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Solution Manual for Accounting And Auditing Research: Tools And Strategies , 9th Edition

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    Accounting & Auditing Research: Tools and Strategies 9th Edition SOLUTIONS MANUAL Thomas R. Weirich, PhD, CPA Thomas Pearson, LL.M., J.D., CPA Natalie Churyk, PhD, CPA CHAPTER 1 INTRODUCTION TO APPLIED PROFESSIONAL RESEARCH Discussion Questions 1. Research in general involves the investigation and analysis of an issue in question. The researcher usually applies reasonable and reflective thinking to develop an answer to the issue or problem at hand. Research requires a clear definition of the problem, using professional databases to search the authoritative literature, reviewing and evaluating the data collected, drawing conclusions and communicating your rsults. 2. Accounting, auditing, or tax research involve a systematic and logical investigation of an issue or problem using the accountant’s professional judgment. Furthermore, accountants approach this problem using critical - thinking skills to obtain and document evidence underlying a conclusion relating to an issue or problem currently confronting the accountant or auditor. 3. Accounting, auditing, or tax research are necessary in order to determine the proper recording, classification, and disclosure of economic events; to determine compliance with authoritative pronouncements; or to determine the preferability of alternative accounting procedures. 4. The objective of accounting, auditing, or tax research is a systematic investigation of an issue or problem utilizing the researcher’s professional judgment to arrive at appropriate and timely conclusions regarding the issues at hand. 5. Research plays an important role within an accounting firm or department. It is critical for the accountant/auditor to be able to find and locate applicable authoritative pronouncements and to ascertain their current status. Given the number and diversity of clients served, public accounting firms constantly engage in research on a wide array of accounting, auditing, or tax issues. This

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    Weirich, Accounting & Auditing Research, 9 th Edition research process is usually conducted by the local office staff, selected local or regional "research specialists," and/or the executive office research personnel. 6. The functions of a multi - office CPA firm's Policy Committee are to evaluate significant accounting and auditing issues and establish firm - wide policies on these issues. Its Executive Subcommittee handles daily ongoing policy (i.e., lower - level) decisions for the firm as a whole. 7. Some basic questions that the researcher must address in performing, accounting, auditing, or tax research include: Do I have the knowledge to do the research?; What is authoritative literature?; Does authoritative literature address the issue?; If authoritative literature does exist, where can I find it?; If there exist more than one alternative of authoritative support, which one do I use?; If authoritative literature does not exist, what do I do?; What professional databases do I use? 8. Theoretical (pure or basic) research involves investigating questions that, while interesting, have little or no present, practical applications; while applied research involves investigating issues of immediate, practical importance. 9. Some of the characteristics that a practitioner - researcher should possess include inquisitiveness, open - mindedness, patience, thoroughness, and perseverance. 10. The “Research Navigation Guide” serves as a tool in navigating through the authoritative literature. The guide helps to focus or narrow one’s research when utilizing various databases like the FASB’s Codification System. One would first focus on a functional area like “Financial Accounting”. Once the functional area is identified then focus on the broad categorization of the topic such as “Revenue”. This is followed by focusing on the subtopic that allows for further segregation of the issue “Software Revenue”. The final step would be to focus on the section or nature of the content of the issue which is often a recognition, measurement, or disclosure issue such as “Recognition of Software Revenue”. 11. While a priori (before the fact) research refers to research before the client actually enters into the (proposed) transaction, a posteriori (after the fact) research refers to research relating to past or completed economic transactions. For planning purposes, the practitioner would rather be involved with a priori research to work with the client to develop a correct solution rather than attempting to correct a completed transaction. 12. The California court decision stresses that "well - informed" accountants are expected to master "standard research techniques" (or face severe malpractice claims). 13. The research process "adds value" to an accounting firm’s services, since today's complex business transactions and proliferation of new authoritative pronouncements mandates that the firm efficiently and effectively conduct such research for their clients. 14. Some economic consequences to the standard - setting process of performing research include the impact of such pronouncements to investors and creditors resource allocation decisions in

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    Weirich, Accounting & Auditing Research, 9 th Edition today's (competitive) capital markets, and the cost/benefit analysis of the issuance of a new standard. 15. Since the accounting and auditing literature is organized with a keyword indexing system, listing keywords in step one of the research process will aid the researcher in locating the authoritative literature in an efficient and effective manner. Failure to describe the keywords in sufficient detail can cause one to overlook important sources. 16. The five steps involved in the research process include: identifying the (research) issue, collecting the (appropriate) evidence, evaluating the results and identifying alternative solutions, developing (appropriate) conclusions, and communicating the results to the interested parties. 17. Research can support or refute a biased alternative by gathering evidence that is either unbiased or slanted toward the alternative being researched. Since the researcher should be unbiased in evaluating the various alternatives, the process often requires a (detailed and logical) analysis of complex and detailed accounting issues -- thereby requiring "critical thinking" skills. 18. Problem distillation entails "refining" and "restating" the research issue from general to sufficiently specific terms, in order not to waste time investigating irrelevant items. 19. The skills tested on the CPA exam include: understanding, analysis, judgment, communication, research , and synthesis. 20. A research memorandum should contain such attributes as selecting objective and unbiased words; a grammatically correct and well - spelled, clear statement of the issue researched; a statement of the facts; a brief and precise discussion of the issue; and a straightforward conclusion based upon supported and identified authoritative literature. The researcher should avoid making such common errors as excessive discussion of the issues and facts, excessive citations to authoritative sources, avoidance of presenting a conclusion, and including irrelevant information. 21. Critical - thinking skills (e.g., understanding a variety of contents and circumstances and applying various accounting, auditing, and business principles to help solve the problem under review) helps the researcher effectively and efficiently gather relevant facts, synthesize and evaluate alternatives, and develop alternative solutions. 22. The SEC stressed the importance of accountants performing effective research, claiming that this CPA's deficiency constituted a lack of exercising "due professional care." 23. Although this question is raised in Chapter 1, it is not directly answered until a later chapter. However, in Chapter 1 it briefly discusses that when authoritative literature does not exist on a specific issue, the practitioner would normally develop a theoretical solution based on logic or analogous authortitaive literature. In a later chapter we will focus on this question in detail whereby one utilizes the “FASB’s Conceptual Framework” and other authoritative literature by analogy to solve the problem.

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    Weirich, Accounting & Auditing Research, 9 th Edition 24. The standard setter for accounting standards for federal government entities is the Federal Accounting Standards Advisory Board (FASAB). The PCAOB does not set accounting standards, but auditing standards. 25. Since you are conducting accounting research for a public company (Microsoft), the researcher would utilize the standards of the FASB located on the FASB Codification database which is tshe fous of Chapter 4. This database also includes the authoritative stnadards of the AICPA. GAO and PCAOB standars are suditing standards, not accounting standards. 26. Qualitiative analytics focuses on non - quantitiative data such as videos, pictures, or an enity’s e - mails. Wheras quantiative analysis focuses on the analysis of numberical data suchas trends of dollar sales and focusing on the outliers. 27. Data analytics is considered a process of inspecting, cleansing, transforming, and modeling data with the goal of discovering useful information, suggesting conclusions, and supporting decision - making. 28. Examples of structured data would be data found in excel spreadsheets. Examples of unstructured data would include pictures, videos, or Twitter feeds. Exercises 1. Current Quality Control stdandards of the PCAOB include: QC 20 - System of QC for a CPA Firm’s Accounting & Auditing Practice. QC 30 - Monitoring a CPA Firm’s Accounting & Auditing Practice QC 40 - ateh personnel Managaement Element of a Firm’s QC Conpetencies. 2. The IASB is the independent, accounting standard setting body that issues international financial reporting standards (IFRS) which are discussed in Chapter 5. 3. Recent IAASB standards include: ISA (Revised) - Consideration of Laws & Regulations in an Audit of Financial Statements. ISA 810 (Revised) - Engagementsto Report on Summary Financial Statements 4. Two publications of the AICPA include publications related to Accounting & Auditing and Business Valuation, as well as other publications listed at the AICPA’s website.

