cacc 706_ch 01

cacc 706_ch 01 - Security Exchange Commission (SEC): -...

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Security Exchange Commission (SEC): - Established in 1934 - Ensures that investors are supplied with adequate information Historical cost is still the primary basis of accounting for important asset and liability classes including: - Capital asset - Inventories - Long-term debts However, 1. Assets that are impaired are written down to a lower value Example: ceiling tests for capital assets and lower-of-cost-or market rule for inventories 2. standard setters have moved steadily towards current cost alternatives to historical cost accounting 2 Current Cost Alternatives: 1. value-in-use – discounted PV of future cash flow - This will help to predict future firm performance 2. fair value (also called: exit value or opportunity cost) – the amount that would be received or paid should the firm dispose of the asset or liability - this better reports on manager stewardship When distinguishing between them (value-in-use and fair value) is not necessary valuations that depart from historical cost will be referred to as current values T HE C OMPLEXITY OF I NFORMATION IN F INANCIAL A CCOUNTING AND R EPORTING R EASONS FOR COMPLEXITY OF INFORMATION 1. As a result of the absence of perfect or true accounting concepts and standards, individuals will not be unanimous in their reaction to even the same information I.E. some investors will prefer value-in-use reporting over fair value or historical cost valuation of current values, positive and negative reactions of managers toward inclusion of unrealized gains or loss into evaluation of their efforts 2. It does more than affect individual decisions
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This note was uploaded on 03/27/2012 for the course ACC 706 taught by Professor Shadifarshad during the Spring '09 term at Ryerson.

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cacc 706_ch 01 - Security Exchange Commission (SEC): -...

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