Chapter 17 - Solution Manual

Unknown deleted s 383 team 1 argue that management

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383 Team 1: Argue that management should continue to be allowed to choose among different accounting alternatives because full disclosure in the notes to financial statements provides sufficient transparency. We argue that management should be allowed to choose among different accounting alternatives. We also believe that full disclosure in the notes combined with the alternatives chosen provide sufficient transparency to allow investors, creditors, and other users to evaluate the company’s financial position as well as its financial performance. The financial statements, footnotes, and supplementary schedules constitute the company’s financial report. And all significant information should be included in the financial report. Additionally, other relevant information, which can assist in understanding the financial report, is presented in narrative form. Examples of these types of items are management’s discussion and analysis and the letter to stockholders. The footnotes to a company’s financial statements provide a significant amount of additional information about the items on the company’s financial statements. In general, the footnotes disclose information that explains, clarifies, or develops items appearing on the financial statements, which cannot easily be incorporated into the financial statements themselves. The most common examples of footnotes are: 1. Accounting policies 2. Schedules and exhibits— Firms typically report schedules or exhibits concerning long-term debt and income tax, for example. 3. Explanations of financial statement items— Some items require additional explanation so that users can make sense of the reported information. Pensions and postretirement benefits are two examples. 4. General information about the company— Occasionally, firms face events that may impact their financial performance or position but cannot yet be recognized on the financial statements. In that case, investors have an interest in learning this information as soon as possible. Information concerning subsequent events and contingencies are two examples. The purpose of supplementary schedules is to improve the understandability of the financial statements. They may be used to highlight trends, such as five-year summaries; or they may be required by FASB pronouncements, such as information on current costs. The SEC recently announced a proposed rule requiring additional disclosures that are designed to improve the transparency of companies’ financial disclosure. These new disclosures would enhance investors’ understanding of the application of companies’ critical accounting policies. The proposals encompass disclosure in two areas: accounting estimates a company makes in applying its accounting policies and the initial adoption by a company of an accounting policy that has a material impact on its financial presentation.
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