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Intermediate
Accounting
17th
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CHAPTER 1
Financial Accounting and Accounting Standards
ASSIGNMENT CLASSIFICATION TABLE (By Topic)
Topics Questions Concepts for
Analysis
1. Subject matter of accounting. 1 4
2. Environment of accounting. 2, 3, 21 6, 7
3. Role of principles, objectives, standards,
and accounting theory.
4, 5, 6, 7 1, 2, 3, 5
4. Historical development of GAAP. 8, 9, 10, 11 8
5. Authoritative pronouncements and rule- 12, 13, 14, 15, 3, 9, 11, 12, 14
making bodies. 16, 17, 18, 19,
20
6. Role of pressure groups. 21, 22, 23, 24, 25, 10, 16, 17
26
7. Ethical issues. 28 13, 15

1-2 Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only)
ASSIGNMENT CLASSIFICATION TABLE (By Learning Objective)
Learning Objectives Questions Cases
1. Understand the financial reporting environment. 1, 2, 3, 4, 5, 6, 7 CA1.2, CA1.3, CA1.4,
CA1.5, CA1.6, CA1.7,
CA1.9
2. Identify the major policy-setting bodies and their 8, 9, 10, 11, 13, 14, 15, CA1.1, CA1.2, CA1.3,
role in the standard-setting process. 16, 18, 19 CA1.7, CA1.8, CA1.9,
CA1.10, CA1.11,
CA1.12, CA1.14
3. Explain the meaning of generally accepted 12, 14, 18, 19, 20, 21 CA1.2, CA1.3, CA1.7,
accounting principles (GAAP) and the role of the CA1.8, CA1.12
codification for GAAP.
4. Describe major challenges in the financial 16, 17, 21, 22, 23, 24, CA1.6, CA1.10,
reporting environment. 25, 26, 27, 28 CA1.11, CA1.13,
CA1.15, CA1.16,
CA1.17
Update footer throughout…

ASSIGNMENT CHARACTERISTICS TABLE
Item Description
Level of
Difficulty
Time
(minutes)
CA1.1 FASB and standard-setting. Simple 15–20
CA1.2 GAAP and standard-setting. Simple 15–20
CA1.3 Financial reporting and accounting standards. Simple 15–20
CA1.4 Financial accounting. Simple 15–20
CA1.5 Objective of financial reporting. Moderate 20–25
CA1.6 Accounting numbers and the environment. Simple 10–15
CA1.7 Need for GAAP. Simple 15–20
CA1.8 AICPA’s role in rule-making. Simple 20–25
CA1.9 FASB role in rule-making. Simple 20–25
CA1.10 Politicization of GAAP. Complex 30–40
CA1.11 Models for setting GAAP. Simple 15–20
CA1.12 GAAP terminology. Moderate 30–40
CA1.13 Rule-making Issues. Complex 20–25
CA1.14 Securities and Exchange Commission. Moderate 30–40
CA1.15 Financial reporting pressures. Moderate 25–35
CA1.16 Economic consequences. Moderate 25–35
CA1.17 GAAP and economic consequences. Moderate 25–35
Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual (For Instructor Use Only) 1-3

(For Instructor Use Only) 1-4
Copyright © 2019 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 17/e, Solutions Manual
ANSWERS TO QUESTIONS
1. Financial accounting measures, classifies, and summarizes in report form those activities and that
information which relate to the enterprise as a whole for use by parties both internal and external to a
business enterprise. Managerial accounting also measures, classifies, and summarizes in report
form enterprise activities, but the communication is for the use of internal, managerial parties, and
relates more to subsystems of the entity. Managerial accounting is management decision oriented and
directed more toward product line, division, and profit center reporting.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
2. Financial statements generally refer to the four basic financial statements: balance sheet, income
statement, statement of cash flows, and statement of changes in owners’ or stockholders’ equity.
Financial reporting is a broader concept; it includes the basic financial statements and any other
means of communicating financial and economic data to interested external parties. Examples of
financial reporting other than financial statements are annual reports, prospectuses, reports filed with
the government, news releases, management forecasts or plans, and descriptions of an enterprise’s
social or environmental impact.
3. If a company’s financial performance is measured accurately, fairly, and on a timely basis, the right
managers and companies are able to attract investment capital. To provide unreliable and irrelevant
information leads to poor capital allocation which adversely affects the securities market.
4. The objective of general purpose financial reporting is to provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and other creditors
in decisions about providing resources to the entity through equity investments and loans or other
forms of credit. Information that is decision-useful to capital providers (investors) may also be useful
to other users of financial reporting who are not investors.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC:: None
5. Investors are interested in financial reporting because it provides information that is useful for
making decisions (referred to as the decision-usefulness approach). When making these
decisions, investors are interested in assessing the company’s (1) ability to generate net cash inflows
and (2) management’s ability to protect and enhance the capital providers’ investments. Financial
reporting should therefore help investors assess the amounts, timing, and uncertainty of prospective
cash inflows from dividends or interest, and the proceeds from the sale, redemption, or maturity of
securities or loans. In order for investors to make these assessments, the economic resources of an
enterprise, the claims to those resources, and the changes in them must be understood.
6. A common set of standards applied by all businesses and entities should produce financial
statements which are reasonably comparable. Without a common set of standards, each
enterprise could, and would, develop its own theory structure and set of practices, resulting in
noncomparability among enterprises.
7. General-purpose financial statements are not likely to satisfy the specific needs of all interested
parties. Since the needs of interested parties such as creditors, managers, owners, governmental
agencies, and financial analysts vary considerably, it is unlikely that one set of financial statements
is equally appropriate for these varied uses.

Questions Chapter 1 (Continued)
8. The SEC has the power to prescribe, in whatever detail it desires, the accounting practices and
principles to be employed by the companies that fall within its jurisdiction. Because the SEC receives
audited financial statements from nearly all companies that issue securities to the public or are listed
on the stock exchanges, it is greatly interested in the content, accuracy, and credibility of the
statements. For many years, the SEC relied on the AICPA to regulate the profession and develop and
enforce accounting principles. Lately, the SEC has assumed a more active role in the development
of accounting standards, especially in the area of disclosure requirements. In December 1973, in ASR
No. 150, the SEC said the FASB’s statements would be presumed to carry substantial authoritative
support and anything contrary to them to lack such support. It thereby supports the development of
accounting principles in the private sector.
9. The Committee on Accounting Procedure was a special committee of the American Institute of CPAs
that, between the years of 1939 and 1959, issued 51 Accounting Research Bulletins dealing with
a wide variety of timely accounting problems. These bulletins provided solutions to immediate
problems and narrowed the range of alternative practices. However, the Committee’s problem-by-
problem approach failed to provide a well-defined and well-structured body of accounting theory that
was so badly needed. The Committee on Accounting Procedure was replaced in 1959 by the
Accounting Principles Board.
10. The creation of the Accounting Principles Board was intended to advance the written expression
of accounting principles, to determine appropriate practices, and to narrow the differences and
inconsistencies in practice. To achieve its basic objectives, its mission was to develop an overall
conceptual framework to assist in the resolution of problems as they became evident and to do
substantive research on individual issues before pronouncements were issued.
11. APB Opinions were issued by the Accounting Principles Board during the years 1959 through
1973 and, unless superseded by FASB Statements, are recognized as accepted practice and
constitute the requirements to be followed by all business enterprises. Accounting Standards
Updates are pronouncements of the Financial Accounting Standards Board that are incorporated
into the FASB codification and therefore represent the accounting profession’s authoritative
pronouncements on financial accounting and reporting practices. In addition, note that
Accounting Research Bulletins were pronouncements on accounting practice issued by the
Committee on Accounting Procedure between 1939 and 1959; since 1964 they have been
recognized as accepted accounting practice unless superseded in part or in whole by an opinion of
the APB or an FASB standard.
12. The explanation should note that generally accepted accounting principles or standards have
“substantial authoritative support.” They consist of accounting practices, procedures, concepts,
and methods which are recognized by a large majority of practicing accountants as well as other
members of the business and financial community. Bulletins issued by the Committee on Accounting
Procedure, opinions rendered by the Accounting Principles Board, and statements issued by the
Financial Accounting Standards Board constitute “substantial authoritative support.”
LO: 3, Bloom: K, Difficulty: Simple, 5-10, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
13. It was believed that FASB Pronouncements would carry greater weight than APB Opinions because
of significant differences between the FASB and the APB, namely, the FASB has: (1) a smaller

membership, (2) full-time compensated members; (3) greater autonomy, (4) increased
independence; and (5) broader representation than the APB.
14. The technical staff of the FASB conducts research on an identified accounting topic and prepares
a “preliminary view” that is released by the Board for public reaction. The Board analyzes and
evaluates the public response to the preliminary view, deliberates on the issues, and issues an
“exposure draft” for public comment. The preliminary view merely presents all facts and alternatives
related to a specific topic or problem, whereas the exposure draft is a tentative “statement.” After
studying the public’s reaction to the exposure draft, the Board may reevaluate its position, revise
the draft, and vote on the issuance of a final statement.
15. Statements of financial accounting standards contained in Accounting Standards updates
constitute generally accepted accounting principles and dictate acceptable financial accounting
and reporting practices as promulgated by the FASB. The first standards statement was issued by
the FASB in 1973.
Statements of financial accounting concepts do not establish generally accepted accounting
principles. Rather, the concepts statements set forth fundamental objectives and concepts that the
FASB intends to use as a basis for developing future standards. The concepts serve as guidelines
in solving existing and emerging accounting problems in a consistent, sound manner. Both the
standards statements and the concepts statements may develop through the same process from
discussion memorandum, to exposure draft, to a final approved statement.
16. Rule 203 of the Code of Professional Conduct prohibits a member of the AICPA from expressing
an opinion that financial statements conform with GAAP if those statements contain a material
departure from an accounting principle promulgated by the FASB, or its predecessors, the APB
and the CAP, unless the member can demonstrate that because of unusual circumstances the
financial statements would otherwise have been misleading. Failure to follow Rule 203 can lead to
the loss of a CPA’s license to practice. This rule is extremely important because it requires
auditors to follow FASB standards.
17. The chairman of the FASB was indicating that too much attention is put on the bottom line and not
enough on the development of quality products. Managers should be less concerned with short-
term results and be more concerned with the long-term results. In addition, short-term tax benefits
often lead to long-term problems.
The second part of his comment relates to accountants being overly concerned with following a set
of rules, so that if litigation ensues, they will be able to argue that they followed the rules exactly.
The problem with this approach is that accountants want more and more rules with less reliance
on professional judgment. Less professional judgment leads to inappropriate use of accounting
procedures in difficult situations.
In the accountants’ defense, recent legal decisions have imposed vast new liability on accountants.
The concept of accountant’s liability that has emerged in these cases is broad and expansive; the
number of classes of people to whom the accountant is held responsible is almost limitless.

