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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

Accounting standard-setters use the following process in establishing accounting standards:

  1. Research, exposure draft, discussion paper, standard.
  2. Discussion paper, research, exposure draft, standard.
  3. Research, preliminary views, discussion paper, standard.
  4. Research, discussion paper, exposure draft, standard.

GAAP is comprised of:

  1. FASB standards, interpretations, and concepts statements.
  2. FASB financial standards.
  3. FASB standards, interpretations, EITF consensuses, and accounting rules issued by FASB predecessor organizations.
  4. any accounting guidance included in the FASB Codification.

Some individuals have indicated that the FASB must be cognizant of the economic consequences of its pronouncements. What is meant by “economic consequences”? What dangers exist if politics play too much of role in the development of GAAP?

(Objective of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the company’s response to a current Preliminary Views published by the Financial Accounting Standards Board (FASB). Sepan knows that the FASB has a conceptual framework, and she believes that these concept statements could be used to support the company’s response to the Preliminary Views. She has prepared a rough draft of the response citing the objective of financial reporting.Instructions

  1. Identify the objective of financial reporting.
  2. Describe the level of sophistication expected of the users of financial information by the objective of financial reporting.

Differentiate broadly between financial accounting and managerial accounting.

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