. In the early 1980's, the Canadian government introduced a program to encourage oil and gas exploration that included Petroleum Incentive Program (PIP) grants. The Handbook Recommendations required that grant revenues be deferred and taken into income over the same period as the exploration costs were amortized to the income statement. Oil and gas companies and the federal government were very unhappy, and the government threatened to legislate its own standards if the CICA did not change the Recommendations to required the grant revenue to be taken into income immediately. The CICA did not change the Recommendations, the government did not legislate, and the responsibility for developing accounting standards has remained that of CPA Canada.

Required:

4 a) Is this real world situation consistent with the public interest theory or the interest group theory of regulation? Explain.

4 b) Evaluate the two options for recognizing grant revenue, defer and amortize or immediate recognition, from the perspective of decision usefulness to the existing and potential investors.

2 c) Describe two reasons CPA Canada is willing to incur the substantial costs of standard setting, rather than have the standards developed and implemented by government.