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Intermediate Accounting

Intermediate Accounting - Intermediate Accounting Chapter 1...

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Intermediate Accounting Chapter 1 Financial statements: Balance sheet, income statement, statement of cash flows, statement of owner’s equity. Financial reporting: not financial statements (media releases, pres letter) Challenges facing financial accounting: Nonfinancial measurements, forward-looking information, soft assets, timeliness. Objectives of financial reporting: 1) Useful when making a rational investment, credit or similar decisions. 2) Helps assess the amounts, timing and uncertainty of prospective cash receipts 3) Clearly portrays the economic resources of an enterprise, the claims to those resources. Information based on accrual accounting generally better indicates a company’s present and continuing ability to generate favorable cash flows than does information limited to the financial effect of the cash receipts and payments. Objective of accrual-basis accounting: ensuring that a company records events that change its financial statements in the periods in which the events occur, rather than only in the periods in which it receives or pays cash. GAAP: securities and exchange commission (SEC), American institute of CPAs (AICPA), financial accounting standards board (FASB), Government accounting standards board (GASB) SEC: rewuires registrants to adhere to GAAP, relies on the fasb to develop accounting standards, AICPA: Purposes of Accounting Principles Board: Advance the written expression of accounting principles, determine appropriate practices and narrow the areas of difference and inconsistency in practice. FASB: Smaller membership, full time renewable membership, greater autonomy, increased independence broader representation (than APB). Premises: Be responsive to the needs and viewpoints of entire economic community, not just accountants, operate in full view of the public. FASB issues pronouncements: 1) standards, interpretations and staff positions. 2) financial accounting concepts 3) emerging issues task force statements. A statement of financial accounting concepts does not establish GAAP. Emerging issues task force (EITF): representatives from CPA firms and financial statement preparers. Governmental accounting standards board (GASB): Similar to FASB, but for governments. Chart on P. 11
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Accounting standards executive committee (AcSEC): audit and accounting guides, statements of position (SOP)-guidence on financial reporting topics until FASB sets standards, Practice bulletins-AcSEC’s views on narrow financial reporting issues not considered by FASB. Sources of GAAP: FASB standards, interpreatations and staff positions; APB opinions; and AICPA accounting research bulletins. Issues in financial reporting: *Standard setting in a political environment: accounting standards are as much a product of political action as they are of careful logic and empirical findings.
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