financial accounting and accounting standards
DESCRIPTION
Financial Accounting and Accounting StandardsTRANSCRIPT
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Chapter1-1
Financial Accounting and
Accounting Standards
Chapter1
Intermediate Accounting,12th Edition
Kieso, Weygandt, and Warfield
Prepared by Coby Harmon, University of California, Santa Barbara
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Chapter1-2
1. Identify the major financial statements and other means offinancial reporting.
2. Explain how accounting assists in the efficient use of scarceresources.
3. Describe some of the challenges facing accounting.
4. List the objectives of financial reporting.5. Explain the need for accounting standards.
6. Identify the major policy-setting bodies and their role in thestandard-setting process.
7. Explain the meaning of generally accepted accounting principles.
8. Describe the impact of user groups on the standard-settingprocess.
9. Understand issues related to ethics and financial accounting.
Chapter 1 Learning Objectives
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Chapter1-3
Financial Accounting and Accounting Standards
Financial Statements
and Financial
Reporting
Accounting andCapital Allocation
Challenges
Objectives
The Need to
Develop Standards
Parties Involved in
Standard Setting
Generally Accepted
Accounting
Principles
Issues in Financial
Reporting
Securities and
Exchange
Commission (SEC)
American Institute of
Certified Public
Accountants (AICPA)
Financial Accounting
Standards Board
(FASB)Governmental
Accounting
Standards Board
(GASB)
Changing Role of the
AICPA
Political Environment
The Expectations
Gap
International
Accounting
Standards
Ethics
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Chapter1-4 LO 1 Identify the major financial statements and other means of financial reporting..
Characteristics of Accounting
Essential characteristics of accounting are:
(1) the identification, measurement, andcommunicationof financial information about
(2) economic entities to
(3) interested parties.
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Chapter1-5
FinancialInformation
Accounting?
Identifies
and
Measures
and
Communicates
Balance Sheet
Income Statement
Statement of CashFlows
Statement ofOwners or
Stockholders Equity
Note Disclosures
Presidents letter
Prospectuses,
SEC Reporting
News releases
Forecasts
Environmental
ReportsEtc.
GAAP Not GAAP
Financial Statements Additional InformationEconomic Entity
Characteristics of Accounting
LO 1 Identify the major financial statements and other means of financial reporting..
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Chapter1-6 LO 1 Identify the major financial statements and other means of financial reporting..
What is the purpose of information presented innotes to the financial statements?
a. To provide disclosure required by generallyaccepted accounting principles.
b. To correct improper presentation in the financialstatements.
c. To provide recognition of amounts not included inthe totals of the financial statements.
d. To present managements responses to auditorcomments.
Review
Characteristics of Accounting
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Chapter1-7
Accounting and Capital Allocation
Resources are limited. Efficient use of resources oftendetermines whether a business thrives.
Financial
Reporting
Information to help
users with capital
allocation decisions.
Users
Investors, creditors,
and other users
Capital Allocation
The process of
determining how and
at what cost money
is allocated among
competing interests.
LO 2 Explain how accounting assists in the efficient use of scare resources.
Illustration 1-1 CapitalAllocation Process
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Chapter1-8
An effective process of capital allocation is critical to ahealthy economy, which
a. promotes productivity.b. encourages innovation.
c. provides an efficient and liquid market for buying
and selling securities.
d. All of the above.
Accounting and Capital Allocation
LO 2 Explain how accounting assists in the efficient use of scare resources.
Review
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Chapter1-9
Challenges Facing Financial Accounting
Non-financial Measurements
Forward-looking Information
Soft Assets
Timeliness
LO 3 Describe some of the challenges facing accounting.
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Chapter1-10
Financial reporting should provide information:
(a) that is useful to present and potential investors andcreditors and other users in making rational investment,credit, and similar decisions.
(b) to help present and potential investors and creditors andother users in assessing the amounts, timing, anduncertainty of prospective cash receipts.
(c) about the economic resources of an enterprise, the claimsto those resources, and the effects of transactions,events, and circumstances that change its resources andclaims to those resources.
