Applied Research in Financial Reporting: Text and Cases

1
Applied Research in Financial Reporting Text and
Cases

• Chapter 4
• Authoritative Sources of Information

2
Authoritative Sources of Information

• Authoritative Sources of Literature
• GAAP Hierarchy
• Indices, Data Bases and Search Engines
• Manual Indices
• Electronic Data Bases
• Search Engines

• The Internet
• Searching the Web
• Electronic Sources for Accounting Research
• FARS
• Others
• Search Guidelines

3
Authoritative Sources of Literature

• Primary publications of Promulgatory
  Organizations
• Statements on Financial Accounting Standards
• Interpretations
• Technical Bulletins
• Implementation Guides
• Emerging Issues Task Force Positions
• Also, ARBs, APBs, SOPs, Practice Bulletins,
  Accounting and Auditing Guides, Industry
  Checklists (all available from the AICPA) if not
  superseded

4
Authoritative Sources of Literature

• Primary publications of Regulatory Organizations
  such as SECs
• Financial Reporting Releases
• Staff Accounting Bulletins
• Accounting and Auditing Enforcement Releases
• Concept and Interpretive Releases

5
Authoritative Sources of Literature

• Publications from Private Sources such as
• Standards and Poors publications
• Journals and research reports (see Appendix A)
• CPA Societies publications such as the CPA
  Journal
• Academic publications such as the publications of
  the American Accounting Association
• Accounting Horizons and other journals

6
Authoritative Sources of Literature

• GAAP Hierarchy
• Sufficiency of evidence
• Sufficiency of synthesis
• Sufficiency of analysis
• matters of professional judgment and due
  professional care
• Quality evidence needs a GAAP Hierarchy
• SAS 69 provides this hierarchy (Exhibit 3-1 next
  slide)

7
Exhibit 4-1
8
Major Issue of Authority

• Whether or not the pronouncement has been exposed
  to public comment
• Levels 1-3 are
• Levels 4-5 generally are not

9
Indices, Data Bases and Search Engines

• Manual Indices
• Accounting and Auditing Standards
• Accounting Standards, Current Text. This is a
  loose-leaf publication of the FASB. It is updated
  as new standards are issued. Thus, it provides
  current financial accounting standards. It is
  organized by subject.
• AICPA Professional Standards. Current Statements
  on Auditing Standards issued by the Auditing
  Standards Board of the AICPA. It is organized by
  topic.
• Audit and Accounting Manual. AICPAs practice
  aids
• Audit and Accounting Guides. AICPAs general and
  industry guides for specific accounting and
  auditing issues.
• EITF Abstracts. This is a loose-leaf publication
  of the FASB. It provides the Emerging Issues Task
  Force summaries..

10
Indices, Data Bases and Search Engines

• Manual Indices
• Annual Reports and Financial Ratios
• Accounting Trends and Techniques. AICPAs annual
  survey of companies concerning their accounting
  practices, alternative accounting methods used,
  and types of disclosure.
• Annual Statements Studies. Robert Morris
  Associates five-year comparative ratios for over
  300 industries.
• Industry Norms and Key Business Ratios. Dun
  Brad Streets five-year comparative ratios for
  over 800 industries.

11
Indices, Data Bases and Search Engines

• Manual Indices
• International Accounting
• Doing Business in ... These are booklets
  published by accounting firms such as Ernst and
  Young and PriceWaterhouseCoopers on various
  countries around the world. They cover
  accounting, auditing, tax, and legal issues for
  doing business in the country covered in the
  booklet.
• Professional Accounting in Foreign Countries.
  AICPAs publication discussing major
  international accounting and auditing issues.
• Various Dictionaries, Handbooks and Textbooks
• Numerous entries here. Examples are Accountants
  Handbook and Handbook for Accounting and
  Auditing. They provide information on standard
  setting organizations, presentation and analysis
  of financial reports, specialized accounting for
  various industries, etc.

12
Electronic Data BasesAnd Search Engines

• Practically unlimited sources are stored and
  indexed in these data bases (also called info
  bases)
• Powerful dynamic search engines as compared with
  the old static hard copy indices
• At least the abstract of the article or the
  pronouncement, and in many cases the text of the
  full document

13
Electronic DatabasesAnd Search Engines

• Retrieval is not very easy and needs multiple
  criteria
• Requisite accounting knowledge is needed
• Professional judgment
• GAAP hierarchy
• This problem presents business opportunities for
  accountants

14
The Internet

• A virtual network of computers across the World
• A result of US Defense Advanced Research Project
  Agency research
• Each computer is connected to an internal server
  or external service such as AOL
• The servers are connected to each other in the
  world wide web or www.

