Download Solution Manual for Intermediate Accounting 18th Edition, by Donald E. Kieso, Jerry J. Wey and more Exams Accounting in PDF only on Docsity!
CHAPTERl 1
Financial lAccounting land lAccounting lStandards
ASSIGNMENT lCLASSIFICATION lTABLE l(BylTopic)
Topics Questions Cases
- Subject lmatter lof laccounting. 1 4
- Environment lof laccounting. 2, l3, l 28 6, l 7
- Role lof lprinciples, lobjectives, lstandards, land laccounting ltheory. 4, l5, l6, l 7 1, l2, l3, l 5
- Historical ldevelopment lof lGAAP. 8, l9, l10, l 11 8
- Authoritative lpronouncements land lrule- lmaking lbodies. 12, l13, l14, l15, 16, l17, l18, l19, 20, l 21 3, l9, l11, l12, l 14
- Role lof lpressure lgroups. 22, l23, l24, l25, l26, l 27 10, l16, l 17
- Ethical lissues. 29 13, l 15
ASSIGNMENT lCLASSIFICATION lTABLE l(BylLearning lObjective)
Learning lObjectives Questions Cases
- Identify lthe lmajor lfinancial lstatements land lother lmeans lof lfinancial lreporting.
- Explain lhow laccounting lassists lin lthe lefficient luse lof lscarce lresources. 1, l 2 CA1-4, lCA1- 5 3, l 5
- Identify lthe lobjective lof lfinancial lreporting. 4, l 7 CA1-2, lCA1-3, lCA1-4, lCA1-5, lCA1- 6
- Explain lthe lneed lfor laccounting lstandards. 6 CA1-3, lCA1-7, lCA1- 9
- Identify lthe lmajor lpolicy-setting lbodies land ltheir lrole lin lthe lstandard-setting lprocess. 8, l9, l10, l11,13, l14, l15, 16, l 19 CA1-1, lCA1-2, lCA1-3, CA1-7, lCA1-8, lCA1-9, lCA1-11, lCA1- 14
- Explain lthe lmeaning lof lgenerally laccepted laccounting lprinciples l(GAAP) land lthe lrole lof lthe lcodification lfor lGAAP. 12, l14, l18, l19, l20, l 21 CA1-2, lCA1-3, lCA1-7, CA1-8, lCA1- 12
- Describe lthe limpact lof luser lgroups lon lthe lrule- lmaking lprocess.
- Describe lsome lof lthe lchallenges lfacing lfinancial lreporting. 17, l22, l23, l24, l25, l26, 27 28 CA1-10, lCA1-11, lCA1- l13, lCA1-16, lCA1- 17
- Understand lissues lrelated lto lethics land lfinancial laccounting. 16, l17, l 29 CA1-6, lCA1-13, lCA1- 15
SOLUTIONS lTO lCODIFICATION lEXERCISES
CE1- 1
The linformation lat lthis llink ldescribes lthe lelements loffered lin lThe lFASB lAccounting lStandards lCodification. lAs lindicated, lthe lwebsite loffers lseveral lresources lto lenhance lyour lworking lknowledge lof lthe lCodification land lthe lCodification lResearch lSystem. lThis lpage lincludes llinks lto lhelp lpages lwhich ldescribe lspecific lfunctions land lfeatures lof lthe lCodification. lLinks lto lfrequently lasked lquestions, lthe lFASB lLearning lGuide, land lthe lNotice lto lConstituents lare lalso lavailable lon lthis lpage. Help lpages lFAQ Learning lGuide About lthe lCodification—Notice lof lConstituents
CE1- 2
The lfollowing linformation lis lprovided lat lthe lProviding lFeedback llink: The lCodification lincludes la lfeature lwhich lcan lbe lused lto lsubmit lcontent-related lfeedback lor lgeneral, lsystem-related lcomments. lThe lfeedback lsystem lis lnot ldesigned lfor lcomments lon l proposed lAccounting lStandards lUpdates. Content-related lfeedback As la lregistered luser l of lthe lFASB lAccounting lStandards lCodification lResearch lSystem lwebsite, lyou lare lable land lare lencouraged lto lprovide lfeedback, lat lthe lparagraph llevel, lto lthe lFASB labout lany lcontent-related lmatters. lFor lspecific linformation labout lthe lCodification land lthe lfeedback lprocess, lplease lread lthe lNotice lto lConstituents. To lprovide lcontent-related lfeedback: Click lthe lSubmit lfeedback lbutton lbeneath lthe lparagraph lfor lwhich lyou lwant lto lprovide lfeedback. lEnter lor lcopy/paste lyour lcomments lin lthe ltext lbox. lNote lthat lformatting l(lists, lbold, letc.) lis lnot lretained land lthere lis la l4,000 lcharacter llimit lon lfeedback lsubmissions. Click lSUBMIT. lYour lcomments lare lsent lto lthe lFASB land lreviewed lby lFASB lstaff. lYou lcan lalso lsubmit lmultiple lcomments lfor lany lgiven lparagraph, lif, lfor lexample, lyou ldetermine lthat l more linformation lwould lbe luseful lto lthe lFASB lstaff. General lfeedback Click lhere lto lprovide lgeneral lfeedback lon lthe lCodification lin lgeneral, lthe lCodification l Research lSystem lwebsite, land lother lsystem-related litems lthat lare lnot lcontent lspecific.
CE1- 3
The l“What’s lNew” lpage lprovides llinks lto lCodification lcontent lthat lhas lbeen lrecently lissued. lDuring lthe lverification lphase, lupdates lmay lresult lfrom leither lthe lissuance lof lCodification lupdate linstructions lthat laccompany lnew lStandards lor lfrom lchanges lto lthe lCodification ldue lto lincorporation lof lconstituent lfeedback.