18. The Emerging Issues Task Force often arrives at consensus conclusions on certain financial report-
ing issues. These consensus conclusions are then looked upon as GAAP by practitioners because
the SEC has indicated that it will view consensus solutions as preferred accounting and will require
persuasive justification for departing from them. Thus, at least for public companies which are sub-
ject to SEC oversight, consensus solutions developed by the Emerging Issues Task Force are followed
unless subsequently overturned by the FASB. It should be noted that the FASB took greater
direct ownership of GAAP established by the EITF by requiring that consensus positions be ratified by
the FASB.
19. The Financial Accounting Standards Board Accounting Standards Codification (Codification) is a
compilation of all GAAP in one place. Its purpose is to integrate and synthesize existing GAAP and
not to create new GAAP. It creates one level of GAAP which is considered authoritative. The FASB
Codification Research Systems (CRS) is an online real-time data base which provides easy access
to the Codification. The Codification and the related CRS provide a topically organized structure which
is subdivided into topic, subtopics, sections, and paragraphs.
LO: 3, Bloom: K, Difficulty: Moderate, Time: 5-7, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
20. It is hoped that the Codification will help users to better understand what GAAP is. If this occurs,
companies will be more likely to comply with GAAP and the time to research accounting issues will
be substantially reduced. In addition, through the electronic web-based format, GAAP can be easily
updated which will help users stay current.
21. The sources of pressure are innumerable, but the most intense and continuous pressure to
change or influence accounting principles or standards come from individual companies, industry
associations, governmental agencies, practicing accountants, academicians, professional accoun-
ting organizations, and public opinion.
LO: 3, Bloom: K, Difficulty: Simple, 5-10, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
22. Economic consequences means the impact of accounting reports on the wealth positions of issuers
and users of financial information and the decision-making behavior resulting from that impact. In
other words, accounting information impacts various users in many different ways which leads to
wealth transfers among these various groups.
If politics plays an important role in the development of accounting rules, the rules will be subject
to manipulation for the purpose of furthering whatever policy prevails at the moment. No matter
how well intentioned the rule maker may be, if information is designed to indicate that investing in
a particular enterprise involves less risk than it actually does, or is designed to encourage invest-
ment in a particular segment of the economy, financial reporting will suffer an irreplaceable loss of
credibility.
23. No one particular proposal is expected in answer to this question. The students’ proposals, however,
should be defensible relative to the following criteria:
(1) The method must be efficient, responsive, and expeditious.
(2) The method must be free of bias and be above or insulated from pressure groups.
(3) The method must command widespread support if it does not have legislative authority.
(4) The method must produce sound yet practical accounting principles or standards.
The students’ proposals might take the form of alterations of the existing methodology, an accoun-
ting court (as proposed by Leonard Spacek), or governmental device.

LO: 4, Bloom: C, Difficulty: Simple, Time: 3-5, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
24. Concern exists about fraudulent financial reporting because it can undermine the entire financial
reporting process. Failure to provide information to users that is accurate can lead to inappropriate
allocations of resources in our economy. In addition, failure to detect massive fraud can lead to
additional governmental oversight of the accounting profession.
25. The expectations gap is the difference between what people think accountants should be doing and
what accountants think they can do. It is a difficult gap to close. The accounting profession recognizes
it must play an important role in narrowing this gap. To meet the needs of society, the profession is
continuing its efforts in developing accounting standards, such as numerous pronouncements issued
by the FASB, to serve as guidelines for recording and processing business transactions in the changing
economic environment.
26. The following are some of the key provisions of the Sarbanes-Oxley Act:
• Establishes an oversight board for accounting practices. The Public Company Accounting Over-
sight Board (PCAOB) has oversight and enforcement authority and establishes auditing, quality
control, and independence standards and rules.
• Implements stronger independence rules for auditors. Audit partners, for example, are required
to rotate every five years and auditors are prohibited from offering certain types of consulting
services to corporate clients.
• Requires CEOs and CFOs to personally certify that financial statements and disclosures are
accurate and complete and requires CEOs and CFOs to forfeit bonuses and profits when there
is an accounting restatement.
• Requires audit committees to be comprised of independent members and members with finan-
cial expertise.
• Requires codes of ethics for senior financial officers.
In addition, Section 404 of the Sarbanes-Oxley Act requires public companies to attest to the
effectiveness of their internal controls over financial reporting.
27. Some major challenges facing the accounting profession relate to the following items:
Nonfinancial measurement—how to report significant key performance measurements such as
customer satisfaction indexes, backlog information and reject rates on goods purchased.
Forward-looking information—how to report more future oriented information.
Soft assets—how to report on intangible assets, such as market know-how, market dominance,
and well-trained employees.
Timeliness—how to report more real-time information.
28. Accountants must perceive the moral dimensions of some situations because GAAP does not
define or cover all specific features that are to be reported in financial statements. In these instances
accountants must choose among alternatives. These accounting choices influence whether par-
ticular stakeholders may be harmed or benefited. Moral decision-making involves awareness of
potential harm or benefit and taking responsibility for the choices.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Ethics, Communication, AICPA BB: Professional Demeanor, AICPA FC: Reporting, AICPA PC:
Communication

TIME AND PURPOSE OF CONCEPTS FOR ANALYSIS
CA 1.1 (Time 15–20 minutes)
Purpose—to provide the student with an opportunity to answer questions about FASB and standard
setting.
Purpose—to provide the student with an opportunity to answer questions about GAAP and standard
setting.
Purpose—to provide the student with an opportunity to answer questions about financial reporting and
accounting standards topics.
Purpose—to provide the student with an opportunity to distinguish between financial accounting and
managerial accounting, identify major financial statements, and differentiate financial statements and
financial reporting.
Purpose—to provide the student with an opportunity to explain the basic objective of financial reporting.
Purpose—to provide the student with an opportunity to describe how reported accounting numbers
might affect an individual’s perceptions and actions.
Purpose—to provide the student with an opportunity to evaluate the viewpoint of removing mandatory
accounting rules and allowing each company to voluntarily disclose the information it desired.
Purpose—to provide the student with an opportunity to explain the evolution of accounting rule-making
organizations and the role of the AICPA in the rule making environment.
Purpose—to provide the student with an opportunity to identify the sponsoring organization of the
FASB, the method by which the FASB arrives at a decision, and the types and the purposes of docu-
ments issued by the FASB.
Purpose—to provide the student with an opportunity to focus on the types of organizations involved in the
rule making process, what impact accounting has on the environment, and the environment’s influence
on accounting.
Purpose—to provide the student with an opportunity to focus on what type of rule-making environment
exists in the United States. In addition, this CA explores why user groups are interested in the nature of
GAAP and why some groups wish to issue their own rules.
Purpose—to provide the student with an opportunity to identify and define acronyms appearing in the first
chapter. Some are self-evident, others are not so.

Time and Purpose of Concepts for Analysis (Continued)
Purpose—to provide the student with an opportunity to consider the ethical dimensions of implementation
of a new accounting pronouncement.
Purpose—to provide the student with an assignment that explores the role and function of the
Securities and Exchange Commission.
Purpose—to provide the student with a writing assignment concerning the ethical issues related to
meeting earnings targets.
Purpose—to provide the student with the opportunity to discuss the role of Congress in accounting rule-
making.
Purpose—to provide the student with an opportunity to comment on a letter sent by business execu-
tives to the FASB and Congress on the accounting for derivatives.

SOLUTIONS TO CONCEPTS FOR ANALYSIS
CA 1.1
1. True
2. False. Any company claiming compliance with GAAP must comply with all standards and
interpretations, including disclosure requirements.
3. True
4. False. In establishing financial accounting standards, the FASB relies on two basic premises:
(1) the FASB should be responsive to the needs and viewpoints of the entire economic
community, not just the public accounting profession, and (2) it should operate in full view of the
public through a “due process” system that gives interested people ample opportunities to make their
view known.
LO: 2, Bloom: K, Difficulty: Simple, Time: 15-20, AACSB: AICPA BB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
CA 1.2
1. False. In addition to providing decision-useful information about future cash flows, management
also is accountable to investors for the custody and safekeeping of the company’s economic
resources and for their efficient and profitable use; however, this is not considered an objective.
2. False. The objective of financial reporting is to provide financial information about the reporting
entity that is useful to present and potential equity investors, lenders, and other creditors in making
decisions in their capacity as capital providers.
3. False. The FASB follows the same due process procedures for interpretations and standards.
4. True
LO: 1, 2, Bloom: K, Difficulty: Simple, Time: 15-20, AACSB: AICPA BB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
CA 1.3
1. (d)
2. (d)
3. (d)
4. (a)
5. (a)
6. (b)
7. (d)
8. (b)
LO: 1, 2, 4, Bloom: K, Difficulty: Simple, Time: 15-20, AACSB: AICPA BB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: None
CA 1.4
(a) Financial accounting is the process that culminates in the preparation of financial reports relative to
the enterprise as a whole for use by parties both internal and external to the enterprise. In contrast,
managerial accounting is the process of identification, measurement, accumulation, analysis, prepa-
ration, interpretation, and communication of financial information used by the management to plan,
evaluate, and control within an organization and to assure appropriate use of, and accountability for,
its resources.

