Ch 4 Review Questions

Question 1

Cite two reasons why documentation is a critical part of performing accounting research.

Answer 1

1) Creates an audit trail.

2) Sets the precedent for future transactions.

Question 2

Explain how creating clear documentation might provide some protection against hindsight bias.

Answer 2

Creating clear documentation must support the way a transaction is treated. For a conclusion to be substantiated, the documentation must show that extensive research was performed.

Question 3

Contrast the circumstances in which an email should be used to communicate research, versus circumstances in which a memo may be warranted.

Answer 3

Email: used to communicate research when the results are providing guidance to an issue that a co-worker or client is trying to manage.

Memo: used to communicate research when dealing with a complex, subjective, or material transaction.

Question 4

Name the sections included in the standard memo format included in this chapter.

Answer 4

1) Facts
2) Issues
3) Analysis
4) Conclusion
5) Financial Statement and Disclosure Impacts

Question 5

What is the goal of the analysis section of the memo? Explain.

Answer 5

To tie guidance and case facts together.

This is where all relevant guidance is presented, in addition to an explanation of how it relates to the facts.

Question 6

What does the term “guidance sandwiches” mean? Where would you find these in an accounting issues memorandum?

Answer 6

When presenting this guidance in a memo, it should be introduced in your own words and then analyzed in your own words. The excerpt from the source sits in the middle.

This is found in the analysis section of the memo

Question 7

Why is a conclusion section necessary in an issues memo?

Answer 7

To summarize the main points from the analysis.

It also is where choices are explained, when it comes to handling highly judgmental transactions

Question 8

How should a researcher refer to guidance from the Codification, the first time it is cited in a memo?

Answer 8

It should be introduced as the Codification followed by (ASC).

Not everyone that reads the memo is familiar with the Codification.

This lets readers know that it will be referred to as ASC after the initial introduction.

Question 9

Explain why researchers should include actual excerpts from the guidance in accounting memoranda, rather than paraphrases of guidance (in the researcher’s words).

Answer 9

Direct excerpts are much more effective.

The reader should not have to go back to the Codification, or any other authoritative source, to see the support for the analysis.