ANSWERS lTO lQUESTIONS
1. Financial laccounting lmeasures, lclassifies, land lsummarizes lin lreport lform lthose lactivities land lthat linformation lwhich lrelate lto lthe lenterprise las la lwhole lfor luse lby lparties lboth linternal land lexternal lto la lbusiness lenterprise. lManagerial laccounting lalso lmeasures, lclassifies, land lsummarizes lin lreport lform lenterprise lactivities, lbut lthe lcommunication lis lfor lthe luse lof linternal, lmanagerial lparties, land lrelates lmore lto lsubsystems lof lthe lentity. lManagerial laccounting lis lmanagement ldecision loriented land ldirected lmore ltoward lproduct lline, ldivision, land lprofit lcenter lreporting. 2. Financial lstatements lgenerally lrefer lto lthe lfour lbasic lfinancial lstatements: lbalance lsheet, lincome lstatement, lstatement lof lcash lflows, land lstatement lof lchanges lin lowners’ lor lstockholders’ lequity. lFinancial lreporting lis la lbroader lconcept; lit lincludes lthe lbasic lfinancial lstatements land lany lother lmeans lof lcommunicating lfinancial land leconomic ldata lto linterested lexternal lparties. lExamples lof lfinancial lreporting lother lthan lfinancial lstatements lare lannual lreports, lprospectuses, lreports lfiled lwith lthe lgovernment, lnews lreleases, lmanagement lforecasts lor lplans, land ldescriptions lof lan lenterprise’slsocial lor lenvironmental limpact. 3. If la lcompany’s lfinancial lperformance lis lmeasured laccurately, lfairly, land lon la ltimely lbasis, lthe lright lmanagers land lcompanies lare lable lto lattract linvestment lcapital. lTo lprovide lunreliable land lirrelevant linformation lleads lto lpoor lcapitallallocation lwhich ladversely laffects lthelsecurities lmarket. 4. The lobjective lof lgeneral lpurpose lfinancial lreporting lis lto lprovide lfinancial linformation labout lthe lreporting lentity lthat lis luseful lto lpresent land lpotential lequity linvestors, llenders, land lother lcreditors lin ldecisions labout lproviding lresources lto lthe lentity lthrough lequity linvestments land lloans lor lother lforms lof lcredit. lInformation lthat lis ldecision-useful lto lcapital lproviders l(investors) lmay lalso lbe luseful lto lother lusers lof lfinancial lreporting lwho lare lnot linvestors. 5. Investors lare linterested lin lfinancial lreporting lbecause lit lprovides linformation lthat lis luseful lfor lmaking ldecisions l(referred lto las lthe ldecision-usefulness lapproach). lWhen lmaking l these ldecisions, linvestors lare linterested lin lassessing lthe lcompany’s l(1) lability lto lgenerate lnet lcash linflows land l(2) lmanagement’s lability lto lprotect land lenhance lthe lcapital lproviders’ linvestments. lFinancial lreporting lshould ltherefore lhelp linvestors lassess lthe lamounts, ltiming, land luncertainty lof lprospective lcash linflows lfrom ldividends l or linterest, land lthe lproceeds lfrom lthe lsale, lredemption, lor lmaturity lof lsecurities lor lloans. lIn lorder lfor linvestors lto lmake lthese lassessments, lthe leconomic lresources lof lan lenterprise, lthe lclaims lto lthose lresources, land lthe lchanges lin lthem lmust lbe lunderstood. 6. A lcommon lset lof lstandards lapplied lby lall lbusinesses land lentities lprovides lfinancial lstatements lwhich lare lreasonably lcomparable. lWithout la lcommon lset lof lstandards, leach lenterprise lcould, land lwould, ldevelop lits lown ltheory lstructure land lset lof lpractices, lresulting lin lnoncomparability lamong lenterprises. 7. General-purpose lfinancial lstatements lare lnot llikely lto lsatisfy lthe lspecific lneeds lof lall linterested lparties. lSince lthe lneeds lof linterested lparties lsuch las lcreditors, lmanagers, lowners, lgovernmental lagencies, land lfinancial lanalysts lvary lconsiderably, lit lis lunlikely lthat lone lset lof lfinancial lstatements lis lequally lappropriate lfor lthese lvaried luses.
Questions lChapter l 1 l (Continued)
15. Statements lof lfinancial laccounting l standards l contained lin lAccounting lStandards lupdates lconstitute lgenerally laccepted laccounting lprinciples land ldictate lacceptable l financial laccounting land lreporting lpractices las lpromulgated lby lthe lFASB. lThe lfirst lstandards lstatement lwas lissued lby lthe lFASB lin l1973. Statements lof lfinancial laccounting l concepts l do lnot lestablish lgenerally laccepted laccounting lprinciples. lRather, lthe lconcepts lstatements lset lforth lfundamental lobjectives land lconcepts lthat lthe lFASB lintends lto luse las la lbasis lfor ldeveloping lfuture lstandards. lThe lconcepts lserve las lguidelines lin lsolving lexisting land lemerging laccounting lproblems lin la lconsistent, lsound lmanner. lBoth lthe lstandards lstatements land lthe lconcepts lstatements lmay ldevelop lthrough lthe lsame lprocess lfrom ldiscussion lmemorandum, lto lexposure ldraft, lto la lfinal lapproved lstatement. 16. Rule l 203 lof lthe lCode lof lProfessional lConduct lprohibits la lmember lof lthe lAICPA lfrom lexpressing lan lopinion lthat lfinancial lstatements lconform lwith lGAAP lif lthose lstatements lcontain la lmaterial ldeparture lfrom lan laccounting lprinciple lpromulgated lby lthe lFASB, lor lits lpredecessors, lthe lAPB land lthe lCAP, lunless lthe lmember lcan ldemonstrate lthat lbecause lof lunusual lcircumstances lthe lfinancial lstatements lwould lotherwise lhave lbeen lmisleading. lFailure lto lfollow lRule l 203 lcan llead lto la lloss lof la lCPA’s llicense lto lpractice. lThis lrule lis lextremely limportant lbecause lit lrequires lauditors lto lfollow lFASB lstandards. 17. The lchairman lof lthe lFASB lwas lindicating lthat ltoo lmuch lattention lis lput lon lthe lbottom lline land lnot lenough lon lthe ldevelopment lof lquality lproducts. lManagers lshould lbe lless lconcerned lwith lshort- lterm lresults land lbe lmore lconcerned lwith lthe llong-term lresults. lIn laddition, lshort-term ltax lbenefits loften llead lto llong-term lproblems. The lsecond lpart lof lhis lcomment lrelates lto laccountants lbeing loverly lconcerned lwith lfollowing la lsetlof lrules, lso lthat lif llitigation lensues, lthey lwill lbe lable lto largue lthat lthey lfollowed lthe lrules lexactly. lThe lproblem lwith lthis lapproach lis lthat laccountants l want lmore land lmore lrules lwith lless lreliance lon lprofessional ljudgment. lLess lprofessional ljudgment lleads lto linappropriate luse lof laccounting lprocedures lin ldifficult lsituations. In lthe laccountants’ ldefense, lrecent llegal ldecisions lhave limposed lvast lnew lliability lon laccountants.lThe lconcept lof laccountant’s lliability lthat lhas lemerged lin lthese lcases lis lbroad land lexpansive; lthe lnumber lof lclasses lof lpeople ltolwhom lthelaccountant lislheld lresponsible lare lalmost llimitless. 18. FASB lStaff lPositions l(FSP) lare lused lto lprovide linterpretive lguidance land lto lmake lminor lamend- lments lto lexisting lstandards. l The ldue lprocess lused lto lissue la lFSP lis lthe lsame lused lto lissue la lnew lstandard. 19. The lEmerging lIssues lTask lForce loften larrives lat lconsensus lconclusions lon lcertain lfinancial lreport-ling lissues. lThese lconsensus lconclusions lare lthen llooked lupon las lGAAP lby lpractitioners lbecause lthe lSEC lhas lindicated lthat lit lwill lview lconsensus lsolutions las lpreferred laccounting land lwill lrequire lpersuasive ljustification lfor ldeparting lfrom lthem. lThus, lat lleast lfor lpublic lcompanies lwhich lare lsub-lject lto lSEC loversight, lconsensus lsolutions ldeveloped lby lthe lEmerging lIssues lTask lForce lare lfollowed lunless lsubsequently loverturned lby lthe lFASB. lIt lshould lbe lnoted lthat lthe lFASB ltook lgreater ldirect lownership lof lGAAP lestablished lby lthe lEITF lby lrequiring lthat lconsensus lpositions lbe lratified lby lthe lFASB.
