Accounting Rulemaking Authorities and Accounting Research, written by Wanda A. Wallace, explains how to conduct accounting research, how to evaluate conflicting authoritative literature, and how to reason by analogy, focusing on the substance of economic transactions being evaluated in a particular context.  

This Portfolio can be vital in addressing a variety of settings. Those who prepare and audit financial statements can hone their ability to justify and defend the positions taken on accounting matters. This is of particular importance when the positions taken are considered unusual or controversial.  

Before discussing how accounting research is conducted, this Portfolio considers why such research is performed.  Then, it examines how economic activity is measured by accounting processes, how the nature of an entity influences the accounting approach, and what to consider when selecting accounting methods.

This Portfolio also reveals the process for formulating the accounting research question through accounting research resources, brainstorming, decision trees and flowcharts, and scientific analysis.  In addition, Accounting Rulemaking Authorities and Accounting Research examines the industry’s Generally Accepted Accounting Principles (GAAP), including historical perspective, contemporaneous considerations, and future developments. 

Anyone who participates in evaluating position papers put forth by standard setters and regulators will also discover the skills necessary to identify the generally accepted accounting principles relating to how to neutrally reflect the economic substance of entities' operations. 

Worksheets provide practical reference tools and a case study illustrating the research approaches discussed in this Portfolio. 

Accounting Rulemaking Authorities and Accounting Research allows you to benefit from: 

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
• Invaluable practice documents including tables, charts and lists.
• Guidance from world-class experts.
• Real-world and in-depth analysis that lets you explore various options.
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
• Alternative approaches to both common and unique tax scenarios. 

This Portfolio is included in the Accounting Policy & Practice Series, a comprehensive series of titles which explain, explicate, and offer commentary on a wide range of accounting and financial management topics, including revenue recognition, income taxes, leasing, business combinations, debt instruments, risk management, internal controls and more. 

Detailed Analysis

I. Introduction

II. Uses of Accounting Research

Introductory Material

A. Determining and Documenting Positions Taken in Financial Statements

B. Determining Appropriate Levels of Disclosure in Financial Reporting

C. Financial Analysis of Customers, Suppliers, and Other Vendors

D. Substantiating and Propounding Causes for Action or Related Defense

E. Identifying How to Neutrally Reflect Economic Substance

F. Responding to Position Papers by Standard Setters

III. Context Matters When Performing Accounting Research

Introductory Material

A. Economic Activity Is Measured by Accounting Processes

B. Managerial and Tax Accounting

1. Managerial Accounting

2. Tax Accounting

C. Financial Accounting

1. Report Users

2. Country-Based Generally Accepted Accounting Principles (GAAP)-U.S.

3. International Financial Reporting Standards (IFRS)

D. The Nature of an Entity Influences the Accounting Approach

1. Profit Oriented

a. Privately Owned

(1) Sole Proprietorships

(2) Partnerships

(3) Corporations

(a) Legal Entities

(b) Consolidated Entities

b. Publicly Owned

2. Not-for-Profits

a. Colleges, Universities, Hospitals, and Other Voluntary Organizations That Provide Services Similar to Those Provided by For-Profit Enterprises

b. Governmental Authorities, Educational Institutions, Hospitals, etc. That Provide Services Similar to Those Provided by For-Profit Enterprises

