CHAPTER 1
Financial Accounting and Accounting Standards
ASSIGNMENT CLASSIFICATION TABLE (By Topic)
Topics
Questions
Cases
1. Subject matter of accounting. 1 4
2. Environment of accounting. 2, 3, 28 6, 7
3. Role of principles, objectives, standards, and accounting theory. 4, 5, 6, 7 1, 2, 3, 5
4. Historical development of GAAP. 8, 9, 10, 11 8
5. Authoritative pronouncements and rule-making bodies. 12, 13, 14, 15,
16, 17, 18, 19,
20, 21 3, 9, 11, 12, 14
6. Role of pressure groups. 22, 23, 24, 25,
26, 27 10, 16, 17
7. Ethical issues. 29 13, 15
ASSIGNMENT CLASSIFICATION TABLE (By Learning Objective)
Learning Objectives Questions Cases
1. Identify the major financial statements and other means of financial reporting. 1, 2
CA1-4, CA1-5
2. Explain how accounting assists in the efficient use of scarce resources. 3, 5
3. Identify the objective of financial reporting. 4, 7 CA1-2, CA1-3, CA1-4, CA1-5, CA1-6
4. Explain the need for accounting standards. 6 CA1-3, CA1-7, CA1-9
5. Identify the major policy-setting bodies and their role in the standard-setting process. 8,
9, 10, 11,13, 14, 15, 16, 19 CA1-1, CA1-2, CA1-3, CA1-7, CA1-8, CA1-9, CA1-11,
CA1-14
6. Explain the meaning of generally accepted accounting principles (GAAP) and the role
of the codification for GAAP. 12, 14, 18, 19, 20, 21 CA1-2, CA1-3, CA1-7, CA1-8,
CA1-12
7. Describe the impact of user groups on the rule-making process. 17, 22, 23, 24, 25, 26,
27 CA1-10, CA1-11, CA1-13, CA1-16, CA1-17
8. Describe some of the challenges facing financial reporting. 28
9. Understand issues related to ethics and financial accounting. 16, 17, 29 CA1-6, CA1-13,
CA1-15
ASSIGNMENT CHARACTERISTICS TABLE
Item
Description Level of Difficulty Time
(minutes)
CA1-1 FASB and standard-setting. Simple
15–20
CA1-2 GAAP and standard-setting. Simple 15–20
CA1-3 Financial reporting and accounting standards. Simple 15–20
CA1-4 Financial accounting. Simple 15–20
CA1-5 Objective of financial reporting. Moderate 20–25
CA1-6 Accounting numbers and the environment. Simple 10–15
CA1-7 Need for GAAP. Simple 15–20
CA1-8 AICPA’s role in rule-making. Simple 20–25
CA1-9 FASB role in rule-making. Simple 20–25
CA1-10 Politicalization of GAAP. Complex 30–40
CA1-11 Models for setting GAAP. Simple 15–20
CA1-12 GAAP terminology. Moderate 30–40
CA1-13 Rule-making Issues. Complex 20–25
CA1-14 Securities and Exchange Commission. Moderate 30–40
CA1-15 Financial reporting pressures. Moderate 25–35
CA1-16 Economic consequences. Moderate 25–35
CA1-17 GAAP and economic consequences. Moderate 25–35
SOLUTIONS TO CODIFICATION EXERCISES
CE1-1
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CE1-2
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CE1-3
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ANSWERS TO QUESTIONS
1. Financial accounting measures, classifies, and summarizes in report form those
activities and that information which relate to the enterprise as a whole for use by parties
both internal and external to a business enterprise. Managerial accounting also measures,
classifies, and summarizes in report form enterprise activities, but the communication is
for the use of internal, managerial parties, and relates more to subsystems of the entity.
Managerial accounting is management decision oriented and directed more toward product
line, division, and profit center reporting.
2. Financial statements generally refer to the four basic financial statements: balance sheet,
income statement, statement of cash flows, and statement of changes in owners’ or
stockholders’ equity. Financial reporting is a broader concept; it includes the basic
financial statements and any other means of communicating financial and economic data
to interested external parties. Examples of financial reporting other than financial
statements are annual reports, prospectuses, reports filed with the government, news
releases, management forecasts or plans, and descriptions of an enterprise’s social or
environmental impact.
3. If a company’s financial performance is measured accurately, fairly, and on a timely
basis, the right managers and companies are able to attract investment capital. To provide
unreliable and irrelevant information leads to poor capital allocation which adversely
affects the securities market.
4. The objective of general purpose financial reporting is to provide financial information
about the reporting entity that is useful to present and potential equity investors, lenders,
and other creditors in decisions about providing resources to the entity through equity