ACIS+3115+Ch01+Student+Fall+2010 (1)

ACIS+3115+Ch01+Student+Fall+2010 (1) - CHAPTER 1 FINANCIAL...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: CHAPTER 1 FINANCIAL ACCOUNTING AND FINANCIAL ACCOUNTING STANDARDS ACCOUNTING Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield Chapter 1 -1 Financial Statements and Financial Reporting Essential characteristics of accounting are: (1) (2) (3) the identification, measurement, and communication of financial information about economic entities to interested parties. Chapter 1 -2 LO 1 Identify the major financial statements and other means of financial reporting.. Financial Statements and Financial Reporting 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 -3 Not GAAP 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 Allocation Process Capital 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 -4 LO 2 Explain how accounting assists in the efficient use of scare resources. Challenges Facing Financial Accounting Nonfinancial Me asure e m nts Forward-looking I nform ation S Asse oft ts Tim line e ss Chapter 1 -5 LO 3 Describe some of the challenges facing accounting. Objectives of Financial Accounting Objectives Financial reporting should provide information that: Financial (a) is use to pre nt and pote ful se ntial inve stors and cre ditors and othe use in m r rs aking rational inve e cre and sim de stm nt, dit, ilar cisions. (b) he pre nt and pote lps se ntial inve stors and cre ditors and othe use in asse r rs ssing the am ounts, tim and unce ing, rtainty of prospe ctivecash re ipts. ce (c) cle portrays thee arly conom re ic source of an e rprise theclaim to those s nte , s re source and thee cts of transactions, e nts, and circum s, ffe ve stance that change s its re source and claim to thosere s s source s. Chapter 1 -6 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 -7 LO 5 Explain the need for accounting standards. Parties Involved in Standard Setting Three 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) Chapter 1 -8 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 -9 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 1-10 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 1-11 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 1-12 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 1-13 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 1-14 LO 6 Identify the major policy-setting bodies and their LO role in the standard-setting process. role Changing Role of AICPA TheAI C e PA stablishe theAccounting Standards Executive Committee d (AcSEC): Audit and Accounting Guide s S m nts of Position (S tate e OP) PracticeBulle tins AICPA and AcS no longe issue authoritativeaccounting guidancefor public EC r s com panie s. PC AOB ove e thede lopm nt of auditing standards. rse s ve e AICPA continue to de lop and gradetheC e ination. s ve PA xam Chapter 1-15 LO 6 Identify the major policy-setting bodies and 6 LO LO their role in the standard-setting process. role 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 1-16 LO 7 Explain the meaning of generally accepted accounting principles LO (GAAP) and the role of the Codification for GAAP. (GAAP) 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 1-17 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 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 1-18 LO 8 Describe the impact of user groups on the rule-making process. Standard Setting Business Entities Illustration 1-6 User 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 1-19 LO 8 Describe the impact of user groups on the rule-making 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 1-20 LO 8 Describe the impact of user groups on the rule-making 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 onese arke st rve t of GAAP is use d. Chapter 1-21 LO 8 Describe the impact of user groups on the rule-making 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 1-22 LO 9 Understand issues related to ethics and financial accounting. LO Diversity in Practice iGAAP include thestandards, re rre to as I nte s fe d rnational Financial Re porting S tandards (I FRS de lope by theI AS ), ve d B. Diffe nce be e U.S GAAP and iGAAP e be re s twe n . xist causeof diffe nt use ne ds. re re iGAAP te to besim r and le stringe than U.S GAAP. nds ple ss nt . Re gulators havere ntly e inate thene d for fore com ce lim d e ign panie that tradeshare s s in U.S m ts to re . arke concilethe accounting with U.S GAAP. ir . Chapter 1-23 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 1-24 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 1-25 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 1-26 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 1-27 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 Chapter 