CA 1.4 (Continued)
(b) The financial statements most frequently provided are the balance sheet, the income statement,
the statement of cash flows, and the statement of changes in owners’ or stockholders’ equity.
(c) Financial statements are the principal means through which financial information is communicated to
those outside an enterprise. As indicated in (b), there are four major financial statements. However,
some financial information is better provided, or can be provided only, by means of financial
reporting other than formal financial statements. Financial reporting (other than financial statements
and related notes) may take various forms. Examples include the company president’s letter or
supplementary schedules in the corporate annual reports, prospectuses, reports filed with govern-
ment agencies, news releases, management’s forecasts, and descriptions of an enterprise’s social
or environmental impact.
CA 1.5
(a) In accordance with Statement of Financial Accounting Concepts No. 1, “Objectives of Financial
Reporting by Business Enterprises,” the objectives of financial reporting are to provide information to
investors, creditors, and others
1. that is useful to present and potential investors and creditors and other users in making rational
investment, credit, and similar decisions. The information should be comprehensible to those
who have a reasonable understanding of business and economic activities and are willing to
study the information with reasonable diligence,
2. to help present and potential investors and creditors and other users in assessing the amounts,
timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds
from the sale, redemption, or maturity of securities or loans. Since investors’ and creditors’ cash
flows are related to enterprise cash flows, financial reporting should provide information to help
investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net
cash inflows to the related enterprise, and
3. about the economic resources of an enterprise, the claims to those resources (obligations of the
enterprise to transfer resources to other entities and owners’ equity), and the effects of trans-
actions, events, and circumstances that change its resources and claims to those resources.
(b) Statement of Financial Accounting Concepts No. 1 establishes standards to meet the information
needs of large groups of external users such as investors, creditors, and their representatives.
Although the level of sophistication related to business and financial accounting matters varies both
within and between these user groups, users are expected to possess a reasonable understanding
of accounting concepts, financial statements, and business and economic activities and are expected
to be willing to study and interpret the information with reasonable diligence.
LO: 1, Bloom: K, Difficulty: Moderate, Time: 20-25, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication

CA 1.6
Accounting numbers affect investing decisions. Investors, for example, use the financial statements of
different companies to enhance their understanding of each company’s financial strength and operating
results. Because these statements follow generally accepted accounting principles, investors can make
meaningful comparisons of different financial statements to assist their investment decisions.
Accounting numbers also influence creditors’ decisions. A commercial bank usually looks into a
company’s financial statements and past credit history before deciding whether to grant a loan and in
what amount. The financial statements provide a fair picture of the company’s financial strength (for
example, short-term liquidity and long-term solvency) and operating performance for the current period
and over a period of time. The information is essential for the bank to ensure that the loan is safe and
sound.
LO: 1, 4, Bloom: C, Difficulty: Simple, Time: 10-15, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
CA 1.7
It is not appropriate to abandon mandatory accounting rules and allow each company to voluntarily disclose
the type of information it considers important. Without a coherent body of accounting theory and standards,
each accountant or enterprise would have to develop its own theory structure and set of practices, and
readers of financial statements would have to familiarize themselves with every company’s peculiar
accounting and reporting practices. As a result, it would be almost impossible to prepare statements that
could be compared.
In addition, voluntary disclosure may not be an efficient way of disseminating information. A company is
likely to disclose less information if it has the discretion to do so. Thus, the company can reduce its cost
of assembling and disseminating information. However, an investor wishing additional information has
to pay to receive additional information desired. Different investors may be interested in different types
of information. Since the company may not be equipped to provide the requested information, it would
have to spend additional resources to fulfill such needs; or the company may refuse to furnish such
information if it is too costly to do so. As a result, investors may not get the desired information or they
may have to pay a significant amount of money for it. Furthermore, redundancy in gathering and
distributing information occurs when different investors ask for the same information at different points
in time. To the society as a whole, this would not be an efficient way of utilizing resources.
LO: 1, 3, Bloom: AN, Difficulty: Simple, Time: 15-20, AACSB: Reflective Thinking, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC:
Communication
CA 1.8
(a) One of the committees that the AICPA established prior to the establishment of the FASB was the
Committee on Accounting Procedures (CAP). The CAP, during its existence from 1939 to 1959,
issued 51 Accounting Research Bulletins (ARB). In 1959, the AICPA created the Accounting Prin-
ciples Board (APB) to replace the CAP. Before being replaced by the FASB, the APB released
31 official pronouncements, called APB Opinions.
(b) Although the ARBs issued by the CAP helped to narrow the range of alternative practices to some
extent, the CAP’s problem-by-problem approach failed to provide the well-defined, structured body
of accounting principles that was both needed and desired. As a result, the CAP was replaced by
the APB.

CA 1.8 (Continued)
The APB had more authority and responsibility than did the CAP. Unfortunately, the APB was
beleaguered throughout its 14-year existence. It came under fire early, charged with lack of produc-
tivity and failing to act promptly to correct alleged accounting abuses. The APB also met a lot of
industry and CPA firm opposition and occasional governmental interference when tackling numerous
complicated accounting issues. In fear of governmental rule making, the accounting profession
investigated the ineffectiveness of the APB and replaced it with the FASB.
Learning from prior experiences, the FASB has several significant differences from the APB. The
FASB has: (1) smaller membership, (2) full-time, compensated membership, (3) greater autonomy,
(4) increased independence, and (5) broader representation. In addition, the FASB has its own
research staff and relies on the expertise of various task force groups formed for various projects.
These features form the bases for the expectations of success and support from the public. In addition,
the due process taken by the FASB in establishing financial accounting standards gives interested
persons ample opportunity to make their views known. Thus, the FASB is responsive to the needs
and viewpoints of the entire economic community, not just the public accounting profession.
(c) The AICPA supplements the FASB’s efforts in the present standard-setting environment. Their
issue papers, which are prepared by the Financial Reporting Executive Committee (FinREC) formerly
the Accounting Standards Executive Committee (AcSEC), identify current financial reporting
problems for specific industries and present alternative treatments of the issue. These papers provide
the FASB with an early warning device to insure timely issuance of FASB standards. In situations
where the FASB avoids the subject of an issue paper, FinREC may issue a Statement of Position to
provide guidance for the reporting issue. FinREC also issues Practice Bulletins which indicate how
the AICPA believes a given transaction should be reported.
Recently, the role of the AICPA in standard-setting has diminished. The FASB and the AICPA
agreed, that after a transition period, the AICPA and FinREC no longer issues authoritative
accounting guidance for public companies.
CA 1.9
(a) The Financial Accounting Foundation (FAF) is the sponsoring organization of the FASB. The FAF
selects the members of the FASB and its Advisory Council, funds their activities, and generally
oversees the FASB’s activities.
The FASB follows a due process in establishing a typical FASB Statement of Financial Accounting
Standards. The following steps are usually taken: (1) A topic or project is identified and placed on
the Board’s agenda. (2) A task force of experts from various sectors is assembled to define
problems, issues, and alternatives related to the topic. (3) Research and analysis are conducted by
the FASB technical staff. (4) A preliminary views document is drafted and released. (5) A public
hearing is often held, usually 60 days after the release of the preliminary views. (6) The Board analyzes
and evaluates the public response. (7) The Board deliberates on the issues and prepares an exposure
draft for release. (8) After a 30-day (minimum) exposure period for public comment, the Board
evaluates all of the responses received. (9) A committee studies the exposure draft in relation to the
public responses, reevaluates its position, and revises the draft if necessary. (10) The full Board gives
the revised draft final consideration and votes on issuance of a Standards Statement. The passage of
a new accounting standard in the form of an FASB Statement requires the support of four of the
seven Board members, before it is incorporated in the codification.
(b) The FASB issues two major types of pronouncements: Accounting Standards Updates (ASUs) and
Concepts Statements. ASUs issued by the FASB are considered GAAP.

CA 1.9 (Continued)
ASU’s may be comprised of major standards projects, EITF consensus, or interpretations.
Regardless of nature, if approved by the FASB in an ASU, then the guidance is considered GAAP.
The Statements of Financial Accounting Concepts (SFAC) help the FASB to avoid the “problem-
by-problem approach.” These statements set forth fundamental objectives and concepts that the
Board will use in developing future standards of financial accounting and reporting. They
are intended to form a cohesive set of interrelated concepts, a body of theory or a conceptual
framework, that will serve as tools for solving existing and emerging problems in a consistent,
sound manner.
In addition, the FASB’s Emerging Issues Task Force (EITF) issues statements to provide guidance
on how to account for new and unusual financial transactions that have the potential for creating
diversity in reporting practices. The EITF identifies controversial accounting problems as they arise
and determines whether they can be quickly resolved or whether the FASB should become involved
in solving them. In essence, it becomes a “problem filter” for the FASB. Thus, the FASB is able to
work on more pervasive long-term problems, while the EITF deals with short-term emerging issues.
CA 1.10
(a) CAP. The Committee on Accounting Procedure, CAP, which was in existence from 1939 to 1959,
was an outgrowth of AICPA committees which were in existence during the period 1933 to 1938.
The committee was formed in direct response to the criticism received by the accounting profession
during the financial crisis of 1929 and the years thereafter. The authorization to issue pronouncements
on matters of accounting principles and procedures was based on the belief that the AICPA had the
responsibility to establish practices that would become generally accepted by the profession and by
corporate management.
As a general rule, the CAP directed its attention, almost entirely, to resolving specific accounting
problems and topics rather than to the development of generally accepted accounting principles.
The committee voted on the acceptance of specific Accounting Research Bulletins published by
the committee. A two-thirds majority was required to issue a particular research bulletin. The CAP
did not have the authority to require acceptance of the issued bulletins by the general membership
of the AICPA, but rather received its authority only upon general acceptance of the pronouncement
by the members. That is, the bulletins set forth normative accounting procedures that “should be”
followed by the accounting profession, but were not “required” to be followed.
In 1964, well after the demise of the CAP, the Council of the AICPA adopted recommendations that
departures from effective CAP Bulletins should be disclosed in financial statements or in audit
reports of members of the AICPA. The demise of the CAP could probably be traced to four distinct
factors: (1) the narrow nature of the subjects covered by the bulletins issued by the CAP, (2) the lack
of any theoretical groundwork in establishing the procedures presented in the bulletins, (3) the lack
of any real authority by the CAP in prescribing adherence to the procedures described by the bulletins,
and (4) the lack of any formal representation on the CAP of interest groups such as corporate
managers, governmental agencies, and security analysts.

