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Firm a 2003 2005which by the aicpa firm b firm will

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Unformatted text preview: Investors want decreased risk and high returns. Risk is reduced when variability of earnings is decreased. Rewards are increased when income continuously improves. Firm A © 2003, 2005Which by the AICPA Firm B firm will have the higher stock price? Nature of Accounting Rules Nature In the U.S., accounting standards are “rulesbased” instead of “principles based.” – Allows companies and auditors to be extremely Allows creative when not specifically prohibited by standards. creative – Examples are SPEs and other types of off-balance Examples sheet financing, revenue recognition approaches, merger reserves, pension accounting, and other accounting schemes. accounting – When the client pushes, without specific rules in When every situation, there is no room for the auditors to say, “You can’t do this…because it isn’t GAAP…” say, – It is impossible to make rules for every situation © 2003, 2005 by the AICPA Auditors—the CPAs Auditors—the Failed to accept responsibility for fraud detection (SEC, Failed Supreme Court, public expects them to detect fraud) If auditors aren’t the watchdogs, then who is? auditors Became greedy--$500,000 per year...
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