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Chapter 1: Q2ISTQ (page 34)

The major key players on the international side are the:

(a) IASB and FASB. (c) SEC and FASB.

(b) IOSCO and the SEC. (d) IASB and IOSCO.

Short Answer

Expert verified

The correct option is(d) IASB and IOSCO.

Step by step solution

01

Definition of Accounting Standards

Accounting standards can be defined as the common principles and procedures that provide information regarding basic accounting practices. The standards promote comparability and transparency of the financial statement.

02

Explanation for correct options

Option (d) is correct because:

  1. IASB: International accounting standard board is the regulatory body that establishes standards for the accounting sector.
  2. IOSCO: International organization of the securities commission is the regulatory body that communicates with the different securities regulators and is also responsible for setting standards for securities sectors.
03

Explanation for incorrect options

  1. Option (a) is incorrect because FASB is responsible for the development of accounting standards in the U.S only.
  2. Option (b) is incorrect because SEC is responsible for controlling the security market of the U.S only.
  3. Option (c) is incorrect because both FASB and SEC are responsible for developing standards for the U.S only in their respective sectors.

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Most popular questions from this chapter

CA1-14 (Securities and Exchange Commission)

The U.S. Securities and Exchange Commission (SEC) was created in 1934 and consists of five commissioners and a large professional staff. The SEC professional staff is organised into five divisions and several principal offices. The primary objective of the SEC is to support fair securities markets. The SEC also strives to foster enlightened stockholder participation in corporate decisions of publicly traded companies. The SEC has a significant presence in financial markets, the development of accounting practices, and corporation-shareholder relations, and has the power to exert influence on entities whose actions lie within the scope of its authority.

Instructions

(a) Explain from where the Securities and Exchange Commission receives its authority

(b) Describe the official role of the Securities and Exchange Commission in the development of financial accounting theory and practices.

(c) Discuss the interrelationship between the Securities and Exchange Commission and the Financial Accounting Standards Board with respect to the development and establishment of financial accounting theory and practices.

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鈥檛 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鈥檛 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鈥檛 believe the entry we were being asked to do was right, that I was scared, and I didn鈥檛 want

to put myself in a position of going to jail for him or the company. He responded that he didn鈥檛 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鈥檛 jump off the plane, let him land it softly, that鈥檚 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鈥檛 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鈥檛 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鈥檛 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鈥檛.

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鈥檛 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

Presented below are three models for setting GAAP.

  1. The purely political approach, where national legislative action decrees GAAP.
  2. The private, professional approach, where GAAP is set and enforced by private professional actions only.
  3. The public/ private mixed approach, where GAAP is basically set by private-sector bodies that behave as though they were public agencies and whose standards to a great extent are enforced through governmental agencies.

Instructions

  1. Which of these three models best describes standard-setting in the United States? Provide justification for your answer.
  2. Why do companies, financial analysts, labor unions, industry trade associations, and others take such an active interest in standard-setting?
  3. Cite an example of a group other than the FASB that attempts to establish accounting standards. Speculate as to why another group might wish to set its own standards.

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.

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.
See all solutions

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