acis 3115 ch. 1

acis 3115 ch. 1 - Financial Accounting and Accounting...

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Unformatted text preview: Financial Accounting and Accounting Standards Accounting Chapter One Chapter 1 -1 Chapter 1 Learning Objectives 1. 2. 3. 4. 5. 6. 7. 8. 9. Ide ntify them financial state e and othe m ans of financial re ajor m nts re porting. Explain how accounting assists in thee fficie useof scarcere nt source s. De scribesom of thechalle s facing accounting. e nge List theobje s of financial re ctive porting. Explain thene d for accounting standards. e Ide ntify them policy-se ajor tting bodie and the rolein thestandard-se s ir tting proce ss. Explain them aning of ge rally acce d accounting principle e ne pte s. De scribetheim pact of use groups on thestandard-se r tting proce ss. Unde rstand issue re d to e s late thics and financial accounting. Chapter 1 -2 Financial Accounting and Accounting Standards Financial Statements Financial and Financial Reporting Reporting Accounting and Accounting Capital Allocation Capital Challenges Challenges Objectives Objectives The Need to The Develop Standards Develop Parties Involved in Parties Standard Setting Standard Securities and Securities Exchange Commission (SEC) Commission American Institute of American Certified Public Accountants (AICPA) Accountants Financial Accounting Financial Standards Board (FASB) (FASB) Governmental Governmental Accounting Standards Board (GASB) (GASB) Changing Role of the Changing AICPA AICPA Generally Accepted Generally Accounting Principles Principles Issues in Financial Issues Reporting Reporting Political Environment The Expectations The Gap Gap International International Accounting Standards Standards Ethics Chapter 1 -3 Characteristics of Accounting Essential characteristics of accounting are: (1) the identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties. (3) parties Chapter 1 -4 LO 1 Identify the major financial statements and other means of financial reporting.. Characteristics of Accounting Economic Entity Financial Information Accounting? Identifies and Measures and Communicates Financial Statements BalanceS e he t I ncom S m nt e tate e S m nt of C Flows tate e ash S m nt of Owne or tate e rs’ S tockholde Equity rs’ NoteDisclosure s Additional Information Pre nt’s le r side tte Prospe ctuse s, S Re EC porting Ne re ase ws le s Fore casts Environm ntal Re e ports Etc. GAAP Chapter 1 -5 Not GAAP LO 1 Identify the major financial statements and other means of financial reporting.. Characteristics of Accounting Review What is the purpose of information presented in notes What to the financial statements? to a. b. c. d. To providedisclosurere quire by ge rally acce d accounting d ne pte To principle s. principle To corre im ct prope pre ntation in thefinancial state e r se m nts. To providere cognition of am ounts not include in thetotals of the d To financial state e m nts. f inancial To pre nt m se anage e re m nt’s sponse to auditor com e s m nts. Chapter 1 -6 LO 1 Identify the major financial statements and other means of financial reporting.. Accounting and Capital Allocation Re source arelim d. Efficie useof re s ite nt source ofte de rm s whe r a s n te ine the busine thrive ss s. Illustration 1-1 Capital Allocation Process Financial Financial Reporting Reporting Information to help Information users with capital allocation decisions. allocation Users Investors, creditors, Investors, and other users and Capital Allocation The process of The determining how and at what cost money is allocated among competing interests. competing Chapter 1 -7 LO 2 Explain how accounting assists in the efficient use of scare resources. Accounting and Capital Allocation Review An effective process of capital allocation is critical to a An healthy economy, which healthy a. b. c. d. prom s productivity. ote e ncourage innovation. s provide an e s fficie and liquid m t for buying and se nt arke lling provide se curitie s. se All of theabove . Chapter 1 -8 LO 2 Explain how accounting assists in the efficient use of scare resources. Challenges Facing Financial Accounting Non-financial Me asure e m nts Forward-looking I nform ation S Asse oft ts Tim line e ss Chapter 1 -9 LO 3 Describe some of the challenges facing accounting. Objectives of Financial Accounting Objectives Financial reporting should provide information: Financial (a) that is use to pre nt and pote ful se ntial inve stors and cre ditors and othe use in r rs m aking rational inve e cre and sim de stm nt, dit, ilar cisions. (b) to he pre nt and pote lp se ntial inve stors and cre ditors and othe use in r rs asse ssing theam ounts, tim and unce ing, rtainty of prospe ctivecash re ipts. ce (c) about thee conom re ic source of an e rprise theclaim to thosere s nte , s source and s, t hee cts of transactions, e nts, and circum ffe ve stance that changeits re s source s and claim to thosere s source s. Chapter 1-10 LO 4 List the objectives of financial reporting. Objectives of Financial Accounting Review All of the following are objectives of financial reporting All except to provide information except a. b. c. d. About e rprisere source claim to thosere s, s source and change in s, s About nte the . m t he That is use in inve e and cre de ful stm nt dit cisions. About them anage e and m share m nt ajor holde of an e rprise rs nte . That is use in asse ful ssing