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ACIS Review - ACIS 3115 Test 1 Chapter 1 Financial...

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ACIS 3115: Test 1 Chapter 1 Financial Accounting: process that culminates in preparation of financial reports on the enterprise for use by internal and external parties. Managerial Accounting: process of identifying, measuring, analyzing and communicating financial information needed by management to plan, control, and evaluate operations. Four Financial Statements: 1. Balance Sheet 2. Income Statement 3. Statement of Cash Flows 4. Statement of Stockholder’s Equity Resources are limited and must be conserved/used efficiently Accrual based accounting better indicates a company’s present & continuing ability to generate favorable cash flows. Objectives of Financial Reporting: 1. To be useful to present and potential investors, creditors, and other users in making rational investment, credit, and similar decisions. Information should be comprehensible to someone with reasonable understanding. 2. To help present and potential investors, creditors, and other users assess the amounts, timing, and uncertainty of prospective cash receipts. 3. To provide information about company resources, claims to them, and changes to them. Challenges Facing Accounting 1. Nonfinancial Measurements: financial reports fail to provide key performance measures (example; customer satisfaction, backlog information) 2. Forward-Looking Information: financial reports failed to provide to present and potential investors 3. Soft Assets: financial reports are too focused on hard assets (inventory) than soft (intangibles)
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4. Timeliness: there are little to no real time reports available Standard Setting Parties : 1. SEC – Fed agency that helps develop and standardize financial information presented to stockholders. The SEC requires that companies adhere to GAAP. SEC relies on FASB to develop standards. In the case of enforcement, the SEC sends deficiency letters to companies 2. American Institute of CPA (AICPA) – In 1939, the Committee on Accounting Procedures (CAP) issued 51 Accounting Research Bulletins dealing with a variety of accounting problems. In 1959, the AICPA created the Accounting Principles Board (APB). The APB serves to (1) advance written expressions of accounting principles, (2) determine appropriate practices, and (3) narrow areas of difference and inconsistency in practice. Consisted of 18 to 21 members. The Wheat Committee led to the dissolution of APB in 1973. 3. Financial Accounting Standards Board (FASB) – Members are selected by Financial Accounting Foundation (FAF). Differences from APB: a. Smaller membership (about 7 members) b. Full time 5 year renewable terms c. Greater autonomy, answers to FAF d. Increased independence – all private ties are severed e. Broader representation (CPA is not required) Financial Accounting Standards Advisory Council consults with FASB on major issues.
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