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    Weirich, Accounting & Auditing Research, 9 th Edition CHAPTER 2 CRITICAL THINKING and EFFECTIVE WRITING SKILLS FOR THE PROFESSIONAL ACCOUNTANT Discussion Questions : 1. Critical thinking has many definitions. One definition is as follows: Critical thinking involves a process of (more deeply) understanding, evaluating, and judging the underlying issues under investigation. 2. The highest level of thinking according to Bloom’s taxonomy entails the "evaluation” of a statement (based upon definite criteria) for a given purpose. 3. In Bloom’s taxonomy, compr ehension (or grasping the meaning of a statement) entails the ability of restating the item into the researcher’s own words without changing the statement's meaning -- thereby entailing a higher order skill than merely paraphrasing it. 4. While critical thinking involves a process of (more deeply) understanding, evaluating and judging the underlying issues under investigation, professional skepticism entails an attitude of examining and recognizing emotional - laden, and explicit and hidden assumptions “behind” each question. 5. The qualities that lie behind rethinking include: a willingness to say that you don’t know the answer, an openness to alternatives, an interest in the ideas of others, thoughtfulness, a desire to discover what others have done and thought, an insistence on getting the best evidence, and an openness to one’s own intuition. 6. The three levels of thought by the Illinois Renewal Institute include: Recall -- the lowest level, where one defines, describes, lists, recites or selects; Process -- the second level, where one compares, contrasts, classifies, sorts, and analyzes; and Application -- the highest level, where one evaluates, imagines, judges, and hypothesizes. 7. The AICPA’s list of effective writing characteristics include a coherent organization, conciseness, clarity, use of standard English, responsiveness to the requirements of the question, and appropriateness for the reader. The editing skills include conciseness, clarity, and the use of standard English. The composing skills include organization, responsiveness, and appropriateness. 8. Per SEC Rule # 33 - 7380, six principles of clear writing include using: a. Active voice; b. Short sentences; c. Everyday language; d. Tabular presentation of complex material; e. No legal jargon; and

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    Weirich, Accounting & Auditing Research, 9 th Edition f. No multiple negatives. 9. Plain English writing does not mean deleting complex information. Rather, it presents documents in an orderly and clear fashion so the reader can better understand it. 10. The elements of plain English include: Know your audience; know what material information needs to be disclosed; use clear writing techniques; and design and structure the document for ease of readability. 11. The active voice uses strong, direct verbs. The subject of the sentence performs the action described by the verb. An example: “ I will respond to the client’s memo.” The passive voice is where the action is done to somebody or something by another agent. The passive voice often uses the words “be" or "been.” An example: “No one has been authorized to respond to the client’s memo.” 12. Special concerns of using e - mails include the need to develop strong writing skills as one attempts to state his or her thoughts as concisely as possible; and strong technological skills in the security of the transmission of the communication. 13. The different types of client letters include: transmittal letters that merely transmit information; status update letters that reminds the client about a situation by providing an update to the issue; action request letter requests action; and an opinion letter summarizes the situation very briefly. 14. A memo to the file documents the reasoning for one’s conclusion that might be related to a research issue. A client letter normally does not document the details of the research process. 15. A tax memo is often unique in that it usually includes the reasoning for the law or authorities used, as well as the application of the law or authorities to the client’s set of facts. The memo would include the following areas: Facts, Issues, Conclusion, and Reasoning. Chapter 7 will provide greater details as to tax issues and memos. 16. In Bloom’s Revised Taxonomy, Understanding includes “explaining ideas or concepts”, interpreting, summarizing, paraphrasing, classifying, or explaining. Evaluating includes “Justifying decision or course of action” checking, hypothesizing, critiquing, experimenting, judging.

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    Weirich, Accounting & Auditing Research, 9 th Edition Exercises: 1. The solution to this logic problem is the following: House 1 House 2 House 3 House 4 House 5 Color Yellow Blue Red White Green Country America Russia England Spain Japan Sport Football Table Tennis Hockey Basketball Baseball Drink Water Tea Milk Orange Juice Coffee Pet Fox Horse Hamster Dog Monkey 2. Allison is the eldest. A= Allison, M= Mary, J= Jennifer, X=eldest If M = 1/2 X, J= A +M +1/2 X If A is eldest: A=X, J= X =1/2 X =3/2 X and Jennefer receives the highest points, and Mary as youngest receives the least points. If J is the eldest: J=X, J=A +1/2 X, A= 1/2 X, Allison and Mary receive the same number of points. However, the youngest receives the least points, so J cannot be the eldest. 3. The eight elements of reasoning as to the question of when assets need to be classified as current assets are as follows: a. Purpose — the purpose is to respond to the client’s request for information. b. Issue — the issue is to provide a specific response to the question, "When do assets need to be classified as current assets?" c. Information — the information for this issue would include the authoritative accounting literature. d. Concepts — the concepts would include the concepts (definition) of an asset, and the classification between current and long - term assets. e. Assumptions — the assumption to classify an asset as current is that it will be used up, or consumed within one year or the operating cycle, whichever is longer. f. Interpretations or inference — the interpretation requires one to determine from the evidence whether the asset will be used up or converted into cash. g. Implications or Consequences — If an asset is not properly classified, the analysis of the financial statements (i.e., current ratio) would be misleading. h. Solution — An asset should be classified as a current asset when it will be converted into cash, or consumed in operations within one year or the operating cycle, whichever is longer ( ASC 210 - 45 - 3).

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    Weirich, Accounting & Auditing Research, 9 th Edition 4. The eight elements of reasoning for the question of when a contingent liability should be booked are as follows: a. Purpose — the purpose is to respond to the client’s request for information. b. Issue — the issue is to provide a specific response to the question, "When should a contingent liability be recorded?" c. Information — the information for this issue would include the authoritative accounting literature. d. Concepts — the concepts would include the concepts (definition) of a contingent liability, and when to record a liability. e. Assumptions — the assumption to record a contingent liability would be that the dollar amount can be estimated and the liability is probable in occurrence. f. Interpretations or inference — the interpretation requires one to evaluate the probability of occurrence and whether the amount can be reasonably estimated. g. Implications — If a contingent liability meeting the requirements of FASB No. 5 is not recorded, then the financial statements are misstated. h. Solution — a contingent liability should be recorded if it meets the two criteria of ASC 450 - 20 - 25 - 1 — probable and the amount can be reasonably estimated. 5. Correct punctuation: a. A general ledger contains all the assets, liabilities, and owners’ equity accounts. b. The purpose of a trial balance is to prove that debits equal credits, but this does not prove that all transactions have been recorded. c. The current assets section of the balance sheet contains items such as cash, accounts receivable, and prepaid expenses; and the current liabilities section contains items such as accounts payable, notes payable, and short - term debt. d. The auditing exam was to begin at 2:00 p.m., but the professor’s car broke down, so we didn’t begin until 2:30 p.m. e. Did William ask, “ How can we finish the audit tonight because Linda said, ‘We have twenty hours of work left to do’”? 6. Examples of the sentences rewritten: a. Original sentence; For good reasons, the secretary may grant extensions of time in 30 - day increments for filing of the lease and all required bonds, provided that additional extensions requests are submitted and approved before the expiration of the original 30 days or the previously granted extension. + rewritten: We may extend the time you have to file the lease and required bonds. Each extension will be for a 30 - day period. To get an extension, you must write us giving the reasons that you need more time. We must receive your extension request in time to approve it before your current deadline or extension expires.

