Solutions Manual - Analysis Text and Cases th Edition By Richard G...

Solutions Manual For Financial Accounting Theory and Analysis Text and Cases 14 th Edition By Richard G. Schroeder Myrtle W. Clark Jack M. Cathey 1 / 4

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CHAPTER 1

Case l-1

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

• Simplify user access by codifying all authoritative US GAAP in one spot.
• Ensure that the codified content accurately represented authoritative US GAAP

as of July1, 2009.

• 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:

• Reducing the amount of time and effort required to solve an accounting research

issue

• Mitigating the risk of noncompliance through improved usability of the literature
• Provide accurate information with real-time updates as Accounting Standards

Updates are released

• Assisting the FASB with the research and convergence efforts.

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

setters:

• Financial Accounting Standards Board (FASB)
• Statements (FAS)
• Interpretations (FIN)
• Technical Bulletins (FTB)
• Staff Positions (FSP)
• Staff Implementation Guides (Q&A)
• Statement No. 138 Examples.
• Emerging Issues Task Force (EITF)
• Abstracts
• Topic D.
• Derivative Implementation Group (DIG) Issues
• Accounting Principles Board (APB) Opinions
• Accounting Research Bulletins (ARB)
• Accounting Interpretations (AIN)
• 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)

ii. 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

• Subsequent to its formation, the SEC began reviewing the registrations required by the

securities acts. Despite the absence of a body of well-established accounting principles, the SEC begin to challenge accounting practices they considered inaccurate or misleading and a recurring issue emerged. Many companies were increasing assets to 3 / 4

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current or appraisal value with commensurate increases in reserves or equity (surplus) accounts. Expenses that should have been charged against earnings were then offset against those surplus accounts. The SEC believed this practice was incorrect but the securities laws were disclosure laws. It questioned whether a presentation it believed to be wrong could be accepted if fully disclosed, particularly if the SEC had not previously stated that the practice was incorrect. That is, at what point do accounting presentations that are not correct, though disclosed, amount to violations of the security laws? Accounting Series Release No. 1 was issued in response to the appraisal value and other questionable accounting practices prevalent at that time. It stated that opinions on accounting principles would be published periodically for the purpose of contributing to the development of uniform standards and practices on major accounting questions and specifically stated that losses properly chargeable against income should not be charged against surplus.

• At that time the SEC was engaged in an internal debate over whether it should develop

accounting standards. In 1938, it decided in Accounting Series Release No. 4 to allow accounting principles to be set in the private sector. This release stated that reports filed with the SEC must be prepared in accordance with accounting principles that have “substantial authoritative support.”

If financial statements were prepared in accordance with principles for which there was no substantial authoritative support, the SEC would presume that the statements were misleading or inaccurate, despite disclosures. If the SEC differed with a registrant on an accounting practice, disclosure in lieu of correction would be accepted only if there were substantial authoritative support for the registrant’s practice.

Case 1-3

• 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.

• 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

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