Answer the following questions after reading activity
Activity:
Objectivity (also called “verifiability”) and bias (usefulness) are two extremely important characteristics of accounting. Examine each of the following situations for possible impact upon these key constructs.
Scenario One:
You work as an accountant for a corporation headquartered in the U.S. The Board of Directors recently convened, and while focusing on financial affairs, SFAS No. 114 came up as part of policy discussion. James Washington, CFO, introduced SFAS No. 114:
“The latest standard on troubled debt restructuring, SFAS No. 114, calls for newly restructured receivables to be discounted at the original or historical discount rate.
“It is important for you to know that this was the majority position, but two board members disagreed with the majority position because they thought the discount rate should be the current discount rate, given the terms of the note and the borrower’s credit standing. Unfortunately, this issue impacts both verifiability and usefulness.”
The CFO and the Board is interested in this potential impact on objectivity and bias, and Mr. Washington has sent a request to all staff via email.
Email Message:
To: Student
From: Mr. Washington
Subject: Impact on Objectivity and Bias
Hi! I received a request from our Board of Directors for accounting staff input regarding SFAS No. 114. In particular, they want to know how the consensus opinion of staff on how the use of the original or historical discount rate impacts objectivity and bias.
End of email.
Scenerio 2:
Mr. Washington now has enough information to report back to the board, but realizes that SFAS No. 115 is also on the agenda. Acknowledging that the board is likely to request the overall opinion of his entire staff, he quickly sends a message.
Email Message 2:
To: Student
From: CEO Mr. Washington
Subject: Impact on Objectivity and Bias
Hi student! I just realized that SFAS No. 115 is on the agenda and that the Board will likely be interested in how you believe this change will impact objectivity and bias. As you know, SFAS No. 115 requires marketable equity securities to be carried at fair value or market value. Its predecessor, SFAS No. 12, required marketable equity securities to be carried at lower-of-cost-or-market. How do you see this change impacting objectivity and bias?
End of email.
Questions: (to be answered)
Question 1. What happened here? Were there really any right or wrong answers? (1-2 Paragraphs)
Question 2. Why or why not? (1 Paragraph)
Question 3. Can even a minimal exposure to accounting theory influence reasoning power? ( 1-2 Paragraphs)
Question 4. Is accounting theory really necessary for the establishment of accounting rules? Why or why not? (1 to 2 Paragraphs)