c. Charitable and Religious Organizations

d. Private Foundations

e. Other

3. Governmental Units

a. State and Local

b. Federal

4. Summary of Organizational Structures

E. Industry Specific Accounting

1. Industry Guidance

2. Regulatory Accounting

F. Considerations in Selecting From Among Accounting Methods

1. Industry Practice

2. Bookkeeping or Other Direct Costs

3. Management's Attitude

4. Regulatory Considerations

5. Bond Covenants

6. Agency Relationships

7. Compensation Plans

8. Controllability and Volatility Effects

9. Management's Reporting Goals

10. Planned Financing, Production, and Investment Decisions

11. Standard Setting

12. Existing Accounting Methods

IV. Formulating the Accounting Research Question

Introductory Material

A. Taxonomy of an Accounting Issue

1. Determining the Journal Entry

2. Presentation of Account Balance on Financial Statements

3. Note Disclosure Requirements

B. Accounting Research Resources

C. Brainstorming

D. Apply Decision Trees and Flowcharting

E. Steps in Scientific Analysis

1. Examine the Problem, Including the Apparent Cause or Claim

a. Articulate Alternative Problem Definitions

b. Develop Point-Counterpoint Positions Regarding the Nature of the Problem

c. Exhaust the Possibilities

d. Critique the Relative Strength of Each Characterization of the Problem

e. Evaluate the Consequences of Each Problem Definition

2. Examine the Context Before, During, and After the Transaction or Event Creating the Problem or Dispute

a. Implications as to Cause

b. Consequences of the Problem

3. Quantify and Identify the Qualitative Dimensions of the Problem or Claim

4. Develop "What If" Assumptions

5. Review Industry Data

6. Perform a Reality Check

V. Generally Accepted Accounting Principles (GAAP)

A. What Is GAAP?

B. Historical Perspective

C. Contemporaneous Considerations

1. The U.S. GAAP Hierarchy

a. Profit Oriented-Private Company Status

(1) Accounting Research Bulletins

(2) Accounting Principles Board Opinions

(3) AICPA Accounting Interpretations

(4) FASB Statements of Financial Accounting Standards and Interpretations

(5) FASB Technical Bulletins

(6) FASB Statements of Financial Accounting Concepts

(7) FASB EITF Abstracts

(8) AICPA Statements of Position and Practice Bulletins

(9) FAS 133 Implementation Issues

(10) FASB Staff Positions

(11) FASB Staff Implementation Guides (Q & As)

(12) AICPA Audit and Accounting Guides

(13) Other

b. Profit Oriented-Public

c. Not-for-Profits-Colleges, Universities, Healthcare Providers, Public Authorities, Utilities and Certain Other Entities

d. Governmental-State and Local

e. Governmental-Federal

f. Profit Oriented-Company Following IFRS

2. Reference Disclosure Checklists

3. Check Current Developments

a. The FASB Report

b. Action Alerts

c. GASB Action Report

d. The CPA Letter and Other AICPA Information Sources

4. Review Exposure Drafts for Potential Relevance

5. Web Sites

D. Future Developments

1. Conceptual Framework Improvements Project

2. Convergence of International and Domestic Standards

3. Rules-Based, Principles-Based, and Objectives-Oriented Approaches

a. Implementation Guidance

b. Increasing Role for Valuation Theory and Techniques

c. Achieving Transparency Through Disclosure

4. Incremental Relative to "Big Bang" Changes in Reporting

VI. Visualize Financial Accounting

Introductory Material

A. Postulates or Assumptions

1. Monetary Unit

2. Economic Entity

3. Periodicity

4. Going Concern

B. Principles

1. Historical Cost

2. Matching

3. Revenue Recognition

4. Full Disclosure

C. Constraints

1. Materiality

2. Cost Benefit

3. Conservatism

4. Industry Practice

D. Rules

1. Common Themes

2. Reason by Analogy

3. Conflicting Evidence

4. Consideration of Particular Circumstances

5. Substance Over Form

6. Interpretation of Converging Information

E. Guides

1. Management Assertions

a. Existence or Occurrence

b. Valuation or Allocation

c. Completeness

d. Presentation and Disclosure

e. Rights and Obligations

2. Quality of Earnings

3. Asset Quality

4. Persistence of Earnings

5. Managing Change

a. Executory Contracts

b. Off-Balance Sheet

6. Ethical Responsibilities

7. Legal Exposure

F. Research

1. Modes of Data Collection

a. Interviews

b. Focus Group

c. Observations

d. Written Surveys

e. Inspection

2. Archival Documentation

a. Chart of Accounts and Transaction Records

b. Suspense Accounts

c. Adjusting Journal Entries

d. Audit Trails

e. Reference Documents

f. Internal Studies

3. Sensitivity Analysis

a. What Could Cause a Change in the Analyses?

b. Would Such a Change Lead to a Change in Accounting?