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    Weirich, Accounting & Auditing Research, 9 th Edition b. Original sentence: If the State agency finds that an individual has received a payment to which the individual was not entitled, whether or not the payment was due to the individual’s fault or misrepresentation, the individual shall be liable to repay to the State the total sum of the payment to which the individual was not entitled. rewritten: If the State agency finds that you received a payment that you weren’t entitled to, you must pay the entire sum back. c. Original sentence: Universities differ greatly in style, with some being located on out of town campuses in parkland, others having buildings scattered about parts of city centers and others being at various points between these two extremes. rewritten: Universities differ greatly in style. Some are located on out of town campuses in parkland. Others have buildings scattered about parts of city centers. Others are at various points between these two extremes. 7. Multiple Negatives sentence rewritten: Original sentence: No termination will be approved unless the administrator reviews the application and finds that it is not lacking any requisite materials. Rewritten: Termination will be approved if the administrator finds the application to contain all requisite materials. 8. Active Voice sentences rewritten: a. Original sentence: The fraud was reported by the employee. Rewritten sentence: The employee reported the fraud. b. Original sentence: The book was enjoyed by me because the seven fraud investigation techniques were described so well by the author. Rewritten sentence: I enjoyed the book because the author described the seven fraud investigation techniques so well.

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    Weirich, Accounting & Auditing Research, 9 th Edition 9. By keeping $20, the bellboy changed the auditors’ rate to $270 ($250 actual + $20 stolen). The $20 should have been subtracted from the $270 rather than added! The $300 is composed of the $250 cost, the $30 refund, and the $20 stolen. 10. This question involves critical thinking that will vary between students and therefore does not have a right answer. Keys issues has future value and owned by the entity. 11. Some potential answers to the given questions include: An asset “stays” as an asset as long as it generates future cash inflows to the company. Thus, an obsolete machine that continually requires much labor and other maintenance costs to keep operating could well be considered a liability — especially if cheaper technologies have arisen. While financial statements may not report certain assets and liabilities, such as human resources (employees), or the benefits of high employee morale, the more critical question is if the presented financial statements provide useful information to decision makers: i.e., can such decision makers make more informed decisions when they use such statements than they would have if these statements were unavailable? (Part 2) Similarly, financial statements that present assets at historical costs — rather than at fair market values — should provide more meaningful information than not reporting statements that follow GAAP. Moreover, the objectivity of assets reported at historical costs usually supersedes those presented at current value. 12. A liability should normally be first reported when the entity can reasonably measure the expected cash outflows associated with a financial transaction or event (and stop recognizing such liabilities when the entity can no longer meet these “reasonably measurable” criteria). For example, a firm experiencing potential environmental remediation liabilities should recognize such liabilities when it ascertains a reasonable value of the amount of such damages. SFAS No. 5 discusses this matter further. 13. A primary advantage of using a contra - accumulated depreciation — rather than as a direct reduction to the associated fixed asset account — includes keeping better track of the original cost of the acquired asset. Disclosing both the original and accumulated (depreciation) components of a fixed asset informs the financial statement reader of what part of such assets have “expired.” Moreover, directly reducing the “used” portion of fixed assets will eventually bring such assets (i.e., at the end of their depreciable lives — unless some salvage value exists) to a ‘zero value,” while these assets actually exist. 14. a) The professor received his PhD from the University of Illinois, and he continued teaching there after he was finished with the program. b) The general ledger does not balance. It must balance before we leave. c) Did Robert say, “Can this item be classified as an asset?”

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    Weirich, Accounting & Auditing Research, 9 th Edition d) Susan’s investigation didn’t discover any fraud but there’s new evidence that might keep the investigation going. e) Dear Mr. Smith, 15. a) The auditor said, “We must have these work papers completed by tomorrow.” b) When do we have to file our taxes? c) Is the conference in Dallas or Austin, Texas?

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    Weirich, Accounting & Auditing Research, 9 th Edition CHAPTER 3 THE ENVIRONMENT OF ACCOUNTING RESEARCH Discussion Questions 1. The development of accounting standards is influenced by such environmental considerations as the requirements of federal, state, and local government, and other regulatory bodies; influence of various tax laws on the financial reporting process; practices or problems of certain specialized industries (such as the motion picture or the oil and gas industries); inconsistencies in practice; disagreements among accountants, business executives, and others as to the objectives of financial statements; and influence of professional organizations. 2. A primary reason for the establishment of accounting standards appears to be in response to the increasing needs of various financial statement users -- including investors, lenders, and governmental entities; the increasing complexity of business enterprises and their underlying economic events and accounting transactions; and the increasing requests of government agencies, legislative bodies, and professional organizations to respond to this demand. 3. The FASB uses "due process" in developing its Standards, including identifying the problem or issue and considering legal or SEC pressures; deciding whether to consider the issue; establishing a task force to study the problem; having its research staff investigate the issues; issuing a discussion memo to interested parties; holding public hearings and request written comments on the issue; analyzing the results of the investigation, mail and hearings; if action is appropriate, issuing an exposure draft (a preliminary SFAS); requesting additional comments on the exposure draft and holding further public hearings; after analyzing the public response, issuing a final SFAS. 4. The FASB's conceptual framework project is a long - term project that should help describe concepts and relationships that underlie financial accounting standards and address such issues as the following: the elements of financial statements and their recognition, measurement, and display; capital maintenance; unit of measure criteria for distinguishing information to be included in financial statements from that which should be provided by other means of financial reporting; and criteria to evaluate and select accounting information (qualitative characteristics). This project can help practitioners develop theoretical justification for resolving issues that contain no authoritative citations. 5. Statements of Financial Accounting Concepts (SFAC) are not authoritative because FASB did not use full due process in this project. Therefore, CPAs need not justify departures from their guidance. 6. Some authoritative publications of the AICPA include: ARBs and APB Opinions (and non - authoritative Statements of Position and Issues Papers). 7. If content is within the Codification, it is authoritative.