15
The Internet

• An internet address is called a URL (Unique
  Resource Locator)
• It identifies the unique address and domain
  (e.g., edu for educational institutions)
• A web site can be a gateway to many other web
  sites through links
• For example, www.Rutgers.edu/Accounting/raw.htm
  is a gateway.

16
Searching the Web

• Electronic searches can be tedious due to
• the volume of information
• variety of web site designs
• Slow peak use time
• A lot of junk

17
Searching the Web

• Guidelines to search the Web
• Good search strategy
• Clear ideas about the information sought
• Search engines are not created equal (some
  specialize in areas such as company information)
• Assess the reliability of the information on the
  site (purpose, source, style, and content)
• Look for good organization and easy navigational
  tools

18
Searching the Web

• Guidelines to search the Web
• Assess the reliability of the content for
• Accuracy
• Comprehensiveness
• Currency
• Security/Integrity

19
Searching the Webfor Accounting Literature

• Dedicated infobases and search engines
• Accounting and Auditing Standards (Domestic and
  International)
• Accounting Firms Data Bases. Major international
  accounting firms have developed professional
  literature data bases for the use of their
  professionals. These data bases are generally
  available to the public at a fee (i.e., you must
  receive a user name and a password to use them.
  An example is Arthur Andersens Accounting
  Research Manager. It is available at
  www.arm.arthurandersen.com.
• FARS Data Base (www.FASB.org). This is Financial
  Accounting Research System (FARS) and it is
  published by the FASB. It is currently available
  on a CD and is updated quarterly. It provides
  access to the FASBs and the AICPAs original
  pronouncements, the Current Text, EITF, FASBs
  questions and answers (QA), and more.
• ProQuest (www.ProQuest.umi.com). Provides access
  and search of various data bases such as
  ABI/Inform Global, Accounting and Tax (newspapers
  and periodicals). Key word search results in a
  listing of articles form newspapers and
  periodicals that provide at least abstracts and
  in many cases the full text of the article.
  ABI/Inform also provides information on over
  6,000 companies world-wide updated at least
  monthly.

20
Searching the Webfor Accounting Literature

• Dedicated infobases and search engines
• Annual Reports and Financial Ratios
• Bloomberg (www.Bloomberg.com). Financial ratios,
  market data, and economic and political
  information in various market sectors. Can print
  screens, but can not download information to
  files.
• Disclosures Global Access (www.disclosure.com).
  Market data and company financial statements, but
  read and print only pdf files.
• EDGAR (www.SEC.gov). Securities and Exchange
  Commissions Electronic Data Gathering and
  retrieval System (EDGAR). Provides a data base in
  which company filings (e.g., 10-K reports) are
  available for public use. Use PriceWaterhouseCoope
  rs edgarscan (http//bamboo.tc.pw.com) to access
  EDGAR and download files onto Excel spreadsheet
  program.
• Lexis Universe Financial Information
  (www.Lexis-Nexis.com). Full text of annual
  reports that can be copied and pasted onto other
  programs (e.g., word processors).
• Market Guide Database (www.marketguide.com).
  Annual reports, financial ratios, and stock
  market information. Can be downloaded to Excel
  spreadsheet program.

21
Searching the Webfor Accounting Literature

• Dedicated infobases and search engines
• Gateways (Numerous useful entries here. Examples
  are)
• Accounting/Auditing/tax (www.taxsites.com) This
  site provides links to hundreds of sites
  organized by accounting, auditing, and tax.
• Information for accounting students
  (www.accountingstudents.com). This site is useful
  for searches on various issues of interest to
  accounting students ranging from links to
  accounting firms web sites and information for
  professional contact and research.
• Rutgers University (www.Rutgers.edu/Accounting/raw
  .htm). This site provides links to many sites
  ranging from the FASB to the directory of
  accounting faculty world-wide.

