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WileyPLUS
ManymoreassessmenttoolsandresourcesareavailableforpracticeinWileyPLUS.

Questions

1.Whatishappeningtoworldmarkets,andwhataretheimplicationsforfinancial
reporting?
2.Differentiatebroadlybetweenfinancialaccountingandmanagerialaccounting.
3.Whatarethemajorfinancialstatements,andwhatisthedifferencebetween
financialstatementsandfinancialreporting?
4.Howdoesaccountinghelpinthecapitalallocationprocess?
5.Whatisthebenefitofasinglesetofhigh-qualityaccountingstandards?
6.Whatistheobjectiveoffinancialreporting?
7.Whatismeantbygeneral-purposefinancialstatements?
8.Whoistheprimaryusergroupforgeneral-purposefinancialstatements?
9.Commentonthefollowingstatement:Aperspectivethatfinancialreportingshould
befocusedonlyontheneedsoftheshareholdersoftenreferredtoasthe
proprietaryperspectiveisconsideredappropriate.
10.Commentonthefollowingstatement:Theobjectiveoffinancialreportingis
primarilytoprovidedecision-usefulinformationforassessingtheperformanceof
management.
11.Whatarethetwokeyorganizationsinthedevelopmentofinternational
accountingstandards?Explaintheirrole.
12.WhatisIOSCO?
13.WhatisthemissionoftheIASB?
14.WhatisthepurposeoftheMonitoringBoard?
15.HowareIASBpreliminaryviewsandIASBexposuredraftsrelatedtoIASB
standards?
16.DistinguishbetweenIASBstandardsandtheConceptualFrameworkforFinancial
Reporting.
17.Rankfrommostauthoritativetoleastauthoritativethefollowingthreeitems:
ConceptualFrameworkforFinancialReporting,InternationalFinancialReporting
Standards,andInternationalFinancialReportingStandardsInterpretations.
18.ExplaintheroleoftheIFRSInterpretationsCommittee.
19.Whataresomeofthemajorchallengesfacingtheaccountingprofession?
20.Whatarethesourcesofpressurethatchangeandinfluencethedevelopmentof
IFRS?

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21.SomeindividualshaveindicatedthattheIASBmustbecognizantoftheeconomic
consequencesofitspronouncements.Whatismeantbyeconomic
consequences?Whatdangersexistifpoliticsplaytoomuchofaroleinthe
developmentofIFRS?
22.Ifyouweregivencompleteauthorityinthematter,howwouldyouproposethat
IFRSshouldbedevelopedandenforced?
23.Onewriterrecentlynotedthatahighpercentageofallcompaniesprepare
statementsthatareinaccordancewithIFRS.Whythenistheresuchconcernabout
fraudulentfinancialreporting?
24.Whatistheexpectationsgap?Whatistheprofessiondoingtotrytoclose
thisgap?
25.Howarefinancialaccountantschallengedintheirworktomakeethicaldecisions?
IstechnicalmasteryofIFRSnotsufficienttothepracticeoffinancialaccounting?

ConceptsforAnalysis

CA1.1(LO3)(IFRSandStandard-Setting)Presentedbelowarefivestatementsthat
youaretoidentifyastrueorfalse.Iffalse,explainwhythestatementisincorrect.
1.IFRSisthetermusedtoindicatethewholebodyofIASBauthoritativeliterature.
2.AnycompanyclaimingcompliancewithIFRSmustfollowmoststandardsand
interpretationsbutnotthedisclosurerequirements.
3.TheprimarygovernmentalbodythathasinfluenceovertheIASBistheIFRS
AdvisoryCouncil.
4.TheoverridingrequirementofIFRSisforthefinancialstatementstogiveafair
presentation(ortrueandfairview).
5.TheIASBhasagovernmentmandateandthereforedoesnothavetofollowdue
processinissuinganIFRS.
CA1.2(LO2,3)(IFRSandStandard-Setting)Presentedbelowarefourstatements
thatyouaretoidentifyastrueorfalse.Iffalse,explainwhythestatementisincorrect.
1.

