Question: What are the possible implications if accountants

> What attribute is being measured in the SCF and how well is representational faithfulness achieved? Compare this to when funds are defined as working capital.

> What is the “quality of income” concept, and how does cash flow reporting relate to it?

> Explain how cash flow data complement the income statement and balance sheet.

> What types of costs present matching problems, how are they dealt with, and what are some examples of such costs?

> What is the “fineness” issue raised by Nurnberg and Largay relative to accounting for hedging transactions in SFAS No. 104?

> Does the “fineness” issue arise relative to the handling of capitalized interest costs (SFAS No. 34) relative to the treatment of this item in SFAS No. 95? Explain.

> Why is it that postulates stemming from the economic and political climates as well as the customs and viewpoints of the business community would not serve as a good foundation for deducing a set of accounting principles?

> SFAS No. 95 allows a choice between the direct and the indirect method for calculating the operations section of the SCF. Do you think this is a case of flexibility? Explain.

> How did the all-inclusive or all-resources approach to the SCFP with funds defined as working capital differ from the older funds flow statement?

> What are the different conceptions of the true and fair view?

> What is the matching concept and why is there an implied hierarchy for expense recognition?

> From the standpoint of management, are there any differences between attempting to control bad debt expense percentages and research and development expenses?

> How does the asset impairment measurement approach of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, compare to deprival value?

> Why is there an implicit recognition of fair value in the 1984 Revised Model Business Corporation Act?

> Is the revenue-expense orientation consistent with fair value measurement?

> Four points in the revenue cycle, from production through to cash collection, are possible events for revenue recognition. What relevant circumstances would justify finite uniformity rather than rigid uniformity for revenue recognition, and which approac

> SFAS No. 133 (213 pages), 149 (78 pages), and 155 (27 pages) define standards for derivatives in 318 pages. How would a principles-based approach to setting standards affect their length…or would it have any effect?

> What is the relationship between earnings management and income smoothing?

> What are deferred charges and deferred credits, how do they come about, and do they conform to asset and liability definitions?

> What is the meaning of “owners’ equity” in the balance sheet? Why are certain unrealized gai or losses included in owners’ equity?

> Why has no Continental model country developed a conceptual framework?

> Why are asset and liability definitions important to the theoretical structure of accounting? Why are definitions important to policy setting bodies?

> Traditional measures of net assets do not capture the value of human capital in an organization. Which trends, if any, suggest that intellectual capital may eventually be a candidate for inclusion as an intangible on the balance sheet?

> Lee (2001) rejects the “naive view” of market efficiency. Explain. If Lee is correct, what are the implications for capital markets research in accounting?

> What is a securitization and why do firm’s use this technique?

> How do Lev’s views on disclosure differ from the views of Brownlee and Young?

> What are the characteristics of assets, liabilities, and owners’ equity, and how have they evolved over time?

> Why is it difficult to define the basic accounting elements?

> Based on your reading of this chapter, plus your general knowledge of accounting standards, identify five examples of measurement flexibility in the statement of financial position.

> Is the “available for sale” category for debt and equity securities used in SFAS No. 115 a homogeneous category?

> As Schipper seets it, why do the rules based and principles based approaches to standard setting tend to converge?

> Evaluate the IASB’s approach to convergence.

> How does the role of government differ in the United Kingdom and the United States relative to financial reporting?

> What are the main distinctions between the Anglo-Saxon and the continental models?

> What is the relationship between the IFAC and IASB?

> Compare the true and fair view of the United Kingdom, the “present fairly” outlook of the United States, and the legalistic view of the Continental model.

> The EU opted to use exclusively IASB standards for consolidated financial statements beginning in 2005. What drove this decision?

> What do we mean when we say that capital market research involves a joint test of both market efficiency and the model used to estimate abnormal returns?

> For event studies, the post event window is typically short (days or months). What are some issues associated with examining longer event windows (e.g., years)?

> Explain Lee’s (2001) view of market efficiency.

> What evidence supports the statement that SFAS No. 131 is an improvement over SFAS No. 14?

> Evaluate Ronen’s financial statement insurance proposal.

> What is convergence and how does it differ from harmonization?

> Firm A and B are exactly the same size as are Firm C and Firm D. Firm A acquires for cash 100 percent of the common stock of Firm C. Firm B acquires 100 percent of Firm D by exchanging one share of its own stock for each share of common stock of Firm D.

> What is meant by the term “degrees of representational faithfulness?”

> What are the advantages of convergence-harmonization of accounting standards?

> How do de facto harmonization and de jure harmonization differ from each other?

> How will the role of national standard-setting bodies be affected by adoption of IASB standards?

> For years the FASB had little interest in pursuing international harmonization projects. What prompted its seemingly new interest in 2002 to work with the IASB in such a cooperative manner?

> Is Cadenhead’s conception of circumstantial variables as the only permissible departure from prescribed accounting methods closer to finite or rigid uniformity?

> ASR 242 of the SEC states that relative to payments made to foreign governmental and political officials, “. . . registrants have a continuing obligation to disclose all material information and all information necessary to prevent other disclosures made

> Under previous disclosure requirements of the SEC, dividends paid during the past two years to shareholders must be stated in the annual report. This requirement has been broadened: There must be disclosure of any restrictions on the firm’s present or fu

> Is neutrality consistent with the external user primary orientation of SFAC No. 1 and the pervasive constraint (benefits > costs) of SFAC No. 8?

