Question

Create a fictitious fact pattern (accounting problem/business issue) to which you can apply the accounting research process. If you can, use a fact pattern based on a real situation that you’ve encountered professionally. Alternatively, the following sources may help you generate ideas: (1) The Codification: browse for guidance, then “back into” a fact pattern; (2) recent business news articles (e.g., from the Wall Street Journal); (3) discussions with small-business owners; or (4) corporate annual reports.

Required:

1. Describe the fact pattern.

2. Identify at least 1 researchable question for this fact pattern.

3. Brainstorm the likely answer to the question.

4. Locate the applicable Codification reference. Describe the requirements, plus any alternatives available.

5. Briefly describe your conclusion.

Answer 1

(Look up big 4 guides on any accounting topic (revenue recognition, leases, business combinations, etc) and search through for a few illustrative examples.)

a. Sometimes possible to refine the search further, depending on the nature of the research question
b. Check the applicability of cross-references to be certain that you have done a thorough search of the literature
c. Search for various terms within the Codification using the search engine

Take the time to read it thoroughly, keeping in mind that much of the language used is highly technical and complex

Decide on the best financial reporting treatment
Accountants use judgment to work down the levels of the hierarchy and sometimes have to utilize a similar transaction that is covered in the authoritative literature
Accountants compare various treatments and identify the alternative that will result in the most faithful representation of the economic eventc

Accountants will document and communicate the results of the research process, such as, a memo to the file or a client letter.

Include documentation from all the proceeding steps:
1. Facts of the business transaction
2. Research question
3. Analysis of the issue
4. Recommendation
write clearly and concisely to address the research question and communicate all relevant information

Be organized and methodical in the decision-making process
Generate alternatives, even when you think you have already arrived at the correct answer
Document your rationale about the alternatives
Delay your final judgment until you have gathered all of the facts and information and have considered all of the alternatives

New standards should provide better and more transparent financial information that will assist users in making more effective investment and credit decisions
Allow management discretion in selecting accounting methods, applying those methods, and changing methods or estimates which can:
i. Reduce comparability between firms
ii. Result in differences with a firm over time

Tendency to use data that are most readily available

Be more confident than your abilities and experience level would objectively warrant

Decision makers underweight information that is not consistent

Members of group avoid conflict

Decision maker focuses on one piece of information

In need of information to determine the appropriate reporting treatment for a business transaction
For when the analysis and interpretation of an economic even or account standard is not clear and thus requires judgment

Analysts use reported information to provide guidance to individuals and other entities in making investment and credit decisions
Release earnings forecasts.