Ch 14 Review Questions

Question 1

What are some of the reasons that a financial statement preparer would need to stay current with emerging and recently-issues guidance?

Answer 1

Guidelines play a significant role in how the financial statements are prepared.

The corporate accountant is expected to inform management about possible effects of emerging guidance.

Companies must disclose impacts of issued but not yet effective guidance.

Question 2

What are some reasons that an auditor might need to stay current?

Answer 2

1) To ensure that the company or client is complying with newly effective guidance

2) To inform their clients about emerging changes in standards

3) To comment on standards being developed

Question 3

At what level should you, as a professional, begin to monitor emerging guidance? Why?

Answer 3

Professionals at all levels should monitor emerging guidance.

Minimizes the potential loss of trust that could occur if a new auditor lets an emerging topic slip by without informing the client.

Question 4

List three reasons why accounting standards might require change over time.

Answer 4

1) Existing requirements are unclear

2) Simplification of complex requirements to reduce the costs and complexity of financial reporting

3) Investors and analysts might drive the request for changes, if existing requirements do not provide sufficient, useful information for decision making.

Question 5

Describe two ways the SEC responded to the FASB’s issuance of revised revenue guidance.

Answer 5

1) Reviewed drafts of industry guidance being prepared by the AICPA

2) Reached out to firms to review draft firm guidance related to the revised standard

Question 6

Briefly, describe a typical standard-setting “due process.”

Answer 6

1. Submit topics for consideration
2. Board votes on and approves items for inclusion on its agenda
3. The Board releases Preliminary Views document to solicit constituent feedback
4. The Board meets with groups to gather additional input on the project.
5. The Board issues an Exposure Draft for public comments
6. The Board reviews feedback, redeliberates, then issues a final standard.
7. For major standards, discuss questions related to implementation of the new standard.
8. Post-implementation review activities are conducted to assess whether the standard’s objectives were achieved