Chapter 1 - Solution Manual

However the actual number of members has grown to

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call for at least twenty members to be appointed. However, the actual number of members has grown to about thirty in recent years to obtain representation from a wider group of interested parties. The FAF appoints the Financial Accounting Standards Advisory Council, which advises the FASB on major policy issues, the selection of task forces, and the agenda of topics. The FAF is also responsible for appointing the seven members of the FASB and raising the funds to operate the FASB. The FAF currently collects in excess of $11 million a year to support the activities of the FASB. b. The members of the Financial Accounting Foundation are nominated by electors from nine organizations that support the activities of the FASB. These nine organizations are the AICPA, the Financial Executives Institute, the National Association of Accountants, the Financial Analysts Federation, the American Accounting Association, the Security Industry Association, and three not-for-profit organizations. c. A number of key characteristics or qualities that make accounting information desirable are described in the Statement of Financial Accounting Concepts No. 2. The importance of three of these characteristics or qualities are discussed below. 1. Understandability--information provided by financial reporting should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence. Financial information is a tool and, like most tools, cannot be of much direct help to those who are unable or unwilling to use it or who misuse it. 2. Relevance--the accounting information is capable of making a difference in a decision by helping users to form predictions about the outcomes of past, present, and future events or to confirm or correct expectations. 3. Reliability--the reliability of a measure rests on the faithfulness with which it represents what it purports to represent, coupled with an assurance for the user, which comes through verification, that it has representational quality. (Note to instructor: Other qualities might be discussed by the student, such as secondary qualities. All of these qualities are defined in the textbook.)
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14 FASB ASC 1-1 Variable Interest Entities Entities (VIEs) Special purpose entities are accounted for by using the requirements for variable interest entities (VIEs). The information for this question is found by searching the topic “variable interest entities.” 1. The definition of variable interest entities is contained in FASB ASC 810-10-05 Overview and Background Consolidation of VIEs 05-8 The Variable Interest Entities Subsections clarify the application of the General Subsections to certain legal entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the legal entity to finance its activities without additional subordinated financial support. Paragraph 810-10-10-1 states that consolidated
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