Questions lChapter l 1 l (Continued)
20. The lFinancial lAccounting lStandards lBoard lAccounting lStandards lCodification l(Codifications) lis la lcompilation lof lall lGAAP lin lone lplace. lIts lpurpose lis lto lintegrate land lsynthesize lexisting lGAAP landlnot lto lcreate lnew lGAAP. lIt lcreates lone llevel lof lGAAP lwhich lis lconsidered lauthoritative. lThe lFASB lCodification lResearch lSystems l(CRS) lis lan-on-line lreal ltime ldata lbase lwhich lprovides leasy laccesslto lthe lCodification. lThe lCodification land lthe lrelated lCRS lprovide la ltopically lorganized lstructure lwhich lis lsubdivided linto ltopic, lsubtopics, lsections, land lparagraphs. 21. Hopefully, lthe lcodification lwill lhelp lusers lto lbetter lunderstand lwhat lGAAP lis. lIf lthis loccurs, lcompanies lwill lbe lmore llikely lto lcomply lwith lGAAP land lthe ltime lto lresearch laccounting lissues lwilllbe lsubstantially lreduced. lIn laddition, lthrough lthe lelectronic lweb-based lformat, lGAAP lcan lbe leasily lupdated lwhich lwill lhelp lusers lstay lcurrent. 22. The lsources lof lpressure lare linnumerable, lbut lthe lmost lintense land lcontinuous l pressure lto lchange lor linfluence laccounting lprinciples lor lstandards lcome lfrom lindividual lcompanies, lindustry lassociations, lgovernmental lagencies, lpracticing laccountants, lacademicians, lprofessional laccoun- lting lorganizations, land lpublic lopinion. 23. Economic lconsequences lmeans lthe limpact lof laccounting lreports lon lthe lwealth lpositions lof lissuersland lusers lof lfinancial linformation land lthe ldecision-making lbehavior lresulting lfrom lthat limpact. lIn lother lwords, laccounting linformation limpacts lvarious lusers lin lmany ldifferent lways lwhich lleads lto lwealth ltransfers lamong lthese lvarious lgroups. If l politics l plays l an l important l role l in l the l development l of l accounting l rules, l the l rules l will l be l subjectlto lmanipulation lfor lthe lpurpose lof lfurthering lwhatever lpolicy lprevails lat lthe lmoment. lNo lmatter lhow l well l intentioned l the lrule l maker lmay l be, l if l information lis l designed lto l indicate lthat l investing l in la lparticular lenterprise linvolves lless lrisk lthan lit lactually ldoes, lor lis ldesigned lto lencourage linvest- lment lin la lparticular lsegment lof lthe leconomy, lfinancial lreporting lwill lsuffer lan lirreplaceable lloss lof lcredibility. 24. Nolonelparticularlproposallislexpectedlinlanswerltolthislquestion.lThelstudents’lproposals,lhowever, lshould lbe ldefensible lrelative lto lthe lfollowing lcriteria: (1) The lmethod lmust lbe lefficient, lresponsive, land lexpeditious. (2) The lmethod lmust lbe lfree lof lbias land lbe labove lor linsulated lfrom lpressure lgroups. (3) The lmethod lmust lcommand lwidespread lsupport lif lit ldoes lnot lhave llegislative lauthority. (4) The lmethod lmust lproduce lsound lyet lpractical laccounting lprinciples lor lstandards. The lstudents’ lproposals lmight ltake lthe lform lof lalterations lof lthe lexisting lmethodology, lan laccoun-lting lcourt l(as lproposed lby lLeonard lSpacek), lor lgovernmental ldevice. 25. Concern lexists labout lfraudulent lfinancial lreporting lbecause lit lcan lundermine lthe lentire lfinancial lreporting lprocess. lFailure lto lprovide linformation lto lusers lthat lis laccurate lcan llead lto linappropriate lallocations lof lresources lin lour leconomy. lIn laddition, lfailure lto ldetect lmassive lfraud lcan llead lto ladditional lgovernmental loversight lof lthe laccounting lprofession. 26. The lexpectations lgap lis lthe ldifference lbetween lwhat lpeople lthink laccountants lshould lbe ldoing landlwhat laccountants lthink lthey lcan ldo. lIt lis la ldifficult lgap lto lclose. lThe laccounting lprofession lrecognizeslit lmust lplay lan limportant lrole lin lnarrowing lthis lgap. lTo lmeet lthe lneeds lof lsociety, lthe lprofession lis lcontinuing lits lefforts lin ldeveloping laccounting lstandards, lsuch las lnumerous lpronouncements lissued lby lthe lFASB, lto lserve las lguidelines lfor lrecording land lprocessing lbusiness ltransactions lin lthe lchanging leconomic lenvironment.
