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Chapter: 7 -Problem: 18 >> Do you see any inconsistency in SFAC No. 1, which sees financial statements as general purpose but geared primarily toward investors and creditors? Financial Statements Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as wel
Answer Preview: Yes, there is an inconsisten…

, Chapter: 5 -Problem: 3 >> Zeff (2007) describes the SEC’s positions regarding historical costing in the 20th century, eventually questioning whether the United States has ever “had a private-sector process for establishing ‘generally accepted accounting principles’. To what extent do you agree/disagree with Zeff’s point?
Answer Preview: Zeff, Stephen A. (2007 Special Issue). The SEC Ru…

, Chapter: 8 -Problem: 14 >> What is the efficient-markets hypothesis?
Answer Preview: In its simplest form, the efficient-markets …

, Chapter: 8 -Problem: 2 >> To what extent should the liquidity measures revisions be considered if LIFO were to be eliminated from U.S. GAAP? Provide examples of those likely measures that would be affected.As an interesting side note, what does the 2016 United States Budget estimate the effect on revenues will be if LIFO accounting for inventory is repealed?
Answer Preview: This is a problem somewhat like the one faced when FASB first considered requiring all leases be pla…

, Chapter: 9 -Problem: 2 >> Assume two countries adopt International Financial Reporting Standards (IFRS) for their financial accounting and reporting. One has a highly developed economic history; one has a language that has changed little over several hundred years and lacks today’s economic terms. How might comparability be affected if English IFRS is translated to the native languages of both countries?
Answer Preview: They should find multiple articles addressing the problems that lan…

, Chapter: 17 -Problem: 2 >> The logic of pooling rests heavily on the assumption that no substantive economic transaction occurs between the combinor and stockholders of the combinee. Evaluate this assumption.
Answer Preview: We suggest this is a weak …

, Chapter: 2 -Problem: 17 >> Why do you think the term “deprival value” was used to name a specific type of replacement cost?
Answer Preview: Deprival value tries li…

, Chapter: 4 -Problem: 14 >> What is the relationship between public goods and free riders? Is accounting a public good?
Answer Preview: Free riders are those individuals who capture the ben…

, Chapter: 16 -Problem: 16 >> Why is the IASB standard (IAS 7) substantially shorter than the FASB’s standard (SFAS No. 13)?
Answer Preview: IAS 17 is more principles-based, lac…

, Chapter: 12 -Problem: 11 >> When dealing with earnings per share, why is less really more with SFAS No. 128?
Answer Preview: Primary earnings per share, with it…

, Chapter: 15 -Problem: 12 >> If actuarial gains and losses and prior service costs, in line with SFAS No. 158, are to be recognized in the period when incurred, is there a double counting effect when these elements are recognized as part of net pension expense?
Answer Preview: The answer would seem to be yes. Projected benefit obligations …

, Chapter: 12 -Problem: 9 >> Why is comprehensive income an application of proprietary theory?
Answer Preview: Comprehensive income tries to sho…

, Chapter: 10 -Problem: 16 >> What are the advantages of convergence-harmonization of accounting standards?
Answer Preview: Financial reporting costs will be reduced. Comparability of financial reports wi…

, Chapter: 1 -Problem: 2 >> Why do the value choices (entry value, exit value, and historical cost) fall within the domain of accounting theory?
Answer Preview: These are examples of different concept…

, Chapter: 15 -Problem: 6 >> Why is there a “double counting” problem if the accumulated benefit obligation is used to measure the pension liability and what can be done about it?
Answer Preview: Economic conceptions of pensions take a long-term implicit contract approach and are thus tied to …

, Chapter: 17 -Problem: 26 >> What prompted FASB Accounting Standards Update 2009-09?
Answer Preview: This Accounting Standard…

, Chapter: 12 -Problem: 18 >> Why are future events so important to the issue of revenue and expense measurement?
Answer Preview: The reason is that fu…

, Chapter: 7 -Problem: 16 >> Would changing the asset definition in the conceptual framework to one concerned with property rights have any other ramifications? Discuss.
Answer Preview: In our opinion, Samuelsons defini…

