Acct 3610 Quiz #1

Memorandum of Understanding

FASB and IASB tried to develop global standards work on joint projects

Which of the following legislative acts were passed at least partly in response to the negative experiences of investors in the capital markets? Securities Acts of 1933 and 1934 Sarbanes-Oxley Act of 2002 Both None

BOTH - Securities Acts of 1933 & 1934 were passed in response to the stock market crash of 1929, and Sarbanes-Oxley was passed in response to the "tech bubble" of the late 1990's/early 2000's as well as a number of high profile accounting scandals (e.g. Enron, Worldcom) of the early 2000's

A meteorologist (i.e. weatherperson) was reflecting on similarities between being a weatherperson and being an accountant. Which of the following functions of the meteorology profession are also functions of the accounting profession? A. Measuring events and compiling data that will be used as a basis of reporting B. Communicating information to interested parties C. Both A and B are functions of both meteorology and accounting D. None of the above

C

"One task of the Public Company Accounting Oversight Board (PCAOB) is to "audit" a random set of financial statements that companies file with the Securities and Exchange Commission, and express an opinion on whether the financial statements of the selected firms comply with US GAAP."

Disagree - the PCAOB examines the AUDIT WORK of accounting firms that audit SEC registered companies

International Accounting Standards Board (IASB)

accounting standard-setting body that issues standards adopted by many countries outside of the United States (IFRS)

In 2005, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) began working on a "joint conceptual framework" project. The project was broken down into a number of phases. During the period in which the two boards were working together on this project, how many of the phases, if any, were completed, and what was the nature of any phases that were completed?

1, Objectives of Financial Reporting

TRUE or FALSE? For fiscal years beginning after December 15, 2016, corporations that are domiciled in the United States (i.e. US Corporations) are allowed to file financial statements with the SEC that are prepared in accordance with International Financial Reporting Standards (IFRS).

FALSE - only GAAP

TRUE or FALSE and WHY? "The main objective of the "Codification Project" is to require all firms that operate in the same industry to use the same accounts and account titles on their (external) financial statements".

FALSE - the objective was to organize GAAP in ONE LOCATION and make it easier for people to figure out how to file

How long are FASB member terms? Can they be renewed?

5 years, 1x

In the United States, which of the following statements is (are) true related to the process that may ultimately result in the FASB issuing a new "Accounting Standard Update (ASU)"? A. Before issuing an ASU, the FASB will usually issue an Exposure Draft related to the potential new ASU, and will solicit feedback from stakeholders. B. The Public Company Accounting Oversight Board (PCAOB) has "veto power" over new ASU's. Specifically, if a majority of the PCAOB opposes a new ASU, the ASU is not considered part of US GAAP. C. Both statements A and B are true. D. None of the above statements are true.

A

Which standards can non-US corporations that are on the US market file their statements with the SEC in?

GAAP or IFRS

Structure of US GAAP: Prior to July 1, 2009

Hierarchy of Accounting - pyramid of standards - so many documents that they had to be organized this way some documents supersede others

What is an Exposure Draft, and why does the Financial Accounting Standards Board issue them?

Issuing an Exposure Draft is the approach that the FASB uses to propose a new accounting standard. The document includes the proposed rules/changes to US GAAP, and typically includes a bunch of questions for which the FASB requests feedback and commentary. The feedback and commentary is then reviewed by the FASB in their process of deciding whether to move forward with the proposed new standard.

Which of the following bodies of literature are included as part of the Accounting Standards Codification? US Tax Code, IFRS, Both, None

None - only GAAP

Costs of Disclosing

Processing Costs - expensive to collect, process, and distribute information Proprietary Costs - by releasing information, a competitor can use this information to your disadvantage Increased Litigation Risk - increased likelihood to share inaccurate information

TRUE or FALSE and WHY? "Telxon used a "proprietary cost" argument to support their position that they wouldn't disclose accounting information to a company (Symbol Technologies, Inc.) in their same industry until after the business combination was completed."

TRUE - didn't want the disclosed information to compromise competitive standing

What does a lack of disclosure lead to?

an unfavorable view of the company people often interpret this as meaning that the undisclosed information is unfavorable

Public Company Accounting Oversight Board (PCAOB)

a board created by SOX that regulates auditors provides standards and reviews the auditing work of firms

What is an exposure draft?

a document published by FASB to solicit public comment on a proposed new accounting standard, to minimize any unintended consequences before it becomes law solicits broad stakeholder input

International Financial Reporting Standards (IFRS)

a set of global accounting guidelines, formulated by the International Accounting Standards Board (IASB)

Generally Accepted Accounting Principles (GAAP)

accounting guidelines that govern the content and form of financial reports - used in the United States

Benefits of Disclosing

avoid being delisted increased trust and credibility, decreased uncertainty more trust leads to a lower cost of capital and thus a higher stock price

Codification Project

completed in 2009 FASB project in which all US GAAP standards were organized easier to understand rules

American Institute of Certified Public Accountants (AICPA)

creates and oversees the CPA exam comprised of CPAs and CPA firms used to have an active role in the standard-setting process

Conceptual Framework

establishes the concepts that underlie financial reporting financial documents should be understood by those with a business background and those that have a desire to learn

What is comprehensive income?

net income + other comprehensive income items

In 2007, FASB wanted all financial documents to have financing, operating, and investing sections. How was this viewed?

radical / too much bottom-line net income would vanish

Telxon Corporation

said that they weren't disclosing for proprietary reasons in reality, their numbers were not as good as people believed - were propping up their numbers

Securities and Exchange Commission (SEC)

the agency that oversees firms and requires them to disclose financial statements will delist firms if they do not disclose information will make maturity date sooner if do not disclose on time

What is the relationship between the cost and benefits of adopting standards?

the costs are less than the benefits

What are possible consequences of a firm failing to file their financial statements on time with the SEC?

the firm can be "de-listed" from the stock exchange the maturity date of the firm's outstanding debt can be accelerated

Financial Accounting Standards Board (FASB)

the primary accounting standard-setting body in the US - sets US GAAP comprised of 7 members from various backgrounds - salary is more than the President's HQ - Norwalk, CT 2009 - completed the Codification Project

What was the purpose of the Codification Project?

to aggregate all US GAAP in a single location - easier this way NO RULES CHANGED - just added structure to US GAAP

Securities Act of 1933

truth in securities law goal was to prohibit deceit and increase information that's shared

FASB and IASB - joint conceptual framework project

wanted to create a sound foundation to help develop future accounting standards only completed 1 phase - Objectives and Qualitative Characteristics of Financial Reporting

Could the US adopt IFRS?

would require A LOT of learning, changes, etc. GAAP and IFRS follow different rules, so would be difficult