1-1 discussion FAR 1

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School

Southern New Hampshire University *

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610-630

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Accounting

Date

Jan 9, 2024

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docx

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Uploaded by PresidentArmadillo3569

1-1 discussion FAR 1 C 2-14 Inconsistent Statements on Accounting Principles LO 2.2 LO 2.5 AICPA Adapted The following two statements have been taken directly or with some modification from the accounting literature. Each of them is either taken out of context, involves circular reasoning, and/or contains one or more fallacies, half-truths, erroneous comments, conclusions, or inconsistencies (internally or with generally accepted principles or practices). Statement 1 Accounting is a service activity. Its function is to provide quantitative financial information that is intended to be useful in making economic decisions about and for companies. Thus, the accounting function might be viewed primarily as being a tool or device for providing quantitative financial information to management to facilitate decision making. Statement 2 Financial statements that were developed in accordance with generally accepted accounting principles should be conservative. Required:  Evaluate each of the preceding numbered statements as follows: 1. List the fallacies, half-truths, circular reasoning, erroneous comments, or conclusions, and/or inconsistencies. 2. Explain by what authority and/or on what basis each item listed can be considered to be fallacious, circular, inconsistent, a half-truth, or an erroneous comment or conclusion. If the statement or a portion of it is merely out of context, indicate the context(s) in which the statement would be correct. 3. What are some challenges you can identify in moving from U.S. generally accepted accounting principles (GAAP) to International Financial Reporting Standards (IFRS)? Generally Accepted Accounting Principles (U.S. GAAP) in the United States and International Financial Reporting Standards (IFRS) in many other countries are the principles, concepts, guidelines, methods, and practices that

regulated companies are required to use in reporting accounting information in financial statements. Professional standards for accounting, however, are also not sufficient to fully meet investors' and creditors' demands for relevant and representationally faithful accounting information. Accounting standards require managers to make many choices, judgments, and estimates so that they can report their confidential information about the company. Managers can make these choices, judgments, and estimates to faithfully represent their company's performance and financial position. Or, managers can make biased estimates and judgments, to unfairly represent company performance in a very favorable light. The supply of accounting information that companies report is determined primarily by the interactions between two forces:  authoritative professional accounting standards, such as U.S. GAAP or IFRS, that govern in the company's country of incorporation  choices, methods, estimates, and judgments that the company must make to apply those accounting standards to measure and report their financial statements Professionally established accounting principles and standards, such as U.S. GAAP and IFRS, establish the rules, guidelines, procedures, and practices that listed companies are required to use in recording and reporting the accounting information in audited financial statements .  Conservatism is an approach that accountants use to avoid overstating net assets and net income when these amounts are uncertain and alternative accounting valuations for assets or liabilities are equally possible, the accountant should select the one that is least likely to overstate the company’s assets and income in the current period. That said, Conservatism is not desirable, nor is it a principal of accounting; instead, it is a practical approach that accountants take to avoid misleading investors, lenders, and

other creditors when valuations are uncertain (Wahlen, Jones, & Pagach, 2017).  Generally Accepted Accounting Principles or GAAP, is methods and or practices that U.S. companies are required to use when preparing and reporting financial statements and other financial models. Per the above statement, GAAP does not require conservatism nor is it considered best practice. Furthermore, conservatism can conflict with qualitative characteristics such as neutrality (Wahlen, Jones, & Pagach, 2017). In text citation (Wahlen, Jones, & Pagach, 2017). (Reference) Wahlen, J. M., Jones, J. P., & Pagach, D. P. (2017). Intermediate Accounting: Reporting and Analysis (2nd ed.). Cengage Learning. Definition of Accounting “Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least of financial character, and interpreting the results thereof.” Accounting is considered an art because it requires the use of skills and creative judgment. Recording pertains to writing down or keeping records of business transactions. Classifying involves grouping similar items that have been recorded. Once they are classified, information is summarized into reports which we call financial statements. Hiring an additional employee is qualitative information with no financial character. Hence, it is not recorded. However, the payment of salaries, acquisition of an office building, sale of goods, etc. are recorded because they involve financial value. Information is useless if they cannot be interpreted and understood. The amounts, figures, and other data in the financial reports have meanings that are useful to the users. Accounting is the process of recording, analyzing, and interpreting financial information for a business. It involves:

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