G. Contemporaneous Documentation

1. How Was the Substance of the Transaction or Event Determined?

2. What Literature Was Applied?

3. How Was That Literature Identified?

a. Research Mode

b. Subject Matter Defined

c. Topical Indices Referenced

d. Words and Phrases Used

e. Other Considerations

4. From Where Was It Accessed?

a. Documentation of Who Was Contacted, When, and How

b. Documentation to Facilitate Replication of Research Process

5. Which Alternatives Were Considered?

6. Why Were Various Alternatives Rejected?

7. What Is the Basis for Concluding the Application of Existing Literature Was an Appropriate Application?

8. What Communications Arose Among Preparers, Auditors, and the Audit Committee?

9. Were Any Other Parties Involved in the Research and Evaluation Process?

10. Which Disclosures Were Made Regarding Transactions, Events, and Accounting Treatments?

11. Why Were Such Disclosures Deemed Sufficiently Clear and Transparent?

VII. Basic Concepts

Introductory Material

A. Representational Faithfulness to Underlying Substance

1. Arm's-Length Transaction

2. Contractual Agreements and Oral Commitments

B. Understandable to Users

C. Decision-Usefulness Criterion

1. Informativeness

2. Assessment of Future Cash Flows

a. Amount

b. Timing

c. Uncertainty

D. Qualitative Characteristics of Accounting Information

1. Primary

a. Relevance

(1) Timely

(2) Predictive Value, Feedback Value or Both

b. Reliability

(1) Representational Faithfulness

(2) Verifiable

(3) Neutral

c. Absent Relevance and Reliability, Information Will Not Be Useful

2. Secondary Decision-Specific Characteristics

a. Comparability, Including Consistency

b. Secondary Qualities Interact With Relevance and Reliability to Contribute to Usefulness

3. Constraints

a. To Be Useful, Benefits Should Exceed Costs

b. Materiality

(1) Information Can Be Reliable Even Though It May Contain Immaterial Errors

(2) Errors That Are Not Material Will Not Perceptibly Diminish Usefulness

4. Relative Weights of Qualities Vary According to Circumstances

a. To Be Useful Each Quality Must Be Shown to a Minimum Degree

b. Trade-Offs Will Differ in Different Situations

E. Asset/Liability View

1. Other Elements Are Defined in Terms of Changes in These Fundamental Elements

2. Why Symmetry Does Not Result With the Revenue/Expense View

3. SEC Expresses Support for This Anchoring Approach

a. Economic Similarity of Assets or Liabilities Guides Scope

b. When Identified Assets and Liabilities Should Be Recognized

c. How to Measure Such Assets and Liabilities

d. What Transactions or Events Should Be Addressed

e. Consider Creation, Elimination, and Change of Assets and Liabilities by the Transaction or Event

F. Revenue/Expense View

1. Directly Measures Revenue and Expenses Associated With Transactions, Meaning the Balance Sheet Is the Residual to the Income Statement

2. Why Symmetry Does Not Result With the Revenue/Expense View

3. SEC Expresses Preference for Asset/Liability View in Standard-Setting

G. Unlikely That a Single Right Answer Exists

1. Acknowledge Ambiguity

2. Recognize Incomplete Information

3. Assess Degree of Uncertainty

4. Identify Known Blind Alleys or "Red Herrings"

5. Solve the Problem

VIII. Complications

Introductory Material

A. Exceptions to Scope of Various Pronouncements

1. Role Within Compromises

2. Standard-Setting Lag: Effects on Timeliness

B. Bright Lines in Form and Economic Substance

C. Opportunities for "Gaming the System" Via Financial Engineering ("Reverse Engineering") That Stems From Flexibility

D. Changing Times and Conditions

1. Consistency

2. Preferability Among Alternatives

a. Circumstance Specific

b. Accountants' Preferability Letter for Public Companies: Exhibit to Reports on Forms 10-K and 10-Q

