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Reporting of Marketable Securities

Developing Financial Reporting Objectives

As a means of becoming familiar with the nature and process of applied financial accounting research, consider the case study "An Exercise in Accounting for Marketable Securities" (Lynch, 2007). Next, using outside sources that you may seek and your professional experience, develop and write a 3 page paper concisely answering the following questions:

(A1.1) What might the company's financial reporting objective(s) be with respect to the marketable securities?

(A1.2) What potentially constrains management from meeting the objective(s)?

(A1.3) How can management meet the objective(s) given the constraint(s)?

(A1.4) What is the process used by accountants to consider such objectives and constraints when advising management?

(A1.5) How should accountants communicate their advice to management and what should be included in that communication?


Solution Preview

In accordance with BrainMass law this is not a hand in ready paper but only guidance.
Step 1
A company's financial reporting objective with respect to marketable securities may be to convey the purpose of holding the securities. One of the common purposes that companies have is to buy equity shares of company with excess cash not required for operating purposes. The surplus money is used to buy shares of other organizations. The objective is that the market prices of these shares will increase. This is the case where equity shares are bought to store cash and increase profits. The second financial reporting objective with respect to marketable securities can be to convey the purpose of influencing another company. The financial reporting objective is to convey that the securities are held to significantly influence the companies. The third financial reporting objective with respect to marketable securities is that the marketable securities are being held for obtaining control of that company.

Step 2
The reporting requirements under accounting standards (GAAP) potentially constrain the company's management from meeting its objectives. According to the requirement of SFAS 115 accounting for and reporting for investments in equity securities must be in readily determinable fair values. The accounting for passive investments must be reported by using the market value method of accounting. Those investments that are held for significant influence must ...

Solution Summary

Reporting of marketable securities is discussed step-by-step in this solution. The response also has the sources used.