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    Weirich, Accounting & Auditing Research, 9 th Edition 8. A typical Accounting Standards Update (ASU) will contain the following; A summary of the key provisions leading to the update, specific amendments to the Codification along with implementation guidance, basis for the Board’s decisions (including background information), and amendments to the XBRL Taxonomy. 9. No, ASU’s are not authoritative in their own right . ASUs contain Codification update instructions and that becomes authoritative. 10. ASUs are issued in sequential order by the FASB, the EITF, and the PCC. Thus, they encompass FASB standards, emerging issue standards, and private company standards. ASU’s are issued in the format of “year - sequential update number” (For example, 2017 - 2 is the second standard issued in 2017 ) and are labeled by the body creating the standard (FASB, EITF, or PCC). 11 . The purpose of GASB is to set financial accounting and reporting standards for the public sector as the FASB does for all private entities. The public should have an interest in governmental financial reporting because of the large value of assets managed by governmental entities. The financial community can also be affected by financial crisis in municipal units, such as the infamous crisis in New York, Cleveland, and Orange County. 12 . Generally Accepted Accounting Principles (GAAP) constitutes "a technical accounting term which encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time." GAAP also changes in response to changes in the business environment, and alternative principles for similar transactions may be considered equally acceptable. 13 . A critical implication of authoritative support relative to GAAP for the researcher includes that he or she should seek to find the highest available level of support. Primary authoritative support should be reviewed first; however, if no primary sources are found, the researcher would then drop down and review any available secondary support. 14 . In conducting efficient research, the researcher should begin by reviewing primary sources that have the highest level of authority in the GAAP hierarchy prior to July 1, 2009 and the FASB Accounting Standards Codification TM (The Codification) subsequent to July 1, 2009. 15 . Promulgated accounting standards frequently impact economic behavior, since decision makers frequently engage in certain transactions in order to "report" better financial statements. For example, companies adopting the provisions of FASB ASC 740 - 10 - 35 - 4 (Changes in tax laws or rates) could "transfer" part of their Deferred Tax Liability from a liability on the balance sheet to revenue on the income statement, as income tax rates fall; the reverse would occur as income tax rates rise. 16 . Primary authoritative support differs from secondary authoritative support in that the former one provides sufficient authoritative support for including a particular accounting principle

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    Weirich, Accounting & Auditing Research, 9 th Edition within GAAP. However, secondary authoritative support includes sources that support inclusion within GAAP, but individually do not constitute authoritative support. 1 7 . The formation of the GASB caused the following two governmental organizations to be added to the list of Financial Accounting Foundation sponsors: the Government Finance Officers Association (GFOA) and the National Association of State Auditors, Treasurers, and Controllers. 1 8 . Answers will vary. Rules - bases accounting provides specific rules or “bright - lines” for the accountant to follow while preparing financial statements. Principles based accounting does not provide these specific rules, thereby relying on professional judgment. An advantage to having rules is that there will be no question as to how to apply or interpret the standard. The disadvantage to having rules for all standards is that the volumes of literature are ever expanding and when standard setters leave anything open to interpretation, they are inundated with questions on how to apply the standard. Another disadvantage to “rules” is that not every company fits a certain mold. With that in mind, companies not fitting the rule must as for an exception or another application to be permitted. 19 . FASB is addressing the “standards overload” issue by implementing a framework that emphasizes issuing standards that focus more on objectives than detailed rules. In addition, another project aims at improving the quality of the cost - benefit analysis performed on proposed standards, reducing the costs of new standards without decreasing the benefits. Overall, the FASB’s goal is to make accounting standards that are easier to understand and apply. 20. The Private Company Council (PCC). It was created in 2012 to recommend guidance for private business entities. 21. PCC Decision - Making Framework: Framework identified five areas of difference between private and public entities: a. number of primary users and their access to management b. primary user investment strategies c. ownership and capital structure d. accounting resources e. new financial guidance education 22. The seven FASB board members are elected by the FAF. They serve 5 year terms and are eligible for one additional 5 - year term. Practice Exercises on Standard Setters 1. The eight elements of reasoning for this question would include: a. Purpose — the purpose is to respond to the client’s request for information. b. Issue — the issue is the proper accounting for R&D according to U.S. GAAP and International Accounting Standards. c. Information — the information sources one would utilize are U.S. authoritative literature and International Accounting Standards. d. Concepts — the concept would include the capitalization or expensing of R&D.

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    Weirich, Accounting & Auditing Research, 9 th Edition e. Assumptions — the assumptions would be that in order to capitalize R&D there exists future economic benefits. f. Interpretations or Inferences — the interpretation is that R&D costs have future economic benefit in order for Daimler to capitalize such costs. Also, one must conclude whether U.S. GAAP or International Accounting Standards are more appropriate if there exists a conflict. g. Implications or consequences — if R&D costs are not properly recorded, the financial statements are considered misleading. h. Solution — the solution according to US GAAP — FASB No. 2 — is to expense R&D costs. 2 . As of 07/1 /2017 the Board membe rs were Russell G. Golden, James L. Kroeker, Christine Ann Botosan, Marsha L. Hunt, Harold L. Monk, Jr., Harold Schroede r, Marc A. Siegel. 3. This answer will change as new standards are issued. As of 03/27/2017 the FASB’s three most recent issued exposure drafts were: a. Proposed Accounting Standards Update — Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share - Based Payment Accountin (Issued 03/07/17) b. Proposed Accounting Standards Update — Inventory (Topic 330): Disclosure Framework — Changes to the Disclosure Requirements for Inventory (Issued 01/10/17) c. Proposed Accounting Standards Update — Debt (Topic 470): Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent) (Issued 01/10/17) 4. GASB Concept Statement No.1 — Objectives of Financial Reporting; Concept Statement No. 2 — Service Efforts and Accomplishments Reporting 5. This answer will change as new standards are issued. As of 03/27/2017, the GASB’s three most recently issued exposure drafts were; a. Implementation Guide No. 201X - Y, Implementation Guidance Update (Issued 11/16/2016) b. Implementation Guide No. 201X - X, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans (issued 10/05/2016 c. Omnibus 201X (Issued 09/13/2016) 6a. This answer will change as new standards are issued. As of 03/27/2017, the two most recently issued FASB Statements were: a. Update 2017 - 10 – Service Concession Arrangements (Topic 853): Determining the Customer of the Operation Services (A consensus of the FASB Emerging Issues Task Force). b. Update 2017 - 09 - Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting 6b. As of July 1, 2017, the following PCC ASUs have been issued:

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    Weirich, Accounting & Auditing Research, 9 th Edition a. Update 2016 - 03 — Intangibles — Goodwill and Other (Topic 350), Business Combinations (Topic 805), Consolidation (Topic 810), Derivatives and Hedging (Topic 815): Effective Date and Transition Guidance (a consensus of the Private Company Council) b. Update No. 2014 - 18 — Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination (a consensus of the Private Company Council) c. Update No. 2014 - 07 — Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements (a consensus of the Private Company Council) d. Update No. 2014 - 03 — Derivatives and Hedging (Topic 815): Accounting for Certain Receive - Variable, Pay - Fixed Interest Rate Swaps — Simplified Hedge Accounting Approach (a consensus of the Private Company Council) e. Update No. 2014 - 02 — Intangibles — Goodwill and Other (Topic 350): Accounting for Goodwill (a consensus of the Private Company Council) 7. The primary function of the Financial Accounting Standards Advisory Council (FASAC) is as follows: Has advisory role in the pr ocess of establishing and improving financial accounti ng and reporting. FASAC works closely with the FASB in an advisory capacity to ensure that the views of its members are constantly and effectively communicated to the FASB. The FASAC is charged with responsibility of consulting with the FASB on major technical and non - technical issues and all other projects the FASB works on. 8. As of 03/27/2017 a. The two most recently issued SEC proposed rules include: 1. Inline XBRL Filing of Tagged data (issued 3/1/17) and 2. Proposed Amendments to Exchange Act Rule 15c2 - 12 (issued 03/01/2017) b. The Office of Internet Enforcement (OIE) has the following responsibilities: 1) conducts Internet investigations and prosecutions, 2) identifies areas of surveillance, 3) formulates investigation procedures, 4) performs training for the Commission staff and others, and 5) serves as a resource on Internet matters for the entire Commission. 9. As of 03/27/2017the three most recently issued comment letters from the FEI to the FASB include: 1. CCR Comments on the FASB’s Proposal Addressing the Application of Disclosure Requirements for Inventory Guidance (Issued 03/13/2017) 2. Cross - Border Application of the Registration Thresholds and External Business Conduct Standards Applicable to Swap Dealers and Major Swap Participants (Issued 12/16/2016) 3. CCR Comments on FASB’s Derivatives and Hedging Proposal (Issued 11/29/2016)

