1460T_c01.qxd 11:11:2005 09:44 Page 23 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: EQA Concepts for Analysis.23 (c)Discuss the interrelationship between the Securities and Exchange Commission and the Financial Accounting Standards Board with respect to the development and establishment of financial accounting theory and practices (CMA adapted) CA1-15 (Standard-Setting Process)In 1973,the responsibility for developing and issuing rules on ac- counting practices was given to the Financial Accounting Foundation and,in particular,to an arm of the foundation called the Financial Accounting Standards Board (FASB).The generally accepted accounting principles established by the FASB are enunciated through a publication series entitled Statements of Financial Accounting Standards.These statements are issued periodically,and over 150 have been issued. The statements have a significant influence on the way in which financial statements are prepared by U.S. corporations. Instructions (a)Describe the process by which a topic is selected or identified as appropriate for study by the Financial Accounting Standards Board(FASB). (b) Once a topic is considered appropriate for consideration by the FASB,a series of steps is followed before a Statement of Financial Accounting Standards is issued.Describe the major steps in the process leading to the issuance of a standard. (c)Identify at least three other organizations that influence the setting of generally accepted ac- counting principles(GAAP). (CMA adapted) CA1-16 (Financial Reporting Pressures)Presented below is abbreviated testimony from Troy Nor- mand in the WorldCom case.He was a manager in the corporate reporting department and is one of five individuals who pleaded guilty.He is testifying in hopes of receiving no prison time when he is ulti- mately sentenced. Q.Mr.Normand,if you could just describe for the jury how the meeting started and what was said dur- ing the meeting? A.I can't recall exactly who initiated the discussion,but right away Scott Sullivan acknowledged that he was aware we had problems with the entries,David Myers had informed him,and we were consid- ering resigning. He said that he respected our concerns but that we weren't being asked to do anything that he believed was wrong.He mentioned that he acknowledged that the company had lost focus quite a bit due to the preparations for the Sprint merger,and that he was putting plans in place and projects in place to try to determine where the problems were,why the costs were so high. He did say he believed that the initial statements that we produced,that the line costs in those state- ments could not have been as high as they were,that he believes something was wrong and there was no way that the costs were that high. I informed him that I didn't believe the entry we were being asked to do was right,that I was scared, and I didn't want to put myself in a position of going to jail for him or the company.He responded that he didn't believe anything was wrong,nobody was going to be going to jail,but that if it later was found to be wrong,that he would be the person going to jail,not me. He asked that I stay,don't jump off the plane,let him land it softly,that's basically how he put it.And he mentioned that he had a discussion with Bernie Ebbers asking Bernie to reduce projections going for- ward and that Bernie had refused. Q.Mr.Normand,you said that Mr.Sullivan said something about don't jump out of the plane.What did you understand him to mean when he said that? A.Not to quit. Q.During this meeting,did Mr.Sullivan say anything about whether you would be asked to make en- tries like this in the future? A.Yes,he made a comment that from that point going forward we wouldn't be asked to record any en- tries,high-level late adjustments,that the numbers would be the numbers. Q.What did you understand that to be mean,the numbers would be the numbers? A.That after the preliminary statements were issued,with the exception of any normal transaction,valid transaction,we wouldn't be asked to be recording any more late entries Q.I believe you testified that Mr.Sullivan said something about the line cost numbers not being accu- rate.Did he ask you to conduct any analysis to determine whether the line cost numbers were accurate? A.No,he did not. Q.Did anyone ever ask you to do that? A.No. O.Did you ever conduct any such analysis? A. No,I didn't.(c) Discuss the interrelationship between the Securities and Exchange Commission and the Financial Accounting Standards Board with respect to the development and establishment of financial accounting theory and practices. (CMA adapted) CA1-15 (Standard-Setting Process) In 1973, the responsibility for developing and issuing rules on ac￾counting practices was given to the Financial Accounting Foundation and, in particular, to an arm of the foundation called the Financial Accounting Standards Board (FASB). The generally accepted accounting principles established by the FASB are enunciated through a publication series entitled Statements of Financial Accounting Standards. These statements are issued periodically, and over 150 have been issued. The statements have a significant influence on the way in which financial statements are prepared by U.S. corporations. Instructions (a) Describe the process by which a topic is selected or identified as appropriate for study by the Financial Accounting Standards Board (FASB). (b) Once a topic is considered appropriate for consideration by the FASB, a series of steps is followed before a Statement of Financial Accounting Standards is issued. Describe the major steps in the process leading to the issuance of a standard. (c) Identify at least three other organizations that influence the setting of generally accepted ac￾counting principles (GAAP). (CMA adapted) CA1-16 (Financial Reporting Pressures) Presented below is abbreviated testimony from Troy Nor￾mand in the WorldCom case. He was a manager in the corporate reporting department and is one of five individuals who pleaded guilty. He is testifying in hopes of receiving no prison time when he is ulti￾mately sentenced. Q. Mr. Normand, if you could just describe for the jury how the meeting started and what was said dur￾ing the meeting? A. I can’t recall exactly who initiated the discussion, but right away Scott Sullivan acknowledged that he was aware we had problems with the entries, David Myers had informed him, and we were consid￾ering resigning. He said that he respected our concerns but that we weren’t being asked to do anything that he believed was wrong. He mentioned that he acknowledged that the company had lost focus quite a bit due to the preparations for the Sprint merger, and that he was putting plans in place and projects in place to try to determine where the problems were, why the costs were so high. He did say he believed that the initial statements that we produced, that the line costs in those state￾ments could not have been as high as they were, that he believes something was wrong and there was no way that the costs were that high. I informed him that I didn’t believe the entry we were being asked to do was right, that I was scared, and I didn’t want to put myself in a position of going to jail for him or the company. He responded that he didn’t believe anything was wrong, nobody was going to be going to jail, but that if it later was found to be wrong, that he would be the person going to jail, not me. He asked that I stay, don’t jump off the plane, let him land it softly, that’s basically how he put it. And he mentioned that he had a discussion with Bernie Ebbers asking Bernie to reduce projections going for￾ward and that Bernie had refused. Q. Mr. Normand, you said that Mr. Sullivan said something about don’t jump out of the plane. What did you understand him to mean when he said that? A. Not to quit. Q. During this meeting, did Mr. Sullivan say anything about whether you would be asked to make en￾tries like this in the future? A. Yes, he made a comment that from that point going forward we wouldn’t be asked to record any en￾tries, high-level late adjustments, that the numbers would be the numbers. Q. What did you understand that to be mean, the numbers would be the numbers? A. That after the preliminary statements were issued, with the exception of any normal transaction, valid transaction, we wouldn’t be asked to be recording any more late entries. Q. I believe you testified that Mr. Sullivan said something about the line cost numbers not being accu￾rate. Did he ask you to conduct any analysis to determine whether the line cost numbers were accurate? A. No, he did not. Q. Did anyone ever ask you to do that? A. No. Q. Did you ever conduct any such analysis? A. No, I didn’t. Concepts for Analysis • 23 1460T_c01.qxd 11:11:2005 09:44 Page 23 Nishant-16 NIshant-16:Desktop Folder:prakash 11/11: