Accounting Theory and

Accounting Theory and Analysis 13 th Edition FASB ASC Tutorial and Solutions Manual By Richard G. Schroeder

Myrtle W. Clark Jack M. Cathey

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CHAPTER 1

Case l-1

a. The FASB had three primary goals in developing the Codification:

1.Simplify user access by codifying all authoritative US GAAP in one spot.

2.Ensure that the codified content accurately represented authoritative US GAAP as of July1, 2009.

3.Create a codification research system that is up to date for the released results of standard-setting activity.

b. The Codification is expected to improve accounting practice by:

1.Reducing the amount of time and effort required to solve an accounting research issue 2.Mitigating the risk of noncompliance through improved usability of the literature 3.Provide accurate information with real-time updates as Accounting Standards Updates are released 4.Assisting the FASB with the research and convergence efforts.

• The FASB ASC is composed of the following literature issued by various standard

setters:

1.Financial Accounting Standards Board (FASB)

• Statements (FAS)
• Interpretations (FIN)
• Technical Bulletins (FTB)
• Staff Positions (FSP)
• Staff Implementation Guides (Q&A)
• Statement No. 138 Examples.

2.Emerging Issues Task Force (EITF)

• Abstracts
• Topic D.

3.Derivative Implementation Group (DIG) Issues 4.Accounting Principles Board (APB) Opinions 5.Accounting Research Bulletins (ARB) 6.Accounting Interpretations (AIN) 7.American Institute of Certified Public Accountants (AICPA)

• Statements of Position (SOP)
• Audit and Accounting Guides (AAG)—only incremental accounting guidance 2 / 4

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• Practice Bulletins (PB), including the Notices to Practitioners elevated to

Practice Bulletin status by Practice Bulletin 1

• Technical Inquiry Service (TIS)—only for Software Revenue Recognition

Additionally, in an effort to increase the utility of the FASB ASC for public companies, relevant portions of authoritative content issued by the SEC and selected SEC staff interpretations and administrative guidance have been included for

reference in the Codification, such as:

• Regulation S-X (SX)
• Financial Reporting Releases (FRR)/Accounting Series Releases (ASR)
• Interpretive Releases (IR)

4. SEC Staff guidance in:

• Staff Accounting Bulletins (SAB)
• EITF Topic D and SEC Staff Observer comments

• The FASB ASC contains all current authoritative accounting literature. However, if

the guidance for a particular transaction or event is not specified within it, the first source to consider is accounting principles for similar transactions or events within a source of authoritative GAAP. If no similar transactions are discovered, nonauthoritative guidance from other sources may be considered. Accounting and financial reporting practices not included in the Codification are nonauthoritative.Sources of nonauthoritative accounting guidance and literature include, for example,

the following:

• Practices that are widely recognized and prevalent either generally or in the

industry

• FASB Concepts Statements
• American Institute of Certified Public Accountants (AICPA) Issues Papers
• International Financial Reporting Standards of the International Accounting

Standards Board Pronouncements of professional associations or regulatory agencies

• Technical Information Service Inquiries and Replies included in AICPA

Technical Practice Aids

• Accounting textbooks, handbooks, and articles

Case 1-2

• Inclusion or omission of information that materially affects net income harms

particular stakeholders. Accountants must recognize that their decision to implement (or delay) reporting requirements will have immediate consequences for some stakeholders. 3 / 4

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• Yes. Because the FASB standard results in a fairer presentation, it should be

implemented as soon as possible--regardless of its impact on net income.

• The accountant's responsibility is to provide financial statements that present fairly the

financial condition of the company. By advocating early implementation, Hoger fulfills this task.

• Potential lenders and investors, who read the financial statement and rely on its fair

representation of the financial condition of the company, have the most to gain by early implementation. A stockholder who is considering the sale of stock may be harmed by early implementation that lowers net income (and may lower the value of the stock).

Case 1-3

• CAP. The Committee on Accounting Procedure, CAP, which was in existence from

1939 to 1959, was a natural outgrowth of AICPA (then AIA) committees, which were in existence during the period 1933 to 1938. The committee was formed in direct response to the criticism received by the accounting profession during the financial crisis of 1929 and the years thereafter. The authorization to issue pronouncements on matters of accounting principles and procedures was based on the belief that the AICPA had the responsibility to establish practices that would become generally accepted by the profession and by corporate management.

As a general rule, the CAP directed its attention, almost entirely, to resolving specific accounting problems and topics rather than to the development of generally accepted accounting principles. The committee voted on the acceptance of specific Accounting Research Bulletins published by the committee. A two-thirds majority was required to issue a particular research bulletin. The CAP did not have the authority to require acceptance of the issued bulletins by the general membership of the AICPA, but rather received its authority only upon general acceptance of the pronouncement by the members. That is, the bulletins set forth normative accounting procedures that "should be" followed by the accounting profession but were not "required" to be followed.

It was not until well after the demise of the CAP, in 1964, that the Council of the AICPA adopted recommendations that departures from effective CAP Bulletins should be disclosed in financial statements or in audit reports of members of the AICPA. The demise of the CAP could probably be traced by four distinct factors: (1) the narrow nature of the subjects covered by the bulletins issued by the CAP, (2) the lack of any theoretical groundwork in establishing the procedures presented in the bulletins, (3) the lack of any real authority by the CAP in prescribing adherence the procedures described by the bulletins, and (4) the lack of any formal representation on the CAP of

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