Managerial Accounting and Financial Accounting Conflicts
“It’s the accounting.” That’s what many investors seem to be saying these days. Even the slightest hint of an accounting irregularity can negatively affect a company’s stock price. Investors require, relevant and reliable information, or they will take their money elsewhere.
To restore public confidence in the financial reporting process, many have argued that accounting standards should be principles-based rather than rules-based. They believe that companies have exploited the detailed provisions in rules-based pronouncements to manage accounting reports, rather than the economic substance of transactions. Under principles-based rules, management’s financial reporting focus would shift away from demonstrating compliance with rules, and rest more squarely on professional judgment. In fact, the International Accounting Standards Board (IASB) already uses this approach.
Visit to the Financial Accounting Standards Board (FASB) website https://asc.fasb.org/ (Links to an external site.) and access the Free Basic version of the Accounting Standards Codification (ASC). The ASC is a complete reference resource for all US Generally Accepted Accounting Principles (GAAP).
Select Basic View – Free version
Enter your email address and hit the Submit button
Complete the Registration information and click Save & Continue
Scroll down through the agreement and click Accept
You will then get a confirmation page with an order number.
Click the “click here” link to go to the codification
Type in your username (email) and password
Once you are in the Codification itself you need to navigate to the correct code. The Search “Go To” box does not work in the Free version, so you will have to understand a little bit about the way the codification is organized. Click around and explore a little! Then when you are ready, click on the list of topics on the left-hand side of the page. You will notice that a submenu opens. Under Liabilities, select FASB ASC Topic 410, “Asset Retirement and Environmental Obligations” specifically sections 410-30-05-1 to 410-30-05-25. Read through the topic information.
Here is how to decipher the code:
410 — Asset Retirement and Environmental Obligations and has the submenu with the codification rulings that are numbered starting with 410. Click on that and navigate to the next subheading
30 — Environmental Obligations. Once in this page you will see another menu of links. Click on
05 — Overview and Background. Read items 1 through 25.
Here is the code all together: 410-30-05-1 to 410-30-05-25
For this activity, download and read the following ethical dilemma scenario. Your instructor will assign you to work in a team and assign your team to one of the questions below. You and your teammates will create a brief argument to discuss with the class. Create your argument in a Word document and submit via Canvas.
Calculate the breakeven revenues for 2014 using the information given above.
Re-calculate the breakeven revenues if variable costs are 58% of revenues.
Calculate Freddie Corporation’s operating income for 201 if variable costs had been 58% of revenues.
Discuss the following issues:
What are the ethical issues involved in this case? Explain your answer.
How do these issues relate to rules-based standard setting and principles-based standard setting?
Do you feel that the Production Manager is acting improperly or immorally? Why or why not? Please explain your response.
What stakeholders would be affected if the Controller implemented the Production Managers suggestions? Why?
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