Solution manual for intermediate accounting 3rd edition elizabeth a gordon jana s raedy alexander j sannella_compressed

Solution manual for intermediate accounting 3rd
edition elizabeth a gordon jana s raedy alexander j
sannella_compressed
The Financial Reporting Environment
Solutions CHAPTER 1 DC D C




Questions

Q1-
1 Financial information is a much broader concept than simply the financial statements and footn
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otes to the financial statements. Financial information includes items such as the President‘s letter
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to the owners, management‘s discussion and analysis, the auditors‘ report, the management report
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and press releases. Of course, the basic financial statements and footnotes are included in the ter
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m financial information. The basic financial statements are: the balance sheet (also referred to as
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the statement of financial position), the statement of comprehensive income (also referred to as t
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he statement of net income and the statement of comprehensive income), the statement of cash fl
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ows, and the statement of shareholders‘ equity. Financial information is not synonymous with the
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term financial statements because the financial statements are a subset of the different types of fi
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nancial information provided. DC DC




Q1-
2 The purpose of generating financial statements is to provide useful information to users to evalu
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ate economic entities and make efficient resource allocation decisions based on the risks and retu
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rns of a particular investment. The Financial Accounting Standards Board (FASB) identifies inve
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stors, lenders and other creditors as the primary users of the financial statements. The financial st
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atements are the culmination of the financial reporting process.
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Q1-
3 Capital is a scarce resource. Investors and creditors have to make decisions as to how much capit
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al to invest in any given entity; therefore, they demand relevant and faithfully representative infor
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mation about the economic performance and financial position of a company. This information is
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provided in the financial statements.
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Q1-
4 External auditors ensure that the management of a company has prepared financial statements i
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n accordance with Generally Accepted Accounting Principles and fairly present the financial posit
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ion and economic performance of a company. In addition, external auditors must be an independe
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nt party and cannot be employees of the company they are auditing. External auditors provide a s
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ignificant amount of credibility to the financial statements. DC DC DC DC DC DC DC




Q1-
5 Data analytics is the process of analyzing large data sets in order to draw useful conclusions. It
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involves converting raw data into useful knowledge. In financial reporting, data analytics can be u
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sed to improve the quality of estimates and valuations.
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,Q1-
6 Standard setters create accounting concepts, rules, and guidelines to ensure that financial statem
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ents accurately present the economic performance and financial position of a firm. The standards
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encourage transparent and truthful reporting.
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,
, 1 -2DC DC D C SO L UT I O N S
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DC DC DC DC DC D C FO R DC DC D C IN TERMED IATE
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T ING DC DC




Q1-
7 U.S. companies listed on U.S. stock exchanges do not have the option to report under IFRS. Ho
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wever, foreign companies that trade in the U.S. exchanges can report under IFRS. The SEC permi
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ts the use of IFRS-
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based financial statements by international companies with shares trading on U.S. stock exchang
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es.
Q1-
8 The FASB seeks and welcomes comments from all parties in the financial reporting process in
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cluding managers, investors, accountants, preparers, creditors, lenders, financial statement users,
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governmental agencies, financial analysts, industry groups, and auditors. FASB also receives feed
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back from public roundtable discussions, public meetings, the FASAC, the Private Company Co
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uncil, and EITF. DC DC




Q1-
9 Yes, the promulgation of financial accounting standards is a political process. There are several
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groups that influence the standard setting process. The standard setting process is a political proc
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ess that is affected by the impact of several lobbying groups. The government, through the SEC, i
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nfluences accounting standards. The SEC has the authority to issue accounting standards but has a
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ssigned this responsibility to the private sector. Nonetheless, the SEC can exert pressure on the F
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ASB to issue accounting standards and veto the standards promulgated by the FASB. Auditing fir
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ms, the corporate sector, creditors, financial analysts, the financial community, accounting organi
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zations, industry groups, and investors can influence the FASB by written comments about Expos
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ure Drafts and participation in public meetings and public roundtables regarding a proposed finan
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cial reporting standard.
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Q1-10 A principles- DC DC




based standard is consistent with a theoretical framework. In contrast, a rules-
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based standard does not necessarily rely on a consistent theoretical framework. Rather, it contai
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ns more specific and prescriptive rules.
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Q1-
11 Recently, the FASB has taken an asset/liability approach in setting standards. With this appro
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ach, a transaction is recorded based on whether an asset or liability is created. Another trend has
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been the movement toward the use of fair value measurements as an alternative to historical cost.
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FASB has also focused on the promulgation of principles-based standards instead of rules-
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based standards. DC




Brief Exercises Soluti DC DC




on to BE1-1 DC DC




General-
purpose financial statements provide general financial information about an entity that will be use
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ful to many types of users. General-
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purpose financial statements provide information to a wide spectrum of user groups: investors, cr
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editors, financial analysts, customers, employees, competitors, suppliers, unions, and government
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agencies. Most financial information in general purpose financial statements is provided to satisf
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y users with limited ability or authority to obtain additional information, which includes investors
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and creditors. The Financial Accounting Standards Board (FASB) identifies investors, lenders, an
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