Objectives of Financial Accounting
LO 4 List the objectives of financial reporting.
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Chapter1-11
All of the following are objectives of financialreporting except to provide information
a. About enterprise resources, claims to thoseresources, and changes in them.
b. That is useful in investment and credit decisions.
c. About the management and major shareholders of
an enterprise.
d. That is useful in assessing cash flow prospects.
Objectives of Financial Accounting
LO 4 List the objectives of financial reporting.
Review
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Chapter1-12
Need to Develop Standards
Various usersneed financialinformation
The accounting professionhas attempted to develop a
set of standards that aregenerally accepted anduniversally practiced.
Financial StatementsBalance SheetIncome StatementStatement of Stockholders EquityStatement of Cash FlowsNote Disclosure
Generally Accepted
Accounting Principles(GAAP)
LO 5 Explain the need for accounting standards.
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Chapter1-13
Parties Involved in Standard Setting
Four organizations:
Securities and Exchange Commission (SEC)
American Institute of Certified Public
Accountants (AICPA) Financial Accounting Standards Board (FASB)
Government Accounting Standards Board (GASB)
LO 6 Identify the major policy-setting bodies andtheir role in the standard-setting process.
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Chapter1-14
SecuritiesAct of 1933
SecuritiesAct of 1934
Securities and Exchange Commission
Established by federal governmentAccounting and reporting for public companies
Encouraged private standard-setting body
SEC requires public companies to adhere to GAAPSEC Oversight
Enforcement Authority
LO 6 Identify the major policy-setting bodies andtheir role in the standard-setting process.
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Chapter1-15
American Institute of CPAs
National professional organizationEstablished the following:
LO 6
Committee on
AccountingProcedures
Accounting
Principles Board
1939 to 1959
Issued 51 Accounting
Research Bulletins
(ARBs)
Problem-by-problem
approach failed
1959 to 1973
Issued 31 Accounting
Principle Board
Opinions (APBOs)
Wheat Committee
recommendations
adopted in 1973
http://www.aicpa.org/
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Chapter1-16
Financial Accounting Standards Board
Wheat Committees recommendations resulted in the creation of athe Financial Accounting Standards Board in 1973.
FinancialAccounting
Foundation
Selects members of the FASBFunds their activities
Exercises general oversight.
FinancialAccounting
Standards Board
Financial AccountingStandards Advisory
Council
Mission to establish and improvestandards of financial accountingand reporting.
Consult on major policy issues.
LO 6 Identify the major policy-setting bodies andtheir role in the standard-setting process.
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Chapter1-17
Missions is to establish and improve standards offinancial accounting and reporting. Differences
between FASB and APB include:
Financial Accounting Standards Board
Smaller MembershipFull-time, Remunerated Membership
Greater Autonomy
Increased Independence
Broader Representationhttp://www.fasb.org/
LO 6 Identify the major policy-setting bodies andtheir role in the standard-setting process.
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Chapter1-18
The first step taken in the establishment of a typicalFASB statement is
a. The board conducts research and analysis and adiscussion memorandum is issued.
b. A public hearing on the proposed standard is held.
c. The board evaluates the research and public
response and issues an exposure draft.d. Topics are identified and placed on the boards
agenda.
Financial Accounting Standards Board
Review
LO 6 Identify the major policy-setting bodies andtheir role in the standard-setting process.
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Chapter1-19
FASB relies on two basic premises:(1) Responsive to entire economic community
(2) Operate in full view of the public
Due Process
Step 1 = Topic placed on agendaStep 2 = Research conducted and Discussion Memorandum
issued.
Step 3 = Public hearing
Step 4 = Board evaluates research, public response andissues Exposure Draft
Step 5 = Board evaluates responses and issues final
Statement of Financial Accounting Standard
LO 6 Identify the major policy-setting bodies andtheir role in the standard-setting process.
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Chapter1-20
Issued by the FASB:
Types of Pronouncements
Standards, Interpretations, and Staff Positions.
Financial Accounting Concepts
Emerging Issues Task Force Statements
LO 6 Identify the major policy-setting bodies andtheir role in the standard-setting process.