TIME lAND lPURPOSE lOF lCONCEPTS lFOR lANALYSIS CA l 1 - 1 l (Time l 15 – 20 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto lanswer lquestions labout lFASB land lstandard lsetting. CA l 1 - 2 l (Time l 15 – 20 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto lanswer lquestions labout lFASB land lstandard lsetting. CA l 1 - 3 l (Time l 15 – 20 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto lanswer lquestions labout lfinancial lreporting land laccounting lstandards ltopics. CA l 1 - 4 l (Time l 15 – 20 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto ldistinguish lbetween lfinancial laccounting land lmanagerial laccounting, lidentify lmajor lfinancial lstatements, land ldifferentiate lfinancial lstatements land lfinancial lreporting. CA l 1 - 5 l (Time l 20 – 25 lminutes) Purpose—tolprovidelthelstudentlwithlanlopportunityltolexplainlthelbasiclobjectiveloflfinanciallreporting. CA l 1 - 6 l (Time l 10 – 15 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto ldescribe lhow lreported laccounting lnumbers lmight laffect lan lindividual’s lperceptions land lactions. CA l 1 - 7 l (Time l 15 – 20 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto levaluate lthe lviewpoint lof lremoving lmandatory laccounting lrules land lallowing leach lcompany lto lvoluntarily ldisclose lthe linformation lit ldesired. CA l 1 - 8 l (Time l 20 – 25 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto lexplain lthe levolution lof laccounting lrule-making lorganizations land lthe lrole lof lthe lAICPA lin lthe lrule lmaking lenvironment. CA l 1 - 9 l (Time l 20 – 25 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto lidentify lthe lsponsoring lorganization lof l the lFASB, lthe lmethod lby lwhich lthe lFASB larrives lat la ldecision, land lthe ltypes land lthe lpurposes lof ldocu- lments lissued lby lthe lFASB. CA l 1 - 10 l (Time l 30 – 40 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto lfocus lon lthe ltypes lof lorganizations linvolved lin lthelrule lmaking lprocess, lwhat limpact laccounting lhas lon lthe lenvironment, land lthe lenvironment’s linfluence lon laccounting. CA l 1 - 11 l (Time l 15 – 20 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto lfocus lon lwhat ltype lof lrule-making lenvironment lexists lin lthe lUnited lStates. lIn laddition, lthis lCA lexplores lwhy luser lgroups lare linterested lin lthe lnature lof lGAAP land lwhy lsome lgroups lwish lto lissue ltheir lown lrules. CA l 1 - 12 l (Time l 30 – 40 lminutes) Purpose—to lprovide lthe lstudent lwith lan lopportunity lto lidentify land ldefine lacronyms lappearing lin lthe lfirst lchapter. lSome lare lself-evident, lothers lare lnot lso.
Time land lPurpose lof lConcepts lfor lAnalysis l (Continued) CA l 1 - 13 l (Time l 20 – 25 lminutes) Purpose—tolprovidelthelstudentlwithlanlopportunityltolconsiderlthelethicalldimensionsloflimplementationlof la lnew laccounting lpronouncement. CA l 1 - 14 l (Time l 30 – 40 lminutes) Purpose—to l provide lthe l student l with l an l assignment lthat l explores l the l role l and lfunction l of l thelSecurities land lExchange lCommission. CA l 1 - 15 l (Time l 25 – 35 lminutes) Purpose—to l provide l the l student l with l a l writing l assignment l concerning l the l ethical l issues l related l to lmeeting learnings ltargets. CA l 1 - 16 l (Time l 25 – 35 lminutes) Purpose—to lprovide lthe lstudent lwith lthe lopportunity lto ldiscuss lthe lrole lof lCongress lin laccounting lrule- lmaking. CA l 1 - 17 l (Time l 25 – 35 lminutes) Purpose—to l provide l the l student l with l an l opportunity l to l comment l on l a l letter l sent l by l business l execu- ltives lto lthe lFASB land lCongress lon lthe laccounting lfor lderivatives.
CA l 1 - 4 l(Continued)
(c) Financiallstatementslarelthelprincipallmeanslthroughlwhich lfinanciallinformation lislcommunicatedltolthose loutside lan lenterprise. lAs lindicated lin l(b), lthere lare lfour lmajor lfinancial lstatements. lHowever, lsome lfinancial linformation lis lbetter lprovided, lor lcan lbe lprovided lonly, lby lmeans lof lfinancial lreporting lother lthan lformal lfinancial lstatements. lFinancial lreporting l(other lthan lfinancial lstatementsland lrelated lnotes) lmay ltake lvarious lforms. lExamples linclude lthe lcompany lpresident’s lletter lor lsupplementary lschedules lin lthe lcorporate lannual lreports, lprospectuses, lreports lfiled lwith lgovern- lment lagencies, lnews lreleases, lmanagement’s lforecasts, land ldescriptions lof lan lenterprise’s lsociallor lenvironmental limpact.
CA l 1 - 5
(a) In laccordance lwith l Statement lof lFinancial lAccounting lConcepts lNo. l1, l “Objectives lof lFinancial lReporting lby lBusiness lEnterprises,” lthe lobjectives lof lfinancial lreporting lare lto lprovide linformation lto linvestors, lcreditors, land lothers
- that lis luseful lto lpresent land lpotential linvestors land lcreditors land lother lusers lin lmaking lrational linvestment, lcredit, land lsimilar ldecisions. lThe linformation lshould lbe lcomprehensible lto lthose lwho lhave la lreasonable lunderstanding lof lbusiness land leconomic lactivities land lare lwilling lto lstudy lthe linformation lwith lreasonable ldiligence.
- to lhelp lpresent land lpotential linvestors land lcreditors land lother lusers lin lassessing lthe lamounts, ltiming, land luncertainty lof lprospective lcash lreceipts lfrom ldividends lor linterest land lthe lproceedslfrom lthe lsale, lredemption, lor lmaturity lof lsecurities lor lloans. lSince linvestors’ land lcreditors’ lcashlflows lare lrelated lto lenterprise lcash lflows, lfinancial lreporting lshould lprovide linformation lto lhelp linvestors, lcreditors, land lothers lassess lthe lamounts, ltiming, land luncertainty lof lprospective lnetlcash linflows lto lthe lrelated lenterprise.
