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Chapter 1: Question 20Q (page 24)

What are the primary advantages of having a codification of generally accepted accounting principles?

Short Answer

Expert verified

The primary advantage of having a codification is to assist users in enhancing and making them aware of whatGenerally Accepted Accounting Principles (GAAP) is. With the help of these, the firms can, from time to time, perform research relating to accounting problems or issues.

Step by step solution

01

Definition of Codification

Codification is the process of assembling all generally accepted accounting principles in one place. It merges all existing GAAP and creates a new level of generally accepted accounting principles (GAAP) which is acceptable by the law.

The objective of codification is to create accounting standards.

02

Primary advantages of having a codification of generally accepted accounting principles

  • Firstly, it will assist the users in providing a better understanding of what generally accepted accounting principles is.
  • Secondly, if there takes place, then companies will be in accordance with the generally accepted accounting principles, which in turn will reduce their time in addressing the accounting issues.
  • Thirdly, with the help of an online-based format, generally accepted accounting principles can be easily updated, which also assists users in staying updated.

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Most popular questions from this chapter

Economic consequences of accounting standard-setting means:

(a) standard-setters must give first priority to ensuring that companies do not suffer any adverse effect as a result of a new standard.

(b) standard-setters must ensure that no new costs are incurred when a new standard is issued.

(c) the objective of financial reporting should be politically motivated to ensure acceptance by the general public.

(d) accounting standards can have detrimental impacts on the wealth levels of the providers of financial information.

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?

How does accounting help the capital allocation process?

The Sarbanes-Oxley Act was enacted to combat fraud and curb poor reporting practices. What are some key provisions of this legislation?

(Accounting Numbers and the Environment) Hardly a day goes by without an article appearing on the continu fallout from the financial crisis of 2008. An overheated real estate market, fueled by home purchase incentives, poor lend practices, and securitization through high-risk, mortgage-backed securities, led to a near collapse of global capital markets. a consequence, many have argued that if the financial institutions had been required to report their loans (and loan-bac: investments) at fair value instead of cost, large losses would have been reported earlier. This would have signaled regulator the problems in the mortgage markets and therefore minimized the losses to U.S. taxpayers.

Instructions

Explain how reported accounting numbers might affect an individual's perceptions and actions. Cite two examples.
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