Question: Traditional measures of net assets do not

> How do market-level and individual decision-maker analyses complement one another in studying the usefulness of accounting information to investors and creditors?

> Why is it argued that capital market research cannot determine the optimality of accounting policies even for the limited investor-creditor group?

> What is the difference between “accounting theory” and “accounting research?

> What is the difference between joint and severable liability and proportionate liability?

> The social goals underlying accounting regulation are information symmetry and comparability. Why are these goals complementary?

> Why does codification presume a democratic setting?

> What is the relationship among scientific method, accounting research, and accounting policy making?

> Why, in practical terms, is it impossible to separate deductive and inductive approaches to theoretical reasoning?

> In SFAS No. 154, changes in accounting principle result in a restatement, whereas under APB Opinion No. 20, a change in accounting principle is handled in a pro forma manner. How does a restatement differ from a pro forma presentation?

> What advantages do you see for classifying interest expense as an investing cash flow rather than an operating cash flow? What is the advantage of classifying it as an operating cash flow? What is the advantage of classifying it as a financing cash flow?

> Why are convertible bonds and convertible preferred stock not examples of embedded derivatives?

> Should incentive and nonqualified stock options be treated the same on the financials?

> Evaluate the attempt by the FASB to separate stock options from stock appreciation rights that are payable in cash?

> Distinguish between the discrete and integral views of quarterly information disclosure.

> Why are interest rate swaps a zero sum game?

> Which factor discussed under future events is the most important and why?

> Why are future events so important to the issue of revenue and expense measurement?

> Why is the handling of troubled debt restructuring under SFAS No. 114 illogical?

> Is earnings per share an example of finite or rigid uniformity?

> Why does the concept of market efficiency (with respect to information) have no necessary relation to the quality of accounting information? Why is this distinction important with respect to accounting policy making?

> Numerous attributes are measured in the balance sheet. What are the different attributes? Why is this practice criticized?

> What does it mean to classify a cash flow according to the basic nature or function of the event as opposed to the ultimate purpose of the transaction? Which method do you prefer?

> What do research findings indicate concerning the relevance of cash and funds flow data?

> Why is the SCF called a derivative statement?

> What is the purpose of reporting noncash items in the SCF?

> How does the source/use classification reflect the structure of double-entry accounting?

> Why is the three-way classification system in the SCF more informative than the two way source/use classification?

> What attribute is being measured in the SCF and how well is representational faithfulness achieved? Compare this to when funds are defined as working capital.

> What is the “quality of income” concept, and how does cash flow reporting relate to it?

> Explain how cash flow data complement the income statement and balance sheet.

> What types of costs present matching problems, how are they dealt with, and what are some examples of such costs?

> What is the “fineness” issue raised by Nurnberg and Largay relative to accounting for hedging transactions in SFAS No. 104?

> Does the “fineness” issue arise relative to the handling of capitalized interest costs (SFAS No. 34) relative to the treatment of this item in SFAS No. 95? Explain.

> Why is it that postulates stemming from the economic and political climates as well as the customs and viewpoints of the business community would not serve as a good foundation for deducing a set of accounting principles?

> SFAS No. 95 allows a choice between the direct and the indirect method for calculating the operations section of the SCF. Do you think this is a case of flexibility? Explain.

> How did the all-inclusive or all-resources approach to the SCFP with funds defined as working capital differ from the older funds flow statement?

> What are the different conceptions of the true and fair view?

> What is the matching concept and why is there an implied hierarchy for expense recognition?

> From the standpoint of management, are there any differences between attempting to control bad debt expense percentages and research and development expenses?

> How does the asset impairment measurement approach of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, compare to deprival value?

> Why is there an implicit recognition of fair value in the 1984 Revised Model Business Corporation Act?

> Is the revenue-expense orientation consistent with fair value measurement?

> Four points in the revenue cycle, from production through to cash collection, are possible events for revenue recognition. What relevant circumstances would justify finite uniformity rather than rigid uniformity for revenue recognition, and which approac

> SFAS No. 133 (213 pages), 149 (78 pages), and 155 (27 pages) define standards for derivatives in 318 pages. How would a principles-based approach to setting standards affect their length…or would it have any effect?

> What is the relationship between earnings management and income smoothing?

> What are deferred charges and deferred credits, how do they come about, and do they conform to asset and liability definitions?

> What is the meaning of “owners’ equity” in the balance sheet? Why are certain unrealized gai or losses included in owners’ equity?

> Why has no Continental model country developed a conceptual framework?

> Why are asset and liability definitions important to the theoretical structure of accounting? Why are definitions important to policy setting bodies?

> Lee (2001) rejects the “naive view” of market efficiency. Explain. If Lee is correct, what are the implications for capital markets research in accounting?

> What is a securitization and why do firm’s use this technique?

> How do Lev’s views on disclosure differ from the views of Brownlee and Young?

> What are the characteristics of assets, liabilities, and owners’ equity, and how have they evolved over time?

> Why is it difficult to define the basic accounting elements?

