Accounting_Outline - Accounting Outline N.B This outline...

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N.B. This outline follows the syllabus used by Prof. Siegel. Part I. Introduction: Accounting Principles and Auditing Standards 1) The Importance of Understanding Financial Accounting: a) Preliminary note on financial and tax accounting: i) Financial accounting and tax accounting are different. Each measure income by a different set of rules and each set of rules is incomplete. ii) What is the basis for the differences? Different bc designed to serve different ends. Tax accnt rules designed to deal with conflicting interests of TPs and the govt; financial accnt focused on accurate and full disclosure of information to investors and creditors. iii) To what extent is financial accounting relevant to tax issues? TP starts w/ financial income for tax purposes, so the basis of tax accounting is financial accounting. b) The fundamental importance of understanding financial accounting and auditing: i) GAAP-based financial statements are the principal source of data. Financial statements give us a bottom line – numbers that appear on the bottom line (like “net income”). Trick is to know to what extent the numbers in financial statement capture true performance of the company. ii) GAAS is the fundamental method of assurance of reliability. Tells us degree to which we can find reliability in financial statements. iii) Most of what is relevant – for all financial, analytical, tax and regulatory purposes – can be found in the statements, notes or supplementary data. Financial statements have a wealth of information, even if they are not always clear. Prof argued that if someone had read Enron’s statements carefully enough, the company’s problems would have been apparent. iv) Accounting culture and practice are the keys to understanding the content of the financial statements. Acctng is actual collection of information. Financial statement is a convention, and it plugs into the only system in the world for rapid, multi-national exchange of firm-based information. 2) The Legal Framework: Generally accnting principles differ across borders. Currently changing in the US. a) State law: i) Regulation of licensing of accountants. Licensed professionals like law. Requires CPA exam that is uniform across country. ii) General absence of accounting and reporting requirements. Vary by state. No state requires business corporations to file statements with the state. Most states do require that if a corporation prepares an annual report it must be shared with SHs, but no required disclosure. State tx returns immune from discovery. b) Federal law: Federal law creates affirmative obligation to make reports to SHs available. i) (1) Regulatory power over auditing and accounting. Create, disseminate, administer and enforce accounting rules and auditing standards. Applies to registered companies – companies above certain amount of value and SHs. (2)
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This note was uploaded on 03/17/2008 for the course ACCTG 211 taught by Professor Johnston during the Fall '99 term at Penn State.

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Accounting_Outline - Accounting Outline N.B This outline...

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