> What is residual income? Abnormal earnings? Economic profit? EVA?

> Finite and rigid uniformity would result in different information being received by users of financial statements. What difference would this make in terms of resource allocation when viewed from a macroeconomic standpoint?

> Using different studies at different times it still appears to be the case that financial executives have a higher threshold for materiality than either Certified Public Accountants or financial analysts who, in turn, have a higher materiality threshold

> How do present magnitudes differ from future contingencies?

> Do you think management policies should be acceptable as potential relevant circumstances? Why or why not?

> What is meant by “information content” and how does capital market research determine the information content of accounting numbers?

> What are the possible benefits of a disclosure process that is integrated with major policies in marketing, production, and finance? Do you think only “good news” items should be disclosed?

> An argument against additional disclosure is that financial analysts aggressively seek this information, which is then sold to their customers, resulting in an adequate market solution to the problem of providing timely and relevant information on securi

> SFAS No. 13 in effect regards a lease period of 75 percent or more as a relevant circumstance in distinguishing between capital and operating leases. What economic factors (cash flow differentials) lie behind this policy choice?

> SFAC No. 6 defines circumstances as follows: Circumstances are a condition or set of conditions that develop from an event or series of events, which may occur almost imperceptibly and may converge in random or unexpected ways to create situations that m

> Should firm’s capitalize research and development expenditures? Why or why not?

> Is the choice of LIFO a relevant circumstance compared to FIFO?

> If uniformity means eliminating alternative accounting treatments, then surely comparability of financial statements of different enterprises would be improved. Do you agree with this statement? Comment.

> Comment on the following statement. “The residual income model is no different from the dividend discount model. Therefore, it has no value to investors and analysts.”

> What are some advantages and disadvantages of using residual income (including economic profit and EVA) for performance measurement?

> Why do we sometimes say that the dividend discount model is actually an earnings model? How does Lintner’s findings relate dividends and earnings?

> Besides the primary investor-creditor group, what other user groups could claim to be stakeholders in the firm? How might their information needs be the same as the primary investor-creditor group? How might their information needs differ?

> What are abnormal returns (AR) and cumulative abnormal returns (CARs)? What do they have to do with research in accounting? What do they have to do with accounting standards?

> What are some limitations of capital market research?

> In what ways do you think information useful for investors (in assessing future cash flows) differs from that useful for creditors (in assessing default risk)?

> If investors are well diversified (e.g., own several hundred stocks), will they have a greater or lesser need for accounting information? What does this say about diversification?

> What is the advantage of being well diversified? Is there a downside? Why or why not?

> Why is the efficient-market hypothesis being challenged?

> Samuelson would use a property rights definition of assets (discussed in the chapter). Do you think that SFAS No. 2 requiring immediate expensing of research and development costs is an example of Samuelson’s property rights approach? Discuss.

> Is it fair to categorize ARS 1 and ARS 3 as failures?

> Conservatism is discussed in paragraphs 91–97 of SFAC No. 2. Why is its role in SFAC No. 2 rather ambiguous? Why is conservatism absent from SFAC No. 8?

> Why do managers of Berkshire Hathaway have an incentive to send cash to Omaha?

> Comment on the following. “Maximizing residual income is the same as maximizing earnings. Managers should be rewarded for maximizing either one.”

> How is accounting data useful to investors? To creditors?

> Very carefully explain why conflicts can exist between prediction of cash flows and accountability. Can these conflicts be resolved?

> SFAC No. 6 is largely a repetition of SFAC No. 3. Discuss two possible reasons why this repetition occurred.

> What is comprehensive income?

> Do you think that the so-called equity theories of accounting are really theories in the scientific sense? If so, how would you classify them?

> Should constituents have input into the FASB decisions, or should the FASB neutrally and independently set standards?

> “The FASB’s standard-setting procedure is a fairly narrow, cut-and-dried approach to developing accounting standards.” Evaluate this statement.

> What has been the SEC’s role in the evolution of the rule-making process? How has that role changed since the passage of SOX?

> Discuss the significance of the SEC’s ASR 150.

> Do you think that the nonbinding status of the FASB’s statements of financial accounting concepts (like that of APB Statement 4) is a good idea or not?

> What are the two principal underlying assumptions of agency theory (positive accounting research)? Critique their role in constructing a theory of accounting.

> For a discipline to become a science, the results of experiments and research must be exact. Do you agree with this statement? Discuss.

> If there has been a paradigm shift (scientific revolution) in accounting research, but not in accounting practice, what may this signifiy?

> Why does the decision-model orientation to research accord more closely with the standard-setting function than any of the other research directions?

> In what ways does the FASB differ most markedly from its two predecessors?

> What is the major difference in orientation between positive accounting theory and more overtly normative theories, such as the valuation approaches discussed in Chapter 1?

> How has Sarbanes-Oxley of 2002 affected FASB’s jurisdiction and independence?

> Can any overall trend be detected in FASB pronouncements? Explain and cite examples to substantiate your opinion.

> Do you think that the work of a policy-making organization such as the FASB or the SEC is normative (value-judgment oriented) or positive (oriented toward value-free rules)? Discuss.