Chapter 1: Overview of Accounting Research

Question 1

What are two key objectives for performing technical accounting research?

Answer 1

• To account for transactions or items in a manner that is appropriate and supportable based on authoritative guidance, and
• To create documentation describing the research performed and supporting the conclusion reached.

Question 2

Which four parties normally conduct research, and why do they perform research?

Answer 2

-Corporate Accountants
-Auditors
-Regulators
-Investors

Question 3

Why do Corporate Accountants perform accounting research?

Answer 3

As preparers, their research supports financial statement preparation and/or tax preparation.

Question 4

Why do Auditors perform accounting research?

Answer 4

They must determine is a company’s accounting positions are supportable based on authoritative guidance to determine if statements were prepared in accordance with GAAP.

Question 5

Why do regulators perform accounting research?

Answer 5

To understand the positions taken in companies’ financial statements.

Question 6

Why do Investors perform technical accounting research?

Answer 6

Referred to as Users of financial statements. Monitor company positions to facilitate decision making.

Question 7

Why would accounting research be performed before a transaction?

Answer 7

• To determine if expected financial statement impacts are acceptable.
• To adjust earnings expectations.
• Prepare timely documentation
• By auditors to review the proposed accounting treatment

Question 8

What are circumstances where research isn’t possible until after the transaction has occured?

Answer 8

• The transaction was time-sensitive and there was not enough lead time to research.
• The transaction was highly confidential
• The transaction could not have been anticipated
• Communication break down between deal makers and accountants
• Limited preparer resources
• Updating documentation

Question 9

Define Contemporaneous

Answer 9

• Originating, existing, or happening during the same period of time.
• Research and documentation that happens at the time a transaction is executed.

Question 10

Why would a non-public company need to create GAAP compliant financial statements?

Answer 10

Satisfy the requirements of lenders, venture capitalists, or other stakeholders.

Question 11

Why would a public company need to create GAAP compliant financial statements?

Answer 11

They are required to by the SEC.

Question 12

List standard setters in chronological order

Answer 12

1934 - SEC receives statutory authority
1939: Committee on Accounting Procedure issued Accounting Research Bulletins
1962: Accounting Principle Board issues APB opinions
1973: Financial Accounting Standards Board issues FASB statements
2009: FASB Codification established

Question 13

Three types of accounting standards that preceded FASB codification

Answer 13

• Committee on Accounting Procedure (CAP):
• Accounting Principles Board (APB):
• American Institute of Certified Public Accountants (AICPA)
  
  • Statement of Position (SOP)
  • Industry specific Audit & Accounting (AA) Guides
  • Practice Bulletins

Question 14

What/which event(s) led to the creation of the SEC?

Answer 14

Stock market crash of 1929 and subsequent Great Depression

Question 15

What are Accounting Support Fees and how do they help the FASB maintain independence?

Answer 15

• In accordance with the Sarbanes-Oxley Act, they are assessed fees paid by public companies to the FASB to fund FASB operating costs.
• This mechanistic funding allows the FASB to not rely on donations that could impair the boards objectivity.

Question 16

What are the functions of the SEC?

Answer 16

• Statutory authority to issue accounting guidance.
• Financial statement and disclosure review.
• Issue interpretive guidance on topics of key interest to the SEC
• Enforcement agency

Question 17

What is an SEC Comment Letter?

Answer 17

After the SEC reviews a company’s financial statements and disclosures, if the SEC needs the additional explanation by the company, the SEC will issue a comment letter.

Question 18

Why was the Private Company Council (PCC) formed and how has it impacted accounting standards?

Answer 18

The Financial Accounting Foundation (FAF) established the PCC in 2012 in response to criticism that GAAP is too burdensome for non-public companies. The PCC gave rise to simplified accounting alternatives for private companies.