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Question 13CA-b

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Intermediate Accounting (Kieso)
Found in: Page 25

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Short Answer

ETHICS (Rule-Making Issues) When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would result in a fairer presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the rule will adversely affect the reported net income for the year, he discourages Weller from implementing the rule until it is required.

Instructions: Answer the following questions.(b) Is the financial vice president acting improperly or immorally?

Yes, the financial vice president’s actions are regarded as improper or immoral.

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Step by Step Solution

Meaning of Pronouncement

The term pronouncement refers to the introduction of a new standard or policy by a company for the smooth conduct of business. It also helps the company to spread important information related to the company to its stakeholders.

Explanation

Yes, because the rule Financial Accounting Standards Board leads to reasonable representation, it should be immediately implemented, despite its impact on net income.

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