- about lthe leconomic lresources lof lan lenterprise, lthe lclaims lto lthose lresources l(obligations lof lthe lenterprise lto ltransfer lresources lto lother lentities land lowners’ lequity), land lthe leffects lof ltrans- lactions,levents,landlcircumstanceslthatlchangelitslresourceslandlclaimsltolthoselresources. (b) Statement lof lFinancial lAccounting lConcepts lNo. l 1 l established lstandards lto lmeet lthe linformation lneeds lof llarge lgroups lof lexternal lusers lsuch las linvestors, lcreditors, land ltheir lrepresentatives. lAlthough lthe llevel lof lsophistication lrelated lto lbusiness land lfinancial laccounting lmatters lvaries lboth lwithin land lbetween lthese luser lgroups, lusers lare lexpected lto lpossess la lreasonable lunderstandinglof laccounting lconcepts, lfinancial lstatements, land lbusiness land leconomic lactivities land lare lexpectedlto lbe lwilling lto lstudy land linterpret lthe linformation lwith lreasonable ldiligence.
CA l 1 - 6
Accounting lnumbers laffect linvesting ldecisions. lInvestors, lfor lexample, luse lthe lfinancial lstatements lof ldifferent lcompanies lto lenhance ltheir lunderstanding lof leach lcompany’s lfinancial lstrength land loperating lresults. lBecause lthese lstatements lfollow lgenerally laccepted laccounting lprinciples, linvestors lcan lmake lmeaningful lcomparisons lof ldifferent lfinancial lstatements lto lassist ltheir linvestment ldecisions. Accounting lnumbers lalso linfluence lcreditors’ ldecisions. lA lcommercial lbank lusually llooks linto la lcompany’s lfinancial lstatements land lpast lcredit lhistory lbefore ldeciding lwhether lto lgrant la lloan land lin lwhat lamount. lThe lfinancial lstatements lprovide la lfair lpicture lof lthe lcompany’s lfinancial lstrength l(for lexample, lshort-term lliquidity land llong-term lsolvency) land loperating lperformance lfor lthe lcurrent lperiod land lover la lperiod lof ltime. lThe linformation lis lessential lfor lthe lbank lto lensure lthat lthe lloan lis lsafe land lsound.
CA l 1 - 7
It lis lnot lappropriate lto labandon lmandatory laccounting lrules land lallow leach lcompany lto lvoluntarily ldisclose lthe ltype lof linformation lit lconsidered limportant. lWithout la lcoherent lbody lof laccounting ltheory land lstandards, leach laccountant lor lenterprise lwould lhave lto ldevelop lits lown ltheory lstructure land lset lof lpractices, land lreaderslof lfinanciallstatements lwould lhaveltolfamiliarize lthemselves lwith leverylcompany’slpeculiar laccounting land lreporting lpractices. lAs la lresult, lit lwould lbe lalmost limpossible lto lprepare lstate- lments lthat lcould lbe lcompared. In laddition, lvoluntary ldisclosure lmay lnot lbe lan lefficient lway lof ldisseminating linformation. lA lcompany lisllikely lto ldisclose lless linformation lif lit lhas lthe ldiscretion lto ldo lso. lThus, lthe lcompany lcan lreduce lits lcost lof l assembling l and l disseminating l information. l However, l an l investor l wishing l additional l information l has lto lpay lto lreceive ladditional linformation ldesired. lDifferent linvestors lmay lbe linterested lin ldifferent ltypes lof linformation. lSince lthe lcompany lmay lnot lbe lequipped lto lprovide lthe lrequested linformation, lit lwould lhave lto lspend ladditional lresources lto lfulfill lsuch lneeds; lor lthe lcompany lmay lrefuse lto lfurnish lsuch linformation lif lit’s ltoo lcostly lto ldo lso. lAs la lresult, linvestors lmay lnot lget lthe ldesired linformation lor lthey lmay lhave lto lpay la lsignificant lamount lof lmoney lfor lit. lFurthermore, lredundancy lin lgathering land ldistributing l information l occurs l when l different l investors l ask l for l the l same l information l at l different l pointslin ltime. lTo lthe lsociety las la lwhole, lthis lwould lnot lbe lan lefficient lway lof lutilizing lresources.
CA l 1 - 8
(a) One lof lthe lcommittees lthat lthe lAICPA lestablished lprior lto lthe lestablishment lof lthe lFASB lwas lthe lCommittee lon lAccounting lProcedures l(CAP). lThe lCAP, lduring lits lexistence lfrom l 1939 lto l1959, lissued l 51 lAccounting lResearch lBulletins l(ARB). lIn l1959, lthe lAICPA lcreated lthe lAccounting lPrin- lciples l Board l (APB) l to l replace l the l CAP. l Before l being l replaced l by l the l FASB, l the l APB l released l 31 lofficial lpronouncements, lcalled lAPB lOpinions. (b) Although lthe lARBs lissued lby lthe lCAP lhelped lto lnarrow lthe lrange lof lalternative lpractices lto lsome lextent, lthe lCAP’s lproblem-by-problem lapproach lfailed lto lprovide lthe lwell-defined, lstructured lbodylof laccounting lprinciples lthat lwas lboth lneeded land ldesired. lAs la lresult, lthe lCAP lwas lreplaced lby lthe lAPB. The lAPB lhad lmore lauthority land lresponsibility lthan ldid lthe lCAP. lUnfortunately, lthe lAPB lwas lbeleaguered lthroughout lits l 14 - year lexistence. lIt lcame lunder lfire learly, lcharged lwith llack lof lproduc-ltivity land lfailing lto lact lpromptly lto lcorrect lalleged laccounting labuses. lThe lAPB lalso lmet la llot lof lindustry land lCPAlfirmloppositionlandloccasionallgovernmentallinterferencelwhenltacklinglnumerouslthornylaccounting lissues. lIn lfear lof lgovernmental lrule lmaking, lthe laccounting lprofession linvestigatedlthe lineffectiveness lof lthelAPB land lreplaced lit lwith lthe lFASB. Learning lfrom lprior lexperiences, lthe lFASB lhas lseveral lsignificant ldifferences lfrom lthe lAPB. lThe lFASB lhas: l(1) lsmaller lmembership, l(2) lfull-time, lcompensated lmembership, l(3) lgreater lautonomy, (4) lincreased lindependence, land l(5) lbroader lrepresentation. lIn laddition, lthe lFASB lhas lits lown lresearch lstaff land lrelies lon lthe lexpertise lof lvarious ltask lforce lgroups lformed lfor lvarious lprojects. lThese lfeatures lform lthe lbases lfor lthe lexpectations lof lsuccess land lsupport lfrom lthe lpublic. lIn laddition, lthe ldue lprocess ltaken lby lthe lFASB lin lestablishing lfinancial laccounting lstandards lgives linterested lpersons lample lopportunity lto lmake ltheir lviews lknown. lThus, lthe lFASB lis lresponsive lto lthe lneeds land lviewpointsloflthelentireleconomiclcommunity,lnotljustlthelpubliclaccountinglprofession.
