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Chapter 1: Question 24Q (page 23)

One writer recently noted that 99.4 percent of all companies prepare statements that are in accordance with GAAP. Why then is there such concern about fraudulent financial reporting?

Short Answer

Expert verified

Concern that persists regarding fraudulent financial reporting includes:

  • It impairs the entire financial reporting process,
  • Fails to supply information to the users,
  • Fails to notice huge fraud.

Step by step solution

01

Meaning of Financial Statement

The term financial statement is understood by its name because it is a statement that provides financial information of a company for a specific period of time. A financial statement records all business transactions and includes the financial performance of the business.

02

Cause behind concern about fraudulent financial reporting

Concern prevails regarding fraudulent financial reporting as it weakens the way of reporting financial information. Moreover, financial information users are unable to receive the right information which in turn causes improper allocations of economic resources. Additionally, the inability to identify enormous fraud can result in additional government inspection of the accounting profession.

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Most popular questions from this chapter

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

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

Question: The authoritative status of The Conceptual Framework for Financial Reporting 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.
See all solutions

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