CA 1.10 (Continued)
APB. The objectives of the APB were formulated mainly to correct the deficiencies of the CAP as
described above. The APB was thus charged with the responsibility of developing written expression
of generally accepted accounting principles through consideration of the research done by other
members of the AICPA in preparing Accounting Research Studies. The committee was in turn
given substantial authoritative standing in that all opinions of the APB were to constitute substantial
authoritative support for generally accepted accounting principles. If an individual member of the
AICPA decided that a principle or procedure outside of the official pronouncements of the APB had
substantial authoritative support, the member had to disclose the departure from the official APB
opinion in the financial statements of the firm in question.
The membership of the committee comprising the APB was also extended to include representation
from industry, government, and academe. The opinions were also designed to include minority
dissents by members of the board. Exposure drafts of the proposed opinions were readily distributed.
The demise of the APB occurred primarily because the purposes for which it was created were not
being accomplished. Broad generally accepted accounting principles were not being developed. The
research studies supposedly being undertaken in support of subsequent opinions to be
expressed by the APB were often ignored. The committee in essence became a simple extension
of the original CAP in that only very specific problem areas were being addressed. Interest groups
outside of the accounting profession questioned the appropriateness and desirability of having the
AICPA directly responsible for the establishment of GAAP. Politicization of the establishment of
GAAP had become a reality because of the far-reaching effects involved in the questions being
resolved.
FASB. The formal organization of the FASB represents an attempt to vest the responsibility of
establishing GAAP in an organization representing the diverse interest groups affected by the use of
GAAP. The FASB is independent of the AICPA. It is independent, in fact, of any private or govern-
mental organization. Individual CPAs, firms of CPAs, accounting educators, and representatives of
private industry will now have an opportunity to make known their views to the FASB through their
membership on the Board. Independence is facilitated through the funding of the organization and
payment of the members of the Board. Full-time members are paid by the organization and the
organization itself is funded solely through contributions. Thus, no one interest group has a vested
interest in the FASB.
Conclusion. The evolution of the current FASB certainly does represent “increasing politicization
of accounting standards setting.” Many of the efforts extended by the AICPA can be directly attributed
to the desire to satisfy the interests of many groups within our society. The FASB represents,
perhaps, just another step in this evolutionary process.
(b) Arguments for politicization of the accounting rule-making process:
1. Accounting depends in large part on public confidence for its success. Consequently, the
critical issues are not solely technical, so all those having a bona fide interest in the output of
accounting should have some influence on that output.
2. There are numerous conflicts between the various interest groups. In the face of this, compro-
mise is necessary, particularly since the critical issues in accounting are value judgments, not
the type which are solvable, as we have traditionally assumed, using deterministic models.
Only in this way (reasonable compromise) will the financial community have confidence in the
fairness and objectivity of accounting rule-making.
3. Over the years, accountants have been unable to establish, on the basis of technical accoun-
ting elements, rules which would bring about the desired uniformity and acceptability. This
inability itself indicates rule-setting is primarily consensual in nature.

CA 1.10 (Continued)
4. The public accounting profession, through bodies such as the Accounting Principles Board, made
rules which business enterprises and individuals “had” to follow. For many years, these
businesses and individuals had little say as to what the rules would be, in spite of the fact that
their economic well-being was influenced to a substantial degree by those rules. It is only
natural that they would try to influence or control the factors that determine their economic
well-being.
(c) Arguments against the politicization of the accounting rule-making process:
1. Many accountants feel that accounting is primarily technical in nature. Consequently, they feel
that substantive, basic research by objective, independent and fair-minded researchers ultimately
will result in the best solutions to critical issues, such as the concepts of income and capital,
even if it is accepted that there is not necessarily a single “right” solution.
2. Even if it is accepted that there are no “absolute truths” as far as critical issues are concerned,
many feel that professional accountants, taking into account the diverse interests of the various
groups using accounting information, are in the best position, because of their independence,
education, training, and objectivity, to decide what generally accepted accounting principles
ought to be.
3. The complex situations that arise in the business world require that trained accountants develop
the appropriate accounting principles.
4. The use of consensus to develop accounting principles would decrease the professional status
of the accountant.
5. This approach would lead to “lobbying” by various parties to influence the establishment of ac-
counting principles.
LO: 2, 4, Bloom: E, Difficulty: Complex, Time: 30-40, AACSB: Analytic, Communication, Ethics, AICPA BB: Professional Demeanor, AICPA FC: Reporting,
AICPA PC: Communication
CA 1.11
(a) The public/private mixed approach is the way rules are established in the United States. In many
respects, the FASB is a quasi-governmental agency in that its pronouncements are required to be
followed because the SEC has provided support for this approach. The SEC has the ultimate power
to establish GAAP but has chosen to permit the private sector to develop these rules. By accepting
the standards established by the FASB as authoritative, it has granted much power to the FASB.
(b) Publicly reported accounting numbers influence the distribution of scarce resources. Resources are
channeled where needed at returns commensurate with perceived risk. Thus, reported accounting
numbers have economic effects in that resources are transferred among entities and individuals as
a consequence of these numbers. It is not surprising then that individuals affected by these
numbers will be extremely interested in any proposed changes in the financial reporting
environment.
(c) The Accounting Standards Executive Committee (AcSEC of the AICPA), among other groups, has
presented a potential challenge to the exclusive right of the FASB to establish accounting principles.
Also, Congress has been attempting to legislate certain accounting practices, particularly to help
struggling industries.
Some possible reasons why other groups might wish to establish GAAP are:
1. As indicated in the previous answer, these rules have economic effects and therefore certain
groups would prefer to make their own rules to ensure that they receive just treatment.
2. Some believe the FASB does not act quickly to resolve accounting matters, either because it
is not that interested in the subject area or because it lacks the resources to do so.

CA 1.11 (Continued)
3. Some argue that the FASB does not have the competence to legislate GAAP in certain areas.
For example, many have argued that the FASB should not legislate GAAP for not-for-profit
enterprises because the problems are unique and not well understood by the FASB.
LO: 2, 4, Bloom: C, Difficulty: Simple, Time: 15-20, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
CA 1.12
(a) AICPA. American Institute of Certified Public Accountants. The national organization of practicing
certified public accountants.
(b) CAP. Committee on Accounting Procedure. A committee of practicing CPAs which issued
51 Accounting Research Bulletins between 1939 and 1959 and is a predecessor of the FASB.
(c) EITF. Emerging Issues Task Force. A sub-division of the FASB, which provides implementation
guidance to reduce diversity in practice in a timely basis. To become GAAP, EITF consensues
must be approved by the FASB.
(d) APB. Accounting Principles Board. A committee of public accountants, industry accountants and
academicians which issued 31 Opinions between 1959 and 1973. The APB replaced the CAP
and was itself replaced by the FASB. Its opinions, unless superseded, remain a primary source
of GAAP.
(e) FAF. Financial Accounting Foundation. An organization whose purpose is to select members of
the FASB and its Advisory Councils, fund their activities, and exercise general oversight.
(f) FASAC. Financial Accounting Standards Advisory Council. An organization whose purpose is to
consult with the FASB on issues, project priorities, and select task forces.
(g) GAAP. Generally Aaccepted Accounting Principles. A common set of standards, principles, and
procedures which have substantial authoritative support and have been accepted as appropriate
because of universal application.
(h) CPA. Certified Public Accountant. An accountant who has fulfilled certain education and experience
requirements and passed a rigorous examination. Most CPAs offer auditing, tax, and management
consulting services to the general public.
(i) FASB. Financial Accounting Standards Board. The primary body which currently establishes and
improves financial accounting and reporting standards for the guidance of issuers, auditors, users,
and others.
(j) SEC. Securities and Exchange Commission. An independent regulatory agency of the United
States government which administers the Securities Acts of 1933 and 1934 and other acts.
(k) IASB. International Accounting Standards Board. An international group, formed in 2001 (a
predecessor body was formed in 1973), that is actively developing and issuing accounting standards
that will have international appeal and hopefully support.
LO: 2, 3, Bloom: K, Difficulty: Moderate, Time: 30-40, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication

CA 1.13
(a) Inclusion or omission of information that materially affects net income harms particular stakeholders.
Accountants must recognize that their decision to implement (or delay) reporting requirements will
have immediate consequences for some stakeholders.
(b) Yes. Because the FASB rule results in a fairer representation, it should be implemented as soon as
possible—regardless of its impact on net income. SEC Staff Bulletin No. 74 (December 30, 1987)
requires a statement as to what the expected impact of the standard will be.
(c) The accountant’s responsibility is to provide financial statements that present fairly the financial
condition of the company. By advocating early implementation, Weller fulfills this task.
(d) Potential lenders and investors, who read the financial statements and rely on their fair represen-
tation of the financial condition of the company, have the most to gain by early implementation. A
stockholder who is considering the sale of stock may be harmed by early implementation that lowers
net income (and may lower the value of the stock).
LO: 2, 4, Bloom: K, Difficulty: Complex, Time: 20-25, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
CA 1.14
(a) The Securities and Exchange Commission (SEC) is an independent federal agency that receives
its authority from federal legislation enacted by Congress. The Securities and Exchange Act of
1934 created the SEC.
(b) As a result of the Securities and Exchange Act of 1934, the SEC has legal authority relative to
accounting practices. The U.S. Congress has given the SEC broad regulatory power to control
accounting principles and procedures in order to fulfill its goal of full and fair disclosure.
(c) There is no direct relationship as the SEC was created by Congress and the Financial Accounting
Standards Board (FASB) was created by the private sector. However, the SEC historically has
followed a policy of relying on the private sector to establish financial accounting and reporting stan-
dards known as generally accepted accounting principles (GAAP). The SEC does not necessarily
agree with all of the pronouncements of the FASB. In cases of unresolved differences, the SEC rules
take precedence over FASB rules for companies within SEC jurisdiction.
LO: 2, Bloom: K, Difficulty: Moderate, Time: 30-40, AACSB: Communication, AICPA BB: AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
CA 1.15
(a) The ethical issue in this case relates to making questionable entries to meet expected earnings
forecasts. As indicated in this chapter, businesses’ concentration on “maximizing the bottom line,”
“facing the challenges of competition,” and “stressing short-term results” places accountants in an
environment of conflict and pressure.
(b) Given that Normand has pleaded guilty, he certainly acted improperly. Doing the right thing, making
the right decision, is not always easy. Right is not always obvious, and the pressures to “bend the
rules,” “to play the game,” “to just ignore it” can be considerable.
(c) No doubt, Normand was in a difficult position. He was concerned that if he failed to go along, it would
affect his job performance negatively or that he might be terminated. These job pressures, time
pressures, peer pressures often lead individuals astray. Can it happen to you? One individual noted
that at a seminar on ethics sponsored by the CMA Society of Southern California, attendees were
asked if they had ever been pressured to make questionable entries. This individual noted