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    Weirich, Accounting & Auditing Research, 9 th Edition 10. As of 03/27/2017 the Accounting Standards Executive Committee has issued: 1) Comment letter on ASU (Topic 944) 2) Comment letter on Proposed ASU (Topic 815) 3) Comment letter on FASB’s August 4, 2016 Invitation to Comment Agenda Consultation 11. As of 03/27/2017, three upcoming conferences of the IIA include: 1) New York Seminar, 04/04/2017, MicroTek Training Facility 2) Las Vegas Seminar, 04/17/2017, The Mirage 3) Gaming & Hospitality Conference, 04/19/2017, The Mirage

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    Weirich, Accounting & Auditing Research, 9 th Edition CHAPTER 4 FINANCIAL ACCOUNTING RESEARCH TOOLS Discussion Questions 1. The advantages of commercial databases, compared to free internet sources, include the providing of a more comprehensive document retrieval system, having better search capabilities, and making an effort to seek out reliable sources of information. 2. Some tools to help in using a database include the use of connector terms, database directories, different products within the database, and the use of full text searches or citation searches. 3. The typical search process in a database entails: a. Define the specific information needed. b. Determine the sources to search. c. Develop a search inquiry using keywords and sometimes connectors and limitations. d. Select how to view the search results, such as full text or just the citations. e. Print or download the relevant documents. 4. The challenges to accounting research include the issue of finding all relevant authoritative sources, and the fact that in certain cases there are no clear cut answers to the issue or problem. Professional judgment is required for problems that do not have apparent answers. 5. The four major topical FASB Codification topical guidance areas are: presentation, financial statement accounts, broad transactions, and industries. 6. The topical area “financial statements accounts” is further refined into subtopics: assets, liabilities, equity, revenues, and expenses. 7. Original Pronouncements can be found in “Pre - Codification Standards” located in the left navigation panel. Original standards can also be accessed from the FASB website. 8 . The Codification is authoritative U.S. GAAP. F or user convenience, it contains limited SEC content. 9 . Secondary sources are used to help the researcher find an answer to a problem that has no primary authoritative support. Secondary sources need to be combined with other secondary sources to help support a conclusion. 10 . a. Authoritative GAAP sources are found in the Codif ication and can originate from ASUs and prior to ASUs, from: the FASB (statements, interpretations, technical bulletins, staff implementations guides, SFAS 138 examples); Emerging Issues Task Force abstracts and Topic D; Derivative Implementation Group Issues; Accounting Principle Board opinions; Accounting

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    Weirich, Accounting & Auditing Research, 9 th Edition Research Bulletins; accounting interpretations; items issued by the AICPA (Statements of Position, audit and accounting guides, practice bulletins, technical inquiry services). b. Non - authoritative GAAP is any item not in the Codification and includes items such as notable industry practice, APB statements, AICPA issue papers, FASB concept statements, international accounting standards, textbooks, journal articles and monographs . 11. The SEC accounting authorities are different than GAAP because they follow the traditional legal hierarchy and ar e generally found under Title 17 of the United States Code. They are found at the SEC’s website and in legal databases such as Westlaw and LexisNexis. They can also be found in the electronic code of Federal Regulations (eCFR). 12. The Codification has limited SEC authority for user convenience. The Codification has no authority over SEC content. 13. EDGAR is different from other research tools because it uses an XBRL format that and viewer that allow the researcher to extract desirable information for analysis directly from filings without having to retype. This removes human error in data extraction and retyping. 14. Three common SEC forms include (answers can vary) : a. SEC 10 - K: Public company annual report. Includes MD&A, select financial data, and audit opinions. Must be audited by independent external auditors. b. SEC 8 - K: Used by a public company to notify investors of material events. Must be filed within 5 days. Material events include change of executive management, entering/cancelling contracts, change of auditor, etc. c. SEC 10Q: Quarterly financial statements. Need not be subject to an audit, but a review. 15. Three common SEC regulations include (answers can vary) : a. Reg S - K: Prescribes the requirements for information presented outside the financial statements required under Reg S - X b. Reg Fair Disclosure: Requires that all publicly traded companies simultaneously disclose material information to all investors c. Reg G: Disclosure requirements related to non - GAAP Financial measures Exercises 1. Answers will vary slightly. The five research steps discussed in the chapter are: 1. def ine what information is needed 2. determine the sources to search 3. use appropriate search methods 4. view the results and 5. communicate the search results. 1. We know the information needed – due diligence review of a company. 2. Since that is related to auditing, use the AICPA database to locate the information. 3. perform a keyword search of “due diligence”. 4. after reviewing the res ults 5. communicate in a memo to the client. 2. The five research steps are 1. Define the information needed – Natalie Churyk’s suggestions for mastering the computerized CPA exam; 2 – the sources to search – the

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    Weirich, Accounting & Auditing Research, 9 th Edition internet would be a viable option or a commercial database such as ABI Inform or EBSCO known for locating articles; 3 - key word search using the author and key words from the topic would be appropriate; 4 – results from the internet – typing in “Natalie Churyk mastering the cpa exam” resulted in 257 hits. There appears to be two articles by Natalie Churyk – Mastering the Technology , and The Computer - Based CPA Exam: Hints for Managing the Exam Technology . The first is a quick synopsis on exam pitfalls while the latter is an inclusive article on the computerized CPA exam. At this point, it may be helpful to circle back to the client to see exactly what the client is looking for (total exam, or just exam pitfalls). 5. Assuming the client is concerned with pitfalls communicate to the client in a memo the following regarding Mastering the Technology by Natalie T Churyk and Katrina L Mantzke: timing out at the front end, automatic shutdown, no going back to completed testlets, budgeting time for all testlets and simulations, the “Microsoft like” but not Microsoft software and how to use it, potential blind spots and other known exam problems. 3. The first three subtopics within the general topic of Presentation are: 205 – Presentation of Financial Statements, 210 – Balance Sheet, and 215 – Statement of Shareholders Equity. 4. One possible search strategy is to highlight Broad Transactions, 815 - Derivtives and Hedging, 30 - Cash Flow Hedges, 25 – Recognition. 5. Cash 6. GLOSSARY TERM USAGE SEE TOPIC(S) 210 , 230 , 305 , 860 , 942 Consistent with common usage, cash includes not only currency on hand but demand deposits with banks or other financial institutions. Cash also includes other kinds of accounts that have the general characteristics of demand deposits in that the customer may deposit additional funds at any time and also effectively may withdraw funds at any time without prior notice or penalty. All charges and credits to those accounts are cash receipts or payments to both the entity owning the account and the bank holding it. For example, a bank's granting of a loan by crediting the proceeds to a customer's demand deposit account is a cash payment by the bank and a cash receipt of the customer when the entry is made. 7. Film Production Interest Costs 926 - 835 - 25 - 1 An entity shall account for interest costs related to the production of a film in accordance with Subtopic 835 - 20 . 8. Revenue Recognition: Not - For - Profit Entities 958 Not - for - Profit Entities > 605 Revenue Recognition > 05 Overview and Background General This Subtopic provides guidance on revenue recognition by not - for - profit entities ( NFPs ). NFPs also shall comply with the applicable standards in Topic 605 . The guidance is presented in the following three Subsections: a General b Contributions Received c Transfers of Assets to