cash flow prospe cts. Chapter 1-11 LO 4 List the objectives of financial reporting. Need to Develop Standards Various use ne d rs e f inancial inform ation Financial S m nts tate e BalanceS e he t I ncom S m nt e tate e S m nt of S tate e tockholde Equity rs’ S m nt of C Flows tate e ash NoteDisclosure Theaccounting profe ssion has atte pte to de lop a se of md ve t standards that arege rally acce d ne pte and unive rsally practice d. Generally Accepted Generally Accounting Principles (GAAP) (GAAP) Chapter 1-12 LO 5 Explain the need for accounting standards. Parties Involved in Standard Setting Four organizations: • • • • S curitie and ExchangeCom ission (S ) e s m EC Am rican Instituteof Ce e rtifie Public Accountants (AI CPA) d Financial Accounting S tandards Board (FAS B) Gove e Accounting S rnm nt tandards Board (GAS B) Chapter 1-13 LO 6 Identify the major policy-setting bodies and their LO role in the standard-setting process. role Securities and Exchange Commission Established by federal government Accounting and reporting for public companies S curitie Act of e s 1933 1933 S curitie Act of e s 1934 1934 Encouraged private standard-setting body SEC requires public companies to adhere to GAAP SEC Oversight Enforcement Authority Chapter 1-14 LO 6 Identify the major policy-setting bodies and their LO role in the standard-setting process. role American Institute of CPAs National professional organization Established the following: C m eon om itte Accounting Proce s dure Accounting 1939 to 1959 Issued 51 Accounting Research Bulletins (ARBs) Problem-by-problem approach failed Accounting Principle s Accounting Board Board 1959 to 1973 Issued 31 Accounting Principle Board Opinions (APBOs) Wheat Committee recommendations adopted in 1973 Chapter 1-15 http://www.aicpa.org/ LO 6 Financial Accounting Standards Board Whe Com itte ’s re m ndations re d in thecre at m e com e sulte ation of a theFinancial Accounting S tandards Board in 1973. Financial Accounting Financial Foundation Foundation S le m m rs of theFAS e cts e be B Funds the activitie ir s Exe s ge ral ove rcise ne rsight. Mission to e stablish and im provestandards of financial accounting and re porting. Financial Accounting Financial S tandards Board Financial Accounting Financial S tandards Advisory C ouncil Chapter 1-16 C onsult on m policy issue ajor s. LO 6 Identify the major policy-setting bodies and their LO role in the standard-setting process. role Financial Accounting Standards Board Missions is to establish and improve standards of financial Missions accounting and reporting. Differences between FASB and APB include: APB S alle Me be m r m rship Full-tim , Re une d Me be e m rate m rship Gre r Autonom ate y I ncre d I nde nde ase pe nce Broade Re se r pre ntation http://www.fasb.org/ Chapter 1-17 LO 6 Identify the major policy-setting bodies and their LO role in the standard-setting process. role Financial Accounting Standards Board Review The first step taken in the establishment of a typical The FASB statement is a. a. b. c. d. Chapter 1-18 Theboard conducts re arch and analysis and a discussion se The mm e orandumis issue d. A public he aring on thepropose standard is he d ld. Theboard e valuate there arch and public re s se sponseand issue an s The e xposuredraft. Topics areide ntifie and place on theboard’s age d d nda. LO 6 Identify the major policy-setting bodies and their LO role in the standard-setting process. role Due Process FASB relies on two basic premises: Re sponsiveto e ntiree conom com unity ic m (2) Ope ratein full vie of thepublic w (1) Step 1 = Topic place on age d nda Step 2 = Re arch conducte and Discussion Me orandumissue se d m d. Step 3 = Public he aring Step 4 = Board e valuate re arch, public re s se sponseand issue Exposure s Draft Step 5 = Board e valuate re s sponse and issue final S m nt of Financial s s tate e Accounting S tandard Chapter 1-19 LO 6 Identify the major policy-setting bodies and their LO role in the standard-setting process. role Types of Pronouncements Issued by the FASB: S tandards, I nte tations, and S Positions. rpre taff Financial Accounting C pts once Em rging I ssue Task ForceS m nts e s tate e Chapter 1-20 LO 6 Identify the major policy-setting bodies and their LO role in the standard-setting process. role Governmental Accounting Standards Board C ate in 1984 to addre stateand local gove e re re d ss rnm ntal porting issue s. Financial Accounting Financial Foundation Foundation Financial Accounting Financial S tandards Board Gove e rnm Gove ntal Accounting S tandards Board Board Financial Accounting Financial S tandards Advisory Council Governmental Governmental Accounting Standards Advisory Council Council Chapter 1-21 http://www.gasb.org/ LO 6 LO Generally Accepted Accounting Principles Those principles that have substantial authoritative support. Major sources of GAAP are: Major FAS S B tandards, I nte tations, and S Positions rpre taff APB Opinions AI C Accounting Re arch Bulle PA se tins Chapter 1-22 LO 7 Explain the meaning of generally accepted accounting principles. House of GAAP AIC Accounting PA I nte tations rpre FAS I m m ntation Guide B ple e s Category D (Least Authoritative) FAS Em rging I ssue Task Force Be s Category C FAS Te B chnical Bulle tins AI C I ndustry Audit and PA Accounting Guide s Category B FAS S m nts, B FAS tate e I nte tations, and S rpre taff Positions Positions Chapter 1-23 Re cognize Industry Practice d s AI C AcS PracticeBulle PA EC tins AIC S m nts of PA tate e Position APB Opinions C Accounting Re arch AP se Bulle tins Bulle LO 7 Category A (Most Authoritative) (Most Generally Accepted Accounting Principles Review Which of the following accounting pronouncements is the Which most authoritative? most a. b. c. d. FAS S m nt of Financial Accounting C pts. B tate e once FAS Te B chnical Bulle tins. AI CPA Accounting Principle Board Opinion. s AI CPA S m nt of Position. tate e Chapter 1-24 LO 7 Explain the meaning of generally accepted accounting principles. 