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Chapter 1: Question 13Q (page 23)

In what ways it felt that the pronouncements issued by the Financial Accounting Standards Board would carry greater weight than the opinions issued by the Accounting Principles Board?

Short Answer

Expert verified

Ways that certify that the opinions of the Financial Accounting Standards Boardwould carry greater weight than those of the Accounting Principles Board are:

The number of persons, way of remuneration, autonomy, independence as well as representation.

Step by step solution

01

Meaning of Financial Accounting Standards Board

The Financial Accounting Standards Board is an independent non-profit organization. Its purpose is to create accounting and financial reporting standards for firms and non-profit organizations in the United States, in accordance with the generally accepted accounting principles.

02

Ways by which it felt that the pronouncements issued by Financial Accounting Standards Board would carry greater weight.

  • Financial Accounting Standards Boards had 7 members, while Accounting Principles Board had 18 members.
  • Members of the Financial Accounting Standards Board were paid on a full-time basis and were appointed for a tenure of 5 years, while, the members of the Accounting Principles Board were paid for their part-time work.
  • Financial Accounting Standards Board were appointed by and answerable only to the Financial Accounting Foundation. Accounting Principles Board is the senior committee of the AICPA while Financial Accounting is not engaged in any professional firm.
  • Financial Accounting Standards Board must split their relations with their private positions while Accounting Principles Board did not do so.
  • Accounting Principles Board were supposed to be Certified Public Accountants and the members of American Institute of Certified Public Accountants while Financial Accounting Standards Board members do not.

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Most popular questions from this chapter

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?

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?

CA1-14 (Securities and Exchange Commission)

The U.S. Securities and Exchange Commission (SEC) was created in 1934 and consists of five commissioners and a large professional staff. The SEC professional staff is organised into five divisions and several principal offices. The primary objective of the SEC is to support fair securities markets. The SEC also strives to foster enlightened stockholder participation in corporate decisions of publicly traded companies. The SEC has a significant presence in financial markets, the development of accounting practices, and corporation-shareholder relations, and has the power to exert influence on entities whose actions lie within the scope of its authority.

Instructions

(a) Explain from where the Securities and Exchange Commission receives its authority

(b) Describe the official role of the Securities and Exchange Commission in the development of financial accounting theory and practices.

(c) Discuss the interrelationship between the Securities and Exchange Commission and the Financial Accounting Standards Board with respect to the development and establishment of financial accounting theory and practices.

Differentiate broadly between financial accounting and managerial accounting.

Question: Which of the following statements is true?

(a) The IASB has the same number of members as the FASB.

(b) The IASB structure has both advisory and interpretation functions, but no trustees.

(c) The IASB has been in existence longer than the FASB.

(d) The IASB structure is quite similar to the FASB’s, except the IASB has a larger number of board members.
See all solutions

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