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Chapter 1: Question 18Q (page 22)

Explain the role of the Emerging Issues Task Force in establishing generally accepted accounting principles.

Short Answer

Expert verified

The Emerging Issues Task Force was set up by the Financial Accounting Standards Board in 1984. The objective behind establishing it is to reduce the use of the Financial Accounting Standards Board (FASB). It also helps by providing financial reporting on a regular basis.

Step by step solution

01

Meaning of Emerging Issues Task Force

The Emerging issues task force is defined as an entity whose motive is to provide support and guidance; it recognizes and resolves financial accounting problems with the purpose of developing the financial reporting system.

02

Role of Emerging Issues Task Force in establishing Generally Accepted Accounting Principles

The duties of the Emerging Issues Task Force are to deal with the emerging issues within the domain of Generally Accepted Accounting Principles (GAAP). The emerging issues task force comprises Certified Public Accountants (CPA), professional accountants, chief, members of the Financial Accounting Standards Board (FASB), members of the Securities and Exchange Commission (SEC) as well as members from the private and public sector who take part in the meeting and discuss the emerging issues.

The Emerging Issues Task Force (EITF) usually comes to consensus conclusions on particular financial reporting issues. These consensus conclusions are then observed as Generally Accepted Accounting Principles (GAAP) by practitioners as the Securities Exchange Commission (SEC) has stated that it will view consensus solutions as preferred accounting and need persuasive jurisdiction for drifting away from them. Hence, for public companies which are inclined to Securities Exchange Commission (SEC) oversight, consensus solutions developed by the Emerging Issues Task Force are adhered to unless eventually overruled by the Financial Accounting Standards Board (FASB). Moreover, Financial Accounting Standards Board (FASB) has taken ownership of GAAP established by the Emerging Issues Task Force (EITF) by demanding that the consensus positions be approved by the Financial Accounting Standards Board (FASB).

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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.(d) Which stakeholders might be affected by the decision against early implementation?

In what way is the Securities and Exchange Commission concerned about and supportive of accounting principles and standards?

(GAAP and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.

  1. The objective of financial statements emphasizes a stewardship approach for reporting financial information.
  2. The purpose of the objective of financial reporting is to prepare a balance sheet, an income statement, a statement of cash flows, and a statement of owners鈥� or stockholders鈥� equity.
  3. Because they are generally shorter, FASB interpretations are subject to less due process compared to FASB standards.
  4. The objective of financial reporting uses an entity rather than a proprietary approach in determining what information to report.

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.

(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.
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