Lecture Intermediate Accounting (13th edition) - Chapter 1: Financial accounting and accounting standards

After studying this chapter, you should be able to: Explain how accounting makes it possible to use scarce resources more efficiently, explain the meaning of “stakeholder” and identify key stakeholders in financial reporting, explaining what is at stake for each one, identify the objective of financial reporting,...

Chapter 1-1 CHAPTER FINANCIAL ACCOUNTING AND ACCOUNTING STANDARDS Intermediate Accounting 13th Edition Kieso, Weygandt, and Warfield  Chapter 1-2 Learning Objectives Learning Objectives Identify the major financial statements and other means of financial reporting Explain how accounting assists in the efficient use of scarce resources Describe some of the challenges facing accounting List the objectives of financial reporting Explain the need for accounting standards Identify the major policy­setting bodies and their role in the standard­setting process Explain the meaning of generally accepted accounting principles (GAAP) and the role  of the Codification for GAAP Describe the impact of user groups on the rule­making process Understand issues related to ethics and financial accounting Chapter 1-3 Financial Accounting and Accounting Standards Financial Accounting and Accounting Standards Financial Statements and Financial Reporting Accounting and capital allocation Challenges Objectives Need to develop standards Chapter 1-4 Parties Involved in Standard Setting Securities and Exchange Commission American Institute of CPAs Financial Accounting Standards Board Changing role of the AICPA Generally Accepted Accounting Principles FASB Codification Issues in Financial Reporting Political environment Expectations gap International accounting standards Ethics Financial Statements and Financial Reporting Financial Statements and Financial Reporting Essential characteristics of accounting are: Chapter 1-5 (1) the identification, measurement, and communication of  financial information about  (2) economic entities to  (3) interested parties LO 1  Identify the major financial statements and other means of financial reporting Financial Statements and Financial Reporting Financial Statements and Financial Reporting Economic Entity Financial Statements Additional Information Financial      Information Balance Sheet President’s letter  Income Statement Prospectuses, Statement of Cash Flows SEC Reporting and    Statement of Owners’ or  Stockholders’ Equity News releases Measures Note Disclosures Accounting? Identifies and  Communicates Environmental Reports           Etc GAAP Chapter 1-6 Forecasts  Not GAAP LO 1  Identify the major financial statements and other means of financial reporting Financial Statements and Financial Reporting Financial Statements and Financial Reporting Review What is the purpose of information presented in notes to the  financial statements? a b c d Chapter 1-7 To provide disclosure required by generally accepted accounting  principles To correct improper presentation in the financial statements To provide recognition of amounts not included in the totals of the  financial statements To present management’s responses to auditor comments LO 1  Identify the major financial statements and other means of financial reporting Accounting and Capital Allocation Accounting and Capital Allocation Resources are limited.  Efficient use of resources often determines whether a  business thrives Illustration 1­1           Capital  Allocation Process Financial Financial Reporting Reporting Information to help users with capital allocation decisions Chapter 1-8 Users Users Investors, creditors, and other users Capital CapitalAllocation Allocation The process of determining how and at what cost money is allocated among competing interests LO 2  Explain how accounting assists in the efficient use of scare resources Accounting and Capital Allocation Accounting and Capital Allocation Review An effective process of capital allocation is critical to a healthy economy,  which Chapter 1-9 a promotes productivity b encourages innovation c provides an efficient and liquid market for buying and selling  securities d All of the above LO 2  Explain how accounting assists in the efficient use of scare resources Challenges Facing Financial Accounting Challenges Facing Financial Accounting Nonfinancial Measurements Forward­looking Information Soft Assets Timeliness Chapter 1-10 LO 3  Describe some of the challenges facing accounting Types of Pronouncements Types of Pronouncements Issued by the FASB: Standards, Interpretations, and Staff Positions Financial Accounting Concepts Emerging Issues Task Force Statements Chapter 1-21 LO 6  Identify the major policy­setting bodies and their role in  the standard­setting process Types of Pronouncements Types of Pronouncements CA1­11 (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 (d) (f) (c) (e) (a) (b) Chapter 1-22 LO 6  Identify the major policy­setting bodies and their role in  the standard­setting process Changing Role of AICPA Changing Role of AICPA The AICPA established the Accounting Standards Executive Committee (AcSEC):  Audit and Accounting Guides  Statements of Position (SOP)  Practice Bulletins AICPA and AcSEC no longer issues authoritative accounting guidance for public  companies.  