ACNT 2375 TEST 1

1. 3 US Financial Accounting Standard Setting Bodies:

1) Committee on Accounting Procedure (CAP) 1939-1962 Primary guidance issued: Accounting Research Bulletins
2) Accounting Principles Board (ABP) 1962-1973 Primary guidance issued: APB Opinions
3) Financial Accounting Standards Board (FASB) - 1973-2009 Primary guidance issued: FASB Statements
2. The due process procedures of the FASB in establishment of a standard are:
1) Identify an issue.
2) Decide whether to place on the agenda after consulting with FASB members and others.
3) Establish a task force, utilize research staff, hold public hearings, request written comments.
4) Issue an Exposure Draft
5) Request comments on Exposure Draft and hold public hearings
6) Analyze public responses.
7) Issue an Accounting Standards Update
3. Typical Standard Setting Due Process:
1) Submit agenda topics
2) Approve items for inclusion on its agenda
3) Initial deliberations, releasing preliminary views or a Discussion Paper
4) Meets at public roundtables with working groups and advisory bodies to gather additional information.
5) Issues an Exposure Draft
6) Reviews feedback then issues final standard.
7) Post implementation review

2 Differenced between typical standard setting due process and FASB due process are:

1) FASB holding hearing for the public and receives feedback from the public unlike typical standard setting due process.
The reason for this is because is because wants approved it will become authoritative.
2) FASB has no post implementation review like typical standard setting due process has. After FASB issues an exposure
draft, they request comments and hold public hearings. Once an accounting standards update is issued it become
authoritative.
4. Two entities that recognize the FASB has the entity with authority to set financial accounting standards for nongovernmental
entities are the Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants
(AICPA). The SEC was granted authority in 1934 to establish accounting standards but has delegated this responsibility first
to the AICPA and later to the FASB. While the role in establishing GAAP has diminished over time, the AICPA still remains a
key authority in establishing standards.

5. The FASB conceptual framework project is the creation of a worldwide accepted theoretical framework which encompass a
series of pronouncements entitled Statements of Financial Accounting Concepts. Practitioners will use the FASB Concepts
Statements when no other published standards exist. The Concept Statements are not authoritative, they are used when there
is no authoritative pronouncements that are directly on point to the issue under consideration.

6. The 2 major US GAAP functions are: (1) Measurement US GAAP requires recognizing or matching expenses of a given
period with the revenues earned during that period. The measurement principle also focuses on the valuation of financial
statement accounts. (2) Disclosure US GAAP provides information necessary for the users decision models.

7. 3 objects of financial reporting or SFAC No 8: (1) is useful for assessing financial performance as reflected by accrual
accounting. (2) Helps investors and creditors assess financial performance as reflected by past cash flows. (3) Helps assess
in and claims to economic resources that are not reflected in financial performance.

8. 4 Characteristics the AICPA defines of effectively writing essays for the CPA Exam:
(1) Coherent Organization Organize responses so that the ideas are arranged logically and the flow of thought is easy to
follow. In an accounting memo it will be organized so that the end user can easily determine the facts, issues or
questions, analysis, conclusion and financial statement or disclosure impacts.
(2) Clarity A clearly written response prevents uncertainty concerning the meaning or reasoning. In a memo there needs to
clarity so that key and issues can be identified, analysis directly to the key issues and facts and a conclusion that clearly
is derived from the analysis.
 (3) Concise Writing Present complete thoughts in as few words as possible, while ensuring that important points are
covered. In a memo, this would be done in the facts or background by eliminating any unnecessary information the
reader would not need to know but still there is a clear picture of the issue or background. The issues, analysis,
conclusion, and financial statement impact would also only contain information that the reader would need to know to
move to the next step.
9. Critical thinking is the art of using your best thinking, given your knowledge and skills. Critical thinking is purposeful, goal-
oriented, and creative. Its an active process involving rethinking the problem and refusing to consider merely the most
obvious or easiest solutions. Critical thinking rests on a willingness to take nothing for granted and to approach each
experience as if it were unique. Critical thinking relates to the term professional skepticism by examining and recognizing
emotion-laden and explicit or hidden assumptions behind each question.
10. The necessity of critical thinking in the research process is to defining a problem and solving it. Its a rational response to
questions that may lack definite answers or that may be missing relevant information.

