Multiple approaches have been advocated concerning the definition of accounting elements and the relationship between the balance sheet and income statement. What are these approaches and how do they differ?
> Reexamine Exhibit 13.11. Explain the purpose of each performance measure. As a manager, which performance measure would you want to use. Which measure would you want used to evaluate you? Why? How would your decision change if your firm was experiencing
> To what extent should the liquidity measures revisions be considered if LIFO were to be eliminated from U.S. GAAP? Provide examples of those likely measures that would be affected. . As an interesting side note, what does the 2016 United States Budget es
> How do you think the efficient-markets hypothesis impacts the drafting of accounting standards? Bear in mind that many questions have been raised about the efficient markets hypothesis itself.
> Monsen (2001) proposes using cameral accounting to reduce the difficulties in preparing the Statement of Cash Flows using the direct method. Evaluate Monsen’s proposal from an implementation perspective.
> Broome (2004) recommends that the FASB should provide more guidance on classification of cash flows for the three sections. What guidance would you suggest?
> Why is the use of free cash flows increasing?
> What is cash flow? In your answer, be sure to reference the use to which it is put.
> Do you think that the indirect method of reporting cash flows from operations should be eliminated, allowing only the direct method in the SCFs? Discuss.
> 1. The usefulness of accounting data to investors and creditors for predictive purposes is necessarily forward looking. However, under generally accepted accounting principles, financial statements are constructed primarily as an historical record. Requi
> 1. A crucial question brought up in this chapter concerns the issue of whether the admittedly heterogeneous users of financial statements have highly diverse information needs in terms of their underlying objectives. State as carefully as you can (1) wh
> 1. Critique A Statement of Basic Accounting Postulates and Principles by a study group at the University of Illinois (it should be on reserve or otherwise made available to you). Your critique should cover, but not be restricted to, the following points:
> Why may interindustry income uniformity be more difficult to achieve than intraindustry uniformity, and what are the implications of this in terms of a conceptual framework project, specific accounting standards, and comparability of accounting income nu
> Morunga and Bradbury (2012) find that IFRS adoption may lead to some adverse disclosure results. Discuss their findings.
> What is the relationship between uniformity (both finite and rigid) and disclosure?
> 1. What is the relationship among agency theory, economic consequences, and signalling? Explain in depth 2. Benston (1982, p. 102), in an analysis of corporate social accounting and reporting (CSAR), says: “The social responsibility of accountants can be
> 1. During its long tenure, the CAP produced a total of 51 ARBs. While the CAP was in existence, another committee, the Committee on Terminology of the American Institute of Accountants (the previous name of the AICPA), prepared certain definitions. Asses
> 1. Assume that three accountants have been selected to measure the income of a firm under two different income measurement systems. The results for the first income system (M1) were incomes of $3,000, $2,600, and $2,200. Under the second system (M2), res
> Do you think that the income tax return mandated by the federal government is an example of user heterogeneity? Why or why not?
> Past viewpoints expressed that financial statement preparers are also the largest class of users of financial statements. Hence, the preparer has a “unique ability” to recognize user needs that the FASB does not really appreciate. Critique this viewpoint
> Under an accountability orientation, Ijiri makes a strong case for the use of historical costing including the possibility of general price-level adjustments. Why do you think he has made this choice?
> Why has Ijiri advocated the need for a conceptual framework to implement accountability?
> What potential conflicts are present in terms of different user needs?
> Why is income smoothing difficult to research, and what are the research findings to date?
> How do the research orientations of accounting in Chapter 2 compare with SATTA’s organization of research?
> APB Statement 4 defines assets in the following terms: “Assets are economic resources of an enterprise that are recognized and measured in conformity with generally accepted accounting principles. Assets also include certain deferred charges that are not
> Why is the problem of heterogeneous users so critical in the development of accounting theory?
> Do you think that the standards mentioned in ASOBAT are really standards? Why or why not?
> Do you think that the funds flow statement is more “factual” and less “interpretative” than the income statement and balance sheet?
> How do objectives differ from postulates?
> 1. Agency theory takes the view that the corporation is the locus or nexus of many competing and conflicting interests. List as many of these conflicting groups as you can and discuss in detail the nature of their conflicts with other groups. 2. Using th
> 1. Presented in the exhibit for Case 1 (see text) is a graph of accounting income, cash flows from operations, and working capital flows from operations for W. T. Grant Company, a retailer that filed for bankruptcy in 1976. As late as 1973, the company’s
> 1. Discuss as many of the potential trade-offs among the qualities mentioned in SFAC No. 8 as you can and give either a general or a concrete example of each one. 2. Analyze three accounting standards promulgated by the FASB and show how economic consequ
> In 2003, South Africa was the first country to adopt IFRS with fair value accounting. The country does not allow for differential accounting treatment depending on the size of enterprise. What type of response do you expect from this implementation?
> Describe the incentives that might motivate income smoothing, and the ways it could be done.
> The comingling of legal and contingent liabilities exists under current GAAP accounting. Discuss potential problems this creates and propose alternatives to address them.
> Since the FASB makes the standards that are used by business and industry, they make accounting theory. Comment on this statement.
> Do you think that changes brought about in accounting standards by failures of publicly traded companies such as Enron should be classified under political factors or economic decisions? Support your position.
> What type of measurement is the measurement of objectivity in Equation (1.1): nominal, ordinal, interval, or ratio scale?
> Why do the value choices (entry value, exit value, and historical cost) fall within the domain of accounting theory?
> The Trueblood Committee Report advocated the use of financial forecasts. Why do you think that adoption of this suggestion has been very unenthusiastically received by preparers and auditors?
> How has the definition of accounting been modified in recent years?
> The statement of Herbert Miller (footnote 33) is closest to which theoretical approach delineated in SATTA?