1-28 SEC Roadmap Proposed Limited Limited in 2008 number of companies will be allowed to voluntarily adopt IFRS for fiscal years ending after December 15, 2009. Two criteria Be one of 20 largest co. in industry IFRS must be the most commonly used set of IFRS accounting standards among the twenty largest companies in the industry companies 2011 SEC evaluates progress towards milestones 2014 Proposed mandatory adoption by all public 2014 companies companies Chapter 1-29 Milestones for Adoption of IFRS Improving Improving Improving specific accounting standards. the funding and structure of the IASB. IASB. Facilitating Facilitating the use of interactive data under IFRS. IFRS. Updating Updating the education and licensing of U.S. accountants. accountants. Chapter 1-30 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 1-31 Chapter 1-32 Financial Statements and Financial Reporting 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 1-33 LO 1 Identify the major financial statements and other means of financial reporting.. 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 1-34 LO 2 Explain how accounting assists in the efficient use of scare resources. 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 1-35 LO 4 List the objectives of financial reporting. 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 1-36 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 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 1-37 LO 7 Explain the meaning of generally accepted accounting principles LO (GAAP) and the role of the Codification for GAAP. (GAAP) Issues in Financial Reporting Review: All thosewho se on theFAS m beCe rve B ust rtifie Public d All Accountants. Accountants. Chapter 1-38 LO 8 Describe the impact of user groups on the rule-making process. LO Issues in Financial Reporting CA1-9 (GAAP Terminology): With accounting and finance it ofte he , n lps t o beflue in abbre nt viations and acronym s. Instructions: Pre nte be is a list of com on accounting acronym I de se d low m s. ntify thete for rm which e acronymstands, and providea brie de ach f finition of e te . ach rm (a) AI C PA (b) C AP (c) ARB (d) APB (e FAF ) (f) FAS AC (g) S OP (h) GAAP (i) C PA (j) FAS B (k) S EC (l) I AS B Chapter 1-39 LO 9 Understand issues related to ethics and financial accounting. LO Types of Pronouncements CA1-11 (Accounting Pronouncements) Standard setting bodies have issued a number of authoritative pronouncements. A list is provided on the left, below, with a description of these pronouncements on the right. () () () () Chapter 1-40 LO 6 Identify the major policy-setting bodies and their LO role in the standard-setting process. role Issues in Financial Reporting CA1-9 (GAAP Terminology): With accounting and finance it ofte he , n lps t o beflue in abbre nt viations and acronym s. Instructions: Pre nte be is a list of com on accounting acronym I de se d low m s. ntify thete for rm which e acronymstands, and providea brie de ach f finition of e te . ach rm (a) AI C PA (b) C AP (c) ARB (d) APB (e FAF ) (f) FAS AC (g) S OP (h) GAAP (i) C PA (j) FAS B (k) S EC (l) I AS B Chapter 1-41 LO 9 Understand issues related to ethics and financial accounting. LO IFRS Chapter 1 IFRS Exercises Exercises Chapter 1-42 IFRS Chapter 1 Exercises International International A. B. C. D. E. Financial Reporting Standards are comprised of which of the following? are International Financial Reporting Standards International Accounting Standards Interpretations from the International Financial Interpretations Reporting Interpretations Committee Reporting All of the above a and b Answer: Chapter 1-43 IFRS Chapter 1 Exercises How How can national standard-setting bodies be involved in setting International Financial Reporting Standards? Reporting A. B. C. D. E. Recommending topics for the International Recommending Accounting Standards Board agenda Accounting Participate in joint research projects Provide feedback on discussion papers and Provide exposure drafts exposure All of the above a and b Answer: Chapter 1-44 IFRS Chapter 1 Exercises How How A. B. C. D. E. are International Financial Reporting Standards enforced? Standards Enforcement Committee of the International Enforcement Accounting Standards Board Accounting Regulatory bodies of individual countries International Securities and Exchange International Commission Commission All of the above None of the above Answer: Chapter 1-45 IFRS Chapter 1 Exercises List List the three important dates in the SEC’s IFRS Roadmap and explain what is scheduled to occur at each date. scheduled Chapter 1-46 ...
View Full Document

This note was uploaded on 11/04/2010 for the course ACCT 2115 taught by Professor K during the Spring '10 term at Virginia College.

Ask a homework question - tutors are online