11. Rethinking the problem and refusing to consider merely the obvious or easiest solutions is necessary when critical thinking.
Rethinking is a willing to say I dont know, an openness to alternative ways of seeing or doing, an interest in the ideas of
others, thoughtfulness, a desire to discover what other people have done and thought, getting the best evidence before
choosing among alternatives and an openness to your own intuition.
12. Ways in which a CPA must apply critical thinking skills:
Value added services such as advise, predict, detect, recommend and evaluate. They also need to approach each experience as
if it were unique. Rethink how to perform tasks, do not perform them in an obvious or routine manner. Evaluate and judge
and apply low levels of thinking to progress to higher ones.
13. The Active Voice uses strong, direct verbs and thus increases the readers confidence in the writing. The Passive voice is
easy to spot because it uses the word be or been as part of the verb, is less effective and often causes the reader to have to
reread the information.
14. The active voice should be used in accounting research communications. Keeping an accounting research memo neutral
means not using first person or (I, we, or our) or second person (you, yours) when writing, because if you do it comes across
less objective. You can however use the third person in a memo to keep the constant focus on the subject matter.
15. You should avoid using I, we or you in accounting research communication to remain neutral and if you do use these terms
you come across as less objective.
16. Nongovernmental entities encompass both public and private entities, as well as not-for-profit entities. Nonpublic entities are
exempt from some requirements regarding the Codification and are frequently given longer transition periods for adopting
new guidance. The reason for this is because there is usually resource constraints as well as a perceived lesser demand for
financial statement on nonpublic companies. The ASC definition of a public business entity is one that is traded publicly.
17. For the Codification guidance to be considered authoritative it means that the Codification established GAAP. In order to
receive an unqualified audit opinion, US nongovernmental entities must prepare their financial statements in accordance with
Codification guidance.
18. The role of the Industry guidance in the Codification is to be able to lookup guidance based on what is unique for that
industry or type of activity, an example would be how to account for inventory in the mining industry, you would click on
Extraactive Mining Inventory.
19. Its necessary to review Implementation Guidance and SEC content to see if there is interpretive guidance describing how the
guidance should be applied to specific scenarios. You should look at other sections of guidance to see if there is any more
Codification that will apply to situation and use it as a source in your research if you find it is beneficial for your analysis and
conclusion.
20. The SEC provides authoritative guidance for public companies. The SEC issues of Codification of Federal Regulations and
various types of releases.
21. SABs are Staff Accounting Bulletins they are unofficial interpretations of the SECs prescribed accounting principles. The
SEC issues SABs. SABs relate to accounting and disclosure practices under the rules and regulations.
22. SEC standards included in the Codification are: Regulation S-X, Financial Reporting Releases, Accounting Series Releases,
Interpretative Releases, Staff Accounting Bulletins and SEC Staff Observer comments.
23. Steps a researcher can take to determine whether a result he or she has pursued is relevant: and if not what to do.
1) If you see a paragraph in the search results that appears to be directly on point, follow your instinct.
2) If, the search results just lead you to a topic but no perfect paragraph, begin by reviewing the Overview and Background
section of that topic.
3) Review the scope section for the topic. Is your issue within the scope of this guidance?
4) As your researching, take note of other useful terms or links to other related guidance. These may lead you to more
relevant guidance if what your reading is not already on point.
 5) Finally, if you hit a dead-end, scroll down to Section 60 (Relationships) of that topic. This section includes links to other
related standards; reviewing this could trigger ideas, as well.
24. What is Pending Content When new guidance (an ASU) is issued by the FASB, it is added to the Codification as pending
content. You can determine if pending content is relevant to the research question because it pending content will have the
same paragraph number as the existing paragraph in the Codification. So if the existing Codification applies then the pending
content will be relevant.
25. Transition Guidance Carefully read the Transition Guidance link provided next to the pending content paragraph to
determine whether pending contact will be effective for the transaction you are accounting for. If so, you should read the
pending content in lieu of the identical paragraph number that proceeds it or is in addition to it.
26. SEC is authoritative for public companies. Portion but not all of the SECs guidance have been included in the Codification.
Nonpublic companies may find it helpful but are not required to follow SEC guidance in the Codification.
27. Non SEC registrants may follow SEC guidance when there is no other standards on the issue or subject being researched.
28. The 3 methods available for researching the Codification are:
1) Browse by topic by clicking on the left-hand menu to reach the desired entry. (Ex: Asset Inventory Extraactive
activities)
2) Search by Keyword Using the Search/Advanced Search Feature. (Ex: Searched mining inventory)
3) Master Glossary Finding a keyword of interest and clicking on that word to be directed to the guidance. (Ex: looked up
inventory)
29. Topic (XXX)- Subtopic (YY) Section (ZZ) Subsection (if applicable) Paragraph (PP)
30. Searching by keyword is the most useful when you are looking for a specific term in the guidance because the results of the
search are listed my topic and include an excerpt from the guidance containing the term.

