LN_Ch1and 2 Conceptual

LN_Ch1and 2 Conceptual - Ch. 1 & 2: Conceptual...

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Ch. 1 & 2: Conceptual Framework ACCT 401 SP 2011 1 Part I: Financial Accounting Environment 1. KEY PLAYERS IN FINANCIAL REPORTING 2. HIERARCHY OF STANDARD-SETTING AUTHORITY Congress SEC Private Sector | CAP APB FASB 1938 – 1959 1959 – 1973 1973 - present 1) The Securities and Exchange Commission (SEC) has the authority to set accounting standards for companies, but always has delegated the task to the accounting profession. 2) The Financial Accounting Standards Board (FASB) currently sets accounting standards. PROVIDER Companies (managers) EXTERNAL USERS Investors Creditors (e.g., banks) Financial intermediaries (e.g., financial analysts) Labor unions Auditors REGULATORS SEC AICPA FASB
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Ch. 1 & 2: Conceptual Framework ACCT 401 SP 2011 2 3. A POLITICAL PROCESS 1) The introduction of a new standard can potentially result in a substantial redistribution of wealth within the economy. Thus, the FASB must consider the potential economic consequences of a change in a standard to the various interest groups as well as to the society as a whole. 2) As a result, the FASB goes through a series of elaborate information-gathering steps before issuing accounting standards updates. 4. GENERALLY ACCEPTED ACCOUNT PRINCIPLES ( GAAP) 1) GAAP A set of guidelines companies follow in measuring and reporting financial information. Generally accepted accounting principles have substantive authoritative support . 2) Sources of GAAP A) A rule-making body has established a principle a. FASB Standards and Interpretations, APB Opinions, AICPA Accounting Research Bulletins. b. AICPA Industry Audit and Accounting Guides, AICPA Statements of Position, FASB Technical Bulletins. o the AICPA will no longer issue authoritative accounting guidance for public companies. c. FASB Emerging Issues Task Force (EITF), AICPA AcSEC Practice Bulletins, d. AICPA Accounting Interpretations, FASB Implementation Guides (Q and A) B) Over time, a practice has been adopted as appropriate because of universal application (authoritative level similar to level c above). a. Examples: Dollar-value LIFO inventory method. 3) The Codification simplifies GAAP and provides it all in one place. a. Its purpose is to integrate and topically organize by topics all relevant accounting pronouncements in a searchable database. b. now represents the single source of authoritative U.S. GAAP, except for rules and interpretive releases by the SEC
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Ch. 1 & 2: Conceptual Framework ACCT 401 SP 2011 3 5. GLOBAL ACCOUNTING STANDARDS 1) FASB and the IASB (International Accounting Standards Board) are working towards convergence between US GAAP and IFRS. IFRS – international financial reporting standards (also called iGAAP). There are VARIOUS joint projects on standard setting to achieve this goal.
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LN_Ch1and 2 Conceptual - Ch. 1 & 2: Conceptual...

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