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Chapter 1: Question 2MCQ (page 21)

Accounting standard-setters use the following process in establishing accounting standards:

  1. Research, exposure draft, discussion paper, standard.
  2. Discussion paper, research, exposure draft, standard.
  3. Research, preliminary views, discussion paper, standard.
  4. Research, discussion paper, exposure draft, standard.

Short Answer

Expert verified

According to the accounting standard-setting process, the options (b), (c), and (d) are incorrect answers.

Thus, the correct option is (a).

Step by step solution

01

Explanation of Standard-Setting

The process of introducing a new standard to the standard board is known as the standard-setting. The setters need to do a thorough study of the consequences of the standard before starting it.

02

Accounting Standard Setting Process:

The accounting Standard-setting process is as follows:

  • Research: The research is done regarding identifying broad areas by the accounting standard board for the formulation of accounting standards.
  • ExposureDraft: After identifying the areas for the formulation of standards, preparation of the draft of the proposed accounting standard is done. It mostly contains the objectives, scope, definition, recognition, etc.
  • DiscussionPaper: After the draft is prepared, it is further circulated among ICAI, MCA, SEBI, CBDT, C&AG, public, etc., for obtaining their views on the proposed accounting standard.
  • Standard: After receiving the views from different bodies, modifications, if any, are made to the preliminary draft or else sent for approval, and a standard, is issued.

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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.(c) What does Weller have to gain by advocacy of early implementation?

(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.

Some individuals have indicated that the FASB must be cognizant of the economic consequences of its pronouncements. What is meant by 鈥渆conomic consequences鈥�? What dangers exist if politics play too much of role in the development of GAAP?

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.

Question: What is the benefit of a single set of high-quality accounting standards?
See all solutions

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