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 or empirical findings. Chapter 1-25 LO 8 Describe the impact of user groups on the standard-setting process. Standard Setting Business Entities Illustration 1-5 User Illustration Groups that Influence Accounting Standards CPAs and Accounting Firms AICPA (AcSEC) Financial Community FASB Preparers (e.g., FEI) Academicians Government (SEC, IRS, other agencies) Investing Public Industry Associations Accounting standards, inte tations, and rpre Accounting bulle tins bulle Chapter 1-26 LO 8 Describe the impact of user groups on the standard-setting process. LO Issues in Financial Reporting Review: All thosewho se on theFAS m beCe rve B ust rtifie Public d All Accountants. Accountants. True or False True Chapter 1-27 LO 8 Describe the impact of user groups on the standard-setting process. LO Issues in Financial Reporting Expectation Gap What the public thinks accountants should do vs. what accountants think they can do. Difficult to close S arbane s-Oxle Act (2002) y Public C pany Accounting Ove om rsight Board (PC AOB) Chapter 1-28 LO 8 Describe the impact of user groups on the standard-setting process. LO Issues in Financial Reporting International Accounting Standards Two sets of standards accepted for international use: U.S GAAP, issue by theFAS . d B I nte rnational Financial Re porting S tandards (I FRS issue by ), d t heI AS B FAS and I AS re B B cognizethat global m ts will be bese d if only one arke st rve se of GAAP is use t d. Chapter 1-29 LO 8 Describe the impact of user groups on the standard-setting process. LO Issues in Financial Reporting Ethics in the Environment of Financial Accounting In accounting, we frequently encounter ethical dilemmas. GAAP doe not always providean answe s r Doing theright thing is not always e or obvious asy Chapter 1-30 LO 9 Understand issues related to ethics and financial accounting. LO Why Learn IFRS? Used Used in approximately 100 countries, with more committed to adoption/convergence more SEC’s decision to accept IFRS financial SEC’s statements of foreign filers without reconciliation to GAAP reconciliation AICPA will incorporate into CPA exam AICPA recognizes IASB as international AICPA accounting standard, allows private companies to use IFRS companies Chapter 1-31 Introduction to IFRS IFRS IFRS refers to publications issued by IASB, but also to all publications approved by IASB also There is no hierarchy to IFRS Guidance Issued by IASB: International Financial Reporting Standards (IFRS) International Financial Reporting Interpretations International Committee (IFRIC Committee Issued by IASC, prior to 2001: International Accounting Standards (IAS) Standing Interpretations Committee (SIC) No Chapter 1-32 enforcement authority Development of IFRS 14 Board members from 9 countries Appointed by 22 trustees of IASCF Term of 3 years, renewable once Trustees appointed by vote of existing trustees Development 1. of accounting standards Potential items discussed in IASB public Potential meetings meetings 2. Discussion papers/Exposure drafts published for Discussion public comment public 3. IASB solicits comments from standard-setting IASB organizations and regulatory bodies organizations Chapter 1-33 Status in U.S. Main No areas of difference: convergence in: policy Consolidation Impairment Liabilities Intangibles Difference Revenue Income Leases Pensions Business in details in: taxes combinations Share-based payments Chapter 1-34 Status in U.S. SEC SEC historically required reconciliation of FS prepared with foreign GAAP to US GAAP prepared 2/3 2/3 of companies had higher income under IFRS by about 12.9% in 2006 about 1/3 of companies had lower income under IFRS by 1/3 about 9.1% in 2006 about SEC SEC no longer requires reconciliation for foreign private issuers using IFRS in Nov 2007 foreign SEC considering allowing US companies to SEC use IFRS in future use Chapter 1-35 Pros and Cons Pros Will streamline costs for US Companies Will increase comparability between companies Will lower the costs of capital Cons Not as robust as US GAAP Cost of transition will be high Lack of professionals with knowledge of IFRS Implementation can take 2 to 3 years Modify accounting and control systems Renegotiate debt/other agreements linked to financial Renegotiate performance performance Chapter 1-36 Chapter 1-37 PrivatelyHeld What are the names of acceptable financial standards? Who sets those standards? Who determines the group that can set the standards? Chapter 1-38 PubliclyTraded International traded in US markets ...
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This note was uploaded on 02/21/2009 for the course ACIS 3115 taught by Professor Cmeasterwood during the Spring '08 term at Virginia Tech.

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