上海交通大学：《中级财务会计》课程教学资源_Homeworks_Chapter 1 Financial Accounting and Accounting Standards

1460T_c01.qxd 11:11:2005 09:44 Page 19 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: EQA Questions·19 9.Understand issues related to ethics and financial accounting.Financial accountants are called on for moral discernment and ethical decision making.Decisions sometimes are difficult because a public consensus has not emerged to formulate a comprehen- sive ethical system that provides guidelines in making ethical judgments. QUESTIONS 1.Differentiate broadly between financial accounting and efits and more on quality products,and (2)account- managerial accounting. ants and lawyers rely less on rules and law and more 2.Differentiate between "financial statements"and "finan- on professional judgment and conduct."Explain his cial reporting." comment. 3.How does accounting help the capital allocation process? 19.What is the purpose of FASB Staff Positions? 4.What are some of the major challenges facing the ac- 20.Explain the role of the Emerging Issues Task Force in es- counting profession? tablishing generally accepted accounting principles. 5.What are the major objectives of financial reporting? 21.What is the purpose of the Governmental Accounting Standards Board? 6.Of what value is a common set of standards in financial accounting and reporting? 22.What are some possible reasons why another organi- 7.What is the likely limitation of "general-purpose finan- zation,such as the Governmental Accounting Stan- cial statements"? dards Board,should not issue financial reporting stan- dards? 8.In what way is the Securities and Exchange Commission concerned about and supportive of accounting principles 23.What are the sources of pressure that change and in- and standards? fluence the development of accounting principles and standards? 9.What was the Committee on Accounting Procedure,and 24.Some individuals have indicated that the FASB must be what were its accomplishments and failings? cognizant of the economic consequences of its pro- 10.For what purposes did the AICPA in 1959 create the Ac- nouncements.What is meant by "economic conse- counting Principles Board? quences"?What dangers exist if politics play too much of 11.Distinguish among Accounting Research Bulletins, a role in the development of financial reporting standards? Opinions of the Accounting Principles Board,and State- 25.If you were given complete authority in the matter,how ments of the Financial Accounting Standards Board. would you propose that accounting principles or stan- 12.If you had to explain or define "generally accepted ac- dards should be developed and enforced? counting principles or standards,"what essential char- 26.One writer recently noted that 99.4 percent of all com- acteristics would you include in your explanation? panies prepare statements that are in accordance with 13.In what ways was it felt that the statements issued by GAAP.Why then is there such concern about fraudulent the Financial Accounting Standards Board would carry financial reporting? greater weight than the opinions issued by the Ac- 27.What is the "expectations gap"?What is the profession counting Principles Board? doing to try to close this gap? 14.How are FASB discussion memoranda and FASB expo- 28.The Sarbanes-Oxley Act was enacted to combat fraud sure drafts related to FASB "statements"? and curb poor reporting practices.What are some key 15.Distinguish between FASB "statements of financial ac- provisions of this legislation? counting standards"and FASB "statements of financial 29.A number of foreign countries have reporting standards accounting concepts." that differ from those in the United States.What are some 16.What is Rule 203 of the Code of Professional Conduct? of the main reasons why reporting standards are often 17.Rank from the most authoritative to the least authorita- different among countries? tive,the following three items:FASB Technical Bulletins, 30.Why would it be advantageous for U.S.GAAP and AICPA Practice Bulletins,and FASB Standards. International GAAP to be the same? 18.The chairman of the FASB at one time noted that "the 31.How are financial accountants challenged in their work flow of standards can only be slowed if (1)producers to make ethical decisions?Is technical mastery of GAAP focus less on quarterly earnings per share and tax ben- not sufficient to the practice of financial accounting?