, Chapter: 3 -Problem: 18 >> What is the relationship between the National Commission on Fraudulent Financial Reporting and Private Securities Litigation Reform Act of 1995?
Answer Preview: The activities of the National Commi…

, Chapter: 5 -Problem: 22 >> Why do you think that operating ratios (return-on-assets) are more sensitive to the combined effect of immateriality items than would be the case with solvency ratios (debt-to-equity and current ratios)? Solvency Solvency means the ability of a business to fulfill its non-current financial liabilities. Often you have heard that the company X went insolvent, this means that
Answer Preview: It is quite likely that profitabili…

, Chapter: 17 -Problem: 12 >> Describe the implicit assumption made in SFAS No. 94 about the reporting entity.
Answer Preview: SFAS No. 94 presumes t…

, Chapter: 5 -Problem: 17 >> How does conventional retained earnings differ from entity equity under the Anthony conception of the entity theory?
Answer Preview: Entity equity would be le…

, Chapter: 7 -Problem: 4 >> How does the freedom from bias mentioned in ASOBAT compare to the quality of neutrality mentioned in SFAC No. 8?
Answer Preview: The concepts are quite similar. Neu…

, Chapter: 12 -Problem: 25 >> In SFAS No. 154, changes in accounting principle result in a restatement, whereas under APB Opinion No. 20, a change in accounting principle is handled in a pro forma manner. How does a restatement differ from a pro forma presentation?
Answer Preview: Restatements chan…

, Chapter: 8 -Problem: 36 >> Why does post-earnings-announcement drift challenge the efficient-markets hypothesis?
Answer Preview: Post-earnings-announcement drift is a c…

, Chapter: 6 -Problem: 3 >> Williams and Ravenscroft (2015) question decision usefulness as the basis for accounting standards. Take a position and argue its merits.
Answer Preview: Williams, Paul F. and Sue P. Ravenscroft (Summer 2015). Rethinking Decision Usefulness, Contemporary …

, Chapter: 17 -Problem: 17 >> Why does the elimination of poolings (SFAS No. 141) and the indefinite life of goodwill subject to impairment (SFAS No. 142) represent a possible “quid pro quo?” Goodwill Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business co
Answer Preview: The bad news of pooling eli…

, Chapter: 2 -Problem: 2 >> An individual who was appraising accounting education had the following premises (assumptions):Accounting professors used to do more consulting with accounting practitioners than they do today.Accounting professors have become more interested in research that is abstract and not necessarily practical.He, therefore, concluded that accounting students are not as well prepared to enter the accounting
Answer Preview: The individual used deductive reasonin…

, Chapter: 7 -Problem: 3 >> Bradbury and Harrison (2015) study dissenting opinions in Financial Accounting Standards Board (FASB) standards. What changes, if any, do these opinions suggest need to be made in the conceptual framework?
Answer Preview: Bradbury, Michael E. and Julie A. Harrison (June 2015). The FASBs Dissenting Opinions, Accounting Ho…

, Chapter: 17 -Problem: 18 >> Why does the elimination of poolings improve representational faithfulness and comparability?
Answer Preview: We do not believe that pooling w…

, Chapter: 9 -Problem: 17 >> Do you think that disclosures of smaller firms have more information content than disclosures for larger firms?
Answer Preview: Yes. The reason is that …

, Chapter: 7 -Problem: 1 >> Murphy, et al (2013) argue “living law” applies to conceptual frameworks. How does this perspective affect current frameworks?
Answer Preview: Murphy, Tim, Vincent OConnell, and Ciarn hgartaigh (January 2013). Discourses surrounding the evolut…

, Chapter: 16 -Problem: 15 >> Why is the G4+1 like the Big Ten (a.k.a. Western Athletic Conference)?
Answer Preview: The G4+1 has six members and the Bi…

, Chapter: 5 -Problem: 13 >> Postulates are supposed to be tight enough to prevent conflicting conclusions being deduced from them. Is this the case with ARS 1?
Answer Preview: Definitely not, because an ex…