that to the best of his recollection, everybody raised a hand, and more than one had eventually
chosen to resign.
CA 1.15 (Continued)
(d) Major stakeholders were: (1) Troy Normand, (2) present and potential stockholders and creditors
of WorldCom, (3) employees, and (4) family. Recognize that WorldCom was at that time the
largest bankruptcy in United States history, so many individuals were affected.
LO: 4, Bloom: AN, Difficulty: Moderate, Time: 25-30, AACSB:Ethics, Analytic, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC:
Communication
CA 1.16
(a) Considering the economic consequences of GAAP, it is not surprising that special interest groups
become vocal and critical (some supporting, some opposing) when rules are being formulated. The
FASB’s derivative accounting pronouncement is no exception. Many from the banking industry, for
example, criticized the rule as too complex and leading to unnecessary earnings volatility. They also
indicated that the proposal may discourage prudent risk management activities and in some cases
could present misleading financial information.
As a result, Congress is often approached to put pressure on the FASB to change its rulings. In the
stock option controversy, industry was quite effective in going to Congress to force the FASB to
change its conclusions. In the derivative controversy, Rep. Richard Baker introduced a bill which would
force the SEC to formally approve each standard issued by the FASB. Not only would this process
delay adoption, but could lead to additional politicalization of the rule-making process. Dingell
commented that Congress should stay out of the rule-making process and defended the FASB’s
approach to establishing GAAP.
(b) Attempting to set GAAP by a political process will probably lead to the following consequences:
(a) Too many alternatives.
(b) Lack of clarity that will lead to inconsistent application.
(c) Lack of disclosure that reduces transparency.
(d) Not comprehensive in scope.
Without an independent process, GAAP will be based on political compromise. A classic illustration is
what happened in the savings and loan industry. Applying generally accepted accounting principles
to the S&L industry would have forced regulators to restrict activities of many S&Ls. Unfortunately,
accounting principles were overridden by regulatory rules and the resulting lack of transparency
masked the problems. William Siedman, former FDIC Chairman noted later that it was “the worst
mistake in the history of government.”
Another indication of the problem of government intervention is shown in the accounting standards
used by some countries around the world. Completeness and transparency of information needed
by investors and creditors is not available in order to meet or achieve other objectives.
LO: 4, Bloom: C, Difficulty: Moderate, Time: 25-30, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication

CA 1.17
(a) The “due process” system involves the following:
1. Identifying topics and placing them on the Board’s agenda.
2. Research and analysis is conducted and preliminary views of pros and cons issued.
3. A public hearing is often held.
4. Board evaluates research and public responses and issues exposure draft.
5. Board evaluates responses and changes exposure draft, if necessary. Final statement is then
issued.
(b) Economic consequences mean the impact of accounting reports on the wealth positions of
issuers and users of financial information and the decision-making behavior resulting from that
impact.
(c) Economic consequences indicated in the letter are: (1) concerns related to the potential impact
on the capital markets, (2) the weakening of companies’ ability to manage risk, and (3) the adverse
control implications of implementing costly and complex new rules imposed at the same time as
other major initiatives, including the Year 2000 issues and a single European currency.
(d) The principal point of this letter is to delay the finalization of the derivatives standard. As indicated in
the letter, the authors of this letter urge the FASB to expose its new proposal for public comment,
following the established due process procedures that are essential to acceptance of its standards
and providing sufficient time for affected parties to understand and assess the new approach.
(Authors note: The FASB indicated in a follow-up letter that all due process procedures had been
followed and all affected parties had more than ample time to comment. In addition, the FASB issued
a follow-up standard, which delayed the effective date of the standard, in part to give companies
more time to develop the information systems needed for implementation of the standard).
(e) The reason why the letter was sent to Congress was to put additional pressure on the FASB to delay
or drop the issuance of a rule on derivatives. Unfortunately, in too many cases, when the business
community does not like the answer proposed by the FASB, it resorts to lobbying members of
Congress. The lobbying efforts usually involve developing some type of legislation that will negate
the rule. In some cases, efforts involve challenging the FASB’s authority to develop rules in certain
areas with additional Congressional oversight.
LO: 4, Bloom: E, Difficulty: Moderate, Time: 25-30, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication

FINANCIAL REPORTING PROBLEM
(a) The key organizations involved in rule making in the U.S. are the AICPA,
FASB, and SEC. See also (c).
(b) Different authoritative literature pertaining to methods recording account-
ing transactions exists today. Some authoritative literature has received
more support from the profession than other literature. The literature
that has substantial authoritative support is the one most supported
by the profession and should be followed when recording accounting
transactions. These standards and procedures are called generally
accepted accounting principles (GAAP).
With implementation of the Codification, what qualifies as authoritative is
any literature contained in the Codification. The Codification changes
the way GAAP is documented, presented, and updated. It creates one
level of GAAP which is considered authoritative. All other accounting
literature is considered non-authoritative.
What happens if the Codification does not cover a certain type of trans-
action or event? In this case, other accounting literature should be
considered which includes FASB Concepts Statements, international
financial reporting standards and other professional literature.
(c) Rule-making in the U.S. has evolved through the work of the following
organizations:
1. American Institute of Certified Public Accountants (AICPA)—it is
the national professional organization of practicing Certified Public
Accountants (CPAs). Outgrowths of the AICPA have been the Com-
mittee on Accounting Procedure (CAP) which issued Accounting
Research Bulletins and the Accounting Principles Board (APB) whose
major purposes were to advance written expression of accounting
principles, determine appropriate practices, and narrow the areas
of difference and inconsistency in practice.
2. Financial Accounting Standards Board (FASB)—the mission of the
FASB is to establish and improve standards of financial accounting
and reporting for the guidance and education of the public, which
includes issuers, auditors, and users of the financial information.

FINANCIAL REPORTING PROBLEM (Continued)
3. Securities and Exchange Commission (SEC)—the SEC is an inde-
pendent regulatory agency of the United States government which
administers the Securities Act of 1933, the Securities Exchange Act
of 1934, the Sarbanes-Oxley Act, and several other acts. The SEC
has broad power to prescribe the accounting practices and
standards to be employed by companies that fall within its
jurisdiction.
(d) The SEC and the AICPA have been the authority for compliance with
GAAP. The SEC has indicated that financial statements conforming to
standards set by the FASB will be presumed to have authoritative support.
The AICPA, in Rule 203 of the Code of Professional Ethics, requires that
members prepare financial statements in accordance with GAAP. Failure
to follow Rule 203 can lead to the loss of a CPA’s license to practice.
LO: 2, 3, Bloom: K, Difficulty: Simple, Time: 20-25, AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication

SOLUTIONS TO CODIFICATION EXERCISES
CE1.1
The information at this link describes the elements offered in The FASB Accounting Standards
Codification. As indicated, the website offers several resources to enhance your working knowledge of
the Codification and the Codification Research System. This page includes links to help pages which
describe specific functions and features of the Codification. Links to frequently asked questions, the FASB
Learning Guide, and the Notice to Constituents are also available on this page.
Help pages
FAQ
Learning Guide
About the Codification—Notice of Constituents
LO: 3, Bloom: K, Difficulty: Simple, Time: 5-10, AACSB: Communication, Technology, AICPA BB: Technology, AICPA FC: Research, Reporting, Technology,
CE1.2
The following information is provided at the Providing Feedback link:
The Codification includes a feature which can be used to submit content-related feedback or general,
system-related comments. The feedback system is not designed for comments on proposed
Accounting Standards Updates.
Content-related feedback
As a registered user of the FASB Accounting Standards Codification Research System website, you
are able and are encouraged to provide feedback, at the paragraph level, to the FASB about any content-
related matters. For specific information about the Codification and the feedback process, please
read the Notice to Constituents.
To provide content-related feedback:
Click the Submit feedback button beneath the paragraph for which you want to provide feedback. Enter
or copy/paste your comments in the text box. Note that formatting (lists, bold, etc.) is not retained and
there is a 4,000 character limit on feedback submissions.
Click SUBMIT. Your comments are sent to the FASB and reviewed by FASB staff. You can also
submit multiple comments for any given paragraph, if, for example, you determine that more
information would be useful to the FASB staff.
General feedback
Click here to provide general feedback on the Codification in general, the Codification Research
System website, and other system-related items that are not content specific.

CE1.3
The “What’s New” page provides links to Codification content that has been recently issued. During the
verification phase, updates may result from either the issuance of Codification update instructions that
accompany new Standards or from changes to the Codification due to incorporation of constituent
feedback.

RESEARCH CASE
(a) CON 1, Par. 32. The objectives begin with a broad focus on information
that is useful in investment and credit decisions; then narrow that focus
to investors’ and creditors’ primary interest in the prospects of receiving
cash from their investments in or loans to business enterprises and the
relation of those prospects to the enterprise’s prospects; and finally
focus on information about an enterprise’s economic resources, the
claims to those resources, and changes in them, including measures of
the enterprise’s performance, that is useful in assessing the enterprise’s
cash flow prospects.
(b) CON 1, Par. 7. Financial reporting includes not only financial statements
but also other means of communicating information that relates,
directly or indirectly, to the information provided by the accounting
system—that is, information about an enterprise’s resources, obligations,
earnings, etc. Management may communicate information to those
outside an enterprise by means of financial reporting other than formal
financial statements either because the information is required to be
disclosed by authoritative pronouncement, regulatory rule, or custom or
because management considers it useful to those outside the enterprise
and discloses it voluntarily. Information communicated by means of
financial reporting other than financial statements may take various forms
and relate to various matters. Corporate annual reports, prospectuses,
and annual reports filed with the Securities and Exchange Commission
are common examples of reports that include financial statements,
other financial information, and nonfinancial information. News releases,
management’s forecasts or other descriptions of its plans or expecta-
tions, and descriptions of an enterprise’s social or environmental impact
are examples of reports giving financial information other than financial
statements or giving only nonfinancial information.
(c) CON 1, Par, 24 and 25: 24. Many people base economic decisions on
their relationships to and knowledge about business enterprises and thus
are potentially interested in the information provided by financial
reporting. Among the potential users are owners, lenders, suppliers,
potential investors and creditors, employees, management, directors,
customers, financial analysts and advisors, brokers, underwriters, stock
exchanges, lawyers, economists, taxing authorities, regulatory authorities,

