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Financial Accounting and Accounting Standards
Financial Accounting and Accounting Standards
Financial Accounting
Accounting and
and
Accounting
Accounting Standards
Standards
Chapter
1
Intermediate Accounting,
12th Edition
Kieso, Weygandt, and Warfield
Chapter
1-1 Prepared by Coby Harmon, University of California, Santa Barbara
Chapter
Chapter 11 Learning
Learning Objectives
Objectives
1. Identify the major financial statements and other means of
financial reporting.
2. Explain how accounting assists in the efficient use of scarce
resources.
3. Describe some of the challenges facing accounting.
4. List the objectives of financial reporting.
5. Explain the need for accounting standards.
6. Identify the major policy-setting bodies and their role in the
standard-setting process.
7. Explain the meaning of generally accepted accounting principles.
8. Describe the impact of user groups on the standard-setting
process.
9. Understand issues related to ethics and financial accounting.
Chapter
1-2
Financial
Financial Accounting
Accounting and
and Accounting
Accounting Standards
Standards
Financial
Financial Statements
Statements Generally
Generally Accepted
Accepted
Parties
Parties Involved
Involved in
in Issues
Issues in
in Financial
Financial
and Financial
and Financial Accounting
Accounting
Standard
Standard Setting
Setting Reporting
Reporting
Reporting
Reporting Principles
Principles
Chapter
1-4 LO 1 Identify the major financial statements and other means of financial reporting ..
Characteristics
Characteristics of
of Accounting
Accounting
Economic Entity Financial Statements Additional Information
Chapter
1-6 LO 1 Identify the major financial statements and other means of financial reporting ..
Accounting
Accounting and
and Capital
Capital Allocation
Allocation
Financial
Financial Users
Users Capital
Capital Allocation
Allocation
Reporting
Reporting
Information to help Investors, creditors, The process of
users with capital and other users determining how and
allocation decisions. at what cost money
is allocated among
competing interests.
Chapter
1-7 LO 2 Explain how accounting assists in the efficient use of scare resources.
Accounting
Accounting and
and Capital
Capital Allocation
Allocation
Review
An effective process of capital allocation is critical to a
healthy economy, which
a. promotes productivity.
b. encourages innovation.
c. provides an efficient and liquid market for buying
and selling securities.
d. All of the above.
Chapter
1-8 LO 2 Explain how accounting assists in the efficient use of scare resources.
Challenges
Challenges Facing
Facing Financial
Financial Accounting
Accounting
Non-financial Measurements
Forward-looking Information
Soft Assets
Timeliness
Chapter
1-9 LO 3 Describe some of the challenges facing accounting.
Objectives
Objectives of
of Financial
Financial Accounting
Accounting
Financial
Financialreporting
reportingshould
shouldprovide
provideinformation:
information:
(a)
(a) that
thatisisuseful
usefulto
topresent
presentand
andpotential
potentialinvestors
investorsand
and
creditors
creditorsand
andother
otherusers
usersininmaking
makingrational
rationalinvestment,
investment,
credit,
credit,and
andsimilar
similardecisions.
decisions.
(b)
(b) to
tohelp
helppresent
presentand
andpotential
potentialinvestors
investorsand
andcreditors
creditors and
and
other
otherusers
usersin
inassessing
assessingthe
theamounts,
amounts,timing,
timing,and
and
uncertainty
uncertaintyof
ofprospective
prospectivecash
cashreceipts.
receipts.
(c)
(c) about
aboutthe
theeconomic
economicresources
resourcesof
ofan
anenterprise,
enterprise,the
theclaims
claims
to
tothose
thoseresources,
resources,and
andthe
theeffects
effectsof
oftransactions,
transactions,
events,
events,and
andcircumstances
circumstancesthat
thatchange
changeits
itsresources
resourcesand
and
claims
claimsto
tothose
thoseresources.
resources.
Chapter
1-10 LO 4 List the objectives of financial reporting.
Objectives
Objectives of
of Financial
Financial Accounting
Accounting
Review
All of the following are objectives of financial
reporting except to provide information
a. About enterprise resources, claims to those
resources, and changes in them.
b. That is useful in investment and credit decisions.
c. About the management and major shareholders of
an enterprise.
d. That is useful in assessing cash flow prospects.
Chapter
1-11 LO 4 List the objectives of financial reporting.
Need
Need to
to Develop
Develop Standards
Standards
Chapter
1-12 LO 5 Explain the need for accounting standards.