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Theobjectiveoffinancialstatementsemphasizesastewardshipapproachfor
reportingfinancialinformation.
2.Theobjectiveoffinancialreportingistoprepareastatementoffinancialposition,
astatementofcomprehensiveincome,astatementofcashflows,andastatement
ofchangesinequity.
3.ThedifferencebetweenInternationalAccountingStandardsandIFRSisthat
InternationalAccountingStandardsaremoreauthoritative.
4.Theobjectiveoffinancialreportingusesanentityratherthanaproprietary
approachindeterminingwhatinformationtoreport.
CA1.3(LO2,3,4)(FinancialReportingandAccountingStandards)Answerthe
followingmultiple-choicequestions.
1.IFRSstandsfor:
a.InternationalFederationofReportingServices.
b.IndependentFinancialReportingStandards.
c.InternationalFinancialReportingStandards.
d.IntegratedFinancialReportingServices.
2.Themajorkeyorganizationsontheinternationalsidearethe:
a.IASBandIFRSAdvisoryCouncil.
b.IOSCOandtheU.S.SEC.
c.LondonStockExchangeandInternationalSecuritiesExchange.
d.IASBandIOSCO.
3.WhichgovernmentalbodyismostinfluentialinenforcingIFRS?
a.MonitoringBoard.
b.IFRSAdvisoryCouncil.
c.IOSCO.
d.IFRSFoundation.
4.Accountingstandard-settersusethefollowingprocessinestablishinginternational
standards:
a.Research,exposuredraft,discussionpaper,standard.
b.Discussionpaper,research,exposuredraft,standard.
c.Research,preliminaryviews,discussionpaper,standard.
d.Research,preliminaryviews,exposuredraft,standard.
5.IFRSiscomprisedof:

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a.InternationalFinancialReportingStandardsandFASBfinancialreporting
standards.
b.InternationalFinancialReportingStandards,InternationalAccounting
Standards,andInternationalAccountingStandardsInterpretations.
c.InternationalAccountingStandardsandInternationalAccountingStandards
Interpretations.
d.FASBfinancialreportingstandardsandInternationalAccountingStandards.
6.TheauthoritativestatusoftheConceptualFrameworkforFinancialReportingisas
follows:
a.Itisusedwhenthereisnostandardorinterpretationrelatedtothereporting
issuesunderconsideration.
b.Itisnotasauthoritativeasastandardbuttakesprecedenceoverany
interpretationrelatedtothereportingissue.
c.Ittakesprecedenceoverallotherauthoritativeliterature.
d.Ithasnoauthoritativestatus.
7.Theobjectiveoffinancialreportingplacesmostemphasison:
a.reportingtocapitalproviders.
b.reportingonstewardship.
c.providingspecificguidancerelatedtospecificneeds.
d.providinginformationtoindividualswhoareexpertsinthefield.
8.General-purposefinancialstatementsarepreparedprimarilyfor:
a.internalusers.
b.externalusers.
c.auditors.
d.governmentregulators.

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9.Economicconsequencesofaccountingstandard-settingmeans:
a.standard-settersmustgivefirstprioritytoensuringthatcompaniesdonot
sufferanyadverseeffectasaresultofanewstandard.
b.standard-settersmustensurethatnonewcostsareincurredwhenanew
standardisissued.
c.theobjectiveoffinancialreportingshouldbepoliticallymotivatedtoensure
acceptancebythegeneralpublic.
d.accountingstandardscanhavedetrimentalimpactsonthewealthlevelsofthe
providersoffinancialinformation.
10.Theexpectationsgapisthedifferencebetween:
a.whatfinancialinformationmanagementprovidesandwhatuserswant.
b.whatthepublicthinksaccountantsshoulddoandwhataccountantsthinkthey
cando.
c.whatthegovernmentalagencieswantfromstandard-settingandwhatthe
standard-settersprovide.
d.whattheusersoffinancialstatementswantfromthegovernmentandwhatis
provided.
CA1.4(LO1)(FinancialAccounting)OmarMorenahasrecentlycompletedhisfirst
yearofstudyingaccounting.Hisinstructorfornextsemesterhasindicatedthatthe
primaryfocuswillbetheareaoffinancialaccounting.
Instructions

a.Differentiatebetweenfinancialaccountingandmanagerialaccounting.
b.Onepartoffinancialaccountinginvolvesthepreparationoffinancial
statements.Whatarethefinancialstatementsmostfrequentlyprovided?
c.Whatisthedifferencebetweenfinancialstatementsandfinancialreporting?
CA1.5(LO3) (NeedforIASB)Somearguethathavingvariousorganizations
establishaccountingprinciplesiswastefulandinefficient.Ratherthanmandating
accountingrules,eachcompanycouldvoluntarilydisclosethetypeofinformationit
consideredimportant.Inaddition,ifaninvestorwantsadditionalinformation,the
investorcouldcontactthecompanyandpaytoreceivetheadditionalinformation
desired.
Instructions

Commentontheappropriatenessofthisviewpoint.
CA1.6(LO3)(IASBRoleinStandard-Setting)Apressreleaseannouncingthe
appointmentofthetrusteesofthenewIFRSFoundationstatedthattheInternational
AccountingStandardsBoard(tobeappointedbythetrustees)willbecomethe
establishedauthorityforsettingaccountingStandards.
Instructions