RESEARCH CASE (Continued)
legislators, financial press and reporting agencies, labor unions, trade
associations, business researchers, teachers and students, and the
public. Members and potential members of some groups—such as
owners, creditors, and employees—have or contemplate having direct
economic interests in particular business enterprises. Managers and
directors, who are charged with managing the enterprise in the interest
of owners (paragraph 12), also have a direct interest. Members of other
groups—such as financial analysts and advisors, regulatory authorities,
and labor unions—have derived or indirect interests because they advise
or represent those who have or contemplate having direct interests.
Potential users of financial information most directly concerned with a
particular business enterprise are generally interested in its ability to
generate favorable cash flows because their decisions relate to amounts,
timing, and uncertainties of expected cash flows. To investors, lenders,
suppliers, and employees, a business enterprise is a source of cash in
the form of dividends or interest and perhaps appreciated market prices,
repayment of borrowing, payment for goods or services, or salaries or
wages. They invest cash, goods, or services in an enterprise and expect
to obtain sufficient cash in return to make the investment worthwhile.
They are directly concerned with the ability of the enterprise to generate
favorable cash flows and may also be concerned with how the market’s
perception of that ability affects the relative prices of its securities. To
customers, a business enterprise is a source of goods or services, but
only by obtaining sufficient cash to pay for the resources it uses and to
meet its other obligations can the enterprise provide those goods or
services. To managers, the cash flows of a business enterprise are a
significant part of their management responsibilities, including their
accountability to directors and owners. Many, if not most, of their
decisions have cash flow consequences for the enterprise. Thus, investors,
creditors, employees, customers, and managers significantly share a
common interest in an enterprise’s ability to generate favorable cash
flows. Other potential users of financial information share the same
interest, derived from investors, creditors, employees, customers, or
managers whom they advise or represent or derived from an interest in
how those groups (and especially stockholders) are faring.
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IFRS CONCEPTS AND APPLICATION
IFRS 1.1
The two organizations involved in international standard-setting are IOSCO
(International Organization of Securities Commissions) and the IASB
(International Accounting Standards Board.) The IOSCO does not set
accounting standards, but ensures that the global markets can operate in
an efficient and effective manner. Conversely, the IASB’s mission is to
develop a single set of high quality, understandable and international finan-
cial reporting standards (IFRSs) for general purpose financial statements.
LO: 5, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: Diversity, Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
IFRS 1.2
The standards issued by these organizations are sometimes principles-
based, rules-based, tax-oriented, or business-based. In other words, they
often differ in concept and objective.
IFRS 1.3
A single set of high quality accounting standards ensures adequate
comparability. Investors are able to make better investment decisions if
they receive financial information from a U.S. company that is comparable
to an international competitor.
IFRS 1.4
The international standards must be of high quality and sufficiently
comprehensive. To achieve this goal, the IASB and the FASB have set up
an extensive work plan to achieve the objective of developing one set of
world-class international standards. This work plan actually started in 2002,
when an agreement was forged between the two Boards, where each
acknowledged their commitment to the development of high-quality,
compatible accounting standards that could be used for both domestic and
cross-border financial reporting (referred to as the Norwalk Agreement).

IFRS 1.4 (Continued)
At that meeting, the FASB and the IASB pledged to use their best efforts to
(1) make their existing financial reporting standards fully compatible as soon
as is practicable, and (2) coordinate their future work programs to ensure
that once achieved, compatibility is maintained. This document was
reinforced in 2006 when the parties issued a memorandum of understanding
(MOU) which highlighted three principles:
• Convergence of accounting standards can best be achieved
through the development of high-quality common standards over
time.
• Trying to eliminate differences between two standards that are in
need of significant improvement is not the best use of the FASB’s
and the IASB’s resources—instead, a new common standard should
be developed that improves the financial information reported to
investors.
• Serving the needs of investors means that the Boards should seek
convergence by replacing standards in need of improvement with
jointly developed new standards.
Subsequently, in 2009 the Boards agreed on a process to complete a number
of major projects by 2011, including monthly joint meetings. As part of
achieving this goal, it is critical that the process by which the standards
are established be independent. And, it is necessary that the standards are
maintained, and emerging accounting issues are dealt with efficiently.
The SEC directed its staff to develop and execute a plan (“Work Plan”) to
enhance both the understanding of the SEC’s purpose and public
transparency in this area. The SEC Work Plan addresses such areas as
independence of standard-setting, investor understanding of IFRS, and
auditor readiness. Based on the staff report issued in 2012, it does not appear
that the SEC is ready to adopt IFRS any time soon. However, the SEC has
encouraged the FASB and IASB to continue their convergence efforts.
In 2016, the SEC indicated that it will not switch to IFRS in the near future.
As the SEC Chief Accountant noted: “I believe that for the foreseeable future,
the independent standard setting process of the FASB and U.S. GAAP
standards will be in the best interests of U.S. capital markets.”
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According to their records, the Chinese possessed their much-
esteemed king 2200 years before our Christian era, and employed it
for accompanying songs of praise. It was regarded as a sacred
instrument. During religious observances at the solemn moment
when the king was sounded sticks of incense were burnt. It was
likewise played before the emperor early in the morning when he
awoke. The Chinese have long since constructed various kinds of the
king, one of which is here engraved, by using different species of
stones. Their most famous stone selected for this purpose is called
yu. It is not only very sonorous but also beautiful in appearance. The
yu is found in mountain streams and crevices of rocks. The largest
specimens found measure from two to three feet in diameter, but of
this size examples rarely occur. The yu is very hard and heavy. Some
European mineralogists, to whom the missionaries transmitted
specimens for examination, pronounce it to be a species of agate. It
is found of different colours, and the Chinese appear to have
preferred in different centuries particular colours for the king.

The Chinese consider the yu especially valuable for musical
purposes, because it always retains exactly the same pitch. All other
musical instruments, they say, are in this respect doubtful; but the
tone of the yu is neither influenced by cold nor heat, nor by
humidity, nor dryness.
The stones used for the king have been cut from time to time in
various grotesque shapes. Some represent animals: as, for instance,
a bat with outstretched wings; or two fishes placed side by side:
others are in the shape of an ancient Chinese bell. The angular
shape shown in the engraving appears to be the oldest and is still
retained in the ornamented stones of the pien-king, which is a more
modern instrument than the king. The tones of the pien-king are
attuned according to the Chinese intervals called lu, of which there
are twelve in the compass of an octave. The same is the case with
the other Chinese instruments of this class. They vary, however, in
pitch. The pitch of the soung-king, for instance, is four intervals
lower than that of the pien-king.
Sonorous stones have always been used by the Chinese also singly,
as rhythmical instruments. Such a single stone is called tse-king.
Probably certain curious relics belonging to a temple in Peking,
erected for the worship of Confucius, serve a similar purpose. In one
of the outbuildings or the temple are ten sonorous stones, shaped
like drums, which are asserted to have been cut about three
thousand years ago. The primitive Chinese characters engraven
upon them are nearly obliterated.
The ancient Chinese had several kinds of bells, frequently arranged
in sets so as to constitute a musical scale. The Chinese name for the
bell is tchung. At an early period they had a somewhat square-
shaped bell called té-tchung. Like other ancient Chinese bells it was
made of copper alloyed with tin, the proportion being one pound of
tin to six of copper. The té-tchung, which is also known by the name
of piao, was principally used to indicate the time and divisions in
musical performances. It had a fixed pitch of sound, and several of

these bells attuned to a certain order of intervals were not
unfrequently ranged in a regular succession, thus forming a musical
instrument which was called pien-tchung. The musical scale of the
sixteen bells which the pien-tchung contained was the same as that
of the king before mentioned.
The hiuen-tchung was, according to popular tradition, included with
the antique instruments at the time of Confucius, and came into
popular use during the Han dynasty (from B.C. 200 until A.D. 200). It
was of a peculiar oval shape and had nearly the same quaint
ornamentation as the té-tchung; this consisted of symbolical figures,
in four divisions, each containing nine mammals. The mouth was
crescent-shaped. Every figure had a deep meaning referring to the
seasons and to the mysteries of the Buddhist religion. The largest
hiuen-tchung was about twenty inches in length; and, like the té-
tchung, was sounded by means of a small wooden mallet with an
oval knob. None of the bells of this description had a clapper. It
would, however, appear that the Chinese had at an early period

some kind of bell provided with a wooden tongue: this was used for
military purposes as well as for calling the people together when an
imperial messenger promulgated his sovereign’s commands. An
expression of Confucius is recorded to the effect that he wished to
be “A wooden-tongued bell of Heaven,” i.e. a herald of heaven to
proclaim the divine purposes to the multitude.
The fang-hiang was a kind of wood-
harmonicon. It contained sixteen wooden
slabs of an oblong square shape,
suspended in a wooden frame elegantly
decorated. The slabs were arranged in
two tiers, one above the other, and were
all of equal length and breadth but
differed in thickness. The tchoung-tou
consisted of twelve slips of bamboo, and
was used for beating time and for
rhythmical purposes. The slips being
banded together at one end could be
expanded somewhat like a fan. The
Chinese state that they used the tchoung-
tou for writing upon before they invented
paper.
The ou, of which we give a woodcut, likewise an ancient Chinese
instrument of percussion and still in use, is made of wood in the
shape of a crouching tiger. It is hollow, and along its back are about
twenty small pieces of metal, pointed, and in appearance not unlike
the teeth of a saw. The performer strikes them with a sort of
plectrum resembling a brush, or with a small stick called tchen.
Occasionally the ou is made with pieces of metal shaped like reeds.
The ancient ou was constructed with only six tones which were
attuned thus—f, g, a, c, d, f. The instrument appears to have
become deteriorated in the course of time; for, although it has
gradually acquired as many as twenty-seven pieces of metal, it

evidently serves at the present
day more for the production of
rhythmical noise than for the
execution of any melody. The
modern ou is made of a species
of wood called kieou or tsieou:
and the tiger rests generally on
a hollow wooden pedestal
about three feet six inches long,
which serves as a sound-board.
The tchou, likewise an instrument of
percussion, was made of the wood of a tree
called kieou-mou, the stem of which
resembles that of the pine and whose
foliage is much like that of the cypress. It
was constructed of boards about three-
quarters of an inch in thickness. In the
middle of one of the sides was an aperture
into which the hand was passed for the
purpose of holding the handle of a wooden hammer, the end of
which entered into a hole situated in the bottom of the tchou. The
handle was kept in its place by means of a wooden pin, on which it
moved right and left when the instrument was struck with a
hammer. The Chinese ascribe to the tchou a very high antiquity, as
they almost invariably do with any of their inventions when the date
of its origin is unknown to them.
The po-fou was a drum, about one foot four inches in length, and
seven inches in diameter. It had a parchment at each end, which
was prepared in a peculiar way by being boiled in water. The po-fou
used to be partly filled with a preparation made from the husk of
rice, in order to mellow the sound. The Chinese name for the drum
is kou.