Questions • 19 9. Understand issues related to ethics and financial accounting. Financial accountants are called on for moral discernment and ethical decision making. Decisions sometimes are difficult because a public consensus has not emerged to formulate a comprehen￾sive ethical system that provides guidelines in making ethical judgments. 1. Differentiate broadly between financial accounting and managerial accounting. 2. Differentiate between “financial statements” and “finan￾cial reporting.” 3. How does accounting help the capital allocation process? 4. What are some of the major challenges facing the ac￾counting profession? 5. What are the major objectives of financial reporting? 6. Of what value is a common set of standards in financial accounting and reporting? 7. What is the likely limitation of “general-purpose finan￾cial statements”? 8. In what way is the Securities and Exchange Commission concerned about and supportive of accounting principles and standards? 9. What was the Committee on Accounting Procedure, and what were its accomplishments and failings? 10. For what purposes did the AICPA in 1959 create the Ac￾counting Principles Board? 11. Distinguish among Accounting Research Bulletins, Opinions of the Accounting Principles Board, and State￾ments of the Financial Accounting Standards Board. 12. If you had to explain or define “generally accepted ac￾counting principles or standards,” what essential char￾acteristics would you include in your explanation? 13. In what ways was it felt that the statements issued by the Financial Accounting Standards Board would carry greater weight than the opinions issued by the Ac￾counting Principles Board? 14. How are FASB discussion memoranda and FASB expo￾sure drafts related to FASB “statements”? 15. Distinguish between FASB “statements of financial ac￾counting standards” and FASB “statements of financial accounting concepts.” 16. What is Rule 203 of the Code of Professional Conduct? 17. Rank from the most authoritative to the least authorita￾tive, the following three items: FASB Technical Bulletins, AICPA Practice Bulletins, and FASB Standards. 18. The chairman of the FASB at one time noted that “the flow of standards can only be slowed if (1) producers focus less on quarterly earnings per share and tax ben￾efits and more on quality products, and (2) account￾ants and lawyers rely less on rules and law and more on professional judgment and conduct.” Explain his comment. 19. What is the purpose of FASB Staff Positions? 20. Explain the role of the Emerging Issues Task Force in es￾tablishing generally accepted accounting principles. 21. What is the purpose of the Governmental Accounting Standards Board? 22. What are some possible reasons why another organi￾zation, such as the Governmental Accounting Stan￾dards Board, should not issue financial reporting stan￾dards? 23. What are the sources of pressure that change and in￾fluence the development of accounting principles and standards? 24. Some individuals have indicated that the FASB must be cognizant of the economic consequences of its pro￾nouncements. What is meant by “economic conse￾quences”? What dangers exist if politics play too much of a role in the development of financial reporting standards? 25. If you were given complete authority in the matter, how would you propose that accounting principles or stan￾dards should be developed and enforced? 26. One writer recently noted that 99.4 percent of all com￾panies prepare statements that are in accordance with GAAP. Why then is there such concern about fraudulent financial reporting? 27. What is the “expectations gap”? What is the profession doing to try to close this gap? 28. The Sarbanes-Oxley Act was enacted to combat fraud and curb poor reporting practices. What are some key provisions of this legislation? 29. A number of foreign countries have reporting standards that differ from those in the United States. What are some of the main reasons why reporting standards are often different among countries? 30. Why would it be advantageous for U.S. GAAP and International GAAP to be the same? 31. How are financial accountants challenged in their work to make ethical decisions? Is technical mastery of GAAP not sufficient to the practice of financial accounting? QUESTIONS 1460T_c01.qxd 11:11:2005 09:44 Page 19 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11:

1460T_c01.qxd 11:11:2005 09:44 Page 20 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: EQA 20.Chapter 1 Financial Accounting and Accounting Standards CONCEPTS FOR ANALYSIS CA1-1 (Financial Accounting)Alan Rodriquez has recently completed his first year of studying ac- counting.His instructor for next semester has indicated that the primary focus will be the area of finan- cial accounting. Instructions (a)Differentiate between financial accounting and managerial accounting. (b)One part of financial accounting involves the preparation of financial statements.What are the fi- nancial statements most frequently provided? (c)What is the difference between financial statements and financial reporting? CA1-2 (Objectives of Financial Reporting)Celia Cruz,a recent graduate of the local state university,is presently employed by a large manufacturing company.She has been asked by Angeles Ochoa,controller, to prepare the company's response to a current Discussion Memorandum published by the Financial Accounting Standards Board (FASB).Cruz knows that the FASB has issued seven Statements of Financial Accounting Concepts,and she believes that these concept statements could be used to support the company's response to the Discussion Memorandum.She has prepared a rough draft of the response citing Statement of Financial Accounting Concepts No.1,"Objectives of Financial Reporting by Business Enterprises." Instructions (a)Identify the three objectives of financial reporting as presented in Statement of Financial Account- ing Concepts No.1 (SFAC No.1). (b) Describe the level of sophistication expected of the users of financial information by SFAC No.1. (CMA adapted) CA1-3 (Accounting Numbers and the Environment)Hardly a day goes by without an article ap- pearing on the crises affecting many of our financial institutions in the United States.It is estimated that the savings and loan (S&L)debacle of the 1980s,for example,ended up costing $500 billion ($2,000 for every man,woman,and child in the United States).Some argue that if the S&Ls had been required to re port their investments at market value instead of cost,large losses would have been reported earlier,which ⊕ would have signaled regulators to close those S&Ls and,therefore,minimize the losses to U.S.taxpayers. Instructions Explain how reported accounting numbers might affect an individual's perceptions and actions.Cite two examples. CA1-4 (Need for Accounting Standards)Some argue that having various organizations establish ac- counting principles is wasteful and inefficient.Rather than mandating accounting standards,each com- pany could voluntarily disclose the type of information it considered important.In addition,if an investor wants additional information,the investor could contact the company and pay to receive the additional information desired. Instructions Comment on the appropriateness of this viewpoint. CA1-5 (AICPA's Role in Standard Setting)One of the major groups involved in the standard-setting process is the American Institute of Certified Public Accountants.Initially it was the primary organiza- tion that established accounting principles in the United States.Subsequently it relinquished most of its power to the FASB. Instructions (a)Identify the two committees of the AICPA that established accounting principles prior to the es- tablishment of the FASB. (b)Speculate as to why these two organizations failed.In your answer,identify steps the FASB has taken to avoid failure. (c)What is the present role of the AICPA in the standard-setting environment? CA1-6 (FASB Role in Standard Setting)A press release announcing the appointment of the trustees of the new Financial Accounting Foundation stated that the Financial Accounting Standards Board(to be appointed by the trustees)"...will become the established authority for setting accounting principles under which corporations report to the shareholders and others"(AICPA news release July 20,1972). Instructions (a)Identify the sponsoring organization of the FASB and the process by which the FASB arrives at a decision and issues an accounting standard

CONCEPTS FOR ANALYSIS CA1-1 (Financial Accounting) Alan Rodriquez has recently completed his first year of studying ac￾counting. His instructor for next semester has indicated that the primary focus will be the area of finan￾cial accounting. Instructions (a) Differentiate between financial accounting and managerial accounting. (b) One part of financial accounting involves the preparation of financial statements. What are the fi￾nancial statements most frequently provided? (c) What is the difference between financial statements and financial reporting? CA1-2 (Objectives of Financial Reporting) Celia Cruz, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Angeles Ochoa, controller, to prepare the company’s response to a current Discussion Memorandum published by the Financial Accounting Standards Board (FASB). Cruz knows that the FASB has issued seven Statements of Financial Accounting Concepts, and she believes that these concept statements could be used to support the company’s response to the Discussion Memorandum. She has prepared a rough draft of the response citing Statement of Financial Accounting Concepts No. 1, “Objectives of Financial Reporting by Business Enterprises.” Instructions (a) Identify the three objectives of financial reporting as presented in Statement of Financial Account￾ing Concepts No. 1 (SFAC No. 1). (b) Describe the level of sophistication expected of the users of financial information by SFAC No. 1. (CMA adapted) CA1-3 (Accounting Numbers and the Environment) Hardly a day goes by without an article ap￾pearing on the crises affecting many of our financial institutions in the United States. It is estimated that the savings