31. The topical categories the Codification are divided into relating to guidance are:
1. General Principles
2. Presentation
3. Assets
4. Liabilities
5. Equity
6. Revenue
7. Expenses
8. Broad Transactions
9. Industry
10. Master Glossary
32. 4 Conditions of Revenue Recognition provided by SEC content but not in the FASB content:
1) Collectability is reasonable
2) Assured delivery has occur or services rendered
3) Sellers price is determined
4) Evidence of an arrangement exist.
33. 2 important parts of the accounting research process are:
1) Confirm that your specific transaction is within the scope of this guidance.
2) Skim the rest of the section for any other potential relevant guidance.
If you find more information it could help you analysis and conclusion stronger.
34. 2 Objectives of performing accounting research are:
1) To account for transaction or items in a manner that is appropriate and supportable based on authoritative guidance. A
companys accounting must comply with authoritative guidance in order for the company to receive an unqualified audit
opinion.
2) To create documentation describing the research performed and supporting the conclusion reached. Creating
documentation is critical because it creates an audit trail, this transaction sets precedent for future transactions, and if you
companys accounting position on a transaction is ever questioned, ideally, you would need sufficient documentation to it
up.
35. The 6 steps of the financial accounting research process are:
1. Understand the Facts/Background of the Transaction Get a clear understanding of the complete big picture, this will be
beneficial and save you time and effort. Here are some basic questions researchers can address in step1: What is the big
picture? Who are the parties involved in the transaction? What are the economics and cash flow arrangements? Have any
other companies undertaken similar transactions? Have peers in my industry completed similar transactions? Should
specialist be involved?
 2. Define the Problem or Research Question Avoid long or complex questions, if you question has multiple parts, break
that issue into two or more parts. Focus your researchable question on the type of transaction you are assessing, if you
can.
3. Stop and Think - What accounting treatment will likely be most appropriate? Jot down possible search terms related to
your researchable question and your initial thoughts about the accounting treatment.
4. Search Potentially Relevant Guidance, copy any relevant guidance into a word document. Look for guidance directly on
point or, if not available, guidance that may be relevant by analogy.
5. Analyze Alternatives Documenting your consideration of each. Make judgements based on the Codification you
gathered. Two alternatives may appear available, if so weight each and see which one is the best.
6. Justify and Document your Conclusion Summarize your analysis of the guidance and other factors considered.
36. Standard Memo Format: Ultimate goal is to provide a one-stop shop for knowledge about this transaction and its
accounting to the reader.
1) Background State all relevant facts surrounding the issue. It should draw a picture of the transaction. Should be
concise but not sparse. Provide enough detail about the issue that a party uninvolved with the matter could pick the
memo, even years later and understand the issue well enough to form an opinion as to whether or the accounting
treatment is appropriate.
2) Question/Issue(s) List your researchable question or issues.
3) Analysis Include excepts from relevant guidance, along with you own words about how the guidance applies to your
transaction. Remember the one-stop shop concept; include actual quotations from authoritative guidance in your memo
to support your analysis. Use enough guidance so that the reader will not also have to perform a search of the
Codification. As a general rule of thumb, your own comments should precede and follow all guidance experts, this is
known as a guidance sandwich.
Guidance sandwiches are critical to an in depth analysis because in includes the researchers reasoning as to why the
words in certain literature led the researcher to believe that the described item or transaction should be accounted for in a
particular way.
4) Conclusion Clearly written and should summarize key points from the analysis and describe the conclusion reached.
5) Financial Statement and Disclosure Impact List any journal entries or disclosure impacts.
37. Researchers should include actual experts from the guidance in accounting research memos rather than paraphrasing because
actual guidance is much more impactful and paraphrasing is not enough.
38. 4 Examples of Strong Codification Reference:
1) According to ASC xxx, Quote
2) Per ASC xxx: Quote
3) ASC xxx states or ASC xxx requires: Quote
4) ASC xxx provides the following guidance: Quote
39. The use of footnotes in accounting research memos is fairly rare and sources should be citied in the body of your Memo.

