Accounting for New Products or Types of Transactions

You are riding on a city bus on your way to work when you overhear two people talking about a transaction that two companies entered into that seems quite odd. A soft drink company and a power company have entered into an agreement concerning the weather. You want to find out more information about this agreement. Where do you think you might start to look?

Right!

Incorrect. The newspaper is unlikely to provide enough information for you to be able to fully understand the transaction.

The business journals may have provided a discussion of an unusual transaction between the two companies. It is common for __new products or types of transactions__ to appear long before the financial reporting standards provide a pronouncement. Therefore, it is important for analysts to monitor business journals and capital markets in order to stay current on new products and transactions. However, not all new products or types of transactions get talked about in the media. So, what can you do if there is nothing written about this transaction in any of the reports and the company doesn't provide enough detail for your analysis in their financial statements?

Incorrect. It is unlikely the standard setters would have timely information that they haven't already published.

Correct. Management is a good source to ask about the purpose, reporting, and cash flow implications. The companies involved in the transaction are a good source of information. If the business journals or new publications from standard setters have not discussed a new product or type of transaction, contacting management is an acceptable approach to find out more details. Analysts need to fully understand the impact a new product or transaction has on a company.

Not quite. The business journals are not likely to have any more information than you do.

Business and capital markets have become more complex over the last 10 years, introducing new sources of risk and requiring a greater level of sophistication from users. In response to these changes, __CFA Institute__ has taken a guiding role in financial reporting and investor advocacy. The role of the CFA® Program and CFA Institute can be glimpsed from the acronym: Chartered Financial Analyst.

To be able to understand a financial statement, the analyst needs to know what assumptions, models, and measures are being used. Changing the standards can be a huge and significant undertaking. The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are continually updating and reworking accounting standards. CFA Institute advocates for improvement of financial standards, making recommendations to IASB and FASB. What group do you think CFA Institute is most trying to protect?

Correct. CFA Institute advocates for comparability, timeliness, transparency, and consistency in financial reporting. These qualities are believed to be necessary for investors to properly make decisions based on financial statements.

Incorrect. CFA Institute has a mission of advocating for those that provide funds for an enterprise with the expectation of making money. This may be a big business or wealthy individual, but it could also be a small business or mid-income person.

Incorrect. Even though accurate and transparent accountancy is important to CFA Institute, advocating for accountants is not its central mission.

In summary: [[summary]]

Business journals

The newspaper's business section

You can call a business journalist and see if they have heard about it

You can contact the standard setters to see if they are working on a pronouncement

You can contact management of one of the companies and ask for more information

Investors

Big business

Accountants

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