Ch 3 Review Questions Flashcards
What is the accounting research process?
The step-by-step process that researchers can apply to a wide range of open-ended accounting issues encountered in practice.
What steps are involved in the accounting process?
1) Understand the facts
2) Define the problem
3) Stop and think
4) Search for guidance
5) Analyze and document alternatives
6) Justify and document conclusion
Why use a research process?
Allows one to:
1) Take time to fully understand the issue
2) Define the research question
3) Think through alternatives
4) Perform the research
5) Use guidance to analyze alternatives
6) Justify and document conclusions
Why is it important to know a company’s business before performing research on a given transaction?
You need to understand the business before understanding the transaction.
Risk asking questions that are not informed.
What information should you try to understand, during the pre-step of understanding the business?
1) Primary business activities of companies in the industry
2) Key revenue sources and costs
3) Unique accounting practices
4) Peer group companies in the industry
Name three of the resources recommended for getting to know a company’s business or industry.
1) AICPA Audit and Accounting Guides
2) Databases such as Hoovers, Mergent, etc.
3) Review the Form 10-K
4) Peer benchmarks
In what sections of a 10-K should a researcher look for background on a company’s business and industry accounting issues?
Business (Item 1)
Critical Policies and Estimations (a component of Item 7, MD&A)
Significant Accounting Policies (generally Note 1 or 2 of the footnotes)
What’s the ideal timing for completing “step 0” of the research process?
When you first get assigned to a client in a new industry
OR
During the transition period before you start as an employee of a new company
Identify three resources a researcher might consult when gathering facts and background necessary to understand a transaction.
1) Reading transaction documents (draft or final contracts)
2) Talking to parties who have knowledge of the transaction
3) Industry specific publications (whitepapers)
Why are listening skills highlighted as important for success during step 1 of the research process?
Allows you to learn new information from your peers or specialists about the company or transaction topic that you are researching.
Why is it important to identify the “researchable question(s)” early in the research process?
To focus your research efforts.
To avoid long or complex questions.
What is a benefit of performing step 3 of the research process: stop and think?
To avoid accepting the first possible solution as the most correct one.
Explain the final step of the research process.
Justify and document your conclusion.
Determine what accounting treatment is most appropriate given the authoritative guidance.
State other key factors you analyzed.
Should additional evidence be gathered during the final step of the research process?
Additional evidence should not be gathered at this stage.
Consider whether the information in other steps were adequate and go back if it is not.
What is a bias, and how might biases affect how you apply the research process?
A bias is a prejudgment.
It greatly influences how one makes decisions and processes information.
