Question: What types of economic consequences may arise

> While ERISA has been helpful, how well are employees protected in situations where overfunded pension plans exist?

> Current discussions by the Boards leave room open for two Accounting for Leases Standards; one for lessee and another one for lessor. Should two Accounting for Leases Standards be issued? Support your response?

> Why is the G4+1 like the Big Ten (a.k.a. Western Athletic Conference)?

> Compare the present system involving consolidation, equity method, and fair value accounting for intercorporate equity investments with finite uniformity as it exists in lease accounting.

> Should valuable lease options of lessees be capitalized?

> What issues of qualitative characteristics of accounting information (SFAC No. 2) are important relative to accrual accounting for OPEBs?

> What is the danger, particularly to older employees of restructuring pension plans into “cash benefit plans?”

> Why does the elimination of poolings improve representational faithfulness and comparability.

> Why does the elimination of poolings (SFAS No. 141) and the indefinite life of goodwill subject to impairment (SFAS No. 142) represent a possible “quid pro quo?”

> Why is the IASB standard (IAS 7) substantially shorter than the FASB’s standard (SFAS No. 13)?

> What is an equity carve-out?

> How are minority interests handled in consolidations?

> Is SFAS No. 87’s argument favoring recognition of a pension liability for accumulated benefits consistent with the conceptual framework project?

> Describe the implicit assumption made in SFAS No. 94 about the reporting entity.

> Does it matter if capital leases are reported in a footnote or in the body of the balance sheet? What research evidence exists to help evaluate this question?

> Why was there reason to expect some negative economic consequences arising from lease capitalization? What is the role of neutrality in such a situation? What is the response based on research findings to date?

> Why did APB Opinion No. 8 only minimally improve uniformity between companies?

> What economic consequences of SFAS No. 87 were suggested in the chapter?

> Given the evidence from the research in the stock market, does it matter whether pension information is disclosed in the formal financial statements or as supplemental disclosure?

> Why is the aspect of conveyance of leases emphasized in capital leases and the contractual element emphasized in operating leases?

> The equity method reports neither the investor’s cost nor the market value of the investment. Do you believe the equity method provides useful information? Why or why not?

> Compare proportionate consolidation with capitalizing of all leases extending beyond a year, another example of rigid uniformity.

> Why would proportionate consolidation result in rigid uniformity for intercorporate equity investment accounting?

> Why is there a pension accounting problem with defined benefit pension plans, but not with defined contribution plans?

> The logic of pooling rests heavily on the assumption that no substantive economic transaction occurs between the combinor and stockholders of the combinee. Evaluate this assumption.

> Review the evolution of capitalization criteria in lease accounting standards. Why did APB Opinion No. 5 have little impact? What impact has SFAS No. 13 had? Has there been an underlying theme in the development of lease accounting?

> Are there relevant circumstance differences between purchase and pooling of interests? Explain

> ”All leases beyond a year be capitalized!” Evaluate this position.

> How might standards setters address the concerns that Gordon and Gallery (2012) highlight related to pension accounting comparability?

> To qualify as a liability, a past transaction must exist. Is this the case with pensions and OPEBs? How does the use of financial statements for predicting future cash flows as opposed to evaluating management performance enter the picture?

> Novy-Marx and Rauh (2011) estimate state employee pension liabilities in the United States. What thoughts do you have on their findings?

> Zechman (2010) studies firms using synthetic leases. How might her findings influence the setting of lease accounting standards?

> Biggs (2010) presents a bleak picture for future generations attempting to meet the obligations related to public pension plans (e.g., State of New York; Jefferson County, Alabama)). How does his logic hold up when reviewing U.S. public corporations?

> If you had to choose among the current method of consolidation for combinees where the combinor owns at least 50 percent, the new entity approach, or proportionate consolidation, which would you choose? Explain.