40. It is only appropriate to alter an excerpt of Codification guidance if (1) in doing so, you do not change the meaning of the
guidance and (2) you clearly tell the reader what you have altered. Use brackets [] to identify the words you have changed.

41. It is appropriate to use ellipses () when a write omits some text in a quote or doesnt quote the full sentence or paragraph.

42. Two common errors to avoid in drafting a memo are not using neutral language, you should not write in first person and
avoid strong words such as always and will.
43. When authoritative literature does not exist on an issue, the practitioner should develop a theoretical resolution of the issue
based upon a logical analysis of the factors or analogous authorities involved. In addition, they need to evaluate the
economic consequences of the various alternatives in the development of a conclusion. Note that, in practice, a solution is
sometimes not readily apparent. Professional judgment and theoretical analysis are key elements in the research process.
44.
45. Most nongovernmental entities that prepare financial statements are notregulated by the SEC. Even so, many such entities
choose to use the FASBs standards as documented in the Codification.
In contrast, federal securities laws in the United States require entities that are regulated by the SEC, known as SEC
registrants, to file their financial statements with the SEC on a regular basis. In doing so, the SECs U.S. registrants must use
the FASBs standards, subject to additional standards that the SEC has the statutory authority to set and that apply only to
SEC registrants.
46. There are two advantages of copying Codification content from a Printer Friendly window. First, it is generally easier to
select the content that you want to copy. Second, you are more likely to be satisfied with the results when you paste the
copied content into the destination program (for example, into a word-processing document). If you simply copy and paste
from the original browser window, the formatting is not preserved.
 47. A. The three primary Codification goals are the following:
1. Simplify user access by codifying all authoritative US GAAP in one spot.
2. Ensure that the codified content accurately represented authoritative US GAAP as of July 1, 2009.
3. Creates a codification system that is up to date for the released results of standard setting acitivity.
B. The four expectations of the Codification are:
1. Reduce the amount of time and effort required to solve an accounting issue.
2. Mitigate the risk of noncompliance through improved usability of the litature
3. Provide accurate information with real-time updates as Accounting Standards Updates are realeased.
4. Assist the FASB with the research and convergence efforts.
48. As of 7/1/2009, the following literature was included in the Codification:
A. Financial Accounting Standards Board
1. Statements (FAS)
2. Interpretations (FIN)
3. Technical Bulletins (FTB)
4. Staff Positions (FSP)
5. Staff Implementation Guides (Q&A)
6. Statement No. 138 Examples
B. Emerging Issues Task Force
1. Abstracts
2. Topic D
C. Derivative Implementation Group Issues
D. Accounting Principles Board Opinion
E. Accounting Research Bulletins
F. Accounting Interpretations
G. American Institute of Certified Public Accountants
1. Statements of Position
2. Audit and Accounting Guides only incremental accounting guidance
3. Practice Bulletins, including the Notices to Practitioners elevated to Practice Bulletin status by Practice Bulletin 1.
4. Technical Inquiry Service only for Software Revenue Recognition

