Intermediate Accounting Volume 1, 13th Canadian Edition by Donald E. Kieso Test bank

 
Difficulty: Easy
Learning Objective: Explain the meaning of generally accepted accounting principles (GAAP) and the significance of professional judgement in applying GAAP.
Section Reference: Generally Accepted Accounting Principles
CPA: Communication
CPA: Financial Reporting
Bloomcode: Knowledge
AACSB: Communication
 
 
Ex. 1-70 Professional judgement
Explain the principle of professional judgement. When or why might it be necessary to employ professional judgement, even in a rules-based system?
 
Solution 1-70
Professional judgement is the process by which professional accountants with significant education and experience apply general principles appropriately as they see fit. This is important in Canada because IFRS and ASPE are based primarily on general principles rather than on specific rules. It may also be useful in a rules-based system, as novel circumstances and transactions are bound to arise for which a rule does not yet exist. In these scenarios, an accountant must make use of professional judgement to decide which treatment/record-keeping approach to a transaction will provide the most relevant, reliable, and timely information to financial statement stakeholders.
 
Difficulty: Easy
Learning Objective: Explain the meaning of generally accepted accounting principles (GAAP) and the significance of professional judgement in applying GAAP.
Section Reference: Generally Accepted Accounting Principles
CPA: Communication
CPA: Financial Reporting
Bloomcode: Comprehension
AACSB: Communication
 
 
Ex. 1-71 SOX and standard setting
After several highly publicized accounting scandals in the U.S. such as Enron, Sunbeam, and WorldCom, all of whom, coincidentally, were clients of the former public accounting firm of Arthur Andersen, the U.S. regulators enacted the Sarbanes-Oxley Act (SOX). Pressure was put on Canada to follow a similar course. Explain what Canada has done to make public companies more accountable.
 

Solution 1-71

First, the Canadian Public Accountability Board (CPAB) was created to supervise accounting issues similar to those addressed by SOX. 2These included establishing auditing, quality control, and independence standards and rules.
The Canadian Securities Administrators (CSA) has issued guidelines/rules that require (among other things) the following:
1.     company management to take responsibility for the appropriateness and fairness of the financial statements
2.     public enterprises to have independent audit committees
3.     public accounting firms to be subject to CPAB
4.     greater disclosures including ratings from rating agencies, legal proceedings, payments to stock promoters, and details about corporate directors.
 
Difficulty: Easy
Learning Objective: Discuss some of the challenges and opportunities for accounting.
Section Reference: Challenges and Opportunities for the Accounting Profession
CPA: Communication
CPA: Financial Reporting
Bloomcode: Knowledge
AACSB: Communication
 
 
Ex. 1-72 Role of executives and management in a post-SOX world
SOX introduced sweeping changes to the institutional structure of the accounting profession. What key provision was introduced relating to the role of management and executive officers, and their relationship to financial reporting? Why?
 
Solution 1-72
Chief executive officers (CEOs) and chief financial officers (CFOs) are required to certify that the financial statements and company disclosures are appropriate and fairly presented. In many cases, they must forfeit bonuses and profits if there is a restatement of their company’s’ accounting disclosures. Management must report on the effectiveness of financial reporting internal control systems. Requiring management and executives to make these attestations holds them accountable, and creates a greater sense of ownership over the financial statements. When this is done, management and executives are unable to claim ignorance if intentional misrepresentations or frauds present in the financial reports are uncovered, as many were in the pre-SOX era.
 
Difficulty: Easy
Learning Objective: Discuss some of the challenges and opportunities for accounting.
Section Reference: Challenges and Opportunities for the Accounting Profession
CPA: Audit & Assurance
CPA: Communication
CPA: Financial Reporting
CPA: Professional & Ethical Behaviour
CPA: Strategy & Governance
Bloomcode: Knowledge
AACSB: Communication
 
 
Ex. 1-73 Technology and financial information
Explain how technology impacts the accountants’ role as providers of information.