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Chapter 1: Q3ISTQ (page 34)

IFRS is comprised of:

(a) International Financial Reporting Standards and FASB Financial Reporting Standards.

(b) International Financial Reporting Standards, International Accounting Standards, and International Accounting Interpretations.

(c) International Accounting Standards and International Accounting Interpretations.

(d) FASB Financial Reporting Standards and International Accounting Standards.

Short Answer

Expert verified

The correct option is (b) International financial reporting standards, international accounting standards, and international accounting interpretations.

Step by step solution

01

Definition ofAccounting Standards

Accounting standards are the common principles and procedures that provide information regarding basic accounting practices. The standards promote comparability and transparency of the financial statement.

02

Explanation of correct option

Option (b) is correct because any company reporting its financial information according to the IFRS must comply with the following standards:

  1. International financial reporting standards.
  2. International accounting standards.
  3. International accounting interpretations.
03

Explanation for incorrect options

  1. Option (a) is incorrect because IFRS does not comprise FASB because it is country-specific and works only for U.S accounting standards.
  2. Option (c) is incorrect because IFRS comprises one more standard, the international financial reporting standard.
  3. Option (d) is incorrect because IFRS does not comprise standards developed by FASB because these are only for the U.S.

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Most popular questions from this chapter

Some individuals have indicated that the FASB must be cognizant of the economic consequences of its pronouncements. What is meant by “economic consequences”? What dangers exist if politics play too much of role in the development of GAAP?

If you were given complete authority in the matter, how would you propose that GAAP should be developed and enforced?

ETHICS (Financial Reporting Pressures) Presented below is abbreviated testimony from Troy Normand 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 ultimately sentenced.

Q. Mr. Normand, if you could just describe for the jury how the meeting started and what was said during 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 considering 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 statements could not

have been as high as they were, that he believed 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 forward 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 entries 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 entries, 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 accurate. 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.

Q. During this meeting, did Mr. Sullivan ever provide any accounting justification for the entry you were asked to make?

A. No, he did not.

Concepts for Analysis 27

Q. Did anything else happen during the meeting?

A. I don’t recall anything else.

Q. How did you feel after this meeting?

A. Not much better actually. I left his office not convinced in any way that what we were asked to do was right. However, I did question myself to some degree after talking with him wondering whether I was making something more out of what was really there.

Instructions

Answer the following questions.

(a) What appears to be the ethical issue involved in this case?

(b) Is Troy Normand acting improperly or immorally?

(c) What would you do if you were Troy Normand?

(d) Who are the major stakeholders in this case

Question: CA1-17 GROUPWORK (GAAP and Economic Consequences) The following letter was sent to the SEC and the FASB by the leaders of the business community.

Dear Sirs:

The FASB has been struggling with accounting for derivatives and hedging for many years. The FASB has now developed, over the last few weeks, a new approach that it proposes to adopt as a final standard. We understand that the

Board intends to adopt this new approach as a final standard without exposing it for public comment and debate, despite the evident complexity of new approach, the speed with which it has been developed and the significant changes to the exposure draft since it was released more than one year ago. Instead, the board plans to allow only a brief review by selected parties, limited to issues of operationality and clarity, and would exclude questions as to the merits of the proposed approach.

As the FASB itself has said throughout this process, its mission does not permit it to consider matters that go beyond accounting and reporting considerations. Accordingly, the FASB may not have adequately considered the wide range of concerns that have been expressed about the derivatives and hedging proposal, including concerns related to the potential impact on the capital markets, the weakening of companies` ability to manage risk, and the adverse control implications of implementing costly and complex new rules imposed at the same time as other major initiatives, including the year 2000 issues and a single European currency. We believe that these crucial issues must be considered, if not by the FASB, then by the Securities and Exchange Commission, other regulatory agencies, or Congress.

We believe it is essential that the FASB solicit all comments in order to identify and address all material issues that may exist before issuing a final standard. We understand the desire to bring this process to a prompt conclusion, but the underlying issues are so important to this nation`s businesses, the customers they serve and the economy as a whole that expediency cannot be the dominant consideration. As a result, we urge the FASB to expose its new proposal for public comment, following the established due process procedures that are essential to acceptance of its standards, and providing sufficient time to affected parties to understand and assess the new approach.

We also urge the SEC to study the comments received in order to assess the impact that these proposed rules may have on the capital markets, on companies` risk management practices, and on management and financial controls. These vital public policy matters deserve consideration as part of the Commission`s oversight responsibilities.

We believe that these steps are essential if the FASB is to produce the best possible accounting standard while minimizing adverse economic effects and maintaining the competitiveness of U.S businesses in the international market

place.

Very truly yours, (this letter was signed by the chairs of 22 of the largest U.S companies.)

Instructions

Answer the following questions.

(a) Explain the "due process" procedures followed by the FASB in developing a financial reporting standard.

(b) What is meant by the term "economic consequences" in accounting standard-setting?

(c) What economic consequences arguments are used in this letter?

(d) What do you believe is the main point of the letter?

(e) Why do you believe a copy of this letter was sent by the business community to influential members of the U.S. Congress?

What are the primary advantages of having a codification of generally accepted accounting principles?
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