, Chapter: 12 -Problem: 17 >> Why is the handling of troubled debt restructuring under SFAS No. 114 illogical?
Answer Preview: The original discount rate is sti…

, Chapter: 13 -Problem: 11 >> What is the purpose of reporting non cash items in the SCF?
Answer Preview: Sources correspond to credits su…

, Chapter: 14 -Problem: 5 >> In the U.S. federal and state tax is based on taxable net income, excluding “not-for-profit entities. What are the arguments for basing all organizational taxes on cash and cash equivalent receipts rather than net income?
Answer Preview: If there can be a fun question when discussing taxes, this has potential. Basing taxes on net income …

, Chapter: 10 -Problem: 1 >> What does harmonization of accounting standards mean?
Answer Preview: Harmonization concerns the deg…

, Chapter: 13 -Problem: 6 >> Ohlson and Aier (2009) propose a framework of Modified Cash Accounting (MCA) rather than the current SCF. Evaluate their proposal.
Answer Preview: Ohlson, James A. and Jagad…

, Chapter: 3 -Problem: 3 >> What role should the AICPA assume in the possible development of “baby GAAP” standards?
Answer Preview: We have a standards setting body, the FASB. The AICPA should allow it to fun…

, Chapter: 15 -Problem: 11 >> Is SFAS No. 87’s argument favoring recognition of a pension liability for accumulated benefits consistent with the conceptual framework project?
Answer Preview: The analysis in the chapter …

, Chapter: 9 -Problem: 3 >> Morunga and Bradbury (2012) find that IFRS adoption may lead to some adverse disclosure results. Discuss their findings.
Answer Preview: Morunga, Maria and Michael Bradbury (2012). The Impact of IFRS on Annual Report Length, …

, Chapter: 8 -Problem: 3 >> Trombetta, et al (2012) discusses how effects analyses might help determine the usefulness of accounting standards. Which research method do you argue provides the best analysis of a new standard?
Answer Preview: Trombetta, Marco, Alfred Wagenhofer, and Peter Wysocki (2012). The Usefulnes…

, Chapter: 3 -Problem: 2 >> The FASB and AICPA are considering the addition of “baby GAAP” for private companies. Take a position and argue why two GAAPs should or should not exist?
Answer Preview: Baby GAAP is essentially a more simple GAAP for private companies. The …

, Chapter: 13 -Problem: 14 >> What does it mean to classify a cash flow according to the basic nature or function of the event as opposed to the ultimate purpose of the transaction? Which method do you prefer?
Answer Preview: Accounting is a historical record …

, Chapter: 17 -Problem: 4 >> Why would proportionate consolidation result in rigid uniformity for intercorporate equity investment accounting?
Answer Preview: Consolidation would occur throug…

, Chapter: 14 -Problem: 4 >> What are some challenges that are specific to a joint converged FASB/IASB Income Tax standard?
Answer Preview: Convergence of FASB/IASB standards is faced with numerous challenges including cultural, political, …

, Chapter: 12 -Problem: 3 >> Liu and Espahbodi (2014) suggest that a firm’s dividend policy affects its propensity to smooth earnings. How might this finding affect financial statement analysis? Dividend A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token
Answer Preview: Liu, Nan and Reza Espahbodi (September 2014). Does Dividend Policy Drive Earnings Smoothing? Account…

, Chapter: 1 -Problem: 18 >> Do you think that changes brought about in accounting standards by failures of publicly traded companies such as Enron should be classified under political factors or economic decisions? Support your position.
Answer Preview: We classify these as political fac…

, Chapter: 8 -Problem: 4 >> Who are creditors?
Answer Preview: Creditors are mainly considered s…

, Chapter: 12 -Problem: 4 >> Why is there no matching problem for periodic costs, and what are some examples?
Answer Preview: Period costs are not match…

, Chapter: 9 -Problem: 12 >> Do you agree that it is not necessary to provide information for undiversified investors? Discuss.
Answer Preview: It is not clear what informatio…

