The Accounting Research Process
• The Research Process
– Applying Critical Thinking in Defining Problem
– Perform Research in FASB Codification
– Analyze Research Results and Form Conclusion
– Document in a Memorandum

© Cambridge Business Publishers, 2014

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Objectives of Performing Accounting Research
• The objectives of accounting research are generally twofold:
– To account for transactions or items in a manner that is appropriate and supportable based on authoritative guidance, and
– To create documentation describing the research performed and supporting the conclusion reached.

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Why is Documentation So Critical?
• Written documentation of a company’s accounting positions:
– Creates an audit trail
– Serves as a historical reference
– Provides support for the company’s position, in the event it is ever questioned

• Auditors must also maintain documentation evidencing their own research and consideration of client accounting positions.
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The Research Process
The accounting research process is as follows:
Understand the facts/background of the transaction.
Define the problem. That is, identify the "researchable question."
Stop and think: What accounting treatment will likely be most appropriate? Search potentially relevant sources of guidance, copying any relevant guidance into a Word document.
Analyze alternatives, documenting your consideration of each.
Justify and document your conclusion.
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Step 1: Understand the Facts
• Your first challenge in any accounting research assignment is to fully understand the transaction and why it is being entered into. • Think critically about the issue, and continue gathering information until you are sure you understand the economics, parties’ motivations, and so on.
• Don’t be shy about asking for this information. Trying to perform research with “half the facts” can be inefficient.

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Step 1: Understand the Facts
• To obtain information,
– Read transaction documents, including draft or final contracts.
– Talk to individuals with knowledge of the transaction.
– If the company has undertaken similar transactions in the past, review any prior memos.
– If necessary, review peer company 10-Ks or industry-specific publications (e.g., whitepapers) to see how others in the industry account for similar transactions.

• Beware that certain transactions are so complex that specialists may be warranted, for example:
– Business combinations, securitizations, "hybrid" debt offerings, and stock compensation or pension-related transactions.

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Step 2: Define the problem
• Now that you understand the transaction facts, your next step is to identify the researchable question.
• Doing so will help to focus your research efforts (and can help you avoid getting “lost” in the guidance).
• Some tips:
– Avoid long or complex questions. If your question has multiple parts, break that issue into two or more questions.
– Be prepared to refine your questions as you work through the research process. © Cambridge Business Publishers, 2014

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Step 2: Define the problem
The more specific you can make your questions, the more effective they will be in guiding your research.
• Your researchable questions might initially be broad.
– Upon reading a sales contract, you might first ask:
When will we recognize revenue for this transaction?

• However, your questions may become more specific as you work through the research process.
– E.g., Does this transaction qualify for the milestone method of revenue recognition?

• Additional questions may also become apparent as you work through the research process.
– For example, once you choose an accounting method, you may need to research how to apply that method.
Which milestones in the contract are considered “substantive” and thus eligible for recognition as revenue?