Refer to Theory in Practice13.

1, concerning SFASS 130 and 115, in Section13.

3.2

Required

a. Why does SFAS 115 require unrealized gains and losses on available-for-sale securities to be included in OCI rather than in net income?

b. If securities markets are fully efficient, would a strategy of trying to disguise gains trading by reporting OCI in a statement of changes in shareholders' equity rather than below net income work? Explain why or why not

c. If securities markets are not fully efficient, would such a strategy work? Explain.

d. You are the auditor of a firm using this strategy. You object to it, and management responds that the strategy is clearly in accordance with GAAP since SFAS 130 allows OCI to be included in a separate statement apart from net income. Furthermore, if you do not accept it you will be forced to resign as auditor. This will also result in your loss of systems and tax consulting work for the client. Would you resign? Explain your decision.