CA l 1 - 9 l(Continued)
In laddition, lthe lFASB’s lEmerging lIssues lTask lForce l(EITF) lissues lstatements lto lprovide lguidancelon lhow lto laccount lfor lnew land lunusual lfinancial ltransactions lthat lhave lthe lpotential lfor lcreating ldiversity lin lreporting lpractices. lThe lEITF lidentifies lcontroversial laccounting lproblems las lthey larise land ldetermines lwhether lthey lcan lbe lquickly lresolved lor lwhether lthe lFASB lshould lbecome linvolvedlin lsolving lthem. lIn lessence, lit lbecomes la l“problem lfilter” lfor lthe lFASB. lThus, lit lis lhoped lthat lthe lFASB lwill lbe lable lto lwork lon lmore lpervasive llong-term lproblems, lwhile lthe lEITF ldeals lwith lshort- lterm lemerging lissues.
CA l 1 - 10
(a) CAP. l The lCommittee lon lAccounting lProcedure, lCAP, lwhich lwas lin lexistence lfrom l 1939 lto l1959,lwas la lnatural loutgrowth lof lAICPA lcommittees lwhich lwere lin lexistence lduring lthe lperiod l 1933 lto l1938. lThe lcommittee lwas lformed lin ldirect lresponse lto lthe lcriticism lreceived lby lthe laccounting lprofession lduring lthe lfinancial lcrisis lof l 1929 land lthe lyears lthereafter. lThe lauthorization lto lissue lpronouncements lon lmatters lof laccounting lprinciples land lprocedures lwas lbased lon lthe lbelief lthat lthe lAICPA lhad lthe lresponsibility lto lestablish lpractices lthat lwould lbecome lgenerally laccepted lby lthe lprofession land lby lcorporate lmanagement. As la lgeneral lrule, lthe lCAP ldirected lits lattention, lalmost lentirely, lto lresolving lspecific laccounting lproblems land ltopics lrather lthan lto lthe ldevelopment lof lgenerally laccepted laccounting lprinciples. lThe l committee l voted l on l the l acceptance l of l specific l Accounting l Research l Bulletins l published l by lthe lcommittee. lA ltwo-thirds lmajority lwas lrequired lto lissue la lparticular lresearch lbulletin. lThe lCAP ldid lnot lhave lthe lauthority lto lrequire lacceptance lof lthe lissued lbulletins lby lthe lgeneral lmembership lof lthe lAICPA, lbut lrather lreceived lits lauthority lonly lupon lgeneral lacceptance lof lthe lpronouncement lby lthe lmembers. lThat lis, lthe lbulletins lset lforth lnormative laccounting lprocedures lthat l“should lbe” lfollowed lby lthe laccounting lprofession, lbut lwere lnot l“required” lto lbe lfollowed. It lwas lnot luntil lwell lafter lthe ldemise lof lthe lCAP, lin l1964, lthat lthe lCouncil lof lthe lAICPA ladopted lrecommendations lthat ldepartures lfrom leffective lCAP lBulletins lshould lbe ldisclosed lin lfinancial lstatements lor lin laudit lreports lof lmembers lof lthe lAICPA. lThe ldemise lof lthe lCAP lcould lprobably lbe ltraced lto lfour ldistinct lfactors: l(1) lthe lnarrow lnature lof lthe lsubjects lcovered lby lthe lbulletins lissued lby lthe lCAP, l(2) lthe llack lof lany ltheoretical lgroundwork lin lestablishing lthe lprocedures lpresented lin lthe lbulletins, l(3) lthe llack lof lany lreal lauthority lby lthe lCAP lin lprescribing ladherence lto lthe lprocedures ldescribed lby lthe lbulletins, land l(4) lthe llack lof lany lformal lrepresentation lon lthe lCAP lof linterest lgroups lsuch laslcorporatelmanagers, lgovernmentallagencies, land lsecurity lanalysts. APB. l The lobjectives lof lthe lAPB lwere lformulated lmainly lto lcorrect lthe ldeficiencies lof lthe lCAP las ldescribed labove. lThe lAPB lwas lthus lcharged lwith lthe lresponsibility lof ldeveloping lwritten lexpression lof lgenerally laccepted laccounting lprinciples lthrough lconsideration lof lthe lresearch ldone lby lother lmembers lof lthe lAICPA lin lpreparing lAccounting lResearch lStudies. lThe lcommittee lwas lin lturn lgiven lsubstantial lauthoritative lstanding lin lthat lall lopinions lof lthe lAPB lwere lto lconstitute lsubstantial lauthoritative lsupport lfor lgenerally laccepted laccounting lprinciples. lIf lan lindividual lmember lof lthe lAICPA ldecided lthat la lprinciple lor lprocedure loutside lof lthe lofficial lpronouncements lof lthe lAPB lhad lsubstantial lauthoritative lsupport, lthe lmember lhad lto ldisclose lthe ldeparture lfrom lthe lofficial lAPB lopinion lin lthe lfinancial lstatements lof lthe lfirm lin lquestion. The lmembership lof lthe lcommittee lcomprising lthe lAPB lwas lalso lextended lto linclude lrepresentationlfrom lindustry, lgovernment, land lacademe. lThe lopinions lwere lalso ldesigned lto linclude lminority ldissents lby lmembersloflthelboard.lExposureldraftsloflthelproposedlopinionslwerelreadilyldistributed.