, Chapter: 16 -Problem: 18 >> Current discussions by the Boards point to a possibility that a converged standard on leases will not be achieved. How will lack of converged standard on leases affect the Boards’ Joint Project?
Answer Preview: If a converged standard is not achieved, comparability of FASB and IASB …

, Chapter: 17 -Problem: 16 >> Distinguish among sell-offs, spin-offs, split-offs, and split-ups.
Answer Preview: Sell-offs occur when a subsidiarys stock is sold for cash, oth…

, Chapter: 5 -Problem: 15 >> How do the imperative postulates (group C) differ from the other two categories of postulates?
Answer Preview: They go beyond mere descrip…

, Chapter: 17 -Problem: 1 >> Are there relevant circumstance differences between purchase and pooling of interests? Explain
Answer Preview: No, we do not believe so. Suffi…

, Chapter: 8 -Problem: 32 >> Why is it argued that capital market research cannot determine the optimality of accounting policies even for the limited investor-creditor group?
Answer Preview: Because of externalities associa…

, Chapter: 4 -Problem: 25 >> Does the ability to swiftly-and at no cost-download music files convert this music from a private good to a public good?
Answer Preview: Yes. Files can be shared at no …

, Chapter: 15 -Problem: 3 >> How might standards setters address the concerns that Gordon and Gallery (2012) highlight related to pension accounting comparability?
Answer Preview: Gordon, Isabel and Natalie Gallery (2012). Assessing Financial Reporting Comparability Across Instit…

, Chapter: 1 -Problem: 3 >> Accounting rule making should only be concerned with information for investors and creditors? Discuss.
Answer Preview: You may want to also ask your students to determine who …

, Select a publicly traded company (your instructor may do this for you). Over a 10-year period trace the following elements:a.Net income with depreciation and amortization added back to make it moreb.comparable to cash flows.c.Cash flows from operations (from the SCF).d.Cash flows from investing activities.e.Cash flows from financing activities. Required:Assess how closely the company adheres to th
Answer Preview: ANSWER The specific company chosen is Apple Inc. (AAPL). Over the past 10 years, the …

, Chapter: 15 -Problem: 4 >> Novy-Marx and Rauh (2011) estimate state employee pension liabilities in the United States. What thoughts do you have on their findings?
Answer Preview: Novy-Marx, Robert and Joshua Rauh (August 2011). Public pension promises: how big a…

, Chapter: 17 -Problem: 1 >> Examine the 2001 and 2002 annual reports for a corporation having a financial subsidiary. (Your instructor may suggest a corporation on the EDGAR Website. http://www.sec.gov/edgarhp.htm). Determine the effect of SFAS No. 94 on operating ratios, profitability ratios, liquidity ratios, and leverage ratios. Corporation A Corporation is a legal form of business that is separat
Answer Preview: We recommend that you assig…

, Chapter: 16 -Problem: 2 >> Why is the aspect of conveyance of leases emphasized in capital leases and the contractual element emphasized in operating leases?
Answer Preview: In law, leases have both elements. O…

, Chapter: 9 -Problem: 6 >> Why does segment disclosure in SFAS No. 131 represent a potential improvement over segment disclosure in SFAS No. 14?
Answer Preview: SFAS No. 131 is supposed to result …

, Chapter: 7 -Problem: 2 >> In SFAC No. 8, the objectives of financial reporting clearly take an entity perspective rather than a proprietary one. If the FASB had taken the proprietary perspective, what effect, if any, does it have on the resultant conceptual framework?
Answer Preview: We argue that the resultant …

, Chapter: 6 -Problem: 4 >> What are the implications of Young (2006) on the standards promulgated by standards-setting bodies?
Answer Preview: Young, Joni J. (August 2006). Making Up Users, Accounting, Organizations and Society, 579 600. Young …

, Chapter: 9 -Problem: 21 >> Distinguish between the discrete and integral views of quarterly information disclosure.
Answer Preview: The discrete view sees each qu…

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13 Reviews for Accounting Theory Conceptual Issues in a Political and Economic Environment Textbook Questions And Answers