Kế toán, kiểm toán - Chapter 1: Environment and theoretical structure of financial accounting

Environment and Theoretical Structure of Financial AccountingChapter 1Financial Accounting EnvironmentProfit-orientedcompaniesNot-for-profitentitiesHouseholdsProviders ofFinancial InformationExternalUser GroupsInvestorsCreditorsEmployeesLabor unionsCustomersSuppliersGovernmentagenciesFinancialintermediariesRelevantFinancialInformationFinancial Accounting EnvironmentRelevant financial information is provided primarily through financial statements and related disclosure notes. The following financial statements are the most frequently provided.Balance SheetIncome StatementStatement of Cash FlowsStatement of Shareholders’ EquityStarting in 2012, companies must either provide a Statement of Other Comprehensive Income immediately following the Income Statement, or present a Combined Statement of Comprehensive Income that includes the information normally contained in both the Income Statement and the Statement of Other Comprehensive Income. Cash versus Accrual AccountingCash Basis Accounting Revenue is recognized when cash is received. Expenses are recognized when cash is paid.ORORORORAccrual AccountingRevenue is recognized when earned.Expenses are recognized when incurred.The Development of Financial Accounting and Reporting StandardsConcepts, principles, andproceduresdeveloped to meet theneeds of external users (GAAP).Historical Perspective and StandardsCurrent U. S. Standard SettingSupported by the Financial Accounting FoundationSeven full-time, independent voting membersMembers not required to be CPAsFinancial Accounting Standards BoardInternational Standard SettingThe main objective of the International Accounting Standards Board (IASB) is to develop a single set of high quality, understandable, and enforceable global accounting standards to help participants in the world’s capital markets and other users make economic decisions. Efforts to Converge U.S. and International StandardsIssues and Concerns:Desire for a single set of global standardsNeed for standards that are customized to fit stringent legal and regulatory requirements of U.S.Possible differences in implementation and enforcement Progress:September 2002: FASB and IASB sign Norwalk Agreement.November 2008: SEC issues a Roadmap with milestones.May 2011: SEC issues discussion paper describing a “condorsement” approach.November 2011: SEC issues two studies comparing U.S. GAAP to IFRS and analyzing how IFRS are applied globally.December 2011: SEC postpones final determination until 2012. A Move Away from Rules-Based Standards? Rules-based accounting standards vs. Objectives-oriented approachObjectives-oriented (principles-based) approach stresses professional judgmentThe Conceptual FrameworkThe Conceptual Framework has been described as an “Accounting Constitution.” It provides the underlying foundation for accounting standards. FASB Conceptual Framework(Statements of Financial Accounting Concepts)Objectives of Financial Reporting (SFAC 1, replaced by SFAC 8)Qualitative Characteristics (SFAC 2, replaced by SFAC 8)Elements of Financial Statements (SFAC 3, replaced by SFAC 6)Recognition and Measurement (SFAC 5 and SFAC 7)ObjectiveTo provide financial information that is useful to capital providers.ElementsRecognition andMeasurementConceptsConstraintsFinancialStatementsThe Conceptual FrameworkQualitative CharacteristicsNeutralityCompletenessFree from errorPredictivevalueMaterialityRelevanceFaithful representationQualitative Characteristics ofAccounting InformationComparability(Consistency)UnderstandabilityVerifiabilityTimelinessDecision usefulnessConfirmatory valueElements of Financial StatementsElements of Financial StatementsRecognition, Measurement and Disclosure ConceptsRecognitionProcess of admitting information into the basic financial statementsCriteria:DefinitionMeasurabilityRelevanceReliabilityMeasurement Process of associating numerical amounts with the elements.Measurement Attributes:Historical costNet realizable valueCurrent costPresent value of future cash flowsFair valueDisclosure Process of including additional supplemental information.Examples:Parenthetical amountsNotes to FSSupplemental FS Revenue Recognition: RealizationTwo Criteria:Earnings process is complete or virtually complete.Reasonable certainty as to the collectability of the asset to be received (usually cash).Expense Recognition: MatchingThe matching principle requires that all expenses incurred in generating revenue for a period also be recognized in the same period. Four ApproachesBased on exact cause-and-effect relationships.By associating an expense with the revenues recognized in a specific time period.By a systematic and rational allocation to specific time periods.In the period incurred, without regard to related revenues.End of Chapter 1