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    Weirich, Accounting & Auditing Research, 9 th Edition a Not - for - Profit ... b. 958 Not - for - Profit Entities > 30 Split - Interest Agreements > 25 Recognition Revocable Agreements , they shall be recognized in conformity with Section 958 - 320 - 25 or 958 - 325 - 25 , as appropriate. Contribution revenue for the assets received shall be recognized when the agreement becomes irrevocable or when the assets are distributed to the NFP for its unconditional use, whichever occurs first. c. 205 Presentation of Financial Statements > 20 Discontinued Operations > 50 Disclosure Disclosures Required for a Discontinued Operation Comprising a Component or Group of Components of an Entity constituting the pretax profit or loss (or change in net assets for a not - for - profit entity) of the discontinued operation (for example, revenue , cost of sales, depreciation and amortization, and interest expense) for the periods in which the results of operations of the discontinued operation are presented... 9. Use the topical categories in the left navigation panel to identify the capitalization of interest code section (topic, subtopic). 835 - 20 Capitalization of interest 10. Capitalization of interest is required when getting an asset ready for its intended use. 835 - 20 - 10 - 1 states that the objectives of capitalizing interest is to obtain a measure of acquisition cost that more closely reflects an entity's total investment in the asset and to charge a cost that relates to the acquisition of a resource that will benefit future periods against the revenues of the periods benefited. 835 - 20 - 10 - 2 states that failure to capitalize interest cost associated with the acquisition of qualif ying assets improperly reduces reported earnings during the period of acquisition and increases reported earnings in later periods. 11. Codification code references a. 310 b. 505 c. 460 d. 830 e. 720 f. 840/842 g. 440

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    Weirich, Accounting & Auditing Research, 9 th Edition h. 605 i. 815 j. 97x k. 350 12. Find Use the Codification to find the guidance for (there are additional acceptable answers, the most common are listed below): a. Prepaid advertising 340 - 20; 340 - 10 - 05; 210 - 10 - 45 - 1; 310 - 10 - 05 - 04 a. Reclassification of long term debt. 470 - 10 - 45 - 14; 470 - 10 - 45 - 2, 470 - 10 - 45 - 12a or b, 470 - 10 - 45 - 13 b. Accelerated depreciation 360 - 10 - 35 - 7 (only answer) c. Range of an estimated loss contingency 450 - 30 - 40 - 1; 450 - 20 - 05 - 5; 450 - 20 - 30 - 1 d. Reporting period 270 - 10 - 05 - 1; 270 - 10 - 50 - 1 e. Factoring of receivable with recourse 860 - 10 - 05 - 15; 860 - 20 - 55 - 24 Students often cite the following but it is incorrect since this cites without recourse – 310 - 10 - 05 - 6 13. Use the Codification to find the guidance for: a. What does it discuss? FASB Interpretation 36 discusses the accounting for expl oration costs by oil and gas producing companies. Its rationale is that an un successful company will end up capitalizing the costs. b. How did you find the authority? Click on pre - codification standards which will link the user to the FAS website c. The authority affects the gas and oil producing industry. d. The major organizational parts of that authority are Status, Summary, Introduction, Interpretation, Effective Date and Transition, and the Appendi x 14. C ost to be recognized as resear ch and development 730 - 10 - 25 - 2 Five types of cost associated with R &D activities: (1) Material, Equipment, and Facilities; (2) Personnel; (3) Purchased intangible; (4) contract services; (5) Indirect costs. a. The salaries of the research staff designing new products can be classified as the personnel cost related with R&D activities thus can be expensed as R&D costs. 730 - 10 - 25 - 2 b. The commissions paid to sales staff marketing new products is a selling expense, so it does not qualify. 730 - 10 - 15 - 4 15. Use the master glossary for the following question. a. Master glossary “C” - An existing condition, situation, or set of circumstances involving uncertainty as to possible gain (a gain contingency) or loss (a loss

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    Weirich, Accounting & Auditing Research, 9 th Edition contingency) to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur. b. Master glossary “c” c. Contingent losses will be recorded when it is probable that a liability has been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. d. 450 - 20 - 25 16. Post - retirement benefits other than pensions is located in 715 - 60. There are 11 sections from 00 status to 75 XBRL elements. Each section has multiple subsections. 17. Left click on Master Glos sary in left navigation panel. Left click on the letter “P”. Scroll down to “postretirement benefits.” Hyperlink to 715 - 60 - 50, link to disclosure 715 - 60 - 50 - 2 This Subsection provides guidance on disclosures regarding the effect of the Medicare subsidy. This Subsection also provides guidance on the disclosures about the effects of the subsidy for an employer that sponsors a postretirement health care benefit plan that provides prescription drug coverage but for which the employer has not yet been able to determine actuarial equivalency. 715 - 60 - 50 - 3 In interim and annual financial statements for the first period in which an employer includes the effects of the subsidy in measuring the accumulated postretirement benefit obligation and the first period in which an employer includes the effects of the subsidy in measuring net periodic postretirement benefit cost , it shall disclose all of the following: • a. The reduction in the accumulated postretirement benefit obligation for the subsidy related to benefits attributed to past service. • b. The effect of the subsidy on the measurement of net periodic postretirement benefit cost for the current period. That effect includes any amortization of the actuarial gain in (a) of this paragraph as a component of the net amortization called for by paragraphs 715 - 60 - 35 - 29 through 35 - 30 , the reduction in current period service cost due to the subsidy, and the resulting reduction in interest cost on the accumulated postretirement benefit obligation as a result of the subsidy. • c. Any other disclosures required by paragraph 715 - 20 - 50 - 1(r) . 715 - 60 - 50 - 4 For purposes of the disclosures required by paragraph 715 - 20 - 50 - 1(a) and 715 - 20 - 50 - 1(f) , an employer shall disclose gross benefit payments (paid and expected, respectively), including prescription drug benefits, and separately the gross amount of the subsidy receipts (received and expected, respectively). 715 - 60 - 50 - 5 [Paragraph not used]

