Kế toán, kiểm toán - Chương 1: Financial reporting and accounting standards

C H A P T E R 1FINANCIAL REPORTING AND ACCOUNTING STANDARDSIntermediate AccountingIFRS EditionKieso, Weygandt, and Warfield Identify the major financial statements and other means of financial reporting. Explain how accounting assists in the efficient use of scarce resources. Explain the need for high-quality standards.Identify the objective of financial reporting.Identify the major policy-setting bodies and their role in the standard-setting process.Explain the meaning of IFRS.Describe the challenges facing financial reporting.Learning ObjectivesGeneral-purpose financial statements Capital providersEntity perspectiveDecision-usefulnessGlobal MarketsObjective of Financial ReportingStandard-Setting OrganizationsFinancial Reporting ChallengesFinancial statements and financial reportingAccounting and capital allocationHigh-quality standardsIOSCOIASBHierarchy of IFRSPolitical environmentExpectations gapSignificant financial reporting issuesEthicsInternational convergenceFinancial Reporting and Accounting StandardsGlobal MarketsWorld markets are becoming increasingly intertwined.Top 20 Global Companies In Terms Of SalesGlobal MarketsSignificant number of foreign companies are found on national exchanges.Illustration 1-2International ExchangeStatisticsLO 1 Identify the major financial statements and other means of financial reporting.Global MarketsFinancial Statements and Financial ReportingCharacteristics of accounting are:the identification, measurement, and communication of financial information about economic entities to interested parties. Financial InformationAccounting?Identifyand Measureand CommunicateStatement of Financial PositionIncome Statement or Statement of Comprehensive IncomeStatement of Cash FlowsStatement of Changes in EquityNote DisclosuresPresident’s letter ProspectusesReports filed with governmental agenciesNews releasesForecasts Environmental impact statements Etc.Financial StatementsAdditional InformationEconomic EntityGlobal MarketsLO 1 Identify the major financial statements and other means of financial reporting.Resources are limited. Efficient use of resources often determines whether a business thrives.LO 2 Explain how accounting assists in the efficient use of scare resources.Illustration 1-3 Capital Allocation ProcessAccounting and Capital AllocationGlobal MarketsLO 3 Explain the need for high-quality standards.High Quality StandardsGlobal MarketsGlobalization demands a single set of high-quality international accounting standards. Some elements:Single set of high-quality accounting standards established by a single standard-setting body.Consistency in application and interpretation.Common disclosures.Common high-quality auditing standards and practices.Common approach to regulatory review and enforcement.Education and training of market participants.(Continued)LO 3 Explain the need for high-quality standards.High Quality StandardsGlobal MarketsGlobalization demands a single set of high-quality international accounting standards. Some elements:Common delivery systems (e.g., eXtensible Business Reporting Language—XBRL).Common approach to corporate governance and legal frameworks around the worldLO 3 Explain the need for high-quality standards.Objective of Financial AccountingLO 4 Identify the objectives of financial reporting.Objective: Provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers.Capital Providers (Investors)Investors are the primary user group.Objective of Financial AccountingLO 4 Identify the objectives of financial reporting.General-Purpose Financial StatementsProvide financial reporting information to a wide variety of users. Provide the most useful information possible at the least cost.Decision-UsefulnessObjective of Financial AccountingLO 4 Identify the objectives of financial reporting.Investors are interested in assessing the company’s ability to generate net cash inflows and management’s ability to protect and enhance the capital providers’ investments.Entity PerspectiveCompanies viewed as separate and distinct from their owners.The objective of financial reporting places most emphasis on:reporting to capital providers.reporting on stewardship.providing specific guidance related to specific needs.providing information to individuals who are experts in the field.Review QuestionObjective of Financial AccountingLO 4 Identify the objectives of financial reporting.General-purpose financial statements are prepared primarily for:internal users.external users.auditors.government regulators.Review QuestionObjective of Financial AccountingLO 4 Identify the objectives of financial reporting.Two Major Organizations:International Accounting Standards Board (IASB)Issues International Financial Reporting Standards (IFRS).Standards used on most foreign exchanges. Standards used by foreign companies listing on U.S. securities exchanges. IFRS used in over 115 countries.LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.Standard-Setting OrganizationsTwo Major Organizations:Financial Accounting Standards Board (FASB)Issues Statements of Financial Accounting Standards (SFAS).Required for all U.S.-based companies. LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.Standard-Setting OrganizationsLO 5 Identify the major policy-setting bodies and their role in the standard-setting process.Standard-Setting OrganizationsInternational Organization of Securities Commissions (IOSCO)Does not set accounting standards. Dedicated to ensuring that global markets can operate in an efficient and effective basis. 5 Identify the major policy-setting bodies and their role in the standard-setting process.Standard-Setting OrganizationsInternational Accounting Standards Board (IASB)Composed of four organizations—International Accounting Standards Committee Foundation (IASCF)International Accounting Standards Board (IASB) Standards Advisory CouncilInternational Financial Reporting Interpretations Committee (IFRIC) 5 Identify the major policy-setting bodies and their role in the standard-setting process.Standard-Setting OrganizationsIllustration 1-4International Standard-Setting StructureIFRS stands for:International Federation of Reporting Services.Independent Financial Reporting Standards.International Financial Reporting Standards.Integrated Financial Reporting Services.Review QuestionStandard-Setting OrganizationsLO 5 Identify the major policy-setting bodies and their role in the standard-setting process.The major key players on the international side are the:IASB and FASB. SEC and FASB.IOSCO and the SEC. IASB and IOSCO.Review QuestionStandard-Setting OrganizationsLO 5 Identify the major policy-setting bodies and their role in the standard-setting process.Which body from the U.S. side is similar to the IASB?SEC. FASB.FASC. FAF.Review QuestionStandard-Setting