and loan (S&L) debacle of the 1980s, for example, ended up costing $500 billion ($2,000 for every man, woman, and child in the United States). Some argue that if the S&Ls had been required to re￾port their investments at market value instead of cost, large losses would have been reported earlier, which would have signaled regulators to close those S&Ls and, therefore, minimize the losses to U.S. taxpayers. Instructions Explain how reported accounting numbers might affect an individual’s perceptions and actions. Cite two examples. CA1-4 (Need for Accounting Standards) Some argue that having various organizations establish ac￾counting principles is wasteful and inefficient. Rather than mandating accounting standards, each com￾pany could voluntarily disclose the type of information it considered important. In addition, if an investor wants additional information, the investor could contact the company and pay to receive the additional information desired. Instructions Comment on the appropriateness of this viewpoint. CA1-5 (AICPA’s Role in Standard Setting) One of the major groups involved in the standard-setting process is the American Institute of Certified Public Accountants. Initially it was the primary organiza￾tion that established accounting principles in the United States. Subsequently it relinquished most of its power to the FASB. Instructions (a) Identify the two committees of the AICPA that established accounting principles prior to the es￾tablishment of the FASB. (b) Speculate as to why these two organizations failed. In your answer, identify steps the FASB has taken to avoid failure. (c) What is the present role of the AICPA in the standard-setting environment? CA1-6 (FASB Role in Standard Setting) A press release announcing the appointment of the trustees of the new Financial Accounting Foundation stated that the Financial Accounting Standards Board (to be appointed by the trustees) “. . . will become the established authority for setting accounting principles under which corporations report to the shareholders and others” (AICPA news release July 20, 1972). Instructions (a) Identify the sponsoring organization of the FASB and the process by which the FASB arrives at a decision and issues an accounting standard. 20 • Chapter 1 Financial Accounting and Accounting Standards 1460T_c01.qxd 11:11:2005 09:44 Page 20 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11:

1460T_c01.qxd 11:11:2005 09:44 Page 21Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: EQA Concepts for Analysis.21 (b)Indicate the major types of pronouncements issued by the FASB and the purposes of each of these pronouncements. CA1-7 (Government Role in Standard Setting)Recently an article stated "the setting of accounting standards in the United States is now about 70 years old.It is a unique process in our society,one that has undergone numerous changes over the years.The standards are established by a private sector en- tity that has no dominant sponsor and is not part of any professional organization or trade association. The governmental entity that provides oversight,on the other hand,is far more a friend than a competi- tor or an antagonist." Instructions Identify the governmental entity that provides oversight and indicate its role in the standard-setting process CA1-8 (Politicization of Standard Setting)Some accountants have said that politicization in the de- velopment and acceptance of generally accepted accounting principles(i.e.,standard setting)is taking place.Some use the term "politicization"in a narrow sense to mean the influence by governmental agen- cies,particularly the Securities and Exchange Commission,on the development of generally accepted accounting principles.Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups(SEC, American Accounting Association,businesses through their various organizations,Institute of Manage- ment Accountants,financial analysts,bankers,lawyers,and so on). Instructions (a)The Committee on Accounting Procedure of the AICPA was established in the mid-to late 1930s and functioned until 1959,at which time the Accounting Principles Board came into existence.In 1973,the Financial Accounting Standards Board was formed and the APB went out of existence. Do the reasons these groups were formed,their methods of operation while in existence,and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense)of accounting standard setting?Explain your answer by indicating how the CAP the APB,and the FASB operated or operate.Cite specific developments that tend to support your answer. (b)What arguments can be raised to support the "politicization"of accounting standard setting? (c)What arguments can be raised against the "politicization"of accounting standard setting? (CMA adapted) CA1-9 (Models for Setting Accounting Standards)Presented below are three models for setting accounting standards. 1.The purely political approach,where national legislative action decrees accounting standards. 