CA l 1 - 10 l(Continued)
The ldemise lof lthe lAPB loccurred lprimarily lbecause lthe lpurposes lfor lwhich lit lwas lcreated lwere lnotlbeing laccomplished. lBroad lgenerally laccepted laccounting lprinciples lwere lnot lbeing ldeveloped. lThe lresearch lstudies lsupposedly lbeing lundertaken lin lsupport lof lsubsequent lopinions lto lbe lexpressed lby lthe lAPB lwere loften lignored. lThe lcommittee lin lessence lbecame la lsimple lextension lof lthe loriginal lCAP lin lthat lonly lvery lspecific lproblem lareas lwere lbeing laddressed. lInterest lgroups loutside lof lthe laccounting lprofession lquestioned lthe lappropriateness land ldesirability lof lhaving lthe lAICPA ldirectly lresponsible lfor lthe lestablishment lof lGAAP. lPoliticization lof lthe lestablishment lof lGAAP lhad lbecome la lreality lbecause lof lthe lfar-reaching leffects linvolved lin lthe lquestions lbeing lresolved. FASB. l The lformal lorganization lof lthe lFASB lrepresents lan lattempt lto lvest lthe lresponsibility lof lestablishing lGAAP lin lan lorganization lrepresenting lthe ldiverse linterest lgroups laffected lby lthe luse lof lGAAP. lThe lFASB lis lindependent lof lthe lAICPA. lIt lis lindependent, lin lfact, lof lany lprivate lor lgovern- lmental lorganization. lIndividual lCPAs, lfirms lof lCPAs, laccounting leducators, land lrepresentatives lof lprivate lindustry lwill lnow lhave lan lopportunity lto lmake lknown ltheir lviews lto lthe lFASB lthrough ltheir lmembership lon lthe lBoard. lIndependence lis lfacilitated lthrough lthe lfunding lof lthe lorganization land lpayment lof lthe lmembers lof lthe lBoard. lFull-time lmembers lare lpaid lby lthe lorganization land lthe lorganization litself lis lfunded lsolely lthrough lcontributions. lThus, lno lone linterest lgroup lhas la lvested linterest lin lthe lFASB. Conclusion. l The levolution lof lthe lcurrent lFASB lcertainly ldoes lrepresent l“increasing lpoliticization lof laccounting lstandards lsetting.” lMany lof lthe lefforts lextended lby lthe lAICPA lcan lbe ldirectly lattributed lto lthe ldesire lto lsatisfy lthe linterests lof lmany lgroups lwithin lour lsociety. lThe lFASB lrepresents, lperhaps, ljust lanother lstep lin lthis levolutionary lprocess. (b) Arguments lfor lpoliticalization lof lthe laccounting lrule-making lprocess:
- Accounting ldepends lin llarge lpart lon lpublic lconfidence lfor lits lsuccess. lConsequently, lthe lcritical lissues lare lnot lsolely ltechnical, lso lall lthose lhaving la lbona lfide linterest lin lthe loutput lof laccounting lshould lhave lsome linfluence lon lthat loutput.
- There lare lnumerous lconflicts lbetween lthe lvarious linterest lgroups. lIn lthe lface lof lthis, lcompro- lmise lis lnecessary, lparticularly lsince lthe lcritical lissues lin laccounting lare lvalue ljudgments, lnot lthe ltype lwhich lare lsolvable, las lwe lhave ltraditionally lassumed, lusing ldeterministic l models. lOnly lin lthis lway l(reasonable lcompromise) lwill lthe lfinancial lcommunity lhave lconfidence lin lthe lfairness land lobjectivity lof laccounting lrule-making.
- Over lthe lyears, laccountants lhave lbeen lunable lto lestablish, lon lthe lbasis lof ltechnical laccoun- lting lelements, lrules lwhich lwould lbring labout lthe ldesired luniformity land lacceptability. lThis linability litself lindicates lrule-setting lis lprimarily lconsensual lin lnature.
- The lpublic laccounting lprofession, lthrough lbodies lsuch las lthe lAccounting lPrinciples lBoard, lmade lrules lwhich lbusiness lenterprises land lindividuals l“had” lto lfollow. lFor lmany lyears, lthese lbusinesses land lindividuals lhad llittle lsay las lto lwhat lthe lrules lwould lbe, lin lspite lof lthe lfact lthat ltheir leconomic lwell-being lwas linfluenced lto la lsubstantial ldegree lby lthose lrules. lIt lis lonly lnatural lthat lthey lwould ltry lto linfluence lor lcontrol lthe lfactors lthat ldetermine ltheir leconomic lwell-being.
CA l 1 - 12
(a) AICPA. l American lInstitute lof lCertified lPublic lAccountants. lThe lnational lorganization lof lpracticing lcertified lpublic laccountants. (b) CAP. l Committee l on l Accounting l Procedure. l A l committee l of l practicing l CPAs l which l issued l 51 lAccounting lResearch lBulletins lbetween l 1939 land l 1959 land lis la lpredecessor lof lthe lFASB. (c) ARB. l Accounting lResearch lBulletins. lOfficial lpronouncements lof lthe lCommittee lon lAccounting lProcedure lwhich, lunless lsuperseded, lremain la lprimary lsource lof lGAAP. (d) APB. l Accounting lPrinciples lBoard. lA lcommittee lof lpublic laccountants, lindustry laccountants land lacademicians lwhich lissued l 31 lOpinions lbetween l 1959 land l1973. l The lAPB l replaced lthe l CAPland l was l itself l replaced l by l the l FASB. l Its l opinions, l unless l superseded, l remain l a l primary l source lof lGAAP. (e) FAF. l Financial lAccounting lFoundation. lAn lorganization lwhose lpurpose lis lto lselect lmembers lof lthe lFASB land lits lAdvisory lCouncils, lfund ltheir lactivities, land lexercise lgeneral loversight. (f) FASAC. l Financial lAccounting lStandards lAdvisory lCouncil. lAn lorganization lwhose lpurpose lis lto lconsult lwith lthe lFASB lon lissues, lproject lpriorities, land lselect ltask lforces. (g) SOP. l l Statements lof lPosition. lStatements lissued lby lthe lAICPA l(through lthe lAccounting lStandards lExecutive lCommittee lof lits lAccounting lStandards lDivision) lwhich lare lgenerally ldevoted lto lemerging lproblems lnot laddressed lby lthe lFASB lor lthe lSEC. (h) GAAP. l Generally laccepted laccounting lprinciples. lA lcommon lset lof lstandards, lprinciples, land lprocedures lwhich lhave lsubstantial lauthoritative lsupport land lhave lbeen laccepted las lappropriate lbecause lof luniversal lapplication. (i) CPA. l Certified lpublic laccountant. lAn laccountant lwho lhas lfulfilled lcertain leducation land lexperience lrequirements land lpassed la lrigorous lexamination. lMost lCPAs loffer lauditing, ltax, land lmanagement lconsulting lserviceslto lthelgeneral lpublic. (j) ) l FASB. l Financial lAccounting lStandards lBoard. lThe lprimary lbody lwhich lcurrently lestablishes land limproves lfinancial laccounting land lreporting lstandards lfor lthe lguidance lof lissuers, lauditors, lusers, land lothers. (k) SEC. l Securities land lExchange lCommission. lAn lindependent lregulatory lagency lof lthe lUnited lStates lgovernment lwhich ladministers lthe lSecurities lActs lof l 1933 land l 1934 land lother lacts. (l) IASB. l International lAccounting lStandards lBoard. lAn linternational lgroup, lformed lin l1973, lthat lis lactively ldeveloping land lissuing laccounting lstandards lthat lwill lhave linternational lappeal land lhopefully lsupport.
