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Chapter 1: Q9CA (page 25)

(FASB Role in Rule-making) A press release announcing the appointment of the trustees of the new Financial Accounting Foundation stated that the Financial Accounting Standards Board (to be appointed by the trustees)鈥濃�ill become the established authority for setting accounting principles under which corporations report to the shareholders and others鈥� (AICPA news release July 20,1972).

Instructions

  1. Identify the sponsoring organization of the FASB and the process by which the FASB arrives at a decision and issues an accounting standard.
  2. Indicate the major types of pronouncements issued by the FASB and the purpose of each of these pronouncements.

Short Answer

Expert verified
  1. The sponsoring organization of the FASB is the Financial Accounting Foundation (FAF). A due process is followed in creating a Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards.
  2. The major types of pronouncements issued by the FASB include accounting standard updates, technical bulletins, financial accounting concepts, various statements, and bulletins that establish Generally Accepted Accounting Principles (GAAP).

Step by step solution

01

Step by Step SolutionStep 1: Meaning of Financial Accounting Standards Board (FASB)

Financial Accounting Standards Board (FASB) is the one that establishes accounting rules for government and non-government firms as well as non-profits entities in the United States.

02

Sponsoring the organization of FASB and the process used by them for decision-making and issuing an accounting standard

The Financial Accounting Foundation is regarded as the sponsoring organization of the Financial Accounting Standards Board (FASB). The Financial Accounting Foundation (FAF) chooses the members of the Financial Accounting Standards Board (FASB) as well as it is Advisory Council, finances their activities, and supervises the activities of the Financial Accounting Standards Board (FASB).

Due process is applied for arriving at a decision.

  • A project is recognized and allocated on the Board鈥檚 agenda.
  • A task force of experts from different sectors is assembled for explaining issues and alternatives associated with the topic.
  • Research and analysis are being performed with the help of the FASB technical staff.
  • A preliminary views document is outlined and issued.
  • A general hearing is usually conducted.
  • The board inspects and assesses the response of the public.
  • The board discusses the problems and arranges an exposure draft for release.
  • After the completion of at least 30 days exposure period of public response, the Board judges the responses collected.
  • A committee then examines the exposure draft associated with the public responses, reconsiders its position, and amends the draft required, if any.
  • The full Board provides the re-examined draft final conclusion and votes on the issuance of a standards statement. It needs 5 to 7 members to pass.
03

Major types of pronouncements issued by FASB and the purposes of each.

The two major types of pronouncements issued by the FASB includes Accounting Standard Updates and Financial Accounting Concepts.

Accounting Standards Updates: The accounting pronouncements are issued by FASB with the help of the Accounting Standard Updates. The purpose of Accounting Standard Updates is to alter the Accounting Standards Codification, which shows the origin of authoritative accounting standards other than standards issued by the SEC.

Financial Accounting Concepts: It establishes fundamental objectives and concepts used by FASB in advancing future standards of financial reporting and accounting.

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Most popular questions from this chapter

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鈥檚 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?

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.

How are FASB preliminary views and FASB exposure drafts related to FASB 鈥渟tatements鈥�?

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.

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