49. 3 Reasons accounting standards might change over time are:

1. Practitioners may express concern that existing requirements are unclear, and may request clarification from the standard
setter.
2. Investors and analysist might drive the request for changes, concerned that existing reporting or disclosure requirements
do not provide sufficient, useful information for decision making.
3. New types of transactions may emerge, standard setters must keep pace by issuing guidance that appropriately reflects
the economics of these activities.
50. Staying current means recognizing that accounting standards are continually changing and making a conscious effort to keep
up.
51. 3 professional advantages of staying current are: career advancement more quickly or a professional advantage versus peers,
will benefit your company or clients business and you could help reduce the workload of upper management.

52. Two lessons learned for professional practice are:

(1) By using the 5 research steps, one is more likely to solve the problem accurately and time efficiently.
1.Identifiy Issues/Problems
2. Collect Evidence
3. Analyze the results
4. Develop a conclusion
5. Communicate the results
(2) As researchers acquire experience in research, they find the research easier and more exciting. Research does need to be well
documented.

1. Non-authoritative guidance is any source of accounting guidance or practice not included within the FASB Codification.
Because this guidance is not included within the Codification, it is not considered part of GAAP.
2. Two ways in which non-authoritative guidance can benefit the financial accounting researcher is:
 (1) It may address items or transactions, not included in the Codification. For example, there is no definition included in the
Codification for the terms assets and liabilities. Researches seeking guidance on these definitions must consult the
FASBs Conceptual Framework.
(2) It can offer interpretive guidance, or additional explanations and illustrations, for complex accounting topics.
Interpretive guidance can help users identify and understand the nuances and areas of complexity within the
Codification.
3. Codification may not offer guidance on a financial accounting issue because
(1) The body of guidance making up the Codification was developed over time, in a manner that responded to practitioners
needs as they arose.
(2) Transactions are often unique, and it would be impossible for guidance to be on-point for every unique set of facts.
4. Non-authoritative guidance can be citied in two ways
(1) Ideally, non-authoritative guidance should be citied in addition to Codification references, to support or further clarify
Codification guidance.
(2) Only as necessary, non-authoritative guidance may be citied as support for accounting positions when Codification
guidance is not available.
5. CON 6 defines an asset as: FASB Concepts Statement No. 6, Elements of Financial Statements (CON 6), defines and
characterizes assets as the following, respectively:

probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
(par. 25).

An asset has three essential characteristics: (a) it embodies a probable future benefit that involves a capacity, singly or in
combination with other assets, to contribute directly or indirectly to future net cash inflows, (b) a particular entity can obtain
the benefit and control others access to it, and (c) the transaction or other event giving rise to the entitys right to or control
of the benefit has already occurred (par. 26).

6. CON 6 defines liabilities as: Liabilities are probable future sacrifices of economic benefits arising from present obligations of
a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Characteristics of Liabilities - A liability has three essential characteristics: (a)it embodies a present duty or responsibility to one or
more other entities that entails settlement by probable
future transfer or use of assets at a specified or determinable date, on occurrence of a specified event, or on demand, (b) the duty or
responsibility obligates a particular entity, leaving it little or no discretion to avoid the future sacrifice, and (c) the transaction or other
event obligating the entity has already happened.