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a.IdentifythesponsoringorganizationoftheIASBandtheprocessbywhichthe
IASBarrivesatadecisionandissuesanaccountingstandard.
b.IndicatethemajortypesofpronouncementsissuedbytheIASBandthe
purposesofeachofthesepronouncements.
CA1.7(LO4)(AccountingNumbersandtheEnvironment)Hardlyadaygoesby
withoutanarticleappearingonthecrisesaffectingmanyofourfinancialinstitutions.
Itisestimatedthatthefinancialcrisisof2008,forexample,causedadeeprecession.
Somearguethatiffinancialinstitutionshadbeenrequiredtoreporttheir
investmentsatfairvalueinsteadofcost,largelosseswouldhavebeenreported
earlier,whichwouldhavesignaledregulatorstoclosethesefinancialinstitutionsand,
therefore,minimizethelossestomanyinvestors.
Instructions

Explainhowreportedaccountingnumbersmightaffectanindividual'sperceptions
andactions.Citetwoexamples.
CA1.8(LO3,4) (PoliticizationofIFRS)Someaccountantshavesaidthat
politicizationinthedevelopmentandacceptanceofInternationalFinancialReporting
Standards(IFRS)istakingplace.Someusethetermpoliticizationinanarrow
sensetomeantheinfluencebygovernmentalagencies,suchastheEuropeanUnion
andtheU.S.SecuritiesandExchangeCommission,onthedevelopmentofIFRS.
Othersuseitmorebroadlytomeanthecompromisethatresultswhenthebodies
responsiblefordevelopingIFRSarepressuredbyinterestgroups,businessesthrough
theirvariousorganizations,financialanalysts,bankers,lawyers,academics,auditors,
andsoon.

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Instructions

a.Whatargumentscanberaisedtosupportthepoliticizationofaccounting
rule-making?
b.Whatargumentscanberaisedagainstthepoliticizationofaccounting
rule-making?
CA1.9(LO3)(ModelsforSettingIFRS)Presentedbelowarethreemodelsforsetting
IFRS.
1.Thepurelypoliticalapproach,wherenationallegislativeactiondecreesIFRS.
2.Theprivate,professionalapproach,whereIFRSissetandenforcedbyprivate
professionalactionsonly.
3.Thepublic/privatemixedapproach,whereIFRSisbasicallysetbyprivate-
sectorbodiesthatbehaveasthoughtheywerepublicagenciesandwhose
standardstoagreatextentareenforcedthroughgovernmentalagencies.
Instructions

a.Whichofthesethreemodelsbestdescribesinternationalstandard-setting?
Commentonyouranswer.
b.Whydocompanies,financialanalysts,laborunions,industrytrade
associations,andotherstakesuchanactiveinterestinstandard-setting?
CA1.10(LO4)(EconomicConsequences)Severalyearsago,thenFrenchPresident
NicolasSarkozyurgedhisEuropeanUnioncounterpartstoputpressureontheIASB
tochangeaccountingrulestogivebanksandinsurerssomerelieffromfairvalue
accountingrulesamidmarketturmoil.Mr.Sarkozysoughtchangestothemark-to-
marketaccountingrulesthathavebeenblamedforaggravatingthecrisis.
Instructions

Explainhowgovernmentinterventioncouldpossiblyaffectcapitalmarketsadversely.
CA1.11(LO3,4) (Rule-MakingIssues)WhentheIASBissuesnew
pronouncements,theimplementationdateisusuallydelayedforseveralmonths
fromdateofissuance,withearlyimplementationencouraged.KarenWeller,
controller,discusseswithherfinancialvicepresidenttheneedforearly
implementationofarulethatwouldresultinafairerpresentationofthecompany's
financialconditionandearnings.Whenthefinancialvicepresidentdeterminesthat
earlyimplementationoftherulewilladverselyaffectthereportednetincomeforthe
year,hediscouragesWellerfromimplementingtheruleuntilitisrequired.
Instructions

Answerthefollowingquestions.

