer presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the standard will adversely affect the reported net income for the year, he discourages Hoger from implementing the standard until it is required.
Who might be affected by the decision against early implementation?
Shareholders, potential investors, or the company itself.
During the early 2000’s, the role of accounting and the auditing profession changed, and several accounting scandals were uncovered.
What conditions caused accounting and the auditing profession role to change during this time?
Arthur Andersen, formerly one of the Big Five audit firms went out of business
SOX 2002 - imposed a number of corporate governance rules on publicly traded companies
During the early 2000’s, the role of accounting and the auditing profession changed, and several accounting scandals were uncovered.
What major changes occurred as a result of the accounting scandals at this time?
Before SOX - firms would consult AND audit
Addresses corporate accountability in response to financial scandals that had begun to undermine citizens’ confidence in US businesses
SOX established the PCAOB which has the responsibility of setting auditing standards, reviewing the practices used by firms, and ensuring compliance
Which Body Should Set Accounting Standards in the United States?
Team 1: Argue that the SEC should set accounting standards in the United States
The purpose of the SEC is to protect investors and ensure that companies are releasing fair financial statements.
Companies that are publicly traded rely on investors to expand and promote growth.
Since public companies rely heavily on investors and the SEC is the agency created to protect investors, it only makes sense that the SEC should have the ability to set accounting standards.
Which Body Should Set Accounting Standards in the United States?
Team 2: Argue that the FASB should set accounting standards in the United States
The FASB was created to “establish and improve standards of financial accounting and reporting for the guidance of the education of the public, including issuers, auditors, and users of financial information.”
Allowing the SEC to set standards leaves room for bias and less objectivity because there is more of a chance that politics will be involved.
Should the Scope of Accounting Standards be Narrowed Further?
Team 1: Assume you are management. Argue against the narrowing of accounting choices.
There would be a lot less flexibility when it comes to the choices they managers may want to make for financial reporting.
Lack of flexibility would make it harder for managers to make informed business decisions.
Should the Scope of Accounting Standards be Narrowed Further?
Team 2: Assume you are a prospective investor. Argue for the narrowing of accounting choices.
It will be much easier for investors to make decisions because the financial statements will be much more organized. This makes it easier for users to read and understand.
Also, there is much less room for a company to manipulate their financial statements.
This provides standard procedures to protect investors.