7. CON 6 defines revenues as - Revenues are inflows or other enhancements of assets of an entity or settlements of its
liabilities(or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute
the entitys ongoing major or central operations. Characteristics of Revenues - Revenues represent actual or expected cash in-
flows (or the equivalent) that have occurred or will eventuate as a result of the entitys ongoing major or central operations.
The assets increased by revenues may be of various kindsfor example, cash, claims against customers or clients, other
goods or services received, or increased value of a product resulting from production.
8. CON 6 defines expenses as - expenses are outflows or other using up of assets or incurrences of liabilities (or a combination
of both)from delivering or producing goods, rendering services, or carrying out other activities that constitute the entitys
ongoing major or central operations. Characteristics of Expenses - Expenses represent actual or expected cash out-flows (or
the equivalent) that have occurred or will eventuate as a result of the entitys ongoing major or central operations. The assets
that flow out or are used or the liabilities that are incurred may be of various kindsfor example, units of product delivered
or produced, employees services used, kilowatt hours of electricity used to light an office building, or taxes on current
income. Similarly, the transactions and events from which expenses arise and the expenses themselves are in many forms and
are called by various namesfor example, cost of goods sold, cost of services provided, depreciation, interest, rent, and
salaries and wagesdepending on the kinds of operations involved and the way expenses are recognized.
9. CON 6 defines gains and losses as - Gains are increases in equity (net assets) from peripheral or incidental transactions of an
entity and from all other transactions and other events and circumstances affecting the entity except those that result from
revenues or investments by owners. Losses are decreases in equity (net assets) from peripheral or incidental transactions of
an entity and from all other transactions and other events and circumstances affecting the entity except those that result from
expenses or distributions to owners.

Characteristics of Gains and Losses- Gains and losses result from entities peripheral or incidental transactions and from other events
and circumstances stemming from the environment that may be largely beyond the control of individual entities and their
managements. Thus, gains and losses are not all alike. There are several kinds, even in a single entity, and they may be described or
classified in a variety of ways that are not necessarily mutually exclusive. Gains and losses may be described or classified
according to sources.

10. FASB Concept Statements No. 6 Elements of Financial Statements - This Statement defines 10 interrelated elements that
are directly related to measuring performance and status of an entity.
11. FASB Concept Statement No. 7 Using Cash Flow Information and Present Value in Accounting Measurements.
12. FASB Concept Statement No. 8 - Conceptual Framework for Financial ReportingChapter 1, The Objective of General
Purpose Financial Reporting, and Chapter 3, Qualitative Characteristics of Useful Financial Information
13. Summarize guidance from ASC-110-10-05-3. Does any Concept Statement support this guidance? Defend your answer.
ASC-110-10-05-3 This Topic establishes the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (Codification) as the source of authoritative generally accepted accounting principles (GAAP) recognized by
the FASB to be applied by nongovernmental entities and nonpublic entities. This ASC provided what sources are
authoritative guidance is and what sources are non-authoritative.
14. Discuss the role scope guidance plays in professional research?
What function does scope guidance serve within the Codification?
When, in the research process, should scope guidance be consulted?
What is scope guidance?
Scope guidance indicates which transactions, items, or entities are subject to the guidance within a topic. Researchers should
view the scope section of each topic as required reading, to confirm that the guidance applies to his or her transaction. This
should be done before reviewing a topics recognition and measurement guidance.
15. What should a researcher look for when reviewing the scope section of a topic?
When reviewing the Scope section of a topic, a researcher should read any lists of transactions or entities that are excluded
from the guidance scope. If the guidance contains tests, indicating which transactions are within the topics scope, a researcher
should determine whether his or her transaction meets the tests.

