Soloution to Vol 2 Appendix

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CHAPTER 1 THE ENVIRONMENT OF FINANCIAL REPORTING

CONTENT ANALYSIS OF CASES Time Range (minutes) 5-10

Number C1-1

Content Pronouncements. Matching a list of descriptive statements with a list of pronouncements establishing or related to generally accepted accounting principles. Accounting Organizations. Matching of a list of descriptive statements with a list of abbreviations of accounting organizations. Identify complete name of each organization. History of Establishment of GAAP. Discuss CAP, APB, FASB, and related pronouncements. (AICPA adapted). Accounting Principles. Define accounting principles. Discuss sources of GAAP. (CMA adapted). Standard Setting. Describe why there is political action and social involvement in the standard setting process. Organization of the FASB. Summarize the structure of the FASB, its documents (GAAP pronouncements), and its operating procedures. GAAP and the AICPA. Summarize the GAAP-related documents published by the AICPA. Code of Professional Conduct. Identify, briefly discuss, and provide examples to illustrate the first five principles of CPC. GAAP Hierarchy. Define GAAP, indicate where to find GAAP, and identify which GAAP are more important (hierarchy). Lobbying the FASB. Discuss pros and cons of lobbying FASB by interested parties. Ethical Dilemma. Discuss steps to take in an ethical dilemma ("misplaced" book in library). Ethical Responsibilities. Discuss steps to take in an ethical dilemma (cheating by friend on exam). (Appendix) International Convergence. Discuss convergence of U.S. GAAP and international accounting standards. Include discussion of SEC and its role in this convergence. 1-1

C1-2

10-15

C1-3 C1-4 C1-5

15-30 10-20 10-20

C1-6

10-20

C1-7 C1-8 C1-9 C1-10 C1-11 C1-12 C1-13

5-10 10-20 10-20 5-15 10-20 10-20 15-30

ANSWERS TO QUESTIONS Q1-1 Primary markets are those capital markets where the exchanges of stocks and bonds are directly between a corporation and investors. Secondary markets are those where the exchanges are among the investors themselves. The users of financial information can be divided into two major categories: external users and internal users. These two groups do not have the same decision making information needs because of their differing relationships with the company providing economic information. External users need information for three basic decisions-whether to buy, to hold, or to sell (or in the case of creditors, whether to extend credit, maintain the credit relationship, or not extend credit). These users rely mainly on financial statements in their decision processes. Internal users (i.e., a company's management) need information to make planning and operating decisions, and may request any information they need which the accounting system is capable of providing. Financial accounting is the information accumulation, processing, and communication system designed to provide investment and credit decision-making information for external users of accounting information. Financial accounting information is communicated through published financial statements, and must follow the pronouncements of several policy-making groups. Managerial accounting is the information accumulation, processing, and communication system designed to provide decision-making information for internal users. Managerial accounting information is communicated via internal company reports and is not subject to the policy standards for externally communicated information. It is constrained by how useful the information is for a specific decision and by the cost of providing that information. Financial reporting is the process of communicating financial accounting information about a company to external users. An important way a company's financial accounting information is reported is in its annual report. The three major financial statements of a company and what they show are: (1) the balance sheet (or statement of financial position) which...
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