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    Weirich, Accounting & Auditing Research, 9 th Edition 715 - 60 - 50 - 6 Until an employer is able to determine whether benefits provided by its plan are actuarially equivalent, it shall disclose both of the following in financial statements for interim or annual periods: • a. The existence of the Medicare Prescription Drug, Improvement, and Modernization Act • b. That measures of the accumulated postretirement benefit obligation or net periodic postretirement benefit cost do not reflect any amount associated with the subsidy because the employer is unable to conclude whether the benefits provided by the plan are actuarially equivalent to Medicare Part D under the Act. 18. Preferred stock has debt characteristics ( a and b) It should be accounted for as follows: Mandatorily Redeemable Preferred Stock Not Accounted for as a Liability 810 - 10 - 40 - 2 Section 480 - 10 - 25 does not require mandatorily redeemable preferred stock to be accounted for as a liability under certain conditions. If such conditions apply and the mandatorily redeemable preferred stock is not accounted for as a liability, then the entity's acquisition of a subsidiary's mandatorily redeemable preferred stock shall be accounted for as a capital stock transaction. Accordingly, the consolidated entity would not recognize in its income statement any gain or loss from the acquisition of the subsidiary's preferred stock. In the consolidated financial statements , the dividends on a subsidiary's preferred stock, whether mandatorily redeemable or not, would be included in noncontrolling interest as a charge against income. > > Mandatorily Redeemable Preferred Stock Accounted for as a Liability 810 - 10 - 40 - 2A Section 480 - 10 - 25 requires mandatorily redeemable preferred stock to be accounted for as a liability under certain conditions. If mandatorily redeemable preferred stock is accounted for as a liability, then any amounts paid or to be paid to holders of those contracts in excess of the initial measurement amount are reflected as interest cost and not as noncontrolling interest charge. Topic 860 specifies whether a liability has been extinguished and Subtopic 470 - 50 requires that the parent recognize a gain or loss upon extinguishment of the subsidiary's liability for mandatorily redeemable preferred shares for any difference between the carrying amount and the redemption amount. 480 - 10 - S99 - 1 The following is the text of CFRR 211: Redeemable Preferred Stock. • [ .01 General : ASR 268: [ CFRR 211, paragraph .01, sequence 1 ] ] [ On July 27, 1979, the Commission amended Regulation S - X to modify the financial statement presentation of preferred stocks subject to mandatory redemption requirements or whose redemption is outside the control of the issuer. The rules adopted do not impact reporting practices of registrants not having such securities outstanding. Registrants having such securities outstanding are required to present separately, in balance sheets, amounts applicable to the following three general classes of securities: (i) preferred stocks subject to mandatory redemption requirements or whose redemption is outside the control of the issuer; (ii) preferred stocks which are not redeemable or are redeemable solely at the option of the issuer; and (iii) common stocks. A general heading, "Stockholders' Equity," is not to be used and presentation of a combined total for equity securities,

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    Weirich, Accounting & Auditing Research, 9 th Edition inclusive of redeemable preferred stocks, is prohibited. In addition, the rules require disclosure of redemption terms, five - year maturity data, and changes in redeemable preferred stocks in a separate note to the financial statements captioned "Redeemable Preferred Stocks." [ CFRR 211, paragraph .01, sequence 2 ] ] [ The Commission believes that redeemable preferred stocks are significantly different from conventional equity capital. Such securities have characteristics similar to debt and should, in the opinion of the Commission, be distinguished from permanent capital. The Commission believes that traditional financial reporting practices do not provide the most meaningful presentation of the financial obligations attached to these types of securities and that improvement in the financial statement presentation of redeemable preferred stocks is necessary. [ CFRR 211, paragraph .01, sequence 5 ] ] 19. a. 10 - Q: Quarterly report under Section 13 & 15(d) b. 11 - K: Annual report of employee stock purchase, savings & similar plans c. 18 - K: Annual Report for foreign governments & political subdivisions d. 20 - F: Annual & transition report of foreign private issuers e. 40 - F: Annual reports filed by Canadian issuers f. 5: Annual statement of changes in beneficial ownership of securities g. 8 - K: Current reporting filing h. S - 1: General form of registration stat e ment i. 6 - K: Current report of foreign issuer j. 40 - 17F2: Initial certificate of accounting of securities and similar investments in the custody of management investment companies 20. Rule 10b - 5 discusses the issue of the “Employment of Manipulative and Deceptive Devises.” SAB 99 provided the views of the SEC staff that exclusive reliance on certain quantitative benchmarks to assess materiality in preparing financial statements and performing audits of those financial statements is inappropriate; misstatements are not immaterial simply because they fall beneath a numerical threshold . 21. The Chief Accountant for the SEC is the principal adviser to the SEC Commission on accounting and auditing matters. The Office of the Chief Accountant also works closely

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    Weirich, Accounting & Auditing Research, 9 th Edition with domestic and international private - sector accounting and auditing standards - setting bodies to monitor the application of accounting standards and financial disclosure requirements. Prepare your client to handle a SEC investigation through internal reviews, self - reporting, correcting problems, and cooperating with the SEC staff. 22. The seven m ethods to search with SEC’s EDGAR include: company or fund name, ticker symbol, central index key, file number, state, country, or SIC. 23. This answer will vary. On the S EC website – the EDGAR System allows the user to hyperlink to the section desired whereas the report on the company website is static and one must scroll down to the section desired. 24. Go to the SEC website (www.sec.gov). a. 39 AAER’s were issued as of 07/02/2017 b. JPMorgan provided valuable positions within its firm to relatives and friends of key exec utiv es of its clients, prospective clients, and Asian government officials. This violates the FCPA. Many of their clients were also state - owned entities. JPMorgan was fined $72,000,000 in criminal fines. JPMorgan also paid a grand total of $130,591,405 in disgorgement fees. 25. Go to the Electronic Code of Federal Regulations ( www.ecfr.gov) . a. Part 210 b According to S239.11, this form shall be used for first time registration under the Securities Act of 1933. As for the consolidated balance sheet item, according to S210.3 - 01, There shall be filed, for the registrant and its subsidiaries consolidated, audited balance sheets as of the end of each of the two most recent fiscal years. If the registrant has been in existence for less than one fiscal year, there shall be filed an audited balance sheet as of a date within 135 days of the date of filing the registration statement. 26. Go to the Deloitte Foundation website (www.deloitte.com). Download a Trueblood Case involving a joint venture or partnership. Write a sentence summarizing the issue in the case. Use the Codification database to find the authorities providing the answer to the issue presented. Identify those authorities. a. Case 16 - 6 “Closely Associated Cars” The issue in this case is that a a joint venture (JV) was formed, and w e need to determine if this JV is a variable interest entity (VIE), and who should consolidate JV. According to ASC 810 - 10 - 20, “Variable Interest Entity refers to a legal entity subject to consolidation according to the provisions of the Variable interest subsections of subtopic 810 - 10.” 27. Accessing the Journal of Accounting Education V37, the four educational cases appearing in this volume are:

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    Weirich, Accounting & Auditing Research, 9 th Edition a. Newport Soup: An interactive inherent risk assessment case with objectives to “To initiate the process of understanding your client's business, you must email professional inquiries to the “client” (a role played by your instructor) and “ask the right questions” to acquire the information necessary to assess inherent risk. Ultimately, you are asked to prepare a professional memo documenting your assessment of inherent risk for six account balances as part of the audit planning process. An important component of the case is the performance of analytical procedures, which you must interpret using your understanding of the company and the industry in which it operates.” b. WhytGlov Services: IRC Section 1060 asset acquisition with objectives ‘to leverage an understanding of depreciation, amortization, and purchase price allocation rules to assess the competing incentives of the buyer and seller and present the allocations preferred by each party. You must also perform analyses to determine whether a business case exists for the buyer to assume certain loss - generating contracts from the seller. This case develops critical thinking in interdisciplinary areas (tax, financial accounting, finance, and managerial accounting) and cultivates the ability to provide professional tax - planning advice.’ c. Starbucks: Social responsibility and tax avoidance with objective s “designed to help you think about the strategic, legal, ethical, and public relations implications of tax minimization strategies, especially when companies portray themselves as responsible “citizens” of the communities in which they operate. The questions also probe whether other characteristics of firms, including their “home” country and the nature of the business, have implications for public perceptions about corporate tax minimization strategies.’ d. A case of fixed asset accounting: Initial and subsequent measurement with objectives of “ applying accounting knowledge, professional judgment, and critical thinking skills to evaluate fixed a ssets and make recommendations. Analyzing differences between fixed asset accounting under US generally accepted accounting principles and IFRS. Knowledge Busters 1. Topic: Revenue Recognition a. Only $1 million in additional sales should be recorded this year. The two remaining customer sale transactions should not be recorded as sales until next year. The SEC believes that the normal business practice for Medical Devices is to have a signed agreement and therefore persuasive evidence of a sale arrangement would not occur until Medical Devices receives the signed agreements. (Codification 605 - 10 - S99) 2. Topic: Repurchase of Loans a. ASC 310 - 30 - 15 requires that if a seller repurchases the asset at a price greater than fair value, the seller should record the asset at its fair value and record a loss for the difference between the purchase price and the fair value.

