AC300_Unit 2 - C1-9 GAAP Hierarchy A friend of yours says,...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: C1-9 GAAP Hierarchy A friend of yours says, "I understand there are `rules' for financial reporting. But what are these rules, where can a person find them, and which ones are more important?" Required Prepare an answer for your friend. C1-9 GAAP Hierarchy An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required Prepare an answer for your friend. Name: The rules are called GAAP (Generally Accepted Accounting Principles). The rules are created by the FASB (Financial Accounting Standards Board)(Private Group) which establishes both broad and specific standards and the SEC (Securities and Exchange Commission) (Government Agency) which sets reporting requirements on companies that issue stock to the public. The IASB (International Accounting Standards Board) sets the IFRS (International Financial Reporting Standards) which the U.S. does not currently use, but it would still be wise to be familiar with them, you never know if you might be working for a company outside the U.S. that does fall under the scope of these rules or if the U.S. changes to these rules at some point in the future. The rules can be found by going to www.fasb.org (FASB), www.sec.gov (SEC) and and several other places including simply performing a search for "GAAP". I am not sure how to answer which rules are most important, I think that all of the rules are equally important and by learning these rules and practicing them they become second nature and there is no need to "prioritize" them if you are always in compliance. C1-9 GAAP Hierarchy An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Required Prepare an answer for your friend. Type your response in the green box provided below. Name: Solutions The "rules" for financial accounting are called generally accepted accounting principles. Generally accepted accounting principles (GAAP) are the guidelines, procedures, and practices that a company is required to use in recording and reporting the accounting information in its audited financial statements. GAAP define accepted accounting practices at a particular time and provide a standard by which to report financial results. They are like laws that must be followed in financial reporting. There are several accounting policy-making bodies that have established GAAP, including the Financial Accounting Standards Board (FASB), Accounting Principles Board (APB), American Institute of Certified Public Accountants (AICPA), and Securities and Exchange Commission (SEC). Currently, there is no single document that includes all the accounting standards. However, the FASB has released its FASB Accounting Standards Codification for verification by its constituents. When finalized, this Codification will be electronic and will integrate and topically organize U.S. accounting standards. In the meantime, there are electronic data bases, such as the FASB Financial Accounting Research System (FARS) that include most accounting standards. In addition, the FASB standards are published each year as part of the FASB's Accounting Standards series. These standards are included in three-volume set entitled Original Pronouncements which contains each major pronouncement as of its date of publication. Another two-volume set entitled Current Text (General Standards and Industry Standards), is a topical integration of currently effective accounting and reporting standards as of its date of publication. The following is a "hierarchy" of four categories of GAAP and the authoritative sources applicable to each category for companies: Categories Authoritative Sources (Pronouncements) FASB Statements of Financial Accounting Standards and Interpretations, FASB Statement 133 Implementation Issues, FASB Staff Positions, and APB Opinions and CAP (AICPA) Accounting Research Bulletins not superceded by actions of the FASB (as well as SEC releases such as Regulation SX, Financial Reporting Releases, and Staff Accounting Bulletins for companies that file with the SEC) FASB Technical Bulletins, and, if cleared* by the FASB, AICPA Industry Audit and Accounting Guides, and AICPA Statements of Position FASB Emerging Issues Task Force Consensus Positions, Topics discussed in Appendix D of EITF Abstracts, and, if cleared* by the FASB, AICPA Practice Bulletins FASB Q's and A's (Implementation Guides), AICPA Accounting Interpretations, AICPA Industry and Audit Guides, and AICPA Statements of Position not cleared by the FASB, practices that are widely recognized and prevalent either generally or in the industry (e.g., AICPA Accounting Trends and Techniques) A B C D *"Cleared" means that the FASB does not object to the pronouncement's issuance. These categories are listed in descending order of importance, with Category A as the most important. Companies must follow the GAAP established by the pronouncements in this category unless, in unusual circumstances, they result in misleading financial statements. In these situations where the accounting for a transaction or event is not specified by a pronouncement in category A, then pronouncements in categories B through D may be used in that order to identify GAAP. Generally, pronouncements in category B take precedence over those in category C which, in turn, take precedence over those in category D. When none of the pronouncements in categories A through D are applicable, then the company may consider other accounting literature such as FASB Statements of Concepts, AICPA Issues Papers, IASB International Financial Reporting Standards, AICPA Technical Practice Aids, and accounting textbooks, handbooks, and articles for GAAP guidance. C1-12 Ethical Responsibilities You and a friend