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
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
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
Governmental accounting standards board (GASB): Similar to FASB, but for
Chart on P. 11