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a.What,ifany,istheethicalissueinvolvedinthiscase?
b.Isthefinancialvicepresidentactingimproperlyorimmorally?
c.WhatdoesWellerhavetogainbyadvocacyofearlyimplementation?
d.Whichstakeholdersmightbeaffectedbytheearlyimplementationdecision?
CA1.12(LO4) (FinancialReportingPressures)Thefollowingisabbreviated
testimonyfromTroyNormandintheWorldCom(USA)case.Hewasamanagerin
thecompanyreportingdepartmentandwasoneoffiveindividualswhopleaded
guilty.Hetestifiedtoavoidprisontime.
Q.Mr.Normand,ifyoucouldjustdescribeforthejuryhowthemeetingstartedand
whatwassaidduringthemeeting?
A.Ican'trecallexactlywhoinitiatedthediscussion,butrightawayScottSullivan
acknowledgedthathewasawarewehadproblemswiththeentries,DavidMyershad
informedhim,andwewereconsideringresigning.
Hesaidthatherespectedourconcernsbutthatweweren'tbeingaskedtodo
anythingthathebelievedwaswrong.Hementionedthatheacknowledgedthatthe
companyhadlostfocusquiteabitduetothepreparationsfortheSprintmerger,and
thathewasputtingplansinplaceandprojectsinplacetotrytodeterminewherethe
problemswere,whythecostsweresohigh.
Hedidsayhebelievedthattheinitialstatementsthatweproduced,thattheline
costsinthosestatementscouldnothavebeenashighastheywere,thathebelieves
somethingwaswrongandtherewasnowaythatthecostswerethathigh.
IinformedhimthatIdidn'tbelievetheentrywewerebeingaskedtodowasright,
thatIwasscared,andIdidn'twanttoputmyselfinapositionofgoingtojailforhim
orthecompany.Herespondedthathedidn'tbelieveanythingwaswrong,nobody
wasgoingtobegoingtojail,butthatifitlaterwasfoundtobewrong,thathewould
bethepersongoingtojail,notme.

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HeaskedthatIstay,don'tjumpofftheplane,lethimlanditsoftly,that'sbasically
howheputit.AndhementionedthathehadadiscussionwithBernieEbbersasking
BernietoreduceprojectionsgoingforwardandthatBerniehadrefused.
Q.Mr.Normand,yousaidthatMr.Sullivansaidsomethingaboutdon'tjumpoutof
theplane.Whatdidyouunderstandhimtomeanwhenhesaidthat?
A.Nottoquit.
Q.Duringthismeeting,didMr.Sullivansayanythingaboutwhetheryouwouldbe
askedtomakeentrieslikethisinthefuture?
A.Yes,hemadeacommentthatfromthatpointgoingforwardwewouldn'tbeasked
torecordanyentries,high-levellateadjustments,thatthenumberswouldbethe
numbers.
Q.Whatdidyouunderstandthattobemean,thenumberswouldbethenumbers?
A.Thatafterthepreliminarystatementswereissued,withtheexceptionofany
normaltransaction,validtransaction,wewouldn'tbeaskedtoberecordinganymore
lateentries.
Q.IbelieveyoutestifiedthatMr.Sullivansaidsomethingaboutthelinecost
numbersnotbeingaccurate.Didheaskyoutoconductanyanalysistodetermine
whetherthelinecostnumberswereaccurate?
A.No,hedidnot.
Q.Didanyoneeveraskyoutodothat?
A.No.
Q.Didyoueverconductanysuchanalysis?
A.No,Ididn't.
Q.Duringthismeeting,didMr.Sullivaneverprovideanyaccountingjustificationfor
theentryyouwereaskedtomake?
A.No,hedidnot.
Q.Didanythingelsehappenduringthemeeting?
A.Idon'trecallanythingelse.
Q.Howdidyoufeelafterthismeeting?
A.Notmuchbetteractually.Ilefthisofficenotconvincedinanywaythatwhatwe
wereaskedtodowasright.However,Ididquestionmyselftosomedegreeafter
talkingwithhimwonderingwhetherIwasmakingsomethingmoreoutofwhatwas
reallythere.
Instructions

Answerthefollowingquestions.

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a.Whatappearstobetheethicalissueinvolvedinthiscase?
b.IsTroyNormandactingimproperlyorimmorally?
c.WhatwouldyoudoifyouwereTroyNormand?
d.Whoarethemajorstakeholdersinthiscase?

UsingYourJudgment

FinancialReportingProblem

LolaOtero,anewstaffaccountant,isconfusedbecauseofthecomplexitiesinvolving
accountingstandard-setting.Specifically,sheisconfusedbythenumberofbodies
issuingfinancialreportingstandardsofonekindoranotherandthelevelof
authoritativesupportthatcanbeattachedtothesereportingstandards.Loladecides
thatshemustreviewtheenvironmentinwhichaccountingstandardsareset,ifsheis
toincreaseherunderstandingoftheaccountingprofession.
Lolarecallsthatduringheraccountingeducationtherewasachapterortwo
regardingtheenvironmentoffinancialaccountingandthedevelopmentofIFRS.
However,sheremembersthatherinstructorplacedlittleemphasisonthesechapters.
Instructions

a.HelpLolabyidentifyingkeyorganizationsinvolvedinaccountingrule-making
attheinternationallevel.
b.Lolaasksforguidanceregardingauthoritativesupport.Pleaseassistherby
explainingwhatismeantbyauthoritativesupport.

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