16. List the 4 fundamental recognition criteria from CON 5. What two additional factors should a financial statement preparer
consider before recording an item? Will this apply to all types of revenue recognition issues? Why or Why not?
1. Definitions
2. Measurability
3. Relevance
4. Reliability

That is, items meeting these 4 fundamental criteria should be recorded in the financial statements, subject to two additional
tests:
1. The benefit of recognizing the item must exceed the costs of doing so.
2. The item should be considered material to the financial statement users.
The FASB emphasizes that recognition is the preferred method of conveying information that is material to financial
statement users, however some practitioners have asserted that disclosure is a reasonable substitute. FASB does not view
disclosure as an adequate substitute for recognition.
17. The Collins text states Recognition guidance describes what, when, and how items should be recorded in the financial
statements. Discuss this statement.
Accounting recognition broadly describes the criteria, timing and location for recoding an item.
That is, recognition describes what should be recorded is an item or event required to be recognized,
when it should be recorded can revenue be recognized at the time of sale, and
how the item should be recorded where within the financial statements should it be recorded.
18. List the 4 additional criteria that the SEC has developed for interpreting the FASBs requirement that revenue be realized
and earned. Why was it necessary for the SEC to provide these 4 additional criteria?
1. Persuasive evidence of an arrangement exists.
2. Delivery has occurred or services have been rendered.
3. The sellers price to the buyer is fixed or determinable and
4. Collectability is reasonably assured.
The SEC provided these additional criteria to make the recognition more consistent and narrow down the definition of what
realized and earned means.
19. What are the criteria for recognition of loss contingency?
Loss contingencies must be recognized in the financial statements if 2 conditions are met:
1. It must be probable that an asset has been impaired or that liability has been incurred.
2. The amount of loss must be reasonably estimable.
20. What is the basic threshold for recognition of an uncertain tax position?
1. Entities must determine whether a tax positon meets the more-likely-than-not threshold for recognition or more than
50% likelihood, then the appropriate measurement of the tax position.
21. Explain what it means for a subsequent even to be unrecognized? Provide an example.
Unrecognized subsequent events Events that provide evidence about conditions that did not exist at the balance sheet date,
but which arose after the balance sheet date.
One example A business combination that occurs after the balance sheet date but before financial statements are issued.
22. Provide an example of an issue involving accounting recognition and an example involving derecongition.
Recognition Sale of a product with a right to return. Would you go ahead and count as revenue even though they could
return it?
De-recognition Paying a creditor to extinguish the liability.
23. Regarding revenue recognition: Should we be able to arrive at tenable conclusion based on the FASB requirement that
revenue be realized and earn? Defend your answer. Include a discussion of other sources of authoritative or nonauthoritative
GAAP that help at arriving at the tenable conclusion be specific.
It should be realized and earned, however there are over 100 individual pieces of revenue recognition guidance in the
Codification and in 36 subtopics, this abundance of guidance can lead to different accounting for similar transactions. CON 6
also broadly defines revenue as being realized or realizable and being earning.
24. Differentiate between a debt modification and debt extinguishment.
A debt modification occurs when a debtor exchanges similar debt instruments with the same creditor.
A debt extinguishment occurs when debt instruments with substantially different terms are exchanged.

