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.
You can access the Financial Accounting Standards Board (FASB) Financial Accounting
Standards Codification database at: http://aaahq.org/ascLogin.cfm. Type in the following:
Username: AAA52092
Password: 9PbU7QX
Click on “FASB Accounting Standards Codification” and the database will open. The
topics are found on the left side of the welcome page. Clicking on the topic will return the
subtopics and contents. You can access each topic by either scrolling over the topics and
subtopics until you find the related content or topic or by using the search box found in
the top right of the screen.
I. FASB Accounting Standards Codification (FASC) Questions
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. This section is a good
general source of information about the FASC and should be reviewed prior to starting to
answer the specific questions set forth in all sections. The related research questions
that you must answer are:
(a) When did the FASC Codification become effective?
(b) Did the FASC change prior GAAP?
(c) What does the FASB expect from the new FASC structure and system?
(d) What are the “topics” used in the ASC?
(e) Are Securities and Exchange Commission (SEC) references included in the ASC?
II. Topic-Specific Research
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, (1) provide the citation number (topic and subtopic) that
addresses the question and (2) answer the question. Document this under the question,
indenting your answer or otherwise indicating it is the answer (bold, underline, different
color, etc.)
1.Asset Impairments
Your client provides warehousing services for companies in several midwestern cities.
The client has not been performing well due to increased competition and the loss of
several customers that have recently gone out of business. Your client suspects that the
plant and equipment may be impaired and wonders whether those assets should be
written down. Given the company’s prior success, this issue has never arisen in the past.
Your client has asked you to assist researching this issue.
(a) What is the primary authoritative guidance for asset impairments? Briefly discuss the
scope of the standard (i.e., explain the types of transactions to which the standard
applies).
(b) Give several examples of events that would cause an asset to be tested for
impairment.
(c) What is the best evidence of fair value? Describe alternate methods of estimating fair
value?
(d) Does it appear that ABC should perform an impairment test? Explain.
2. Goodwill
King Company is contemplating the purchase of a smaller company, which is a
distributor of King’s products. Top management of King is convinced that the acquisition
will result in significant synergies in its selling and distribution functions. You audit
senior asked you to document the effects of the acquisition on the combined company’s
financial statements.
(a) Identify the primary authoritative guidance that addresses goodwill and other
intangible assets.
(b) Define goodwill.
(c) Is goodwill subject to amortization? If not, would it ever be reflected in the income
statement? Explain.
(d) When goodwill is recognized for a subsidiary, how should it be reviewed or tested
for impairment?
3.Stock Based Compensation
Richardson Company is contemplating the establishment of a share-based compensation
plan to provide long-run incentives for its top management. However, members of the
compensation committee of the board of directors have voiced some concerns about
adopting these plans, based on news accounts related to a recent accounting standard in
this area. They have asked you to conduct some research on this recent standard so they
can be better informed about the accounting for these plans.
(a) Identify the primary authoritative guidance that addresses the accounting for share-
based payment compensation plans.
(b) Briefly discuss the objectives for the accounting for stock compensation. What is the
role of fair value measurement?
(c) The Richardson Company board is also considering an employee share-purchase
plan, but the Board does not want to record expense related to the plan. What criteria
must be met to avoid recording expense on an employee stock-purchase plan?
