MGA 624 - Chapter 2 Questions and Answers Latest Update 2025/2026
Explain what it means for the Codification's guidance to be authoritative - Answers it means that
the codification establishes GAAP.
-in order to receive an unmodified audit opinion, US non governmental entities must prepare
their financial statements in accordance with codification guidance
Explain why the Codification was developed - Answers it is the primary source of authoritative,
GAAP for nongovernmental entities
-objective of simplifying research
-reduces risk practitioners could miss important sources when searching for guidance by
organizing accounting guidance by topic, within a single research source
Aside from FASB, name 3 other standard-setting bodies whose guidance is included in the
Codification - Answers -Emerging issues Task Force (EITF) Abstracts
-AICPA statements of position
-derivatives implementation group
-CAP
-APB
What two organizations give the FASB the authority to establish "authoritative" accounting
guidance? explain - Answers 1) SEC, acting in its authority under the Securities Exchange Act
and Sarbanes Oxley, has identified the FASB as the designated private sector standard setter
with authority to establish GAAP
2) AICPA: in its Code of Professional Conduct, it recognizes the FASB as the organization with
the authority to establish GAAP for nongovernmental entities
Explain the role of industry specific guidance in the Codification. Does it apply instead of other
general Codification guidance? - Answers As industries often have unique activities and
transactions, industry specific content must be followed in addition to the other general
requirements of the codification
-it may indicate that it should be applied in place of a specified topic or paragraphs from the
codification's general requirements
Explain what it means for the Codification's guidance to be authoritative - Answers it means that
the codification establishes GAAP.
-in order to receive an unmodified audit opinion, US non governmental entities must prepare
their financial statements in accordance with codification guidance
Explain why the Codification was developed - Answers it is the primary source of authoritative,
GAAP for nongovernmental entities
-objective of simplifying research
-reduces risk practitioners could miss important sources when searching for guidance by
organizing accounting guidance by topic, within a single research source
Aside from FASB, name 3 other standard-setting bodies whose guidance is included in the
Codification - Answers -Emerging issues Task Force (EITF) Abstracts
-AICPA statements of position
-derivatives implementation group
-CAP
-APB
What two organizations give the FASB the authority to establish "authoritative" accounting
guidance? explain - Answers 1) SEC, acting in its authority under the Securities Exchange Act
and Sarbanes Oxley, has identified the FASB as the designated private sector standard setter
with authority to establish GAAP
2) AICPA: in its Code of Professional Conduct, it recognizes the FASB as the organization with
the authority to establish GAAP for nongovernmental entities
Explain the role of industry specific guidance in the Codification. Does it apply instead of other
general Codification guidance? - Answers As industries often have unique activities and
transactions, industry specific content must be followed in addition to the other general
requirements of the codification
-it may indicate that it should be applied in place of a specified topic or paragraphs from the
codification's general requirements
