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Chapter 1: Question 11Q (page 22)

Distinguish between Opinions of the Accounting Principles Board and Accounting Standards Updates.

Short Answer

Expert verified

Accounting Principle Board’s official pronouncements are called Accounting Principle Board Opinions and are considered to be based primarily on research studies and be guided by reason and analysis. On the other hand, Financial Accounting Standards Board (FASB) issues Accounting Standards Updates (ASU) to convey changes to the FASB Codification, consisting of changes to non-authoritative SEC content.

Step by step solution

01

Meaning of Accounting Standards

Accounting standardsare generally accepted accounting principles that provide the basis for accounting policies and for the preparation of financial statements.

The objective of these standards is to provide uniformity in financial reporting and to ensure consistency and comparability of the information provided by the business firms. It provides useful information to the users to interpret published reports.

02

Difference between Opinions of the Accounting Principles Board and Accounting Standards Updates

The Accounting Principle Board issued accounting Principle Board Opinions during 1959, replaced by Financial Accounting Standards Board (FASB) Statements, identified as accepted practice and comprise the requirements to be adhered to by all the business firms. At the same time, Accounting Standards Updates are pronouncements of the Financial Accounting Standards Board that are consolidated into the FASB codification and thus indicate the accounting profession’s authoritative pronouncements on accounting and reporting practices.

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Most popular questions from this chapter

The following comments were made at an Annual Conference of the Financial Executives Institutes (FEI). There is an irreversible movement toward the harmonization of financial reporting throughout the world. The international capital markets require an end to:

  1. The confusion caused by international companies announcing different results depending on the set of accounting standards applied.
  2. Companies in some countries obtaining unfair commercial advantages from the use of particular national accounting standards.
  3. The complications in negotiating commercial arrangements for international joint ventures caused by different accounting requirements.
  4. The inefficiency of international companies having to understand and use a myriad of different accounting standards depending on the countries in which they operate and the countries in which they raise capital and debt. Executive talent is wasted on keeping up to date with numerous sets of accounting standards and the never-ending changes to them.
  5. The inefficiency of investment managers, bankers, and financial analysts as they seek to compare financial reporting drawn up in accordance with different sets of accounting standards.

Instructions

  1. What is the International Accounting Standards Board?
  2. What stakeholders might benefit from the use of International Accounting Standards?
  3. What do you believe are some of the major obstacles to convergence?

(Objective of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the company’s response to a current Preliminary Views published by the Financial Accounting Standards Board (FASB). Sepan knows that the FASB has a conceptual framework, and she believes that these concept statements could be used to support the company’s response to the Preliminary Views. She has prepared a rough draft of the response citing the objective of financial reporting.Instructions

  1. Identify the objective of financial reporting.
  2. Describe the level of sophistication expected of the users of financial information by the objective of financial reporting.

(FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.

  1. GAAP is the term used to indicate the whole body of FASB authoritative literature.
  2. Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.
  3. The primary governmental body that has influence over the FASB is the SEC.
  4. The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.

Presented below are three models for setting GAAP.

  1. The purely political approach, where national legislative action decrees GAAP.
  2. The private, professional approach, where GAAP is set and enforced by private professional actions only.
  3. The public/ private mixed approach, where GAAP is 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

  1. Which of these three models best describes standard-setting in the United States? Provide justification for your answer.
  2. Why do companies, financial analysts, labor unions, industry trade associations, and others take such an active interest in standard-setting?
  3. 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.

The chair 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 benefits and more on quality products,and

(2) accountants and lawyers rely less on rules and law and more on professional judgement and conduct.” Explain his comment.
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