c. Disagreements Between Independent Auditors and Clients

d. Rule 203

3. Experimentation With New Principles

4. Experimentation With New Forms of Reporting

5. Subsequent Events and Hindsight

a. Discovery of Errors

b. Frauds

c. Restatements

d. Reaudits

E. Selecting From Among Possible Measurement Attributes

F. Related Parties and Multiple-Party Exchanges

G. Professional Judgment and Comparability

IX. Available Tools

Introductory Material

A. FASB Web Site http://www.fasb.org

1. Information Accessible

2. Financial Accounting Research System (FARS)

3. FASB Accounting Standards Codificationâ„¢

B. AICPA reSOURCE

1. Technical Practice Aids

2. Accounting Trends and Techniques

3. Technical Information Service (TIS)

C. SEC Web Site http://www.sec.gov

1. Regulation S-X

2. Codification of Staff Accounting Bulletins

3. Consultation Available With SEC Staff

4. Accounting and Auditing Enforcement Releases (AAERs)

D. FASAB Web Site http://www.fasab.gov

E. GASB Web Site http://www.gasb.org

F. AICPA Web Site http://www.aicpa.org

G. IASB Web Site http://www.iasb.org

H. Technological Capabilities: Extensible Mark-Up Languages

1. XBRL: EXtensible Business Reporting Language

2. Tag-Data-Tag Structures Content and Supports Compatibility

I. Other

1. Search Engines

2. Web Sites

3. Databases

a. Search Approaches

b. Sampling

c. Use of Analytical Procedures

d. Other Analytical Tools

X. Other Literature of Potential Relevance

Introductory Material

A. Public Company Accounting Oversight Board

B. American Institute of Certified Public Accountants

1. AICPA Audit Risk Alerts

2. AICPA General and Industry Audit and Accounting Guides

3. AICPA Practice Bulletins

C. International Federation of Accountants (IFAC)

1. International Standards on Auditing (ISAs)

2. International Auditing Practice Statements (IAPSs)

D. Generally Accepted Government Auditing Standards (GAGAS)

E. Cost Accounting Standards Board (CASB)

1. CASB Statements

2. CASB Interpretations

F. Industry Regulatory Authorities' Pronouncements

G. Legislation

H. Relevant Tax Literature

I. Case Law

J. Handbooks, Textbooks, and Reference Materials Other Than Journals

K. Newspapers, Magazines, Journals

1. Search Terms for Databases

2. Lexis/Nexis

3. BNA

4. Journals of Professional Organizations

L. Press Releases, Filings, and Web Sites

XI. Refining Searches

XII. Conclusion

Working Papers

TABLE OF WORKSHEETS

Worksheet 1 Hierarchy of U.S. Generally Accepted Accounting Principles

Worksheet 2 [Reserved]

Worksheet 3 Clarification of Applicability of GAAP Hierarchy Under SAS 69 for Governmental Colleges and Universities, Governmental Healthcare Providers, Public Authorities, Public Utilities, Public Benefit Corporations, and Governmental Entities That in the Past, Prior to GASB, Have Used Not-for-Profit Accounting and Reporting

Worksheet 4 GAAP Hierarchy Under SAS 69 (& 91) for State and Local Governmental Entities

Worksheet 5 GAAP Hierarchy Under SAS 69 (& 91) for Federal Government

Worksheet 6 Themes of Statements of Financial Accounting Standards as of September 2008

Worksheet 7 Resources Accessible

Worksheet 8 Information Gathering Template

Worksheet 9 Exploring Research Questions Within Accounting Resources

Worksheet 10 Case Study

Worksheet 11 Examples of Phrasing From Preferability Letters Filed Since 1992 by Public Companies

Worksheet 12 List of Acronyms

Worksheet 13 Glossary

Bibliography

OFFICIAL

Public Laws

C.F.R.

Court Cases

Securities and Exchange Commission:

Agency Pronouncements

Financial Accounting Pronouncements:

AICPA Accounting Research Bulletins

AICPA Committee on Accounting Terminology Accounting Terminology Bulletins

AICPA Accounting Principles Board Statements and Research Studies

AICPA Accounting Principles Board Opinions

AICPA Accounting Interpretations

AICPA Statements of Position

FASB Statement of Financial Accounting Standards

FASB Statement of Financial Accounting Concepts

FASB Interpretations

FASB Technical Bulletins

FASB Emerging Issues Task Force

FASB Reports

GASB Statement of Governmental Accounting Standards

GASB Concepts Statements

GASB Exposure Draft

Financial Accounting Foundation and Governmental Accounting Standards Advisory Council

Research Reports

FASAB: Original Pronouncements, Version 2.1 (10/2001)

Interpretation of Federal Financial Accounting Standards

Federal Financial Accounting Technical Bulletins

International Accounting Standards Board

Securities and Exchange Commission:

Accounting Series Releases

Staff Accounting Bulletins

Policy Statements

Studies

Accounting and Auditing Enforcement Releases

Other

Speeches

Auditing Standards Original Pronouncements:

AICPA Statements on Auditing Standards

AICPA Code of Professional Conduct

AICPA Audit and Accounting Guides

Public Company Accounting Oversight Board (PCAOB):

PCAOB Auditing Standards

PCAOB Interim Auditing Standards

Government Accountability Office (previously General Accounting Office)

United Kingdom's Accounting Standards Board

Codifications

UNOFFICIAL

BNA Tax and Accounting Portfolios

Treatises

Periodicals

1956

1963

1966

1968

1969

1973

1976

1978

1979

1980

1981

1982

1983

1984

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1987

1988

1989

1990

1991

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1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Miscellaneous