> 1. Human Genome Sciences, Inc., a biopharmaceutical company, discovers, develops, and markets new gene and protein-based drugs. Its 1998 annual report showed property, plant, and equipment net of accumulated depreciation of $20,965,000 with total net ass

> 1. Refer to Appendix 15-A. Assume that the firm is using projected accrued benefit cost funding. Suppose that a plan amendment was introduced during 2002 granting one year of prior service (for the year 2000) to each employee. Required: Determine the con

> Is the executory nature of lease contracts important in assessing lease accounting? How have leases been interpreted? Why might noncancellability override the executory nature?

> 1. Examine the 2001 and 2002 annual reports for a corporation having a financial subsidiary. (Your instructor may suggest a corporation on the EDGAR Website. http://www.sec.gov/edgarhp.htm). Determine the effect of SFAS No. 94 on operating ratios, profit

> Is there a measurement reliability (verifiability) problem with lease capitalization?

> How is representational faithfulness achieved in the capitalization requirements of SFAS No. 13?

> Does symmetry exist between lessors and lessees under SFAS No. 13? Should symmetry be a goal of lease accounting?

> What are the similarities and differences between leases and other means of property acquisition? How can these similarities and differences be reported in the financial statements?

> How has ERISA affected pension accounting?

> Why is there a “double counting” problem if the accumulated benefit obligation is used to measure the pension liability and what can be done about it?

> Explain how previous pension accounting standards were based on a revenue-expense approach to the financial statements.

> Is it inconsistent to use future salaries for service cost calculations and current salaries for minimum liability calculation purposes?

> What differences exist, relative to the use of future costs and future salaries, in the case of OPEBs (SFAS No. 106) and pensions (SFAS No. 87)?

> Why may companies not be indifferent to purchase and pooling accounting, and what do we know about this issue from research studies?

> How did the “give-and-take” differ between the FASB and its constituents in the drafting of SFAS No. 87 on pensions versus SFAS No. 106?

> What considerations may have motivated the FASB to grant a four-year transitional period in capitalizing pre-1977 leases meeting the capitalization tests of SFAS No. 13? What other political behavior is evident in the evolution of lease accounting?

> Research has shown that discount rates used by firms are generally above rates suggested by the FASB. Will this make the interest cost portion of pension expense higher or lower than if discount rates were lower? Why do you think firms favor using a high

> Evaluate the manner in which initial direct lease costs are accounted for under SFAS No. 13.

> What is the disappearing asset problem?

> Why does SFAS No. 52 provide an example of finite uniformity in terms of the use of remeasurement?

> Why would balance sheets prepared under SFAS No. 8 lack additivity?

> How do accounting exposure and economic exposure differ?

> What are the differences between a foreign currency orientation and a U.S. dollar orientation regarding the translation of foreign currency operations?

> What do the following actuarial terms mean: accumulated benefits, actuarial liability, vested benefits, service cost, and unfunded accumulated benefits? How are they measured? How are projected benefit obligations, accumulated benefit obligations, and ve

> What are the main issues surrounding the special purpose entity and its successor, the variable interest entity.

> Current discussions by the Boards point to a possibility that a converged standard on leases will not be achieved. How will lack of converged standard on leases affect the Boards’ Joint Project?

> According to The Wall Street Journal article on February 1, 1996 (“Intrinsic Value” by Roger Lowenstein, p. C1), pension fund assets in the United States grew dramatically—by approximately 29 percent—during 1995, an excellent year in the stock market. Ho

> Distinguish among sell-offs, spin-offs, split-offs, and split-ups.

> If actuarial gains and losses and prior service costs, in line with SFAS No. 158, are to be recognized in the period when incurred, is there a double counting effect when these elements are recognized as part of net pension expense?

> Voluntary pension plan terminations have been increasing [see Stone (1987)] in which surplus plan assets are recaptured by sponsoring companies after deferred annuities (of equivalent value to accrued benefits) are purchased for plan participants. Why do

> What is push-down accounting? What problems would arise in connection with the implementation?

> Does the reporting of capital leases appear to have value to users of financial statements? Why are there costs of reporting capital leases?