2.The private,professional approach,where financial accounting standards are set and enforced by private professional actions only. 3.The public/private mixed approach,where standards are basically set by private-sector bodies that behave as though they were public agencies and whose standards to a great extent are enforced through governmental agencies. Instructions (a)Which of these three models best describes standard setting in the United States?Comment on your answer. (b)Why do companies,financial analysts,labor unions,industry trade associations,and others take such an active interest in standard setting? (c)Cite an example of a group other than the FASB that attempts to establish accounting standards. Speculate as to why another group might wish to set its own standards. CA1-10 (Standard-Setting Terminology)Andrew Wyeth,an administrator at a major university,re- cently said,"I've got some CDs in my IRA,which I set up to beat the IRS."As elsewhere,in the world of accounting and finance,it often helps to be fluent in abbreviations and acronyms. Instructions Presented below is a list of common accounting acronyms.Identify the term for which each acronym stands,and provide a brief definition of each term. (a)AICPA (e)FAF ( 、 CPA (m)GASB (b)CAP (f)FASAC (j)FASB (c)ARB (g)SOP (k)SEC (d)APB (h)GAAP (IASB

(b) Indicate the major types of pronouncements issued by the FASB and the purposes of each of these pronouncements. CA1-7 (Government Role in Standard Setting) Recently an article stated “the setting of accounting standards in the United States is now about 70 years old. It is a unique process in our society, one that has undergone numerous changes over the years. The standards are established by a private sector en￾tity that has no dominant sponsor and is not part of any professional organization or trade association. The governmental entity that provides oversight, on the other hand, is far more a friend than a competi￾tor or an antagonist.” Instructions Identify the governmental entity that provides oversight and indicate its role in the standard-setting process. CA1-8 (Politicization of Standard Setting) Some accountants have said that politicization in the de￾velopment and acceptance of generally accepted accounting principles (i.e., standard setting) is taking place. Some use the term “politicization” in a narrow sense to mean the influence by governmental agen￾cies, particularly the Securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Manage￾ment Accountants, financial analysts, bankers, lawyers, and so on). Instructions (a) The Committee on Accounting Procedure of the AICPA was established in the mid- to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, the APB, and the FASB operated or operate. Cite specific developments that tend to support your answer. (b) What arguments can be raised to support the “politicization” of accounting standard setting? (c) What arguments can be raised against the “politicization” of accounting standard setting? (CMA adapted) CA1-9 (Models for Setting Accounting Standards) Presented below are three models for setting accounting standards. 1. The purely political approach, where national legislative action decrees accounting standards. 2. The private, professional approach, where financial accounting standards are set and enforced by private professional actions only. 3. The public/private mixed approach, where standards are basically set by private-sector bodies that behave as though they were public agencies and whose standards to a great extent are enforced through governmental agencies. Instructions (a) Which of these three models best describes standard setting in the United States? Comment on your answer. (b) Why do companies, financial analysts, labor unions, industry trade associations, and others take such an active interest in standard setting? (c) Cite an example of a group other than the FASB that attempts to establish accounting standards. Speculate as to why another group might wish to set its own standards. CA1-10 (Standard-Setting Terminology) Andrew Wyeth, an administrator at a major university, re￾cently said, “I’ve got some CDs in my IRA, which I set up to beat the IRS.” As elsewhere, in the world of accounting and finance, it often helps to be fluent in abbreviations and acronyms. Instructions Presented below is a list of common accounting acronyms. Identify the term for which each acronym stands, and provide a brief definition of each term. (a) AICPA (e) FAF (i) CPA (m) GASB (b) CAP (f) FASAC (j) FASB (c) ARB (g) SOP (k) SEC (d) APB (h) GAAP (l) IASB Concepts for Analysis • 21 1460T_c01.qxd 11:11:2005 09:44 Page 21 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11:

1460T_c01.qxd 11:11:2005 09:44 Page 22 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: EQA 22.Chapter 1 Financial Accounting and Accounting Standards CA1-11 (Accounting Organizations and Documents Issued)Presented below are a number of ac- counting organizations and types of documents they have issued. Instructions Match the appropriate document to the organization involved.Note that more than one document may be issued by the same organization.If no document is provided for an organization,write in"0." Organization Document 1. Accounting Standards Executive Committee (a)Opinions 2. Accounting Principles Board (b)Practice Bulletins 3 Committee on Accounting Procedure (c)Accounting Research Bulletins 4. Financial Accounting Standards Board (d)Financial Accounting Standards (e)Statements of Position CA1-12 (Accounting Pronouncements)Standard setting bodies have issued a number of authoritative pronouncements.A list is provided on the left,below,with a description of these pronouncements on the right Instructions Match the description to the pronouncements 1. Staff Positions (a)Official pronouncements of the APB 2. Interpretations (of the Financial Account- (b)Sets forth fundamental objectives and ing Standards Board) concepts that will be used in develop- 3. Statement of Financial Accounting ing future standards. Standards (c) Primary document of the FASB that es- 4. EITF Statements tablishes GAAP. 5. Opinions (d)Provides additional guidance on im- 6. Statement of Financial Accounting plementing or applying FASB Stan- Concepts dards or Interpretations. (e)Provides guidance on how to account for new and unusual financial transac- ⊕ tions that have the potential for creat- ing diversity in financial reporting practices. ( Represent extensions or modifications of existing standards. CA1-13 (Issues Involving Standard Setting)When the FASB issues new standards,the implementation date is usually 12 months from date of issuance,with early implementation encouraged.Paula Popovich, 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 Popovich from implementing the standard until it is required. Instructions Answer the following questions. (a)What,if any,is the ethical issue involved in this case? (b)Is the financial vice president acting improperly or immorally? (c)What does Popovich have to gain by advocacy of early implementation? (d )Which stakeholders might be affected by the decision against early implementation? (CMA adapted) CA1-14 (Securities and Exchange Commission)The U.S.Securities and Exchange Commission (SEC)was created in 1934 and consists of five commissioners and a large professional staff.The SEC professional staff is organized into five divisions and several principal offices.The primary objective of the SEC is to support fair securities markets.The SEC also strives to foster enlightened stockholder par- ticipation in corporate decisions of publicly traded companies.The SEC has a significant presence in fi- nancial markets,the development of accounting practices,and corporation-shareholder relations,and has the power to exert influence on entities whose actions lie within the scope of its authority. Instructions (a)Explain from where the Securities and Exchange Commission receives its authority. (b)Describe the official role of the Securities and Exchange Commission in the development of fi- nancial accounting theory and practices

CA1-11 (Accounting Organizations and Documents Issued) Presented below are a number of ac￾counting organizations and types of documents they have issued. Instructions Match the appropriate document to the organization involved. Note that more than one document may be issued by the same organization. If no document is provided for an organization, write in “0.” Organization 1. _____ Accounting Standards Executive Committee 2. _____ Accounting Principles Board 3. _____ Committee on Accounting Procedure 4. _____ Financial Accounting Standards Board CA1-12 (Accounting Pronouncements) Standard setting bodies have issued a number of authoritative pronouncements. A list is provided on the left, below, with a description of these pronouncements on the right. Instructions Match the description to the pronouncements. 1. _____ Staff Positions 2. _____ Interpretations (of the Financial Account￾ing Standards Board) 3. _____ Statement of Financial Accounting Standards 4. _____ EITF Statements 5. _____ Opinions 6. _____ Statement of Financial Accounting Concepts CA1-13 (Issues Involving Standard Setting) When the FASB issues new standards, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Paula Popovich, 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 Popovich from implementing the standard until it is required. Instructions Answer the following questions. (a) What, if any, is the ethical issue involved in this case? (b) Is the financial vice president acting improperly or immorally? (c) What does Popovich have to gain by advocacy of early implementation? (d) Which stakeholders might be affected by the decision against early implementation? (CMA adapted) CA1-14 (Securities and Exchange Commission) The U.S. Securities and Exchange Commission (SEC) was created in 1934 and consists of five commissioners and a large professional staff. The SEC professional staff is organized into five divisions and several principal offices. The primary objective of the SEC is to support fair securities markets. The SEC also strives to foster enlightened stockholder par￾ticipation in corporate decisions of publicly traded companies. The SEC has a significant presence in fi￾nancial markets, the development of accounting practices, and corporation-shareholder relations, and has the power to exert influence on entities whose actions lie within the scope of its authority. Instructions (a) Explain from where the Securities and Exchange Commission receives its authority. (b) Describe the official role of the Securities and Exchange Commission in the development of fi￾nancial accounting theory and practices. 