Discussion Memorandum

Discussion Memorandum Financial Accounting Standards Board Statement of Financial Accounting Standards Alternative Accounting Treatments Accounting Standards Financial Reporting
In the USA, a Discussion Memorandum is a preliminary document published by the Financial Accounting Standards Board (FASB) before issuing a Statement of Financial Accounting Standards (SFAS). It specifies the topic under consideration, describes the alternative accounting treatments, and explains the perceived advantages and disadvantages of each treatment.
On this page

Definition of Discussion Memorandum

A Discussion Memorandum is an essential preliminary document released by the Financial Accounting Standards Board (FASB) in the United States. This document is published before the FASB issues a Statement of Financial Accounting Standards (SFAS). The Discussion Memorandum plays a crucial role in the standard-setting process, providing a platform for open dialogue and consideration of various accounting practices.

Key Features

  • Topic Specification: The document outlines the specific accounting topic or issue under consideration.
  • Alternative Treatments: It describes the alternative accounting treatments available for addressing the issue.
  • Advantages and Disadvantages: The Memorandum explains the perceived advantages and disadvantages of each treatment.

Examples

  1. Revenue Recognition: In the discussion memo for revenue recognition, the FASB would specify topics related to recognizing revenue in financial statements, describing methods such as percentage-of-completion and completed-contract methods, and explaining the pros and cons of each.
  2. Lease Accounting: Another example is the Discussion Memorandum on lease accounting, detailing topics such as operating leases versus capital leases, including an evaluation of the impact on financial statements and stakeholder comprehension.

Frequently Asked Questions (FAQs)

What is the purpose of a Discussion Memorandum?

The main purpose is to present a comprehensive analysis of a possible financial issue and alternatives before reaching a consensus on the most suitable accounting standard. It helps in engaging feedback from various stakeholders, ensuring well-rounded and thorough considerations.

How does a Discussion Memorandum impact the final Statement of Financial Accounting Standards (SFAS)?

The Discussion Memorandum provides an opportunity for public exposure and feedback, which significantly influences the final form of the SFAS. Contributions from the public and experts help the FASB make informed decisions and better develop the standards.

Who can provide feedback on a Discussion Memorandum?

Stakeholders including accountants, auditors, industry participants, academics, and the general public can provide comments and feedback. This process promotes transparency and inclusiveness in standard-setting.

Why are alternative accounting treatments proposed?

Alternative treatments are presented to cover different perspectives and methodologies, allowing stakeholders to evaluate multiple approaches and come to a consensus on the most effective and equitable solution.

How can one access past Discussion Memorandums?

Past memorandums are typically accessible on the FASB’s official website or through academic and professional accounting databases.

  • Financial Accounting Standards Board (FASB): The organization responsible for establishing and improving financial accounting and reporting standards in the U.S.
  • Statement of Financial Accounting Standards (SFAS): An official pronouncement issued by the FASB that establishes GAAP in the United States.
  • Exposure Draft: A document released by the FASB to solicit public comment on proposed standards.
  • Generally Accepted Accounting Principles (GAAP): A framework of accounting standards, principles, and procedures that companies must follow while preparing financial statements.

Online References

Suggested Books for Further Studies

  • “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield: A comprehensive guide covering essential accounting standards and practices.
  • “Financial Accounting Theory” by William R. Scott: This book delves into the theoretical framework that underpins accounting practices and standards.
  • “Accounting Standards: True or False?” by Stewart Jones: Offers insights into the creation and implications of accounting standards.