> Based on your reading of this chapter, plus your general knowledge of accounting standards, identify five examples of measurement flexibility in the statement of financial position.

> Is the “available for sale” category for debt and equity securities used in SFAS No. 115 a homogeneous category?

> As Schipper seets it, why do the rules based and principles based approaches to standard setting tend to converge?

> Evaluate the IASB’s approach to convergence.

> How does the role of government differ in the United Kingdom and the United States relative to financial reporting?

> What are the main distinctions between the Anglo-Saxon and the continental models?

> What is the relationship between the IFAC and IASB?

> Compare the true and fair view of the United Kingdom, the “present fairly” outlook of the United States, and the legalistic view of the Continental model.

> The EU opted to use exclusively IASB standards for consolidated financial statements beginning in 2005. What drove this decision?

> What do we mean when we say that capital market research involves a joint test of both market efficiency and the model used to estimate abnormal returns?

> For event studies, the post event window is typically short (days or months). What are some issues associated with examining longer event windows (e.g., years)?

> Explain Lee’s (2001) view of market efficiency.

> What evidence supports the statement that SFAS No. 131 is an improvement over SFAS No. 14?

> Evaluate Ronen’s financial statement insurance proposal.

> What is convergence and how does it differ from harmonization?

> Firm A and B are exactly the same size as are Firm C and Firm D. Firm A acquires for cash 100 percent of the common stock of Firm C. Firm B acquires 100 percent of Firm D by exchanging one share of its own stock for each share of common stock of Firm D.

> What is meant by the term “degrees of representational faithfulness?”

> What are the advantages of convergence-harmonization of accounting standards?

> How do de facto harmonization and de jure harmonization differ from each other?

> How will the role of national standard-setting bodies be affected by adoption of IASB standards?

> For years the FASB had little interest in pursuing international harmonization projects. What prompted its seemingly new interest in 2002 to work with the IASB in such a cooperative manner?

> What are the possible implications if accountants outsource the balance sheet to external appraisers (applying fair value accounting) for period-end financial statement reporting?

> Is Cadenhead’s conception of circumstantial variables as the only permissible departure from prescribed accounting methods closer to finite or rigid uniformity?

> ASR 242 of the SEC states that relative to payments made to foreign governmental and political officials, “. . . registrants have a continuing obligation to disclose all material information and all information necessary to prevent other disclosures made

> Under previous disclosure requirements of the SEC, dividends paid during the past two years to shareholders must be stated in the annual report. This requirement has been broadened: There must be disclosure of any restrictions on the firm’s present or fu

> Is neutrality consistent with the external user primary orientation of SFAC No. 1 and the pervasive constraint (benefits > costs) of SFAC No. 8?

> What is residual income? Abnormal earnings? Economic profit? EVA?

> Finite and rigid uniformity would result in different information being received by users of financial statements. What difference would this make in terms of resource allocation when viewed from a macroeconomic standpoint?

> Using different studies at different times it still appears to be the case that financial executives have a higher threshold for materiality than either Certified Public Accountants or financial analysts who, in turn, have a higher materiality threshold

> How do present magnitudes differ from future contingencies?

> Do you think management policies should be acceptable as potential relevant circumstances? Why or why not?

> What is meant by “information content” and how does capital market research determine the information content of accounting numbers?

> What are the possible benefits of a disclosure process that is integrated with major policies in marketing, production, and finance? Do you think only “good news” items should be disclosed?

> An argument against additional disclosure is that financial analysts aggressively seek this information, which is then sold to their customers, resulting in an adequate market solution to the problem of providing timely and relevant information on securi

> SFAS No. 13 in effect regards a lease period of 75 percent or more as a relevant circumstance in distinguishing between capital and operating leases. What economic factors (cash flow differentials) lie behind this policy choice?

> SFAC No. 6 defines circumstances as follows: Circumstances are a condition or set of conditions that develop from an event or series of events, which may occur almost imperceptibly and may converge in random or unexpected ways to create situations that m

> Should firm’s capitalize research and development expenditures? Why or why not?

> Is the choice of LIFO a relevant circumstance compared to FIFO?

> If uniformity means eliminating alternative accounting treatments, then surely comparability of financial statements of different enterprises would be improved. Do you agree with this statement? Comment.

> Comment on the following statement. “The residual income model is no different from the dividend discount model. Therefore, it has no value to investors and analysts.”

> What are some advantages and disadvantages of using residual income (including economic profit and EVA) for performance measurement?

> Why do we sometimes say that the dividend discount model is actually an earnings model? How does Lintner’s findings relate dividends and earnings?

> Besides the primary investor-creditor group, what other user groups could claim to be stakeholders in the firm? How might their information needs be the same as the primary investor-creditor group? How might their information needs differ?

> What are abnormal returns (AR) and cumulative abnormal returns (CARs)? What do they have to do with research in accounting? What do they have to do with accounting standards?

> What are some limitations of capital market research?

> In what ways do you think information useful for investors (in assessing future cash flows) differs from that useful for creditors (in assessing default risk)?