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    Weirich, Accounting & Auditing Research, 9 th Edition 3. Topic: Debt Classification a. ASC 470 - 10 - 45 - 11 states that current liabilities shall include any long - term debt that are or will be callable by the creditor either because the debtor’s violation of a debt provision agreement which makes the debt callable or because the violation, if not cured within a specified grace period will make the debt callable. However, since the violation was cured in the second year and not called, the debt should be classified as long - term in year 2’s financial statements. The debt should not be reclassified to long - term in year 1 based upon the set of facts. 4. Topic: Allowance Account a. ASC 310 - 10 - 35 - 7 states that “the conditions under which receivables exist usually involve some degree of uncertainty about their collectability, in which case a contingency exists…” b. ASC 450 - 20 - 25 - 2 would require the establishment of an allowance account if both of the following conditions exist: i. Information available prior to issuance of the financial statements indicates that it is probable that an asset has been impaired, and ii. The amount of the loss can be reasonably estimated c. If both of the aforementioned conditions are met, no allowance account is necessary. 5. Topic: Membership Dues a. Since the entity is a not - for - profit organization, ASC 958 - 605 - 25 - 2 requires that such dues be recognized as contributions and recorded as revenue when received as no services are exchanged for the dues. However, if services were received the dues would be recognized as revenue over the period of membership (ASC 958 - 605 - 25 - 1) TRANSITION TO TOPIC 606 in 2018 6. Topic: Stock Dividend a. ASC 260 - 10 - 55 - 12 requires that the computations of basic and diluted EPS be adjusted retroactively for all periods presented to reflect a change in capital structure due to the 3% stock dividend. 7. Topic: Inventory Valuation a. ASC 330 - 10 - 35 - 2 states that inventories should be valued the lower of cost or market with the excess of market disclosed. Furthermore, ASC 330 - 10 - 35 - 15 states that an exception to the lower of cost or market rule to record precious metals at market does not apply to National since the diamonds will be used in manufacturing process rather than being held for immediate sale. Therefore, the diamonds should be valued at cost in this case which is lower than market. 8. Topic: Barter Transactions a. According to ASC 605 - 20 - 25 - (14 - 17), U.S. GAAP general requires companies to use the fair value of goods or services surrendered as the starting point for measuring a barter transaction.

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    Weirich, Accounting & Auditing Research, 9 th Edition 9. Topic: Insurance Contracts a. Since this is an insurance company, ASC 944 - Fincial Services - Insurance is the appropriate reference. Specifically, 944 - 20 - 20 (Glossary) provides the definition for the two types of accounting that Matt is dealing with. 10. Topic: Current Assets a. ASC 210 - 10 - 45 - 4 states that the concept of current assets can exclude such items as follows: a) Cash and claims to cash that are restricted as to withdrawal or use for other than current operations, are designated for expenditure in the acquisition or construction of noncurrent assets, or are segregated for the liquidation of long - term debts. Therefore, the deposit for the purchase of the equipment should be classified as a noncurrent asset even though the purchase is within one year. 11. Topic: Treasury Stock a. ASC 505 - 30 - 30 - 4 states the following: “Transactions do arise, however, in which a reacquisition of an entity’s stock may take place at prices different from routine transactions in the open market. For example, to obtain the desired number of shares in a tender offer to all or most shareholders, the offer may need to be at a price in excess of the current market price. In addition, a block of shares representing a controlling interest will generally trade at a price in excess of market, and a large block of shares may trade at a price above or below the current market price depending on whether the buyer or seller initiates the transaction. An entity’s reacquisition of its shares in those circumstances is solely a treasury stock transaction properly accounted for at the purchase price of the treasury shares. Therefore, in the absence of the receipt of states or unstated consideration in addition to the capital stock, the entire purchase price shall be accounted for as the cost of treasury shares.” 12. Topic: Inventory a. ASC 330 - 10 - 30 - 1 states in part that, “As applied to inventories, cost means in principle the sum of the applicable expenditures and charges directly or indirectly incurred in bringing an article to its existing condition and location.” Therefore, warehousing costs would be considered a selling expense and not to be allocated to the inventory on hand. 13. Topic: Interest Capitalization a. ASC 835 - 20 - 30 - 3 states that “the amount capitalized in an accounting period shall be determined by applying the capitalization rate to the average amount of accumulated expenditures for the asset during the period.” b. Further, ASC 835 - 20 - 35 - 3 state that “The compounding of capitalized interest is conceptually consistent with the conclusion that interest on expenditures for the asset is a cost of acquiring the asset”. c. Therefore, the rate should be applied to the average of all the accumulated expenditures.

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    Weirich, Accounting & Auditing Research, 9 th Edition 14. Topic: Research and Development Costs a. ASC 730 - 10 - 25 states that “R&D costs should be expensed when incurred”. There is no justification to capitalize the costs because the business is to be sold. 15. Topic: Cash Flow Statement a. (ASC) 230 - 10 - 15 - 3 states: A business entity or not - for - profit entity that provides a set of financial statements that reports both financial position and results of operations shall also provide a statement of cash flows for each period for which results of operations are provided. Therefore, if a balance sheet is presented, a statement of cash flows should be presented for both current and prior periods if income statements are presented for such periods. 16. Topic. Cash Flow Statement a. The amount that will be shown on the statement of cash flows is the two accounts with the positive balances. ASC 230 - 10 - 45 - 4, "The total amounts of cash and cash equivalents at the beginning and end of the period shall be the same amounts as similarly titled line items or subtotals shown in the statements of financial position . . ." The net change in overdrafts during the period is a financing activity. 17. Topic: Inventory a. The portion of the slow - moving inventory not reasonably expected to be realized in cash during the client's normal operating cycle should be classified as a long - term asset in the company's classified balance sheet. ( ASC) 310 - 10 - 45 - 9 states that the term current assets is used to designate cash and other assets or resources commonly identified as those that are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business. 18. Topic: Data Analytics and Finance Charges a. Not an acceptable policy. FASB 310 - 20 states the interest (actuarial) method should be used to account for interest income. Also , ASC 310 - 2 - 35 - 2 requires that certain discount loans acquisition costs be deferred and treated as yield adjustments. 19. Topic: SEC Reporting Requirements a. Form 8 - K requires issuers that are subject to the reporting requirements of Section 13(a) and Section 15(d) of the Exchange Act to file required reports on Form 8 - KL within four business days of a triggering event. The two triggering events in this case are the resignations of the two board members and the accounting firm. According to Item 4.01 “Changes in Registrant’s Certifying Accountant” and Item 5.02 “Departure of Directors or Principal Officers”, Clever is required to file a Form 8 - K with the SEC.

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