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Chapter 1: Question 23Q (page 23)

If you were given complete authority in the matter, how would you propose that GAAP should be developed and enforced?

Short Answer

Expert verified
  • The method must be well organized, prompt, and accessible.
  • The method must be unbiased.
  • The method must instruct overall guidance in the absence of legislative authority.
  • The method must create sound besides practicalaccounting standards.

Step by step solution

01

Meaning of Generally Accepted Accounting Principles (GAAP)

Generally Accepted Accounting Principles (GAAP) comprises a collection of both broad guidelines and relatively detailed practices and procedures that accountants and accounting companies must adhere to while preparing financial statements.

02

Development and enforcement of GAAP

The changes that can be brought about in the current GAAP are as follows:

  • The rules should enclose all the loopholes prevailing in the current GAAP.
  • The principles should be made simpler and easily understandable for all its users.
  • The principles should be advanced in such a manner that it boosts the understanding of the principles.
  • The gap and differences in overseas accounting should be minimized.

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Most popular questions from this chapter

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.

What is the likely limitation of 鈥済eneral-purpose financial statements鈥�?

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.(b) Is the financial vice president acting improperly or immorally?

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.

Some accountants have politicization in the development and acceptance of generally accepted accounting principles (i.e., rule-making) is taking place. Some use the term 鈥減oliticization鈥� in a narrow sense to mean the influence by governmental agencies, particularly the securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, and so on).Instructions

(a) The Committee on Accounting Procedure of the AICPA was established in the mid-to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, the APB, and the FASB operated or operate. Cite specific developments that tend to support your answer.

(b) What arguments can be raised to support the 鈥減oliticization鈥� of accounting rule-making?

(c) What arguments can be raised against the 鈥減oliticization鈥� of accounting rule-making?
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