Review the authoritative literature on Statement of Financial Accounting Standar

Question

Review the authoritative literature on Statement of Financial Accounting Standards (SFAS) 115 at the FASB Website, located at http://www.FASB.org. Note: Click “advance search”, type in “SFAS 115”, for search options select “All”, and click the arrow to begin the search. Be prepared to discuss.

According to the text, currently, there are a variety of authorities accounting pronouncement dealing with debt and equity. From the e-Activity, summarize the current accounting treatment for investments in debt and equity securities. Identity three (3) issues with implementation that the Emergency Issues Task Force (EITF) has addressed. Recommend a way in which one could overcome these implementation issues.

Imagine that you are an investment analyst for your organization and are responsible for the company’s investment portfolio. However, the president of the company is not familiar with the various classifications of investments. Your organization has tasked you with presenting a report to the president that compares and contrasts trading securities and available for sale for securities, and the impact the securities have on the financial statements. Also, include in your report a brief explanation of the accounting treatment for unrealized gains and losses and stress to management the importance of maintaining a portfolio of current and non-current securities.

Explanation / Answer

"Debt and Equity Investments"

Commonly it is the type of classification which will decide the accounting treatment for investments in debt and equity. Debt securities which are possessed by an organization having the intention of holding it till its maturity are termed as held to maturity securities and these will be reported as amortized cost (Financial Accounting Standards Board). Equity and debt instruments which are purchased and possessed having the objective of selling in the near term will be grouped as trading securities and their fair value is used for the reporting with an unrealized gains and losses included in the earnings. Debt and equity securities which are not covered under held-to-maturity or trading will be classified under available-for-sale and the fair values will be reported with any sort of unrealized profits and losses which are not included from the earnings in a different element of the equity of shareholder.

The various issues which are dealt by the Emergency Issues Task Force incorporate discussion and resolution of financial accounting issues, timely identification, improvement of inclusiveness in accounting standard setting process with the help of diversity in the composition of member and conflict resolution among the preparers of the accounting standards with the help of a consultative framework with the Financial Accounting Standards Board (Financial Accounting Standards Board).

In my opinion, a consultative framework should be made to avoid the various issues faced during the implementation. All the stakeholders must be included in a consultative framework so that the acceptance of standards can be ensued by all the parties. By involving the different stakeholder will facilitate the inclusion of different opinion who have different varied accounting environment and therefore making sure the development of highly acceptable standards and thereby eliminating any issues related to the implementation.

References

Emerging Issues Task Force (EITF). Retrieved at: .gasb/jsp/FASB/Page/SectionPage&cid=1218220137512

Summary of Statement No. 115. Retrieved at: fasb/summary/stsum115.sht

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