22 • Chapter 1 Financial Accounting and Accounting Standards Document (a) Opinions (b) Practice Bulletins (c) Accounting Research Bulletins (d) Financial Accounting Standards (e) Statements of Position (a) Official pronouncements of the APB. (b) Sets forth fundamental objectives and concepts that will be used in develop￾ing future standards. (c) Primary document of the FASB that es￾tablishes GAAP. (d) Provides additional guidance on im￾plementing or applying FASB Stan￾dards or Interpretations. (e) Provides guidance on how to account for new and unusual financial transac￾tions that have the potential for creat￾ing diversity in financial reporting practices. (f) Represent extensions or modifications of existing standards. 1460T_c01.qxd 11:11:2005 09:44 Page 22 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11:

1460T_c01.qxd 11:11:2005 09:44 Page 23 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: EQA Concepts for Analysis.23 (c)Discuss the interrelationship between the Securities and Exchange Commission and the Financial Accounting Standards Board with respect to the development and establishment of financial accounting theory and practices (CMA adapted) CA1-15 (Standard-Setting Process)In 1973,the responsibility for developing and issuing rules on ac- counting practices was given to the Financial Accounting Foundation and,in particular,to an arm of the foundation called the Financial Accounting Standards Board (FASB).The generally accepted accounting principles established by the FASB are enunciated through a publication series entitled Statements of Financial Accounting Standards.These statements are issued periodically,and over 150 have been issued. The statements have a significant influence on the way in which financial statements are prepared by U.S. corporations. Instructions (a)Describe the process by which a topic is selected or identified as appropriate for study by the Financial Accounting Standards Board(FASB). (b) Once a topic is considered appropriate for consideration by the FASB,a series of steps is followed before a Statement of Financial Accounting Standards is issued.Describe the major steps in the process leading to the issuance of a standard. (c)Identify at least three other organizations that influence the setting of generally accepted ac- counting principles(GAAP). (CMA adapted) CA1-16 (Financial Reporting Pressures)Presented below is abbreviated testimony from Troy Nor- mand in the WorldCom case.He was a manager in the corporate reporting department and is one of five individuals who pleaded guilty.He is testifying in hopes of receiving no prison time when he is ulti- mately sentenced. Q.Mr.Normand,if you could just describe for the jury how the meeting started and what was said dur- ing the meeting? A.I can't recall exactly who initiated the discussion,but right away Scott Sullivan acknowledged that he was aware we had problems with the entries,David Myers had informed him,and we were consid- ering resigning. He said that he respected our concerns but that we weren't being asked to do anything that he believed was wrong.He mentioned that he acknowledged that the company had lost focus quite a bit due to the preparations for the Sprint merger,and that he was putting plans in place and projects in place to try to determine where the problems were,why the costs were so high. He did say he believed that the initial statements that we produced,that the line costs in those state- ments could not have been as high as they were,that he believes something was wrong and there was no way that the costs were that high. I informed him that I didn't believe the entry we were being asked to do was right,that I was scared, and I didn't want to put myself in a position of going to jail for him or the company.He responded that he didn't believe anything was wrong,nobody was going to be going to jail,but that if it later was found to be wrong,that he would be the person going to jail,not me. He asked that I stay,don't jump off the plane,let him land it softly,that's basically how he put it.And he mentioned that he had a discussion with Bernie Ebbers asking Bernie to reduce projections going for- ward and that Bernie had refused. Q.Mr.Normand,you said that Mr.Sullivan said something about don't jump out of the plane.What did you understand him to mean when he said that? A.Not to quit. Q.During this meeting,did Mr.Sullivan say anything about whether you would be asked to make en- tries like this in the future? A.Yes,he made a comment that from that point going forward we wouldn't be asked to record any en- tries,high-level late adjustments,that the numbers would be the numbers. Q.What did you understand that to be mean,the numbers would be the numbers? A.That after the preliminary statements were issued,with the exception of any normal transaction,valid transaction,we wouldn't be asked to be recording any more late entries Q.I believe you testified that Mr.Sullivan said something about the line cost numbers not being accu- rate.Did he ask you to conduct any analysis to determine whether the line cost numbers were accurate? A.No,he did not. Q.Did anyone ever ask you to do that? A.No. O.Did you ever conduct any such analysis? A. No,I didn't