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Chapter1-21
Governmental Accounting Standards Board
Created in 1984 to address state and local governmental reporting
issues.
LO 6
FinancialAccountingFoundation
FinancialAccounting
Standards Board
Financial AccountingStandards Advisory
Council
GovernmentalAccounting
Standards Board
GovernmentalAccounting Standards
Advisory Council
http://www.gasb.org/
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Chapter1-22
Generally Accepted Accounting Principles
Those principles that have substantial authoritativesupport.
Major sources of GAAP are:
FASB Standards, Interpretations, and Staff PositionsAPB Opinions
AICPA Accounting Research Bulletins
LO 7 Explain the meaning of generally accepted accounting principles.
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Chapter1-23
FASB Statements,Interpretations, and
Staff PositionsAPB Opinions
CAP AccountingResearch Bulletins
Category A(Most Authoritative)
FASB TechnicalBulletins
AICPA Industry Auditand Accounting Guides
AICPA Statements ofPosition
Category B
FASB Emerging Issues Task Force AICPA AcSEC Practice Bulletins
Category C
AICPA Accounting
Interpretations
Category D (Least Authoritative)
FASB Implementation
Guides
Recognized Industry
Practices
House of GAAP
LO 7
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Chapter1-24
Which of the following accounting pronouncements is themost authoritative?
a. FASB Statement of Financial Accounting Concepts.b. FASB Technical Bulletins.
c. AICPA Accounting Principles Board Opinion.
d. AICPA Statement of Position.
Generally Accepted Accounting Principles
LO 7 Explain the meaning of generally accepted accounting principles.
Review
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Chapter1-25
Issues in Financial Reporting
Standard Setting in a Political EnvironmentAccounting standards are as much a product ofpolitical action as they are of careful logic orempirical findings.
LO 8 Describe the impact of user groups on the standard-setting process.
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Chapter1-26
FASB Preparers(e.g., FEI)
Financial
Community
Government(SEC, IRS, other
agencies)
Industry
Associations
Business Entities
CPAs and
Accounting Firms
AICPA (AcSEC)
Academicians
Investing Public
Accounting standards,interpretations, and bulletins
Standard Setting
LO 8 Describe the impact of user groups on the standard-setting process.
Illustration 1-5 UserGroups that InfluenceAccounting Standards
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Chapter1-27
All those who serve on the FASB must be
Certified Public Accountants.
Review:
Issues in Financial Reporting
LO 8 Describe the impact of user groups on the standard-setting process.
False
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Chapter1-28
Issues in Financial Reporting
Expectation Gap
What the public thinks accountants should do vs.what accountants think they can do.
Difficult to close
Sarbanes-Oxley Act (2002)
Public Company Accounting Oversight Board
(PCAOB)
LO 8 Describe the impact of user groups on the standard-setting process.
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Chapter
1-29
Issues in Financial Reporting
International Accounting Standards
Two sets of standards accepted for international use:
U.S. GAAP, issued by the FASB
International Financial Reporting Standards
(IFRS), issued by the IASB
FASB and IASB recognize that global markets will best beserved if only one set of GAAP is used.
LO 8 Describe the impact of user groups on the standard-setting process.
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Chapter
1-30
Issues in Financial Reporting
Ethics in the Environment of Financial AccountingIn accounting, we frequently encounter ethicaldilemmas.
GAAP does not always provide an answer
Doing the right thing is not always easy or obvious
LO 9 Understand issues related to ethics and financial accounting.
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Chapter
1-31
Copyright
Copyright 2006 John Wiley & Sons, Inc. All rights reserved.Reproduction or translation of this work beyond that permittedin Section 117 of the 1976 United States Copyright Act withoutthe express written permission of the copyright owner isunlawful. Request for further information should be addressed
to the Permissions Department, John Wiley & Sons, Inc. Thepurchaser may make back-up copies for his/her own use onlyand not for distribution or resale. The Publisher assumes noresponsibility for errors, omissions, or damages, caused by theuse of these programs or from the use of the informationcontained herein.