FASB and Standard Setting

Question 1

In reference to proposed accounting standards, to what does the term “negative economic consequences” refer?

Answer 1

The potential negative effects of proposed accounting standards on companies, including higher cost of capital and reduced ability to raise capital.

Question 2

What is investors’ best protection against fraudulent financial reporting by corporations?

Answer 2

Requiring audits of corporations’ financial statements.

Question 3

When developing a new FASB standard, which comes first: the exposure draft or the discussion memorandum?

Answer 3

FASB first issues a discussion memorandum for public comment and then issues an exposure draft.