Financial Reporting and Accounting Standards
ASSIGNMENT CLASSIFICATION TABLE
Topics Questions Cases
1. Global markets. 1
2. Environment of accounting.
... [Show More] 2, 3, 4 4, 5, 7
3. Objective of financial reporting. 5, 6, 7, 8, 9, 10 2
4. Standard-setting organizations. 11, 12, 13, 14,
15, 16, 17, 18
1, 3, 6
5. Financial reporting challenges. 19, 20, 21, 22,
23, 24, 25
8, 9, 10
6. Ethical issues. 26 11, 12, 16
*7. Authoritative U.S. pronouncements
and policy-setting bodies.
27, 28, 29, 30, 31,
32, 33, 34, 35, 36,
37, 38
13, 14, 15
*These questions and cases address material in the appendix to the chapter.
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ASSIGNMENT CHARACTERISTICS TABLE
Item Description
Level of
Difficulty
Time
(minutes)
CA1-1 IFRS and standard-setting. Simple 5–10
CA1-2 IFRS and standard-setting. Simple 5–10
CA1-3 Financial reporting and accounting standards. Simple 15–20
CA1-4 Financial accounting. Simple 15–20
CA1-5 Need for IASB. Simple 15–20
CA1-6 IASB role in standard-setting. Simple 15–20
CA1-7 Accounting numbers and the environment. Simple 10–15
CA1-8 Politicalization of IFRS. Complex 15–20
CA1-9 Models for setting IFRS. Simple 10–15
CA1-10 Economic consequences. Moderate 25–35
CA1-11 Rule-making Issues. Complex 20–25
CA1-12 Financial reporting pressures. Moderate 25–35
*CA1-13 GAAP terminology. Moderate 20–30
*CA1-14 Accounting organizations and documents issued. Simple 3–5
*CA1-15 Accounting pronouncements. Simple 5–7
CA1-16 GAAP and economic consequences. Moderate 25–35
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ANSWERS TO QUESTIONS
1. World markets are becoming increasingly intertwined. The tremendous variety and volume of both
exported and imported goods indicates the extensive involvement in international trade. As a
result, the move towards adoption of international financial reporting standards has and will continue
in the future.
2. Financial accounting measures, classifies, and summarizes in report form those activities and that
information which relate to the enterprise as a whole for use by parties both internal and external
to a business enterprise. Managerial accounting also measures, classifies, and summarizes in report
form enterprise activities, but the communication is for the use of internal, managerial parties, and
relates more to subsystems of the entity. Managerial accounting is management decision oriented
and directed more toward product line, division, and profit center reporting.
3. Financial statements generally refer to the four basic financial statements: statement of financial
position, income statement, statement of cash flows, and statement of changes in equity. Financial
reporting is a broader concept; it includes the basic financial statements and any other means of
communicating financial and economic data to interested external parties.
4. If a company’s financial performance is measured accurately, fairly, and on a timely basis, the right
managers and companies are able to attract investment capital. To provide unreliable and irrelevant
information leads to poor capital allocation which adversely affects the securities market.
5. The objective of general purpose financial reporting is to provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and other creditors
in making decisions in their capacity as capital providers.
6. General purpose financial statements provide financial reporting information to a wide variety of
users. To be cost effective in providing this information, general purpose financial statements provide
at the least cost the most useful information possible.
7. Shareholders, creditors, suppliers, employees, and regulators all use general purpose financial
statements. The primary user group is capital providers (shareholders and creditors).
8. The proprietary perspective is not considered appropriate because this perspective generally does
not reflect a realistic view of the financial reporting environment. Instead the entity perspective
is adopted which is consistent with the present business environment where most companies
engaged in financial reporting have substance distinct from their investors.
9. The objective of financial reporting is primarily to provide information to investors interested in
assessing the company’s ability to generate net cash inflows and management’s ability to protect
and enhance the capital providers’ investments. Financial reporting should help investors assess
the amounts, timing and uncertainty of prospective cash inflows.
10. A single set of high quality accounting standards ensures adequate comparability. Investors are
able to make better investment decisions if they receive financial information from a U.S. company
that is comparable to an international competitor.
11. The two organizations involved in international standard-setting are IOSCO (International Organization
of Securities Commissions) and the IASB (International Accounting Standards Board.) The
IOSCO does not set accounting standards, but ensures that the global markets can operate in an
efficient and effective manner. Conversely, the IASB’s mission is to develop a single set of high
quality, understandable and international financial reporting standards (IFRSs) for general purpose
financial statements.
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Questions Chapter 1 (Continued)
12. The Financial Accounting standards Board (FASB) is an independent organization whose mission
is to establish and improve standards of financial accounting and reporting for U.S. companies.
13. The purpose of the IOSCO is to facilitate cross-border cooperation, reduce global systemic risk,
protect investors, and ensure fair and efficient securities markets.
14. The mission of the IASB is to develop, in the public interest, a single set of high quality, understandable
and international financial reporting standards (IFRSs) for general purpose financial
statements.
15. The IASB preliminary views are based on research and analysis conducted by the IASB staff.
IASB exposure drafts are issued after the Board evaluates research and public response to
preliminary views. IASB standards are issued after the Board evaluates responses to the exposure
draft.
16. IASB standards are financial accounting standards issued by the IASB and are referred to as
International Financial Reporting Standards (IFRS). The IASB Framework for financial reporting
sets forth fundamental objectives and concepts that the Board uses in developing future standards
of financial reporting. The intent of the Framework is to form a cohesive set of interrelated concepts
that will serve as tools for solving existing and emerging problems in a consistent manner.
17. International Financial Reporting Standards are the most authoritative, followed by International
Financial Reporting Interpretations then the IASB framework.
18. The International Financial Reporting Interpretations Committee (IFRIC) applies a principles-based
approach in providing interpretative guidance. The IFRIC issues interpretations that cover newly
identified financial reporting issues not specifically dealt with in IFRS, and issues where conflicting
interpretations have developed, or seem likely to develop in the absence of authoritative guidance.
19. Some major challenges facing the accounting profession relate to the following items:
Nonfinancial measurement—how to report significant key performance measurements such as
customer satisfaction indexes, backlog information and reject rates on goods purchased.
Forward-looking information—how to report more future oriented information.
Soft assets—how to report on intangible assets, such as market know-how, market dominance,
and well-trained employees.
Timeliness—how to report more real-time information.
20. The sources of pressure are innumerable, but the most intense and continuous pressure to change
or influence the development of IFRS come from individual companies, industry associations,
governmental agencies, practicing accountants, academicians, professional accounting organizations,
and investing public.
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