OrganizationsLO 5 Identify the major policy-setting bodies and their role in the standard-setting process.Due ProcessThe IASB due process has the following elements: Independent standard-setting board; Thorough and systematic process for developing standards; Engagement with investors, regulators, business leaders, and the global accountancy profession at every stage of the process; and Collaborative efforts with the worldwide standard-setting community.LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.Due ProcessIllustration 1-4International Standard-Setting StructureLO 5 Identify the major policy-setting bodies and their role in the standard-setting process.Accounting standard-setters use the following process in establishing international standards:Research, exposure draft, discussion paper, standard.Discussion paper, research, exposure draft, standard.Research, preliminary views, discussion paper, standard.Research, discussion paper, exposure draft, standard.Review QuestionDue ProcessLO 5 Identify the major policy-setting bodies and their role in the standard-setting process.Issued by the IASB:Types of PronouncementsInternational Financial Reporting Standards.Framework for financial reporting.International financial reporting interpretations.LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.Types of PronouncementsHierarchy of IFRSCompanies first look to:International Financial Reporting Standards;International Accounting Standards; andInterpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).LO 6 Explain the meaning of IFRS.IFRS is comprised of:International Financial Reporting Standards and FASB financial reporting standards.International Financial Reporting Standards, International Accounting Standards, and international accounting interpretations.International Accounting Standards and international accounting interpretations.FASB financial reporting standards and International Accounting Standards.Review QuestionTypes of PronouncementsLO 6 Explain the meaning of IFRS.Financial Reporting ChallengesLO 7 Describe the challenges facing financial reporting.IFRS in a Political EnvironmentIllustration 1-6User Groups that Influence the Formulation of Accounting Standards What the public thinks accountants should do vs. what accountants think they can do.Financial Reporting ChallengesThe Expectations GapLO 7 Describe the challenges facing financial reporting.Significant Financial Reporting IssuesNon-financial measurementsForward-looking informationSort assetsTimelinessEthics in the Environment of Financial AccountingCompanies that concentrate on “maximizing the bottom line,” “facing the challenges of competition,” and “stressing short-term results” place accountants in an environment of conflict and pressure.IFRS does not always provide an answer.Doing the right thing is not always easy or obvious.Financial Reporting ChallengesLO 7 Describe the challenges facing financial reporting.International ConvergenceIn 2002 the IASB and the FASB formalized their commitment to the convergence of U.S. GAAP and international standards. The Boards agreed to:Make their existing financial reporting standards fully converged as soon as practicable, andCoordinate their future work programs to ensure that once achieved, convergence is maintained.Financial Reporting ChallengesLO 7 Describe the challenges facing financial reporting.The expectations gap is:what financial information management provides and what users want.what the public thinks accountants should do and what accountants think they can do.what the governmental agencies want from standard-setting and what the standard-setters provide.what the users of financial statements want from the government and what is provided.Review QuestionFinancial Reporting ChallengesLO 7 Describe the challenges facing financial reporting.The fact that there are differences between IFRS and U.S. GAAP should not be surprising because standard-setters have developed standards in response to different user needs. IFRS tends to be simpler and more flexible in its accounting and disclosure requirements.The U.S. SEC recently eliminated the need for foreign companies that trade shares in U.S. markets to reconcile their accounting with U.S. GAAP.Appendix 1ATHE U.S. STANDARD-SETTING ENVIRONMENTOrganizations responsible for developing financial accounting standards (GAAP) in the United States:Securities and Exchange Commission (SEC).Financial Accounting Standards Board (FASB). 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 8 Identify the major policy-setting bodies and their role in the standard-setting process.Financial Accounting Standards BoardWheat Committee’s recommendations resulted in the creation of a the Financial Accounting Standards Board (FASB) 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 8 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 RepresentationLO 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 publicFinancial Accounting Standards BoardStep 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 8 Identify the major policy-setting bodies and their role in the standard-setting process.Due ProcessFinancial Accounting Standards BoardStandards, Interpretations, and Staff Positions.Financial Accounting ConceptsEmerging Issues Task Force StatementsLO 8 Identify the major policy-setting bodies and their role in the standard-setting process.Types of PronouncementsPrinciples that have substantial authoritative support. Major sources of GAAP:FASB Standards, Interpretations, and Staff PositionsAPB OpinionsAICPA Accounting Research BulletinsU.S. Generally Accepted Accounting PrinciplesFinancial Accounting Standards BoardLO 8 Identify the major policy-setting bodies and their role in the standard-setting process.When the Board approves a new standard, staff position, etc., the results are included in the Codification through an Accounting Standards Update.Financial Accounting Standards BoardLO 8 Identify the major policy-setting bodies and their role in the standard-setting process.Illustration 1A-2The CodificationFrameworkIASB and FASB have set up an extensive work plan to achieve one set of international standards.Improvements in Accounting StandardsInternational Accounting ConvergenceLO 8 Identify the major policy-setting bodies and their role in the standard-setting process.Illustration 1A-3IFRS Adoption TimelineSEC Work PlanInternational Accounting ConvergenceLO 8 Identify the major policy-setting bodies and their role in the standard-setting process.Sufficient development and application of IFRS.Independent standard-setting for the benefit of investors.Investor understanding and education.Regulatory environment.Impact on large and small financial statement preparers.Human capital readiness.CopyrightCopyright © 2011 John Wiley & Sons, Inc. 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