Skills for Accounting Research: Ch-1

Very detailed.

At which level of an accountant's career is research a significant focus?

Corporate accounting policy team/Advisory services providers.

Why are research skills important for entry-level accountants or auditors?

Entry-level accountants or auditors need a minimum level of competency in research to perform their job.

What are the three key takeaways regarding research skills in accounting?

Research is required at all levels.

The more you advance, the more research is expected.

Research can lead to a specialized career in accounting.

Which teams or services often focus heavily on research in corporate accounting?

Corporate accounting policy teams, KPMG's Accounting Advisory Services, and EY's Financial Accounting Advisory Services.

What aspect of research is emphasized as a key skill in accounting aside from numbers?

Research and communication.

What are the two types of research described by the term "accounting research"?

1. Research done in practice, often in conjunction with financial statements or tax returns.

2. Academic research, primarily done by candidates pursuing or holding a PhD in accounting.

What is the primary focus of the accounting research discussed in the image?

Technical accounting research.

What are the two main objectives of technical accounting research?

• To account for transactions in a manner that is appropriate and supportable based on authoritative guidance.

• To create documentation describing the research performed and supporting the conclusions reached.

Why might accountants need to conduct accounting research?

To determine the appropriate accounting treatment for a transaction or event, especially when transactions are new, infrequent, highly material, or where the company does not have established practice.

What is the role of documentation in accounting research?

It is necessary to summarize all relevant background, guidance considered, and the basis for the selected accounting position, ensuring compliance with authoritative guidance.

What are relevance and materiality in the context of accounting research?

• Relevance: What influences or makes a difference to an investor or decision maker.

• Materiality: The magnitude of the item, such that the omission or misstatement could influence the judgment of a reasonable person.

What factors influence the allocation of resources for accounting research?

More resources are generally allocated to researching an entity’s most material business issues, while less significant issues receive fewer resources.

In CPA exams, how are research and critical thinking skills assessed?

Through task-based simulations, which account for approximately 50% of the exams in sections such as regulation (REG), auditing (AUD), and financial accounting (FAR).

In which role might corporate accountants perform accounting research?

Corporate accountants, also referred to as preparers of financial statements or tax returns, perform research in conjunction with preparing financial statements or tax returns, or for tax planning purposes.

What are auditors primarily responsible for when conducting accounting research?

Auditors research whether a company’s accounting positions are supportable based on authoritative guidance and to ensure the financial statements conform with GAAP.

How do regulators engage in accounting research?

Regulators, such as the SEC, oversee certain corporations and industries, often reviewing financial statements to ensure compliance and understanding positions taken by companies.

Why might investors need to perform accounting research?

Investors, as users of financial statements, monitor accounting positions taken by companies and may raise concerns when these positions are inconsistent with those of other companies in the same industry.

At what stage do corporate accountants typically perform accounting research?

Before a transaction occurs, to ensure proper accounting treatment and compliance with regulations.

What role do auditors play in accounting research after company documentation is prepared?

They ensure the company’s accounting positions are documented and presented correctly according to GAAP.

Who often conducts accounting research after financial statements are issued?

Investors and regulators conduct research after financial statements are issued to review and monitor a company’s financial practices.

When is accounting research ideally performed?

Before a transaction occurs.

Why is researching a transaction before it happens important?

To evaluate the financial statement impacts and ensure compliance with accounting standards.

What does management adjust during accounting research?

Forecasted earnings to reflect the expected impacts of the transaction.

What is the role of the audit team in researching a proposed transaction?

To review the proposed accounting treatment before the transaction is recorded.

What is the main focus of corporate management when evaluating a transaction?

To align financial impacts with strategic objectives and assess the profitability of the transaction.

What are accounting teams responsible for during transaction research?

Preparing timely documentation of the expected accounting position.

What must companies with limited debt capacity do before raising additional capital?

Evaluate potential instruments to determine if they should be accounted for as equity or debt.

What must the accounting team communicate to management during a transaction?

The financial statement impacts and the research supporting their accounting conclusions.

Why is documentation important for the accounting team in a transaction?

It supports the proposed accounting treatment and serves as a preliminary report for the accounting position.

When must certain accounting elections be documented?

At the time a transaction is executed.

What is an example of a contemporaneous documentation requirement?

Hedge accounting for derivative positions, which reduces income statement volatility.

How do companies typically ensure they comply with contemporaneous documentation requirements?

By reviewing draft transaction documents to evaluate whether the proposed instrument meets all criteria for hedge accounting.