22
Nature of These Data Bases

• Some have extensive coverage well beyond
  accounting (e.g., Lexis Academic Universe)
• Others are very specialized (e.g., FARS)
• Others are somewhere in between (e.g., AAs
  Research Manager)

23
Examples of How To Search

• FARS Data Base
• FASB-OP---Original Pronouncements contains all
  AICPA and FASB pronouncements in chronological
  order including totally superseded
  pronouncements
• FASB-CT----Current Text contains the General
  Standards, Industry Standards, and the Current
  Text sections that have been superseded but are
  still applicable due to a delayed effective date
• EITF---Emerging Issues Task Force includes the
  full text of each abstract for every issue
  discussed by the Emerging Issues Task Force since
  its inception in 1984
• FASB-QA---Staff Implementation Guides contains
  staff Special Reports and other published
  implementation guidance. This guidance is for
  several specific FASB statements, including
  statements on future contracts, computer software
  and so on.
• FASINDEX contains the combined topical index for
  all above databases in FARS.

24
Examples of How To Search

• FARS Data Base
• Use the Query command for search

25
Limiting and Expanding Operators

• Limiting Operators
• AND (or the symbol but not the lower case and)
  is used to look for the word before and after it.
  Thus, a search for account AND receivable looks
  for account and receivable. It finds only
  passages where account and receivable are found
  somewhere in the passage.
• If you want the two words to be found in an exact
  order, then use quotation marks around the words
  in the order you want. For example, account
  receivable indicates that you are looking for
  account receivable, but not for receivable
  account.
• If you want to find account receivable but you
  dont mind if they are located within n (say 10)
  words from each other, then specify account
  receivable/n. Also if you are looking for
  account receivable or receivable account
  within n words, you can specify account
  receivable_at_n.
• If you want to find one of the terms but not in
  combination with the other you can use the NOT
  (or the symbol but not the lower case not)
  operator. For example, receivable NOT account
  will find all passages in which receivable
  appears but not in combination with account.

26
Limiting and Expanding Operators

• Expanding Operators
• OR (also the symbol but not the lower case or)
  operator is used to search for all passages that
  contain a word or another. For example, The
  search for receivable OR account will find all
  passages that have either account or receivable
  words in it.
• If you want to find all the passages that have
  both words except when they are together, then
  use the exclusive XOR (also the symbol but not
  the lower case xor). This search will find all
  receivable and account words, but not receivable
  account or account receivable.
• If you want to find all variations of a key word,
  then use an asterisk () at the end of the word.
  For example, account will locate account,
  accounting, accountant.

27
Case Illustration Bell Technologies, Inc.

• Literature Search from
• FARS

28
Bell Technologies, Inc.

• Facts
• Closely held, 52 owned by Joseph Bell
• Sold distribution rights to Hesser Systems for
  1,000,000, receives 100,000 per quarter
  beginning on 2/1/20X2 -- oral agreement
• Prime rate 10 (recent credit line prime plus 2)
• Hesser is a major customer (70 of sales in year
  ending 12/31/20X1)

29
Bell Technologies, Inc. Objectives and Key words

• Timing of Revenue Recognition and the Installment
  Method
• Keywords Revenue recognition (97 hits) AND
  installment (3 hits),
• APB Opinion No. 10, Omnibus Opinion -- 1996
• Revenue is recognized when transaction is
  completed with provision for uncollectible
  accounts
• Par. 12 is the source for installment method if
  collection is doubtful -- it isnt in the case of
  Hesser

30
Bell Technologies, Inc. Objectives and Key words

• Discounting Installment Payments
• Keyword Present value (66 hits) AND interest (7
  hits)
• APB No. 21, Interest on Receivables and
  Payables
• Impute interest rate per Pars. 13 14
• at a minimum, it is the prime rate of 10, but
  12 is more appropriate (the rate of credit line)

31
Bell Technologies, Inc. Objectives and Key words

• Major Customers
• Keyword major customers (6 hits)
• FAS No. 131, Disclosure about Segments of an
  Enterprise and Related Information
• Par. 39, "An enterprise shall provide information
  about the extent of its reliance on its major
  customers

32
Bell Technologies, Inc. Objectives and Key words

• Related Parties Disclosure
• Keywords Related party transactions (36 hits)
  AND disclosure requirements (2 hits)
• FAS No. 57, Related Party Disclosures
• Per Par. 24f, Bell and Hesser are related because
  Hesser can significantly influence the
  management of Bell (Hesser may also be equally
  dependent on Bell)

33
Bell Technologies, Inc. Objectives and Key words

• Deferred Income taxes
• Keywords Temporary differences (266 hits) AND
  deferred income taxes (81 hits)
• SFAS No. 109, Accounting for Income Taxes
• Per Par 41, deferred tax liability representing
  the tax effects of the uncollected installment
  receivables classified as current assets should
  be classified as a current item and the balance
  of deferred tax liability as non-current item.