Accounting Basics: “Discussion Memorandum” Fundamentals Quiz

### What is the primary goal of a Discussion Memorandum in the standard-setting process? - [x] To present a comprehensive analysis of an accounting issue and alternatives. - [ ] To finalize the accounting standards without public input. - [ ] To issue penalties for non-compliance with current standards. - [ ] To replace existing accounting standards with new ones immediately. > **Explanation:** The primary goal is to present a comprehensive analysis for consideration and feedback, which helps in shaping the final SFAS. ### Who publishes the Discussion Memorandum? - [x] Financial Accounting Standards Board (FASB) - [ ] Securities and Exchange Commission (SEC) - [ ] Internal Revenue Service (IRS) - [ ] Public Company Accounting Oversight Board (PCAOB) > **Explanation:** The FASB is responsible for publishing the Discussion Memorandum as part of its standard-setting process. ### At what stage in the standard-setting process is a Discussion Memorandum issued? - [ ] After the final standard is published - [ ] When initial drafts are ignored - [x] Before issuing a Statement of Financial Accounting Standards (SFAS) - [ ] After public comments have been collected > **Explanation:** A Discussion Memorandum is issued before the SFAS as an initial stage to gather feedback and consider various treatments. ### What should a Discussion Memorandum notably include? - [x] Topic under consideration, alternative accounting treatments, advantages, and disadvantages. - [ ] Completed financial statements. - [ ] Legal enforcement mechanisms. - [ ] Only the final decision on the standard. > **Explanation:** It includes detailed descriptions of the topic, alternative treatments, along with advantages and disadvantages of each. ### Why are feedback and comments invited on a Discussion Memorandum? - [x] To ensure that diverse viewpoints are considered. - [ ] To restrict the adoption of standards. - [ ] To provide final implementation plans only. - [ ] To replace existing memorandums instantly. > **Explanation:** Feedback is invited to ensure that a broad range of viewpoints are considered, making the standard more robust and applicable. ### Which stakeholders are encouraged to provide feedback on Discussion Memorandums? - [x] Accountants, auditors, industry participants, academics, and the public. - [ ] Only FASB board members. - [ ] Only government officials. - [ ] Investment banks exclusively. > **Explanation:** A wide range of stakeholders are encouraged to provide feedback to make the process inclusive and thorough. ### What kind of impact does a Discussion Memorandum typically have? - [x] Significant influence on the final SFAS. - [ ] No impact on final decisions. - [ ] Immediate implementation without review. - [ ] Enforcement against current standards. > **Explanation:** It significantly influences the development and final decisions of the SFAS by incorporating public and expert feedback. ### Are alternative accounting treatments mandatory to discuss in a Discussion Memorandum? - [x] Yes, they provide multiple perspectives and choices. - [ ] No, it only includes the final accounting policy. - [ ] Sometimes, if deemed necessary by the IRS. - [ ] Only if the SEC mandates inclusion. > **Explanation:** Alternative treatments are discussed to present multiple perspectives and help decide the most suitable approach. ### What is the perceived benefit of outlining advantages and disadvantages in the memorandum? - [ ] To confuse stakeholders with contrasting views. - [x] To help stakeholders make well-informed decisions. - [ ] To make the document lengthy. - [ ] To ensure no decisions are made prematurely. > **Explanation:** Explaining the advantages and disadvantages allows stakeholders to understand the potential impacts and make well-informed decisions. ### How can the public access previous Discussion Memorandums? - [ ] Through secret accounting societies. - [x] On the FASB’s official website or academic databases. - [ ] By contacting IRS offices. - [ ] Through yearly financial statements of companies. > **Explanation:** Past memorandums are accessible via the FASB's official website and various academic and professional accounting databases, ensuring transparency.

Thank you for exploring the intricate details of Discussion Memorandums in the accounting standards landscape and testing your understanding with our challenging quiz questions. Keep striving for excellence in your financial knowledge!

Tuesday, August 6, 2024
Diseconomies
Discrimination
Statement of Financial Accounting Standards (SFAS) January 1, 1
ASC (Accounting Standards Committee) January 1, 1
Above-the-Line January 1, 1
Accountancy Bodies January 1, 1
Accounting Council January 1, 1
Accounting Principles January 1, 1
Accounting Principles January 1, 1
Accounting Principles Board (APB) January 1, 1
Accounting Series Release January 1, 1
Accounting Standards Board (ASB) January 1, 1

Accounting Terms Lexicon

Discover comprehensive accounting definitions and practical insights. Empowering students and professionals with clear and concise explanations for a better understanding of financial terms.