Parties
Parties Involved
Involved in
in Standard
Standard Setting
Setting
Four organizations:
• Securities and Exchange Commission (SEC)
• American Institute of Certified Public
Accountants (AICPA)
• Financial Accounting Standards Board (FASB)
• Government Accounting Standards Board (GASB)
Securities
Securities Securities
Securities
Act
Act of
of 1933
1933 Act
Act of
of 1934
1934
Committee
Committee on
on Accounting
Accounting Accounting
Accounting Principles
Principles Board
Board
Procedures
Procedures
1939 to 1959 1959 to 1973
Issued 51 Accounting Issued 31 Accounting
Research Bulletins Principle Board
(ARBs) Opinions (APBOs)
Problem-by-problem Wheat Committee
approach failed recommendations
adopted in 1973
Chapter
1-15
http://www.aicpa.org/ LO 6
Financial
Financial Accounting
Accounting Standards
Standards Board
Board
Wheat Committee’s recommendations resulted in the creation of a
the Financial Accounting Standards Board in 1973.
Financial
Financial Selects members of the FASB
Accounting
Accounting Funds their activities
Foundation
Foundation Exercises general oversight.
Financial
Financial Mission to establish and improve
Accounting
Accounting standards of financial accounting
Standards
Standards Board
Board and reporting.
Financial
Financial Accounting
Accounting
Standards
Standards Advisory
Advisory Consult on major policy issues.
Council
Council
Smaller Membership
Full-time, Remunerated Membership
Greater Autonomy
Increased Independence
Broader Representation
http://www.fasb.org/
Financial
Financial Governmental
Governmental
Accounting
Accounting Accounting
Accounting
Standards
Standards Board
Board Standards
Standards Board
Board
Financial
Financial Accounting
Accounting Governmental
Governmental
Standards
Standards Advisory
Advisory Accounting
Accounting Standards
Standards
Council
Council Advisory
Advisory Council
Council
Chapter
1-21
http://www.gasb.org/ LO 6
Generally
Generally Accepted
Accepted Accounting
Accounting Principles
Principles
Those principles that have substantial authoritative
support.
Chapter
1-22 LO 7 Explain the meaning of generally accepted accounting principles.
House
House of
of GAAP
GAAP
AICPA Accounting FASB Implementation Recognized Industry
Interpretations Guides Practices
Category C
Category B
FASB
FASB Statements,
Statements, CAP
CAP Accounting
Accounting
Interpretations,
Interpretations, and
and APB
APB Opinions
Opinions Research
Research Bulletins
Bulletins
Staff
Staff Positions
Positions
Chapter
1-23 Category A (Most Authoritative) LO 7
Generally
Generally Accepted
Accepted Accounting
Accounting Principles
Principles
Review
Which of the following accounting pronouncements is the
most authoritative?
a. FASB Statement of Financial Accounting Concepts.
b. FASB Technical Bulletins.
c. AICPA Accounting Principles Board Opinion.
d. AICPA Statement of Position.
Chapter
1-24 LO 7 Explain the meaning of generally accepted accounting principles.
Issues
Issues in
in Financial
Financial Reporting
Reporting
Chapter
1-25 LO 8 Describe the impact of user groups on the standard-setting process.
Standard Setting Illustration 1-5 User
Groups that Influence
Business
BusinessEntities
Entities Accounting Standards
CPAs
CPAsand
and Financial
Financial
Accounting
AccountingFirms
Firms Community
Community
AICPA
AICPA(AcSEC) Preparers
(AcSEC) FASB
FASB Preparers
(e.g.,
(e.g.,FEI)
FEI)
Government
Government
Academicians
Academicians (SEC,
(SEC,IRS,
IRS,other
other
agencies)
agencies)
Investing Industry
InvestingPublic
Public Industry
Associations
Associations
Accounting standards,
interpretations, and bulletins
Chapter
1-26 LO 8 Describe the impact of user groups on the standard-setting process.
Issues
Issues in
in Financial
Financial Reporting
Reporting
Review:
All those who serve on the FASB must be
Certified Public Accountants.
False
Chapter
1-27 LO 8 Describe the impact of user groups on the standard-setting process.
Issues
Issues in
in Financial
Financial Reporting
Reporting
Expectation Gap
What the public thinks accountants should do vs.
what accountants think they can do.
Difficult to close
Sarbanes-Oxley Act (2002)
Public Company Accounting Oversight Board
(PCAOB)
Chapter
1-28 LO 8 Describe the impact of user groups on the standard-setting process.
Issues
Issues in
in Financial
Financial Reporting
Reporting
Chapter
1-29 LO 8 Describe the impact of user groups on the standard-setting process.
Issues
Issues in
in Financial
Financial Reporting
Reporting
Chapter
1-30 LO 9 Understand issues related to ethics and financial accounting.
Copyright
Copyright
Copyright © 2006 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
in Section 117 of the 1976 United States Copyright Act
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caused by the use of these programs or from the use of the
information contained herein.
Chapter
1-31