How Will The Goods And Services Be Produced ✓ Solved

How will the goods and services be produced?

This assignment is comprised of researching several of the more current technical topics in accounting and responding to several specific technical standard questions about the topics. You may be asked to interpret how the technical standard is applied or what the objective(s) of the related GAAP rules are attempting to address.

Note that the FASC is now the one and only source of the technical GAAP standards; other sources are no longer accepted as GAAP. The FASB Accounting Standards Codification database can be accessed using the provided username and password.

This section deals with certain general background considerations and information related to the FASC and the answers can be found by clicking the “About the Codification” and “Notice to Constituents” sections on the FASC Welcome Page. The related research questions that you must answer are:

  1. When did the FASC Codification become effective?
  2. Did the FASC change prior GAAP?
  3. What does the FASB expect from the new FASC structure and system?
  4. What are the “topics” used in the ASC?
  5. Are Securities and Exchange Commission (SEC) references included in the ASC?

You have been hired at an audit firm as a first year staff. This firm requires that all references to generally accepted accounting principles in the audit workpapers include the corresponding FASC citation (topic and subtopics). Below are three independent situations found at your clients that require research and documentation. For each question, provide the citation number (topic and subtopic) that addresses the question and answer the question.

Paper For Above Instructions

The Financial Accounting Standards Codification (FASC) represents a significant restructuring of U.S. GAAP (Generally Accepted Accounting Principles). Its implementation was officially effective from July 1, 2009 (FASB, 2009). One of the primary aims of the FASC was to simplify the structure of GAAP, making it more accessible for a variety of users, including accountants, auditors, and financial statement preparers. Prior to the establishment of this codification, GAAP was a compilation of various standards that were sometimes difficult to navigate and interpret. The implementation of the FASC marks a departure from the prior GAAP methodology, ensuring that all generally accepted accounting principles are consolidated and referenced uniformly (FASB, 2009).

The FASC manual organizes GAAP into topics, subtopics, sections, and paragraphs, facilitating easier research and access. Topics within the codification include, but are not limited to, revenue recognition, leases, derivatives, and pensions. It is important to note that SEC references are indeed integrated within the ASC, particularly in areas concerning publicly traded entities (FASB, 2020).

Topic-Specific Research

As a first-year staff at an audit firm, it is essential to provide accurate citations and thorough responses based on the technical standards of the FASC. Below are the outcomes of research conducted in three different scenarios.

1. Inventories

In managing inventories for an agricultural client, it is crucial to understand the relevant authoritative guidance. The primary source of guidance for inventory accounting can be found in ASC Topic 330: Inventory. According to this section, the cost of inventory includes the costs necessary to bring the inventory to its intended location and condition for sale. The definition of cost is not merely the purchase price but extends to include freight-in, handling, and other costs directly attributable to bringing the inventory to saleable condition.

Moreover, agricultural inventory may be initially measured at fair value when the conditions specified in ASC 330-10-30-1 apply, such as when the agricultural product is sold upon harvest; in these cases, fair value captures market prices in a more accurate and timely manner. A major objective of accounting for inventory is to match costs with revenues appropriately to apply the matching principle (FASB, 2019). Lastly, abnormal freight charges are not included in the cost of inventory as they do not reflect normal costs incurred in bringing the inventory to its saleable condition (ASC 330-10-30-1).

2. Equity

For Hincapie Co., which plans to issue participating preferred stock to finance growth, the authoritative guidance for disclosures about capital structure is found in ASC Topic 505: Equity. Definitions relevant to this situation include: (i) Securities refer to financial instruments that hold some type of monetary value; (ii) Participation rights refer to the ability of equity holders to participate in excess earnings; (iii) Preferred stock is a class of ownership in a corporation with a higher claim on assets and earnings than common stock.

Companies must disclose key information about their securities under ASC 505-10-50, which includes the nature of the preferred stock, any rights, terms of the securities, and risks associated with them. For transparent reporting, Hincapie should ensure that all relevant details about the preferred stock issue, its terms, dividends, and effects on earnings per share calculations are included in financial statements.

3. Pensions

Finally, with respect to Monat Company and its consideration of a defined benefit plan, the primary authoritative guidance for the accounting of defined benefit plans is located in ASC Topic 715: Compensation—Retirement Benefits. Pension gains and losses are accounted for through various methods, including corridor methods and immediate recognition. Generally, gains and losses are recognized based on long-term assumptions such as expected return rates on plan assets and discount rates for obligations (FASB, 2018).

The rationale behind this accounting method is to ensure that the pension liabilities are accurately represented on the balance sheet, minimizing distortions that can occur in financial performance reporting over time. On the balance sheet, Monat will show either a pension asset or pension liability depending on the net effect of benefit obligations against the fair value of plan assets. For instance, a pension asset occurs when plan assets exceed obligations, whereas a pension liability is recorded when the opposite is true (ASC 715-20).

References

  • FASB. (2009). FASB Accounting Standards Codification: Effective Date. Retrieved from https://www.fasb.org
  • FASB. (2018). ASC 715: Compensation—Retirement Benefits. Retrieved from https://www.fasb.org
  • FASB. (2019). ASC 330: Inventory. Retrieved from https://www.fasb.org
  • FASB. (2020). About the Codification. Retrieved from https://www.fasb.org
  • Financial Accounting Foundation. (2023). FASB and Governmental Accounting Standards Board. Retrieved from https://www.gasb.org
  • U.S. Securities and Exchange Commission. (2023). Reporting Guidance: Equity Securities. Retrieved from https://www.sec.gov
  • Gregory, E., & Mani, V. (2018). Understanding the Financial Accounting Standards Codification. Journal of Accountancy, 226(6), 44-49.
  • Jones, L. (2022). Best Practices for Disclosing Preferred Stock Transactions. The CPA Journal, 92(11), 12-15.
  • Smith, T. (2021). The Impact of Defined Benefit Plans on Financial Statements: A Case Study. International Journal of Accounting, 56(4), 37-48.
  • Williamson, O. (2017). The Contribution of FASB to Modern Accounting Practices. Financial Management, 46(1), 89-103.

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