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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

The authoritative status of the conceptual framework 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.

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

Differentiate broadly between financial accounting and managerial accounting.

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.

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.(a) What, if any, is the ethical issue involved in this case?

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