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Question: What might explain the fact that different accounting standard-setters have developed accounting standards that are sometimes quite different in nature?

Short Answer

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Answer

The standards presented by the concern are sometimes tax-oriented, rules and principles-based as well as business-oriented. It means that they usually vary in objectives and concepts.

Step by step solution

01

Definition of Accounting Standards

An accounting standard refers to a document issued by a regulatory body, indicating the way in which the accounting transactions are listed and reported. The concern that usually presents accounting standards is the International Accounting Standards Board (IASB) as well as the Financial Accounting Standards Board (FASB).

02

Fact that explains that accounting standards are sometimes quite different in nature.

Different accounting standard-setters have developed accounting standards that vary in nature. Accounting standards are formulated to ensure that there is conformity in financial reporting and regularity in the data that is issued by the firm. However, the way of presentation of financial statements is mostly dependent on the country’s local and statutory requirements. In some countries, accounting standards have been set basically in accordance with the needs of the private creditors, while in other countries the tax authorities or central planners have been implemented by International Financial Reporting Standards (IFRS).

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Most popular questions from this chapter

What is Rule 203 of the Code of Professional Conduct?

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.

The objective of financial reporting places most emphasis on:

  1. Reporting to capital providers.
  2. Reporting on stewardship
  3. Providing specific guidance related to specific needs.
  4. Providing information to individuals who are experts in the field.

What is the objective of financial reporting?

ETHICS (Financial Reporting Pressures) Presented below is abbreviated testimony from Troy Normand in the

WorldCom case. He was a manager in the corporate reporting department and is one of five individuals who pleaded guilty. He is

testifying in hopes of receiving no prison time when he is ultimately sentenced.

Q. Mr. Normand, if you could just describe for the jury how the meeting started and what was said during the meeting?

A. I can’t recall exactly who initiated the discussion, but right away Scott Sullivan acknowledged that he was aware we had

problems with the entries, David Myers had informed him, and we were considering resigning.

He said that he respected our concerns but that we weren’t being asked to do anything that he believed was wrong.

He mentioned that he acknowledged that the company had lost focus quite a bit due to the preparations for the Sprint

merger, and that he was putting plans in place and projects in place to try to determine where the problems were, why the

costs were so high.

He did say he believed that the initial statements that we produced, that the line costs in those statements could not

have been as high as they were, that he believed something was wrong and there was no way that the costs were that

high.

I informed him that I didn’t believe the entry we were being asked to do was right, that I was scared, and I didn’t want

to put myself in a position of going to jail for him or the company. He responded that he didn’t believe anything was wrong,

nobody was going to be going to jail, but that if it later was found to be wrong, that he would be the person going to jail,

not me.

He asked that I stay, don’t jump off the plane, let him land it softly, that’s basically how he put it. And he mentioned that he

had a discussion with Bernie Ebbers, asking Bernie to reduce projections going forward and that Bernie had refused.

Q. Mr. Normand, you said that Mr. Sullivan said something about don’t jump out of the plane. What did you understand him

to mean when he said that?

A. Not to quit.

Q. During this meeting, did Mr. Sullivan say anything about whether you would be asked to make entries like this in the future?

A. Yes, he made a comment that from that point going forward we wouldn’t be asked to record any entries, high-level late

adjustments, that the numbers would be the numbers.

Q. What did you understand that to be mean, the numbers would be the numbers?

A. That after the preliminary statements were issued, with the exception of any normal transaction, valid transaction, we

wouldn’t be asked to be recording any more late entries.

Q. I believe you testified that Mr. Sullivan said something about the line cost numbers not being accurate. Did he ask you to

conduct any analysis to determine whether the line cost numbers were accurate?

A. No, he did not.

Q. Did anyone ever ask you to do that?

A. No.

Q. Did you ever conduct any such analysis?

A. No, I didn’t.

Q. During this meeting, did Mr. Sullivan ever provide any accounting justification for the entry you were asked to make?

A. No, he did not.

Concepts for Analysis 27

Q. Did anything else happen during the meeting?

A. I don’t recall anything else.

Q. How did you feel after this meeting?

A. Not much better actually. I left his office not convinced in any way that what we were asked to do was right. However, I did question myself to some degree after talking with him wondering whether I was making something more out of what was really there.

Instructions

Answer the following questions.

(a) What appears to be the ethical issue involved in this case?

(b) Is Troy Normand acting improperly or immorally?

(c) What would you do if you were Troy Normand?

(d) Who are the major stakeholders in this case

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