> Why does the FASB’s reporting entity project logically precede any conclusion regarding consolidated financial reporting?

> Discuss the limitations of consolidated financial statements and why dual reporting (consolidated and separate entity statements) as well as other forms of disaggregated reporting, such as SFAS No. 131, make sense.

> What is the argument for finite uniformity in accounting for leases? Why is finite uniformity difficult to achieve? Explain what the relevant circumstances are in accounting for different types of leases.

> What is the difference between owners’ equity accounts representing shareholders’ claims as equity holders versus shareholders’ interests as owners?

> Is there a similarity between the codificational approach (Gaa) to standard setting and the jurisprudential approach?

> How does feedback value relate to predictive ability and accountability?

> Of what importance in a conceptual framework or metatheory are definitions of such basic terms as assets, liabilities, revenues, and expenses?

> Does the entity theory or the proprietary theory provide a better description of the relationship existing between the large modern corporation and its owners?

> How does agency theory (Chapters 2 and 4) differ from the equity theories discussed in this chapter?

> Who pays for accounting regulation and who benefits?

> Why do you think the equity theories are less important today than they were, say, 50 years ago?

> In 1936 the United States was still suffering from the Great Depression. During the presidential election campaign, an extensive survey of voter attitudes was undertaken to find out whether the public preferred the incumbent, Franklin Delano Roosevelt, o

> Why is the residual equity theory more in line with recent research in finance than entity and proprietary theory?

> “Assuming all other things equal, it is possible that the lower-of-cost-or-market method can result in any given year in higher income than would be the case under the same inventory costing method without the use of lower-of-cost-or-market. If so, then

> “Since the FASB is independent from the AICPA, the latter is no longer concerned with standard setting and related issues.” Evaluate this statement.

> What is Pareto optimality? Why would adherence to it minimize accounting standard setting?

> What benefit is the conceptual framework project to the FASB if (a) there is no way of determining optimal accounting regulation and (b) regulatory decision making is a political process?

> Of the nine so-called principles shown in Exhibit 5-1, which do you think are the most important in terms of establishing a historical costing system?

> Why has the entity theory fragmented into two separate conceptions?

> Do you think the “broad principles” of ARS 3 are really principles as that term is used in science?

> Arrow (1963) warns that public participation and a consensual approach to social issues can lead to democratic paralysis; that is, to a failure to act due to an inability to agree on goals or objectives. How did such a situation lead to the demise of the

> Can accounting standards and policy making be neutral? In what sense is neutrality really important?

> A distinction was made in the chapter between two types of regulation: (a) the refinement and standardization of financial statements and (b) expanded disclosure. Why is the distinction important in evaluating the regulation question?

> Why can’t optimal regulation be determined? If optimal accounting regulation cannot be determined, how can a regulatory body such as the SEC or FASB make good decisions?

> Why does accounting information have some features of a public good? What are the implications for information production in both unregulated and regulated markets?

> A frequent argument is that inductive reasoning is value-free because it simply investigates empirical evidence. Yet some charge that it is not value-free. What do you think is the basis for this charge?

> In accounting, deductive approaches are generally normative. Why do you think this is the case?

> Why do you think that ethnographic research (footnote 65) would be difficult to apply to organizations such as the SEC and FASB?

> If accounting were not regulated, we would not be facing the difficult problems that have arisen as a result of Enron and other corporate auditing failures. Do you agree with this statement? Explain.

> What are the arguments against regulation of financial reporting?

> How do agency theory and the codificational viewpoint differ in assumptions about the behavior of individuals?

> In terms of financial reporting in the future, do you expect greater refinement of measurements appearing in the body of the financial statements or increasing disclosure with less effort directed toward refinement of measurements?

> It was suggested many years ago that a court should be created to resolve disputes in accounting. In what ways does the FASB function as an accounting court? In what ways is it different?

> Horngren (1973) believes that accounting standards must be marketed by regulatory bodies. By this he means that affected parties need to be sold on the benefits of standards. How is this concept consistent with the nature of regulation?