Accounting 301 - Slides Chapter 1, Slides of Accounting

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Prepared by Coby Harmon University of California, Santa Barbara

Intermediate

Accounting

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Intermediate Accounting

14th Edition

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Financial Accounting and

Accounting Standards

Kieso, Weygandt, and Warfield

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Securities and Exchange Commission American Institute of CPAs Financial Accounting Standards Board Changing role of the AICPA

Financial Statements and Financial Reporting

Parties Involved in Standard-Setting

Generally Accepted Accounting Principles

Issues in Financial Reporting

Accounting and capital allocation Objectives Need to develop standards

FASB Codification Political environment Expectations gap Financial reporting challenges International accounting standards Ethics

Financial Accounting and Accounting StandardsFinancial Accounting and Accounting StandardsFinancial Accounting and Accounting Standards Financial Accounting and Accounting Standards

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Financial Statements and Financial ReportingFinancial Statements and Financial ReportingFinancial Statements and Financial Reporting Financial Statements and Financial Reporting

Essential characteristics of accounting are:

(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.

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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.

Financial Statements and Financial ReportingFinancial Statements and Financial ReportingFinancial Statements and Financial Reporting Financial Statements and Financial Reporting

LO 1 Identify the major financial statements and other means of financial reporting.

Review Question

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Resources are limited. Efficient use of resources often

determines whether a business thrives.

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- Capital Allocation Process

Accounting and Capital Allocation

Financial Statements and Financial ReportingFinancial Statements and Financial ReportingFinancial Statements and Financial Reporting Financial Statements and Financial Reporting

1- (^10) LO 3 Identify the objectives of financial reporting.

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.

Objectives of Financial Reporting

Financial Statements and Financial ReportingFinancial Statements and Financial ReportingFinancial Statements and Financial Reporting Financial Statements and Financial Reporting

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Equity Investors and Creditors

Investors are the primary user group.

Objective of Financial AccountingObjective of Financial AccountingObjective of Financial Accounting Objective of Financial Accounting

General-Purpose Financial Statements

 Provide financial reporting information to a wide variety

of users.

 Provide the most useful information possible at the

least cost.

LO 3 Identify the objectives of financial reporting.

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Need to Develop StandardsNeed to Develop StandardsNeed to Develop Standards Need to Develop Standards

Various users

need financial

information

Various users

need financial

information

The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced.

Financial Statements

Balance Sheet Income Statement Statement of Stockholders’ Equity Statement of Cash Flows Note Disclosure

Financial Statements

Balance Sheet Income Statement Statement of Stockholders’ Equity Statement of Cash Flows Note Disclosure

Generally Accepted Generally Accepted Accounting Principles Accounting Principles (GAAP) (GAAP)

Generally Accepted Generally Accepted Accounting Principles Accounting Principles (GAAP) (GAAP)

LO 4 Explain the need for accounting standards.

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Parties Involved in Standard SettingParties Involved in Standard SettingParties Involved in Standard Setting Parties Involved in Standard Setting

Three organizations:

 (^) Securities and Exchange Commission (SEC).

 (^) American Institute of Certified Public Accountants

(AICPA).

 (^) Financial Accounting Standards Board (FASB).

LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.

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Committee on Accounting

Procedures

Accounting Principles

Board

 (^) 1939 to 1959  (^) Issued 51 Accounting Research Bulletins (ARBs)  (^) Problem-by-problem approach failed

 (^) 1959 to 1973  (^) Issued 31 Accounting Principle Board Opinions (APBOs)  (^) Wheat Committee recommendations adopted in 1973

http://www.aicpa.org/

American Institute of CPAs (AICPA)

 National professional organization

 Established the following:

Parties Involved in Standard SettingParties Involved in Standard SettingParties Involved in Standard Setting Parties Involved in Standard Setting

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Wheat Committee’s recommendations resulted in creation of FASB.

Financial Accounting Foundation

Financial Accounting Foundation

 (^) Selects members of the FASB.  (^) Funds their activities.  (^) Exercises general oversight.

Financial Accounting Standards Board

Financial Accounting Standards Board

Financial Accounting Standards Advisory Council

Financial Accounting Standards Advisory Council

 (^) Mission to establish and improve standards of financial accounting and reporting.

 (^) Consult on major policy issues.

LO 5

Financial Accounting Standards Board (FASB)

Parties Involved in Standard SettingParties Involved in Standard SettingParties Involved in Standard Setting Parties Involved in Standard Setting

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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 BoardFinancial Accounting Standards BoardFinancial Accounting Standards Board Financial Accounting Standards Board

Review

LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.

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Illustration 1- The Due Process System of the FASB

Financial Accounting Standards BoardFinancial Accounting Standards BoardFinancial Accounting Standards Board Financial Accounting Standards Board

LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.