are in the same accounting class. During the first test, you observe that your friend cheated by copying one of her answers from another student (who was unaware of the copying). When the exams are returned, your grade is a B, while your friend's grade is an A. Required Discuss the steps you would take to address this ethical dilemma. It is not necessary to state what ethical action you would take, but be prepared to discuss your reasoning for each step. C1-12 Ethical Responsibilities An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Name: Required Discuss the steps you would take to address this ethical dilemma. It is not necessary to state what ethical action you would take, but be prepared to discuss your reasoning for each step. If I caught a "friend" cheating off of another student I would be greatly upset. Cheating is a combination of two very unethical practices, lying and stealing. I cannot abide someone cheating, no matter what the reason. I would first tell my friend that I know they cheated, tell them why it is wrong and let them know I would be reporting them to both the other student and the instructor. I would also let them know that by cheating they crossed a line with me and that I did not care to associate with them anymore. My reasons for letting them know I caught them would be to give them a very small chance of making the right choice and telling the instructor themselves. I would tell them why it is wrong so that they have a better comprehension of why I was so upset and that it is something they should never do again. I would let the other student know so that they could cover their own answers better in the future to prevent someone from cheating off of them. I would let the instructor know because the person cheating does not deserve to get credit for someone else's work. I would stop associating with them because I do not associate with unethical people. I surround myself with people that have morals and would never compromise those morals. C1-12 Ethical Responsibilities An asterisk (*) will appear next to an incorrect amount(s) in the outlined cell(s). If you are still getting a red asterisk, and think the answer is correct, but used a formula in the cell try manually typing in the answer according to the rounding instructions. Name: Solutions Required Discuss the steps you would take to address this ethical dilemma. It is not necessary to state what ethical action you would take, but be prepared to discuss your reasoning for each step. I. Gather facts: (A) What has occurred? (1) my friend copied an answer, (2) she received an A on the test, (3) I received a B on the test, (4) our professor is unaware that she cheated, (5) I am aware that she cheated. (B) Who are the stakeholders: (1) my friend who cheated, (2) me, (3) student from whom my friend copied the answer, (4) our professor, (5) other members of the class, (6) all students in other sections of the same course, (7) all accounting students at my school who have taken the same class, (8) all students who will be competing with my friend for jobs, (9) all accountants, (10) company that hires her. II. Ask whether the action (my friend's cheating) is acceptable according to three ethical criteria: (A) Utility: Does the action optimize the satisfaction of all stakeholders? (1) her copying led to a short-term satisfaction in the form of an A. However, in the long-run, this A may prove to be harmful to her if she views the A as a reward for cheating and continues to cheat in the future, (2) my receipt of a lower grade puts her at an unfair advantage over me, (3) others in the class who received the same grade as her had to rely on their own effort and intelligence, whereas she was rewarded with the same grade for relying on someone else's work, (4) others in the class who received a lower grade than her are at a disadvantage to her even though they may be equally intelligent, (5) because recruiters compare the grades of all their applicants, she will appear more qualified because her A will cause her GPA to increase, (6) the professor may be placed in a position of giving her a higher recommendation than warranted, (7) her future employer may be depending on higher qualifications than she has. (B) Rights: Does the action respect the rights of all? (1) my friend forfeited her right to a good grade by cheating, (2) others in the class had their rights violated because they can no longer compete fairly, (3) the professor can no longer exercise his/her right to distribute grades fairly, (4) recruiters cannot exercise their right to use GPA as a quantitatively reliable guide for selecting employees. (C) Justice: Is the act fair and just? (1) cheating is not generally accepted as being fair, (2) receiving a better grade through deceit is not just, (3) having an advantage in recruiting due to dishonesty is not fair III. Consider whether there are any overwhelming factors between criteria: In this situation, there do not appear to be overwhelming factors but students may bring up issues like: (1) friend has full-time job, (2) friend is disabled, (3) friend has family (or other) obligations, (4) friend was sick before class, (5) friend was an athlete. IV. Decide what ethical action to take: Students may decide on a number of alternative courses of action, including: (1) doing nothing, (2) discussing with friend, (3) discussing with student from whom friend copied (or other students) to exert pressure on friend to confess action to professor, (4) reporting to professor (in person or anonymously). ...
View Full Document

This note was uploaded on 03/27/2012 for the course ACCT AC300 taught by Professor Reece during the Spring '12 term at Kaplan University.

Ask a homework question - tutors are online