FASB Simplification Initiative case study
1. Describe the main differences between the old standard and the SI standard in the measurement and disclosure of accounting items.
2. Describe expected impacts of the new SI standard on a company’s financial reports. List industries and companies that are most likely to be impacted.
3. For each standard, choose 5-10 companies that you think are more likely impacted to evaluate the application of the standard. For each company, you need to collect data for the impacted accounts and financial statement items from annual and quarterly reports over a period of up to four years, two years before and two years after the new standard took effect.
4. Using the data collected in the Requirement #3, please quantify the impact using data. Are the changes significant? Explain.
5. Calculate the following ratios over the annual reporting periods used in the Requirement #3:
a. Market-to-book (PB) ratio, defined as market value of equity over book value of common equity, on each balance sheet date.
b. Price-to-earnings (PE) ratio, defined as stock price over earnings per share.
c. Rate of return on assets (ROA), defined as net income (loss) over average total assets [(beginning total assets + ending total assets)/2].
6. Do you think the changes in the ratios have anything to do with the new accounting standard? Why or why not? Explain.