CA l 1 - 13
(a) Inclusion lor lomission lof linformation lthat lmaterially laffects lnet lincome lharms lparticular lstakeholders. lAccountants lmust lrecognize lthat ltheir ldecision lto limplement l(or ldelay) lreporting lrequirements lwill lhave limmediate lconsequences lfor lsome lstakeholders. (b) Yes. lBecause lthe lFASB lrule lresults lin la lfairer lrepresentation, lit lshould lbe limplemented las lsoon las lpossible—regardless lof lits limpact lon lnet lincome. lSEC lStaff lBulletin lNo. l 74 l(December l30, l1987) lrequires la lstatement las lto lwhat lthe lexpected limpact lof lthe lstandard lwill lbe.
CA l 1 - 13 l(Continued)
(c) The laccountant’s lresponsibility lis lto lprovide lfinancial lstatements lthat lpresent lfairly lthe lfinancial lcondition lof lthe lcompany. lBy ladvocating learly limplementation, lWeller lfulfills lthis ltask. (d) Potential llenders land linvestors, lwho lread lthe lfinancial lstatements land lrely lon ltheir lfair lrepresen- ltation lof lthe lfinancial lcondition lof lthe lcompany, lhave lthe lmost lto lgain lby learly limplementation. lA lstockholder lwho lis lconsidering lthe lsale lof lstock lmay lbe lharmed lby learly limplementation lthat llowers lnet lincome l(and lmay llower lthe lvalue lof lthe lstock).
CA l 1 - 14
(a) The lSecurities land lExchange lCommission l(SEC) lis lan lindependent lfederal lagency lthat lreceives lits lauthority lfrom lfederal llegislation lenacted lby lCongress. lThe lSecurities land lExchange lAct lof l 1934 lcreated lthe lSEC. (b) As la lresult lof lthe lSecurities land lExchange lAct lof l1934, lthe lSEC lhas llegal lauthority lrelative lto laccounting lpractices. lThe lU.S. lCongress lhas lgiven lthe lSEC lbroad lregulatory lpower lto lcontrol laccounting lprinciples land lprocedures lin lorder lto lfulfill lits lgoal lof lfull land lfair ldisclosure. (c) There lis lno ldirect lrelationship las lthe lSEC lwas lcreated lby lCongress land lthe lFinancial lAccounting lStandards lBoard l(FASB) lwas lcreated lby lthe lprivate lsector. lHowever, lthe lSEC lhistorically lhas lfollowed la lpolicy lof lrelying lon lthe lprivate lsector lto lestablish lfinancial laccounting land lreporting lstan-ldards lknown las lgenerally laccepted laccounting lprinciples l(GAAP). lThe lSEC ldoes lnot lnecessarily lagree lwith lall lof lthe lpronouncements lof lthe lFASB. lIn lcases lof lunresolved ldifferences, lthe lSEC lrules ltake lprecedence lover lFASB lrules lfor lcompanies lwithin lSEC ljurisdiction.
CA l 1 - 15
(a) The lethical lissue lin lthis lcase lrelates lto lmaking lquestionable lentries lto lmeet lexpected learnings lforecasts. lAs lindicated lin lthis lchapter, lbusinesses’ lconcentration lon l“maximizing lthe lbottom lline,” l“facing lthe lchallenges lof lcompetition,” land l“stressing lshort-term lresults” lplaces laccountants lin lan lenvironment lof lconflict land lpressure. (b) Given lthat lNormand lhas lpleaded lguilty, lhe lcertainly lacted limproperly. lDoing lthe lright lthing, lmakinglthe lright ldecision, lis lnot lalways leasy. lRight lis lnot lalways lobvious, land lthe lpressures lto l“bend lthe lrules,” l“to lplay lthe lgame,” l“to ljust lignore lit” lcan lbe lconsiderable. (c) No ldoubt, lNormand lwas lin la ldifficult lposition. lI lam lsure lthat lhe lwas lconcerned lthat lif lhe lfailed lto lgo lalong, lit lwould laffect lhis ljob lperformance lnegatively lor lthat lhe lmight lbe lterminated. lThese ljob lpressures, l time l pressures, l peer l pressures l often l lead l individuals l astray. l Can l it l happen l to l you? lOne lindividual lnoted lthat lat la lseminar lon lethics lsponsored lby lthe lCMA lSociety lof lSouthern lCalifornia, lattendees lwere lasked lif lthey lhad lever lbeen lpressured lto lmake lquestionable lentries. lThis lindividual lnoted lthat lto lthe lbest lof lhis lrecollection, leverybody lraised la lhand, land lmore lthan lone lhad leventually lchosen lto lresign. (d) Major lstakeholders lare: l(1) lTroy lNormand, l(2) lpresent land lpotential lstockholders land lcreditors lof lWorldCom, l(3) lemployees, land l(4) lfamily. lRecognize lthat lWorldCom lis lthe llargest lbankruptcy lin lUnited lStates lhistory, lso lmany lindividuals lare laffected.