The kin-kou (engraved), a large drum fixed on a pedestal which
raises it above six feet from the ground, is embellished with
symbolical designs. A similar drum on which natural phenomena are
depicted is called lei-kou; and another of the kind, with figures of
certain birds and beasts which are regarded as symbols of long life,
is called ling-kou, and also lou-kou.
The flutes, ty, yo, and tché were generally made of bamboo. The
koan-tsee was a Pandean pipe containing twelve tubes of bamboo.
The siao, likewise a Pandean pipe, contained sixteen tubes. The pai-
siao differed from the siao inasmuch as the tubes were inserted into
an oddly-shaped case highly ornamented with grotesque designs
and silken appendages.

The Chinese are known to have
constructed at an early period a
curious wind-instrument, called
hiuen. It was made of baked
clay and had five finger-holes,
three of which were placed on
one side and two on the
opposite side, as in the cut. Its
tones were in conformity with
the pentatonic scale. The reader
unacquainted with the pentatonic scale may ascertain its character
by playing on the pianoforte the scale of C major with the omission
of f and b (the fourth and seventh); or by striking the black keys in
regular succession from f-sharp to the next f-sharp above or below.
Another curious wind-instrument of high antiquity, the cheng,
(engraved, p. 46) is still in use. Formerly it had either 13, 19, or 24
tubes, placed in a calabash; and a long curved tube served as a
mouth-piece. In olden time it was called yu.
The ancient stringed instruments, the kin and chê, were of the
dulcimer kind: they are still in use, and specimens of them are in the
South Kensington museum.
The Buddhists introduced from Thibet into China their god of music,
who is represented as a rather jovial-looking man with a moustache
and an imperial, playing the pepa, a kind of lute with four silken
strings. Perhaps some interesting information respecting the ancient
Chinese musical instruments may be gathered from the famous ruins
of the Buddhist temples Ongcor-Wat and Ongcor-Thôm, in
Cambodia. These splendid ruins are supposed to be above two
thousand years old: and, at any rate, the circumstance of their age
not being known to the Cambodians suggests a high antiquity. On
the bas-reliefs with which the temples were enriched are figured
musical instruments, which European travellers describe as “flutes,
organs, trumpets, and drums, resembling those of the Chinese.”

Faithful sketches of these representations might, very likely, afford
valuable hints to the student of musical history.
The Hindus.
In the Brahmin mythology of the Hindus the god
Nareda is the inventor of the vina, the principal
national instrument of Hindustan. Saraswati, the
consort of Brahma, may be regarded as the
Minerva of the Hindus. She is the goddess of
music as well as of speech; to her is attributed
the invention of the systematic arrangement of
the sounds into a musical scale. She is
represented seated on a peacock and playing on
a stringed instrument of the lute kind. Brahma
himself we find depicted as a vigorous man with
four handsome heads, beating with his hands
upon a small drum; and Vishnu, in his incarnation
as Krishna, is represented as a beautiful youth
playing upon a flute. The Hindus construct a
peculiar kind of flute, which they consider as the
favourite instrument of Krishna. They have also
the divinity Ganesa, the god of Wisdom, who is
represented as a man with the head of an
elephant, holding a tamboura in his hands.
It is a suggestive fact that we find among several
nations in different parts of the world an ancient
tradition, according to which their most popular stringed instrument
was originally derived from the water.
In Hindu mythology the god Nareda invented the vina—the principal
national instrument of Hindustan—which has also the name cach’-
hapi, signifying a tortoise (testudo). Moreover, nara denotes in

Sanskrit water, and narada, or nareda, the giver of water. Like
Nareda, Nereus and his fifty daughters, the Nereides, were much
renowned for their musical accomplishments; and Hermes (it will be
remembered) made his lyre, the chelys, of a tortoise-shell. The
Scandinavian god Odin, the originator of magic songs, is mentioned
as the ruler of the sea, and as such he had the name of Nikarr. In
the depth of the sea he played the harp with his subordinate spirits,
who occasionally came up to the surface of the water to teach some
favoured human being their wonderful instrument. Wäinämöinen,
the divine player on the Finnish kantele (according to the Kalewala,
the old national epic of the Finns) constructed his instrument of fish-
bones. The frame he made out of the bones of the pike; and the
teeth of the pike he used for the tuning-pegs.
Jacob Grimm in his work on German mythology points out an old
tradition, preserved in Swedish and Scotch national ballads, of a
skilful harper who constructs his instrument out of the bones of a
young girl drowned by a wicked woman. Her fingers he uses for the
tuning screws, and her golden hair for the strings. The harper plays,
and his music kills the murderess. A similar story is told in the old
Icelandic national songs; and the same tradition has been preserved
in the Faroe islands, as well as in Norway and Denmark.
May not the agreeable impression produced by the rhythmical flow
of the waves and the soothing murmur of running water have led
various nations, independently of each other, to the widespread
conception that they obtained their favourite instrument of music
from the water? Or is the notion traceable to a common source
dating from a pre-historic age, perhaps from the early period when
the Aryan race is surmised to have diffused its lore through various
countries? Or did it originate in the old belief that the world, with all
its charms and delights, arose from a chaos in which water
constituted the predominant element?
Howbeit, Nareda, the giver of water, was evidently also the ruler of
the clouds; and Odin had his throne in the skies. Indeed, many of

the musical water-spirits appear to have been originally considered
as rain deities. Their music may therefore be regarded as derived
from the clouds rather than from the sea. In short, the traditions
respecting spirits and water are not in contradiction to the opinion of
the ancient Hindus that music is of heavenly origin, but rather tend
to support it.
The earliest musical instruments of the Hindus on record have,
almost all of them, remained in popular use until the present day
scarcely altered. Besides these, the Hindus possess several Arabic
and Persian instruments which are of comparatively modern date in
Hindustan: evidently having been introduced into that country
scarcely a thousand years ago, at the time of the Mahomedan
irruption. There is a treatise on music extant, written in Sanskrit,
which contains a description of the ancient instruments. Its title is
Sângita râthnakara. If, as may be hoped, it be translated by a
Sanskrit scholar who is at the same time a good musician, we shall
probably be enabled to ascertain more exactly which of the Hindu
instruments of the present day are of comparatively modern origin.
The vina is undoubtedly of high antiquity. It has seven wire strings,
and movable frets which are generally fastened with wax. Two
hollowed gourds, often tastefully ornamented, are affixed to it for
the purpose of increasing the sonorousness. There are several kinds
of the vina in different districts; but that represented in the
illustration is regarded as the oldest. The performer shown is Jeewan
Shah, a celebrated virtuoso on the vina, who lived about a hundred
years ago. The Hindus divided their musical scale into several
intervals smaller than our modern semitones. They adopted twenty-
two intervals called sruti in the compass of an octave, which may
therefore be compared to our chromatic intervals. As the frets of the
vina are movable the performer can easily regulate them according
to the scale, or mode, which he requires for his music.
The harp, chang, has become almost obsolete. If some Hindu
drawings of it can be relied upon, it had at an early time a triangular

frame and was in construction
as well as in shape and size
almost identical with the
Assyrian harp.
The Hindus claim to have
invented the violin bow. They
maintain that the ravanastron,
one of their old instruments
played with the bow, was
invented about five thousand
years ago by Ravanon, a mighty
king of Ceylon. However this
may be there is a great
probability that the fiddle-bow
originated in Hindustan;
because Sanskrit scholars
inform us that there are names for it in works which cannot be less
than from 1500 to 2000 years old. The non-occurrence of any
instrument played with a bow on the monuments of the nations of
antiquity is by no means so sure a proof as has generally been
supposed, that the bow was unknown. The fiddle in its primitive
condition must have been a poor contrivance. It probably was
despised by players who could produce better tones with greater
facility by twanging the strings with their fingers, or with a plectrum.
Thus it may have remained through many centuries without
experiencing any material improvement. It must also be borne in
mind that the monuments transmitted to us chiefly represent
historical events, religious ceremonies, and royal entertainments. On
such occasions instruments of a certain kind only were used, and
these we find represented; while others, which may have been even
more common, never occur. In two thousand years’ time people will
possibly maintain that some highly perfected instrument popular
with them was entirely unknown to us, because it is at present in so
primitive a condition that no one hardly notices it. If the ravanastron
was an importation of the Mahomedans it would most likely bear

some resemblance to the Arabian and Persian instruments, and it
would be found rather in the hands of the higher classes in the
towns; whereas it is principally met with among the lower order of
people, in isolated and mountainous districts. It is further
remarkable that the most simple kind of ravanastron is almost
identical with the Chinese fiddle called ur-heen. This species has only
two strings, and its body consists of a small block of wood, hollowed
out and covered with the skin of a serpent. The ur-heen has not
been mentioned among the most ancient instruments of the
Chinese, since there is no evidence of its having been known in
China before the introduction of the Buddhist religion into that
country. From indications, which to point out would lead too far
here, it would appear that several instruments found in China
originated in Hindustan. They seem to have been gradually diffused
from Hindustan and Thibet, more or less altered in the course of
time, through the east as far as Japan.
Another curious Hindu instrument, probably of very high antiquity, is
the poongi, also called toumrie and magoudi. It consists of a gourd
or of the Cuddos nut, hollowed, into which two pipes are inserted.
The poongi therefore somewhat resembles in appearance a bagpipe.
It is generally used by the Sampuris or snake charmers, who play
upon it when they exhibit the antics of the cobra. The name
magoudi, given in certain districts to this instrument, rather tends to
corroborate the opinion of some musical historians that the magadis
of the ancient Greeks was a sort of double-pipe, or bagpipe.
Many instruments of Hindustan are known by different names in
different districts; and, besides, there are varieties of them. On the
whole, the Hindus possess about fifty instruments. To describe them
properly would fill a volume. Some, which are in the Kensington
museum, will be found noticed in the large catalogue of that
collection.