> If a division manager of a firm were fired due to poor operating results, would this be an example of stewardship?
> What is the relationship between “stewardship” and “accountability”? Discuss.
> As a potential investor, what do you feel would be the most useful attribute of measurement for each of the following: inventories held for sale, inventories held for production, and long term debt? Would your answer differ if you were a potential lender
> Why would “fairness” in financial reporting be difficult to implement?
> Why is comprehensive income an application of proprietary theory?
> Why is it difficult to evaluate the regulation question?
> How do protective and informative disclosures differ?
> Why is there no matching problem for periodic costs, and what are some examples?
> An individual who was appraising accounting education had the following premises (assumptions): • Accounting professors used to do more consulting with accounting practitioners than they do today. • Accounting professors have become more interested in re
> What is the efficient-markets hypothesis?
> The limitation of the accounting classification system depicted in Exhibit 11-1 was referred to throughout the chapter. What is meant by this? Give some examples. Why is the accounting classification system the foundation of the accounting discipline?
> Why is it difficult to determine the historical acquisition cost of self constructed assets? Do definitions of accounting elements and general principles of recognition and measurement resolve the controversy over full absorption costing and variable cos
> What is the purpose of balance sheet classification? How useful is the information produced from a classified balance sheet? What are some alternative classification systems that could be used?
> When dealing with earnings per share, why is less really more with SFAS No. 128?
> If a separate statement of comprehensive income is presented, do all elements of comprehensive income appear in this statement?
> Describe how definitions of income, revenues, and expenses have changed in statements issued by successive standard-setting bodies.
> How does the freedom from bias mentioned in ASOBAT compare to the quality of neutrality mentioned in SFAC No. 8?
> How does earnings as discussed in SFAC No. 5 differ from net income?
> Are simple transactions really examples of rigid uniformity? Why or why not?
> Does the ability to swiftly-and at no cost-download music files convert this music from a private good to a public good?
> What is due process in financial accounting standard-setting?
> Why do you think that operating ratios (return-on-assets) are more sensitive to the combined effect of immateriality items than would be the case with solvency ratios (debt-to-equity and current ratios)?
> Do you see any inconsistency between the present value of assets and liabilities in SFAC No. 7 since the latter is based on a firm-specific discount rate and the former does not use a firm-specific rate? Discuss.
> Why have mutually unperformed executory contracts traditionally been excluded from financial statements? Can this practice be justified in terms of asset and liability definitions? How relevant is this approach for professional sports franchises?
> Do you see any inconsistency in SFAC No. 1, which sees financial statements as general purpose but geared primarily toward investors and creditors?
> Discuss the bright line that does or does not distinguish debt and equity classifications.
> Would changing the asset definition in the conceptual framework to one concerned with property rights have any other ramifications? Discuss.
> Four postulates (going concern, time period, accounting entity, and monetary unit) were discussed as part of the basic concepts underlying historical costing. Can any of the principles discussed under the same general category be deduced or logically der
> Horngren (1973) argues that accounting policies are a social decision and a matter of public interest. Evaluate this statement.
> What does harmonization of accounting standards mean?
> Why does segment disclosure in SFAS No. 131 represent a potential improvement over segment disclosure in SFAS No. 14?
> Why does it make sense to define materiality from the user’s perspective?
> Of the following decision-model advocates discussed in the chapter (Chambers Sterling, Solomons, Bell, and Ijiri), which one stands out as most unlike the others?
> Do you think that disclosures of smaller firms have more information content than disclosures for larger firms?
> Research, while inconclusive, has shown that earnings are manipulated downward prior to a management buyout. What is the logic of this and why do management buyouts present a difficult agency theory problem?
> What is clean surplus accounting? What is its role in linking dividends and abnormal earnings?
> Do you agree that it is not necessary to provide information for undiversified investors? Discuss.
> How did the APB pave the way for the FASB?
> How does EVA differ from economic profit?
> What is the weakness of Grady’s approach in arriving at principles in ARS 7?
> Who are creditors?
> What is an event study?
> How does conventional retained earnings differ from entity equity under the Anthony conception of the entity theory?
> Accounting earnings are useful in predicting one-year ahead cash flows. Is this sufficient? Why or why not?
> Verifiability is part of reliability in SFAC No. 2, but is now an enhancing qualitative characteristic in SFAC No. 8. What effect does this reclassification have on the importance of verifiability in the framework?
> Why might the distinction between revenues and gains, and between expenses and losses, be important to report yet unimportant as to how they are reported?
> What inconsistencies does Merino see in the proprietary theory at the turn of the twentieth century before the advent of entity theory?
> What is the relationship between the National Commission on Fraudulent Financial Reporting and Private Securities Litigation Reform Act of 1995?
> Why do you think the term “deprival value” was used to name a specific type of replacement cost?
> Why do you think that security prices are impacted more by “bad news” than “good news”?
> How do the imperative postulates (group C) differ from the other two categories of postulates?
> A study (discussed in the chapter) found a heavier emphasis placed on relevance rather than reliability in disclosure standards by the FASB. Why do you think this is the case?
> Postulates are supposed to be tight enough to prevent conflicting conclusions being deduced from them. Is this the case with ARS 1?
> Why is earnings-per-share calculation an example of the residual equity of a firm being broader than merely its current common shareholders?
> Why does post-earnings-announcement drift challenge the efficient-markets hypothesis?
> The “uncertainty principle” of the famous physicist, Werner Heisenberg, states that physical phenomena cannot be precisely measured because the very act of measuring affects the phenomenon being measured. Which of the directions of accounting research di
> There has been a trend toward rigid uniformity in the format of the income statement. Explain how and why this has occurred.
> What is the relationship between public goods and free riders? Is accounting a public good?
