Kế toán, kiểm toán - Chapter 1: Financial accounting and accounting standards

CHAPTER 1FINANCIAL ACCOUNTING ANDACCOUNTING STANDARDSINTERMEDIATE ACCOUNTINGPrinciples and Analysis 2nd EditionWarfield Weygandt Kieso 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.Identify the objectives of financial reporting.Explain the need for accounting standards.Identify the major policy-setting bodies and their role in the standard-setting process.Explain the meaning of generally accepted accounting principles.Describe the impact of user groups on the standard-setting process.Understand issues related to ethics and financial accounting.Learning ObjectivesFinancial Statements and Financial ReportingAccounting and Capital AllocationChallenges ObjectivesNeed to Develop StandardsParties Involved in Standard SettingGenerally Accepted Accounting PrinciplesIssues in Financial ReportingSecurities and Exchange Commission (SEC)American Institute of Certified Public Accountants (AICPA)Financial Accounting Standards Board (FASB)Governmental Accounting Standards Board (GASB)Changing Role of the AICPAPolitical EnvironmentExpectations GapInternational Accounting StandardsEthicsAuthoritative SupportThe House of GAAPFinancial Accounting and Accounting StandardsLO 1 Identify the major financial statements and other means of financial reporting..Essential characteristics of accounting are:the identification, measurement, and communication of financial information about economic entities to interested parties. Characteristics of AccountingFinancial InformationAccounting?Identifiesand Measuresand CommunicatesBalance SheetIncome StatementStatement of Cash FlowsStatement of Owners’ or Stockholders’ EquityNote DisclosuresPresident’s letter Prospectuses,SEC ReportingNews releasesForecasts Environmental Reports Etc.GAAPNot GAAPFinancial StatementsAdditional InformationEconomic EntityLO 1 Identify the major financial statements and other means of financial reporting..Characteristics of AccountingLO 1 Identify the major financial statements and other means of financial reporting..What is the purpose of information presented in notes to the financial statements?a. To provide disclosure required by generally accepted accounting principles.b. To correct improper presentation in the financial statements. c. To provide recognition of amounts not included in the totals of the financial statements.d. To present management’s responses to auditor comments.ReviewCharacteristics of AccountingResources are limited. Efficient use of resources often determines whether a business thrives.Financial ReportingInformation to help users with capital allocation decisions.UsersInvestors, creditors, and other usersCapital AllocationThe 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.Illustration 1-1 Capital Allocation ProcessAccounting and Capital AllocationAn effective process of capital allocation is critical to a healthy economy, whicha. 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.ReviewAccounting and Capital AllocationNon-financial MeasurementsForward-looking InformationSoft AssetsTimelinessLO 3 Describe some of the challenges facing accounting.Challenges Facing Financial AccountingFinancial reporting should provide information: (a) that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. (b) to help present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts. (c) about the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events, and circumstances that change its resources and claims to those resources. LO 4 List the objectives of financial reporting.Objectives of Financial AccountingAll of the following are objectives of financial reporting except to provide informationa. 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.LO 4 List the objectives of financial reporting.ReviewObjectives of Financial AccountingVarious users need financial informationThe accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced.Financial StatementsBalance SheetIncome StatementStatement of Stockholders’ EquityStatement of Cash FlowsNote DisclosureGenerally Accepted Accounting Principles (GAAP)LO 5 Explain the need for accounting standards.Need to Develop StandardsParties Involved in Standard SettingFour organizations:Securities and Exchange Commission (SEC)American Institute of Certified Public Accountants (AICPA)Financial Accounting Standards Board (FASB)Government Accounting Standards Board (GASB)LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.Securities Act of 1933Securities Act of 1934Securities and Exchange CommissionEstablished by federal governmentAccounting and reporting for public companiesEncouraged private standard-setting bodySEC requires public companies to adhere to GAAPSEC OversightEnforcement AuthorityLO 6 Identify the major policy-setting bodies and their role in the standard-setting process.American Institute of CPAsNational professional organizationEstablished the following:LO 6Committee on Accounting ProceduresAccounting Principles Board1939 to 1959Issued 51 Accounting Research Bulletins (ARBs)Problem-by-problem approach failed1959 to 1973Issued 31 Accounting Principle Board Opinions (APBOs)Wheat Committee recommendations adopted in 1973 Accounting Standards BoardWheat Committee’s recommendations resulted in the creation of a the Financial Accounting Standards Board in 1973.Financial Accounting FoundationSelects members of the FASB Funds their activities Exercises general oversight.Financial Accounting Standards BoardFinancial Accounting Standards Advisory CouncilMission to establish and improve standards of financial accounting and reporting.Consult on major policy issues.LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.Missions is to establish and improve standards of financial accounting and reporting. Differences between FASB and APB include:Financial Accounting Standards BoardSmaller MembershipFull-time, Remunerated MembershipGreater AutonomyIncreased IndependenceBroader Representation 6 Identify the major policy-setting bodies and their role in the standard-setting process.The first step taken in the establishment of a typical FASB statement is a. the board conducts research and analysis and a discussion memorandum is issued.b. a public hearing on the proposed standard is held.c. the board evaluates the research and public response and issues an exposure draft.d. topics are identified and placed on the board’s agenda.Financial Accounting Standards BoardReviewLO 6 Identify the major policy-setting bodies and their role in the standard-setting process.FASB relies on two basic premises:Responsive to entire economic communityOperate in full view of the publicDue ProcessStep 1 = Topic placed on agendaStep 2 = Research conducted and Discussion Memorandum issued.Step 3 = Public hearingStep 4 = Board evaluates research, public response and issues Exposure DraftStep 5 = Board evaluates responses and issues final Statement of Financial Accounting StandardLO 6 Identify the major policy-setting bodies and their role in the standard-setting process.Issued by the FASB:Types of PronouncementsStandards, Interpretations, and Staff Positions.Financial Accounting ConceptsEmerging Issues Task Force StatementsLO 6 Identify the major policy-setting bodies and their role in the standard-setting process.Governmental Accounting Standards BoardCreated in 1984 to address state and local governmental reporting issues. LO 6Financial Accounting FoundationFinancial Accounting Standards BoardFinancial Accounting Standards Advisory CouncilGovernmental Accounting Standards BoardGovernmental Accounting Standards Advisory Council Accepted Accounting PrinciplesThose principles that have substantial authoritative support. Major sources of GAAP are:FASB Standards, Interpretations, and Staff PositionsAPB OpinionsAICPA Accounting Research BulletinsLO 7 Explain the meaning of generally accepted accounting principles.FASB Statements, Interpretations, and Staff PositionsAPB OpinionsCAP Accounting Research BulletinsCategory A (Most Authoritative)FASB Technical BulletinsAICPA Industry Audit and Accounting GuidesAICPA Statements of PositionCategory BFASB Emerging Issues Task ForceAICPA AcSEC Practice BulletinsCategory CAICPA Accounting InterpretationsCategory D (Least Authoritative)FASB Implementation GuidesRecognized Industry PracticesHouse of GAAPLO 7Which 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.Generally Accepted Accounting PrinciplesLO 7 Explain the meaning of generally accepted accounting principles.ReviewIssues in Financial ReportingStandard Setting in a Political Environment Accounting standards are as much a product of political action as they are of careful logic or empirical findings. LO 8 Describe the impact of user groups on the standard-setting process. FASBPreparers (e.g., FEI)Financial Community Government (SEC, IRS, other agencies)Industry AssociationsBusiness EntitiesCPAs andAccounting FirmsAICPA (AcSEC)AcademiciansInvesting PublicAccounting standards, interpretations, and bulletinsStandard SettingLO 8 Describe the impact of user groups on the standard-setting process. Illustration 1-5 User Groups that Influence Accounting StandardsAll those who serve on the FASB must be Certified Public Accountants.Review:Issues in Financial ReportingLO 8 Describe the impact of user groups on the standard-setting process. FalseTrueFalseIssues in Financial ReportingExpectation Gap What the public thinks accountants should do versus what accountants think they can do.Difficult to closeSarbanes-Oxley Act (2002)Public Company Accounting Oversight Board (PCAOB)LO 8 Describe the impact of user groups on the standard-setting process. Issues in Financial ReportingInternational Accounting Standards Two sets of standards accepted for international use:U.S. GAAP, issued by the FASBInternational 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.LO 8 Describe the impact of user groups on the standard-setting process. Issues in Financial ReportingEthics in the Environment of Financial Accounting In accounting, we frequently encounter ethical dilemmas.GAAP does not always provide an answerDoing the right thing is not always easy or obviousLO 9 Understand issues related to ethics and financial accounting. 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