The Persians and Arabs.
Of the musical instruments of the ancient Persians, before the
Christian era, scarcely anything is known. It may be surmised that
they closely resembled those of the Assyrians, and probably also
those of the Hebrews.
The harp, chang, in olden time a
favourite instrument of the Persians,
has gradually fallen into desuetude. The
illustration of a small harp given in the
woodcut has been sketched from the
celebrated sculptures, perhaps of the
sixth century, which exist on a
stupendous rock, called Tackt-i-Bostan,
in the vicinity of the town of
Kermanshah. These sculptures are said
to have been executed during the lifetime of the Persian monarch
Khosroo Purviz. They form the ornaments of two lofty arches, and
consist of representations of field sports and aquatic amusements.
In one of the boats is seated a man in an ornamental dress, with a
halo round his head, who is receiving an arrow from one of his
attendants; while a female, who is sitting near him, plays on a
Trigonon. Towards the top of the bas-relief is represented a stage,
on which are performers on small straight trumpets and little hand
drums; six harpers; and four other musicians, apparently females,—
the first of whom plays a flute; the second, a sort of pandean pipe;
the third, an instrument which is too much defaced to be
recognizable; and the fourth, a bagpipe. Two harps of a peculiar
shape were copied by Sir Gore Ousely from Persian manuscripts
about four hundred years old resembling, in the principle on which
they are constructed, all other oriental harps. There existed
evidently various kinds of the chang. It may be remarked here that
the instrument tschenk (or chang) in use at the present day in
Persia, is more like a dulcimer than a harp. The Arabs adopted the

harp from the Persians, and called it junk. An interesting
representation of a Turkish woman playing the harp (p. 53) sketched
from life by Melchior Lorich in the seventeenth century, probably
exhibits an old Persian chang; for the Turks derived their music
principally from Persia. Here we have an introduction into Europe of
the oriental frame without a front pillar.
The Persians appear to have adopted, at an early
period, smaller musical intervals than semitones.
When the Arabs conquered Persia (A.D. 641) the
Persians had already attained a higher degree of
civilisation than their conquerors. The latter found in
Persia the cultivation of music considerably in
advance of their own, and the musical instruments
superior also. They soon adopted the Persian
instruments, and there can be no doubt that the
musical system exhibited by the earliest Arab writers
whose works on the theory of music have been
preserved was based upon an older system of the
Persians. In these works the octave is divided in
seventeen one-third-tones—intervals which are still made use of in
the east. Some of the Arabian instruments are constructed so as to
enable the performer to produce the intervals with exactness. The
frets on the lute and tamboura, for instance, are regulated with a
view to this object.

The Arabs had to some extent become acquainted with many of the
Persian instruments before the time of their conquest of Persia. An
Arab musician of the name of Nadr Ben el-Hares Ben Kelde is
recorded as having been sent to the Persian king Khosroo Purviz, in
the sixth century, for the purpose of learning Persian singing and
performing on the lute. Through him, it is said, the lute was brought
to Mekka. Saib Chatir, the son of a Persian, is spoken of as the first
performer on the lute in Medina, A.D. 682; and of an Arab lutist, Ebn
Soreidsch from Mekka, A.D. 683, it is especially mentioned that he

played in the Persian style; evidently the superior one. The lute, el-
oud, had before the tenth century only four strings, or four pairs
producing four tones, each tone having two strings tuned in unison.
About the tenth century a string for a fifth tone was added. The
strings were made of silk neatly twisted. The neck of the instrument
was provided with frets of string, which were carefully regulated
according to the system of seventeen intervals in the compass of an
octave before mentioned. Other favourite stringed instruments were
the tamboura, a kind of lute with a long neck, and the kanoon, a
kind of dulcimer strung with lamb’s gut strings (generally three in
unison for each tone) and played upon with two little plectra which
the performer had fastened to his fingers. The kanoon is likewise still
in use in countries inhabited by Mahomedans. The engraving, taken
from a Persian painting at Teheran, represents an old Persian santir,
the prototype of our dulcimer, mounted with wire strings and played
upon with two slightly curved sticks.

Al-Farabi, one of the earliest Arabian musical theorists known, who
lived in the beginning of the tenth century, does not allude to the
fiddle-bow. This is noteworthy inasmuch as it seems in some
measure to support the opinion maintained by some historians that
the bow originated in England or Wales. Unfortunately we possess
no exact descriptions of the Persian and Arabian instruments
between the tenth and fourteenth centuries, otherwise we should
probably have earlier accounts of some instrument of the violin kind
in Persia. Ash-shakandi, who lived in Spain about A.D. 1200, mentions

the rebab, which may have been in use for centuries without having
been thought worthy of notice on account of its rudeness. Persian
writers of the fourteenth century speak of two instruments of the
violin class, viz., the rebab and the kemangeh. As regards the
kemangeh, the Arabs themselves assert that they obtained it from
Persia, and their statement appears all the more worthy of belief
from the fact that both names, rebab and kemangeh, are originally
Persian. We engrave the rebab from an example at South
Kensington.
The nay, a flute, and the surnay, a species of
oboe, are still popular in the east.
The Arabs must have been indefatigable
constructors of musical instruments. Kiesewetter
gives a list of above two hundred names of
Arabian instruments, and this does not include
many known to us through Spanish historians. A
careful investigation of the musical instruments of
the Arabs during their sojourn in Spain is
particularly interesting to the student of mediæval
music, inasmuch as it reveals the eastern origin of
many instruments which are generally regarded
as European inventions. Introduced into Spain by
the Saracens and the Moors they were gradually
diffused towards northern Europe. The English, for instance, adopted
not only the Moorish dance (morrice dance) but also the kuitra
(gittern), the el-oud (lute), the rebab (rebec), the nakkarah (naker),
and several others. In an old Cornish sacred drama, supposed to
date from the fourteenth century, we have in an enumeration of
musical instruments the nakrys, designating “kettle-drums.” It must
be remembered that the Cornish language, which has now become
obsolete, was nearly akin to the Welsh. Indeed, names of musical
instruments derived from the Moors in Spain occur in almost every
European language.

Not a few fanciful stories are traditionally preserved among the
Arabs testifying to the wonderful effects they ascribed to the power
of their instrumental performances. One example will suffice. Al-
Farabi had acquired his proficiency in Spain, in one of the schools at
Cordova which flourished as early as towards the end of the ninth
century: and his reputation became so great that ultimately it
extended to Asia. The mighty caliph of Bagdad himself desired to
hear the celebrated musician, and sent messengers to Spain with
instructions to offer rich presents to him and to convey him to the
court. But Al-Farabi feared that if he went he should be retained in
Asia, and should never again see the home to which he felt deeply
attached. At last he resolved to disguise himself, and ventured to
undertake the journey which promised him a rich harvest. Dressed in
a mean costume, he made his appearance at the court just at the
time when the caliph was being entertained with his daily concert.
Al-Farabi, unknown to everyone, was permitted to exhibit his skill on
the lute. Scarcer had he commenced his performance in a certain
musical mode when he set all his audience laughing aloud,
notwithstanding the efforts of the courtiers to suppress so
unbecoming an exhibition of mirth in the royal presence. In truth,
even the caliph himself was compelled to burst out into a fit of
laughter. Presently the performer changed to another mode, and the
effect was that immediately all his hearers began to sigh, and soon
tears of sadness replaced the previous tears of mirth. Again he
played in another mode, which excited his audience to such a rage
that they would have fought each other if he, seeing the danger, had
not directly gone over to an appeasing mode. After this wonderful
exhibition of his skill Al-Farabi concluded in a mode which had the
effect of making his listeners fall into a profound sleep, during which
he took his departure.
It will be seen that this incident is almost identical with one recorded
as having happened about twelve hundred years earlier at the court
of Alexander the great, and which forms the subject of Dryden’s
“Alexander’s Feast.” The distinguished flutist Timotheus successively
aroused and subdued different passions by changing the musical

modes during his performance, exactly in the same way as did Al-
Farabi.
CHAPTER VI.
The American Indians.
If the preserved antiquities of the American Indians, dating from a
period anterior to our discovery of the western hemisphere, possess
an extraordinary interest because they afford trustworthy evidence
of the degree of progress which the aborigines had attained in the
cultivation of the arts and in their social condition before they came
in contact with Europeans, it must be admitted that the ancient
musical instruments of the American Indians are also worthy of
examination. Several of them are constructed in a manner which, in
some degree, reveals the characteristics of the musical system
prevalent among the people who used the instruments. And
although most of these interesting relics, which have been obtained
from tombs and other hiding-places, may not be of great antiquity, it
has been satisfactorily ascertained that they are genuine
contrivances of the Indians before they were influenced by European
civilization.
Some account of these relics is therefore likely to prove of interest
also to the ethnologist, especially as several facts may perhaps be
found of assistance in elucidating the still unsolved problem as to the
probable original connection of the American with Asiatic races.
Among the instruments of the Aztecs in Mexico and of the Peruvians
none have been found so frequently, and have been preserved in
their former condition so unaltered, as pipes and flutes. They are
generally made of pottery or of bone, substances which are
unsuitable for the construction of most other instruments, but which
are remarkably well qualified to withstand the decaying influence of

time. There is, therefore, no reason to conclude from the frequent
occurrence of such instruments that they were more common than
other kinds of which specimens have rarely been discovered.
The Mexicans possessed a small whistle formed of baked clay, a
considerable number of which have been found. Some specimens (of
which we give engravings) are singularly grotesque in shape,
representing caricatures of the human face and figure, birds, beasts,
and flowers. Some were provided at the top with a finger-hole
which, when closed, altered the pitch of the sound, so that two
different tones were producible on the instrument. Others had a little
ball of baked clay lying loose inside the air-chamber. When the
instrument was blown the current of air set the ball in a vibrating
motion, thereby causing a shrill and whirring sound. A similar
contrivance is sometimes made use of by Englishmen for conveying
signals. The Mexican whistle most likely served principally the same
purpose, but it may possibly have been used also in musical
entertainments. In the Russian horn band each musician is restricted
to a single tone; and similar combinations of performers—only, of

Solution Manual for Intermediate Accounting 17th by Kieso

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