25. List and discuss the limited measurement guidance that is found in the FASB Concept Statements Nos. 5 & 7. Why are these
considered to be of limited use of todays research environment?
FASB Concept Statement No. 5 (Recognition and Measurement) : Lists measurability as one of the four key criteria
necessary for an item to receive financial statement recognition. It also, identifies and defines various measurement attributes,
including historical cost, current cost, current market value, net realizable value and present value. States that the use of each
is fact-dependent.
FASB Concept Statement No 7 (Cash Flow Information and Present Value: Describes how to measure present value and
describes why present value information is relevant in certain cases.
These principles are considered to be of limited use in todays environment, in part because they are now somewhat dated.
CON 5 issued in 1984 and CON 7 issued in 2000.
26. What is a measurement attribute? Are most measurement attributes defined in the Codification? Defend your answer. List two
measurement attributes. For each of the two measurement attributes, provide one example.
A measurement attribute is a way to determine the economic value of a transaction and most measurement attributes are not
defined in the Codification, the Codification only defines a handful of measurement attributes and instead relies on
measurement models that are often top-specific.
Two measurement attributes are:
1. Historical cost cash paid to acquire an asset. Ex: Initial measurement of property, plant and equipment and most
inventories.
2. Current (replacement) cost Ex: Inventory adjust to market.
27. What is the initial measurement attribute for inventory? What are some considerations that could result in complexity in
initially measuring inventory?
Inventory is initially measured at cost. Some consideration that could result in the complexity in initially measuring
inventory are: how does one account for inventory produced in-house, should direct labor or/and factory overhead costs be
included in the inventorys cost basis? Is freight and taxes included in inventory cost basis?
28. What hierarchy applies for determining the relative selling price of deliverables, in multiple-element revenue recognition
arrangements?
Entities must determine, first, whether revenue can be allocated separately to the deliverables, and second, how revenue
should be allocated.
29. Describe the process of determining whether the value of inventory should be written down, below its cost.
ASC 330, provides guidance on the subsequent measurement of inventory. The guidance requires a 2 step evaluation to
determine whether an inventorys market value has fallen below its cost:
1. Compare the recorded inventory cost to its replacement cost and
 2. If replacement cost is less, recognize a loss if the retailer does not expect to earn normal profits upon sale of the
inventory.
30. What is subsequent measurement? List and discuss 2 examples of subsequent measurement.
Subsequent measurement or day 2 measurements, are necessary for reporting changes in recorded assets and liabilities. It
provides both (1) information on what subsequent value to report for the assets or liabilities and (2) information on how to
report those changes.
Two Examples: (1) recording of estimated uncollectible accounts receivable and (2) recording deprecation for fixed assets.
31. Should disclosure accompany key measurement judgements? Defend your answer.
Yes, disclosure should accompany key measurement judgement, regardless of measurement attribute used. Disclosure
provides management with the opportunity to explain its choices of measurements methods and the judgements involved in
calculating reported amounts. Additionally, disclosure provides financial statement regulators and user with transparency into
these methods and judgements.
32. Explain why disclosure should accompany key measurement judgements, and provide two examples of parties who lobby for
increased transparency in disclosures.
Disclosures should accompany key measurement judgements because it provides management with the opportunity to
explain its choices of measurement methods and the judgements involved in calculating reported amounts. Two examples of
parties who lobby for increased transparency in disclosures are: SEC and financial statement users.
33. What is the first resource researches should consult when seeking measurement guidance for an issue? Explain your answer.
The first resource researchers should consult when seeking measurement guidance for an issue is the individual Codification
topics, specifically sections 30 and 35, because this is authoritative guidance.
34. What are 2 source guidance on present value measurement? Discuss each of these sources.
1. Researches should consult the Present Value section within Topic 820s Implementation Guidance.
2. CON 7 may also be useful, where in rare cases Topic 820 is not fully responsive to an issue.
35. What does it mean, for most of the Codifications measurement guidance to be topic specific? What implications does this
have for a researcher, looking for measurement guidance in the Codification?
Guidance on applying each of the measurement attributes is available with the related Codification topic. Given the
uniqueness of each topics measurement guidance, individual topics are therefore a researchers best source for measurement
guidance.
36. Why does the FASB issue Concept Statements?
FASB Concept Statements are intended to serve the public interest by setting the objectives, qualitative characteristics, and
other concepts that guide selection of economic phenomena to be recognized and measured for financial reporting and their
display in financial statements or related means of communicating information to those who are interested.
37. What is the twofold purpose of the Concept Statements?
The twofold purpose of the Concept Statements are:
1. Guide the Board in developing sound accounting principles
2. Provide the Board and its constituents with an understanding with the appropriate content and inherent limitation of
financial reporting.
38. Why are Concept Statements nonauthoritative?
The Concept Statement are nonauthoritative because they do not establish GAAP.
39. What is the FASBs project to replace all of its existing Concept Statements into a single document?
The FASB and IASB started then stopped the joint project, however, the IASB, not FASB resumed the project in 2013.