PCAOB oversees the development of auditing standards.  AICPA continues to develop and grade the CPA examination Chapter 1-23 LO 6  Identify the major policy­setting bodies and their role in  LO 6 the standard­setting process Generally Accepted Accounting Principles Generally Accepted Accounting Principles Those principles that have substantial authoritative support.  Major sources of GAAP are: FASB Standards, Interpretations, and Staff Positions APB Opinions AICPA Accounting Research Bulletins Chapter 1-24 LO 7  Explain the meaning of generally accepted accounting principles  and the role of the Codification for GAAP (GAAP)  Generally Accepted Accounting Principles Generally Accepted Accounting Principles Illustration 1­4    GAAP  Documents Chapter 1-25 LO 7  Explain the meaning of generally accepted accounting principles  and the role of the Codification for GAAP (GAAP)  Generally Accepted Accounting Principles Generally Accepted Accounting Principles Review Which of the following accounting pronouncements is the most  authoritative? Chapter 1-26 a FASB Statement of Financial Accounting Concepts b FASB Technical Bulletins c AICPA Accounting Principles Board Opinion d AICPA Statement of Position LO 7  Explain the meaning of generally accepted accounting principles  and the role of the Codification for GAAP (GAAP)  Issues in Financial Reporting 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 1-27 LO 8  Describe the impact of user groups on the rule­making process.  Standard Setting Standard Setting Business BusinessEntities Entities CPAs CPAsand and Accounting AccountingFirms Firms AICPA AICPA(AcSEC) (AcSEC) Academicians Academicians Investing InvestingPublic Public Illustration 1­6           User  Groups that Influence Accounting  Standards Financial Financial Community Community FASB FASB Preparers Preparers (e.g., (e.g.,FEI) FEI) Government Government (SEC, (SEC,IRS, IRS,other other agencies) agencies) Industry Industry Associations Associations Accounting standards, interpretations, and  bulletins Chapter 1-28 LO 8  Describe the impact of user groups on the rule­making process.  Issues in Financial Reporting Issues in Financial Reporting Review: All those who serve on the FASB must be Certified Public  Accountants False Chapter 1-29 LO 8  Describe the impact of user groups on the rule­making process.  Issues in Financial Reporting Issues in Financial Reporting Expectation Gap What the public thinks accountants should do vs. what accountants  think they can do Difficult to close Sarbanes­Oxley Act (2002) Public Company Accounting Oversight Board (PCAOB) Chapter 1-30 LO 8  Describe the impact of user groups on the rule­making process.  Issues in Financial Reporting Issues in Financial Reporting International Accounting Standards Two sets of standards accepted for international use: U.S. GAAP, issued by the FASB International Financial Reporting Standards (IFRS), issued by  the IASB FASB and IASB recognize that global  markets will best be served if only one set  of GAAP is used Chapter 1-31 LO 8  Describe the impact of user groups on the rule­making process.  Issues in Financial Reporting Issues in Financial Reporting CA1­9 (GAAP Terminology):  With accounting and finance, it often helps to be  fluent in abbreviations and acronyms Instructions: Presented below is a list of common accounting acronyms. Identify the term for  which each acronym stands, and provide a brief definition of each term Chapter 1-32 (a)  AICPA  (e)  FAF  (i)  CPA (b)  CAP  (f)  FASAC  (j) FASB (c)  ARB  (g)  SOP  (k) SEC (d)  APB  (h)  GAAP  (l)  IASB LO 9  Understand issues related to ethics and financial accounting.  Issues in Financial Reporting Issues in Financial Reporting Ethics in the Environment of Financial Accounting In accounting, we frequently encounter ethical dilemmas GAAP does not always provide an answer Doing the right thing is not always easy or obvious Chapter 1-33 LO 9  Understand issues related to ethics and financial accounting.  Diversity in Practice  iGAAP includes the standards, referred to as International Financial Reporting  Standards (IFRS), developed by the IASB.   Differences between U.S. GAAP and iGAAP exist because of different user needs.   iGAAP tends to be simpler and less stringent than U.S. GAAP.   Regulators have recently eliminated the need for foreign companies that trade shares  in U.S. markets to reconcile their accounting with U.S. GAAP Chapter 1-34 Copyright Copyright Copyright © 2009 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 without the express written permission of the copyright owner  is unlawful. Request for further information should be addressed to the Permissions  Department, John Wiley & Sons, Inc. The purchaser may make back­up copies for  his/her own use only and not for distribution or resale. The Publisher assumes no  responsibility for errors, omissions, or damages, caused by the use of these programs  or from the use of the information contained herein Chapter 1-35 ... 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