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Chapter 1: Question 13CA-d (page 25)

ETHICS (Rule-Making Issues) When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would result in a fairer presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the rule will adversely affect the reported net income for the year, he discourages Weller from implementing the rule until it is required.

Instructions:Answer the following questions.(d) Which stakeholders might be affected by the decision against early implementation?

Short Answer

Expert verified

Lenders and investors are the ones to be most affected by the decision against early implementation.

Step by step solution

01

Meaning of Stakeholders

An individual or a company that invests in and takes interest in a business is known as a stakeholder for that business entity. Stakeholders need an in-depth knowledge of the business to make their investment decisions.

02

Explanation

The lenders and investors are dependent on the financial statements for ascertaining the firm's financial condition, so they are the ones who gain the most through early implementation. However, the stockholders who are contemplating the sale of stock may have to bear the loss of the early implementation as it lowers net income. Likewise, it may also lower the stock value.

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Most popular questions from this chapter

Question: The authoritative status of The Conceptual Framework for Financial Reporting is as follows:

(a) It is used when there is no standard or interpretation related to the reporting issues under consideration.

(b) It is not as authoritative as a standard but takes precedence over any interpretation related to the reporting issue.

(c) It takes precedence over all other authoritative literature.

(d) It has no authoritative status.

One writer recently noted that 99.4 percent of all companies prepare statements that are in accordance with GAAP. Why then is there such concern about fraudulent financial reporting?

Some accountants have politicization in the development and acceptance of generally accepted accounting principles (i.e., rule-making) is taking place. Some use the term “politicization” in a narrow sense to mean the influence by governmental agencies, particularly the securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, and so on).Instructions

(a) The Committee on Accounting Procedure of the AICPA was established in the mid-to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, the APB, and the FASB operated or operate. Cite specific developments that tend to support your answer.

(b) What arguments can be raised to support the “politicization” of accounting rule-making?

(c) What arguments can be raised against the “politicization” of accounting rule-making?

Briefly explain the meaning of decision-usefulness in the context of financial reporting.

What was the Committee on Accounting Procedure, and what were its accomplishments and failings?
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