What role do auditors play in the accounting research process before a transaction is recorded?

Auditors review draft agreements and documentation to offer tentative concurrence with the proposed accounting treatment.

Why is it important for auditors to "buy in" early during transaction planning?

It minimizes last-minute disagreements at quarter- or year-end when financial statements are being finalized.

What must auditors maintain when reviewing the accounting team’s documentation?

Independence from management, while still providing early feedback on the proposed accounting treatment.

When might accounting research be required after a transaction occurs?

When the transaction was time-sensitive, highly confidential, limited resources, or could not have been anticipated. Communication issues between deal makers and the accounting team. Or the preparer has limited resources.

What is the primary purpose of researching a past transaction?

To determine how to record the event in the financial statements and document the accounting position.

What might cause communication breakdowns requiring post-transaction research?

A failure between the dealmakers and the accounting team to communicate about the transaction before it was executed.

In what situation would a company perform research only when financial statements are prepared?

When the company has limited resources, such as a small or nonpublic company.

What is the role of documentation in researching past transactions?

To ensure the financial statements reflect the actual terms of the transaction, and to share with the audit team.

Why might a transaction not have been anticipated?

Due to unforeseen events like a natural disaster or a customer’s unexpected bankruptcy.

What should be reviewed if there is a communication failure between operations and accounting teams?

The company should establish a formal process for communicating material or unusual contracts to the accounting team.

What are three parties that perform accounting research after financial statements are issued?

Investors, regulators, and attorneys.

Why do investors perform accounting research after financial statement issuance?

To assess a company’s choice of accounting methods and adjust their models accordingly.

What is the role of regulators like the SEC in post-issuance accounting research?

To review financial disclosures and ensure they meet accounting standards.

Why might attorneys perform accounting research?

To argue or defend against claims of harm caused by a company’s financial reporting.

What is the goal of accounting research when shaping future accounting standards?

To provide input to standard-setters like FASB for clarifications or revisions to standards.

In what environments is accounting research performed?

Public companies, private companies, governmental entities, and for tax purposes.

What is the key difference in research requirements between public and private companies?

Public companies must file with the SEC, while private companies usually do not but still need to meet stakeholder requirements.

What is the role of governmental entities in accounting research?

To prepare financial statements showing how funds are allocated and spent, often requiring research into specific regulations.

Which accounting and auditing standard setters apply to public companies?

FASB (accounting) and PCAOB (auditing).

Which accounting and auditing standard setters apply to international companies?

IASB (International Accounting Standards Board) and IAASB (International Auditing and Assurance Standards Board).

What are the three main sources of tax research guidance?

Statutory sources, administrative sources, and judicial sources.

What are examples of judicial sources for tax research?

U.S. Supreme Court, U.S. Court of Appeals, U.S. District Court, and U.S. Tax Court.

Which body has statutory authority to set accounting standards for publicly held companies in the U.S.?

The SEC (Securities and Exchange Commission).

What year was the SEC given authority to set accounting standards?

1934, under the Securities Exchange Act.

To whom did the SEC delegate the responsibility of setting accounting standards?

Initially to the AICPA, later to the FASB.

What is the role of the FASB (Financial Accounting Standards Board)?

To establish and maintain the GAAP standards for non-governmental entities.

What was created in 2009 by the FASB to simplify authoritative GAAP for non-governmental entities?

The FASB Codification.

What criticism did the Accounting Principles Board (APB) face that led to its dissolution?

Lack of independence and slow response time to emerging issues.

What is the significance of the Sarbanes-Oxley Act in relation to FASB’s funding?

It mandates public companies to pay accounting support fees to fund FASB's operations.

What was the Private Company Council (PCC) established to address?

To simplify GAAP compliance for private companies.

What is the relationship between the SEC and the FASB?

The SEC oversees the FASB’s standard-setting process but relies on the private sector to maintain accounting guidance.

What is the role of the AICPA in the history of U.S. accounting standards?

The AICPA originally formed the Committee on Accounting Procedure (CAP) and later the Accounting Principles Board (APB) to establish standards.

How are FASB board members selected, and what is their required expertise?

They are appointed by the Financial Accounting Foundation (FAF) and must have expertise in areas like investing, accounting, and finance.

What is the primary purpose of Staff Accounting Bulletins (SABs) issued by the SEC?

To provide interpretive guidance on key accounting topics relevant to public companies.

What event led to the creation of the SEC in 1934?

The stock market crash of 1929 and subsequent investor confidence crisis.