(c) Discuss the interrelationship between the Securities and Exchange Commission and the Financial Accounting Standards Board with respect to the development and establishment of financial accounting theory and practices. (CMA adapted) CA1-15 (Standard-Setting Process) In 1973, the responsibility for developing and issuing rules on ac￾counting practices was given to the Financial Accounting Foundation and, in particular, to an arm of the foundation called the Financial Accounting Standards Board (FASB). The generally accepted accounting principles established by the FASB are enunciated through a publication series entitled Statements of Financial Accounting Standards. These statements are issued periodically, and over 150 have been issued. The statements have a significant influence on the way in which financial statements are prepared by U.S. corporations. Instructions (a) Describe the process by which a topic is selected or identified as appropriate for study by the Financial Accounting Standards Board (FASB). (b) Once a topic is considered appropriate for consideration by the FASB, a series of steps is followed before a Statement of Financial Accounting Standards is issued. Describe the major steps in the process leading to the issuance of a standard. (c) Identify at least three other organizations that influence the setting of generally accepted ac￾counting principles (GAAP). (CMA adapted) CA1-16 (Financial Reporting Pressures) Presented below is abbreviated testimony from Troy Nor￾mand in the WorldCom case. He was a manager in the corporate reporting department and is one of five individuals who pleaded guilty. He is testifying in hopes of receiving no prison time when he is ulti￾mately sentenced. Q. Mr. Normand, if you could just describe for the jury how the meeting started and what was said dur￾ing the meeting? A. I can’t recall exactly who initiated the discussion, but right away Scott Sullivan acknowledged that he was aware we had problems with the entries, David Myers had informed him, and we were consid￾ering resigning. He said that he respected our concerns but that we weren’t being asked to do anything that he believed was wrong. He mentioned that he acknowledged that the company had lost focus quite a bit due to the preparations for the Sprint merger, and that he was putting plans in place and projects in place to try to determine where the problems were, why the costs were so high. He did say he believed that the initial statements that we produced, that the line costs in those state￾ments could not have been as high as they were, that he believes something was wrong and there was no way that the costs were that high. I informed him that I didn’t believe the entry we were being asked to do was right, that I was scared, and I didn’t want to put myself in a position of going to jail for him or the company. He responded that he didn’t believe anything was wrong, nobody was going to be going to jail, but that if it later was found to be wrong, that he would be the person going to jail, not me. He asked that I stay, don’t jump off the plane, let him land it softly, that’s basically how he put it. And he mentioned that he had a discussion with Bernie Ebbers asking Bernie to reduce projections going for￾ward and that Bernie had refused. Q. Mr. Normand, you said that Mr. Sullivan said something about don’t jump out of the plane. What did you understand him to mean when he said that? A. Not to quit. Q. During this meeting, did Mr. Sullivan say anything about whether you would be asked to make en￾tries like this in the future? A. Yes, he made a comment that from that point going forward we wouldn’t be asked to record any en￾tries, high-level late adjustments, that the numbers would be the numbers. Q. What did you understand that to be mean, the numbers would be the numbers? A. That after the preliminary statements were issued, with the exception of any normal transaction, valid transaction, we wouldn’t be asked to be recording any more late entries. Q. I believe you testified that Mr. Sullivan said something about the line cost numbers not being accu￾rate. Did he ask you to conduct any analysis to determine whether the line cost numbers were accurate? A. No, he did not. Q. Did anyone ever ask you to do that? A. No. Q. Did you ever conduct any such analysis? A. No, I didn’t. Concepts for Analysis • 23 1460T_c01.qxd 11:11:2005 09:44 Page 23 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: