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Accounting Standards: GAAP, IFRS, and the Role of Regulatory Bodies, Exercises of Advanced Education

University of New Haven (UNH)Advanced Education

A comprehensive overview of accounting standards in the united states, focusing on generally accepted accounting principles (gaap). It delves into the history of gaap development, highlighting the roles of key organizations like the securities and exchange commission (sec), the american institute of certified public accountants (aicpa), and the financial accounting standards board (fasb). The document also explores the impact of the sarbanes-oxley act and the emergence of international financial reporting standards (ifrs).

Typology: Exercises

2024/2025

Available from 02/11/2025

profjunior
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Intermediate Accounting Ch. 1 (Kieso,
Weygandt, Warfield 16e)
Managerial Accounting - The process of identifying, measuring, analyzing, and
communicating financial information needed by management to plan, control, and
evaluate a company's operations.
Financial Accounting - The process that culminates in the preparation of financial
reports on the enterprise for use by both internal and external parties. Users include
investors, creditors, managers, unions, and government entities.
Essential characteristics of accounting - (1) The identification, measurement, and
communication of financial information about (2) economic entities to (3) interested
parties.
Objective of financial reporting - The objective of general-purpose financial reporting is
to provide financial information about the reporting entity that is useful to present and
potential equity investors, lenders, and other creditors in decisions about providing
resources to the entity.
General-purpose financial statements provide: - at the least cost the most useful
information possible.
Primary users of general-purpose financial statements: - investors and creditors.
*Primary user groups are not management, regulators, or some other non-investor
groups.
Entity perspective: - companies are viewed as separate and distinct from their owners
(present shareholders).
investors are interested in: - (1) the company's ability to generate net cash inflows and
(2) management's ability to protect and enhance the capital providers' investments.
Accrual-basis accounting: - ensures that a company records events that change its
financial statements in the period in which the events occur, rather than only in the
periods in which it receives or pays cash. A company:
(1) Recognizes revenues when it provides the goods or services rather than when it
receives cash.
(2) Recognizes expenses when it incurs them rather than when it pays them.
"Generally accepted" - Means either that an authoritative accounting rule-making body
has established a principle of reporting in a given area or that over time a given practice
has been accepted as appropriate because of its universal application.
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Download Accounting Standards: GAAP, IFRS, and the Role of Regulatory Bodies and more Exercises Advanced Education in PDF only on Docsity!

Intermediate Accounting Ch. 1 (Kieso,

Weygandt, Warfield 16e)

Managerial Accounting - The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company's operations. Financial Accounting - The process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties. Users include investors, creditors, managers, unions, and government entities. Essential characteristics of accounting - (1) The identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties. Objective of financial reporting - The objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity. General-purpose financial statements provide: - at the least cost the most useful information possible. Primary users of general-purpose financial statements: - investors and creditors. *Primary user groups are not management, regulators, or some other non-investor groups. Entity perspective: - companies are viewed as separate and distinct from their owners (present shareholders). investors are interested in: - (1) the company's ability to generate net cash inflows and (2) management's ability to protect and enhance the capital providers' investments. Accrual-basis accounting: - ensures that a company records events that change its financial statements in the period in which the events occur, rather than only in the periods in which it receives or pays cash. A company: (1) Recognizes revenues when it provides the goods or services rather than when it receives cash. (2) Recognizes expenses when it incurs them rather than when it pays them. "Generally accepted" - Means either that an authoritative accounting rule-making body has established a principle of reporting in a given area or that over time a given practice has been accepted as appropriate because of its universal application.

Three organizations that are instrumental in the development of financial accounting standards (GAAP) in the United States: - 1. SEC

  1. AICPA
  2. FASB Securities and Exchange Commission - ~Came into existence after stock market crash of 1929/Great Depression --> calls for increased government regulation of business, especially financial institutions and the stock market. SEC was developed to help develop and standardize financial information presented to stockholders. Administers the Securities Exchange Act of 1934. Has the broad power to prescribe accounting practices and standards to be employed by companies that fall within its jurisdiction. Generally, the SEC relies on the ____ to develop accounting standards. - FASB If the SEC believes that an accounting or disclosure irregularity exists regarding the form or content of the financial statements (of companies listed on the stock exchange)... - it sends a deficiency letter to the company. Companies usually resolve these deficiencies, but if disagreement continues, the SEC may issue a "STOP ORDER," which prevents the registrant from issuing or trading securities on the exchanges. What organization does the SEC require registrants to adhere to? - GAAP American Institute of Certified Public Accountants - The national professional organization of practicing Certified Public Accountants; an important contributor to the development of GAAP. Timeline of AICPA: - 1. Appointed the Committee on Accounting Procedure (CAP) in 1939 -CAP, composed of practicing CPAs, issued 51 Accounting Research Bulletins during the years 1939 to 1959. These bulletins dealt with a variety of accounting problems.
  3. 1959: the AICPA created the Accounting Principles Board (APB). -Major purposes of the APB were to (1) advance the written expression of accounting principles, (2) determine appropriate practices, and (3) narrow the areas of difference and inconsistency in practice. To achieve these purposes, the APB's mission was twofold: to develop an overall conceptual framework to assist in the resolution of problems as they became evident and to substantively research individual issues before the AICPA pronouncements. The Board had 18-21 members, selected mainly from public accounting. -Official pronouncements, called APB opinions, were intended to be based mainly on research studies and be supported by reason and analysis. -APB issued 31 opinions between 1959 and 1973.
  4. 1971, a Study Group on Establishment of Accounting Principles (Wheat Committee) examined the organization and operation of the APB.
  5. APB was replaced by the Financial Accounting Standards Board in 1973.

What happens if the Codification does not cover a certain type of transaction or event? - Very rare that this would happen, but in this case, other accounting literature should be considered. Benefits of Codification: - 1. Help users better understand what GAAP is

  1. Reduce time needed to research accounting issues and risk of noncompliance
  2. Web-based format called the Accounting Standards Board of Codificaton Research System (CRS) will make updating easier, help users stay current with GAAP Groups that influence GAAP and put pressure on FASB: - 1. Users like lobbyist ie. political groups(most powerful) 2. Businesses 3. CPA's and accounting firms 4. financial community (bankers) 5. investing public 6. Academicians 7. AICPA (FinREC) 8. industry associations 9. Preparers Sarbanes Oxley Act - a law that increases the resources for the SEC to combat fraud, and curb poor reporting practices. It also established an oversight board, implemented stronger rules fro auditors, requires CEO's and CFO's to certify financial statements as accurate and complete, requires audit committees to be made of independent members, and requires codes of ethics for senior financial officers. internal controls - set of checks and balances designed to prevent fraud and prevent errors (required in Sarbanes Oxley Act) 2 rules accepted for international use: - 1. International Financial Reporting Stnadards (IFRS)
  3. International Accounting Standards Board (IASB) US companies that work overseas can use what rule? - GAAP Norwalk Agreement - agreement between GAAP and IFRS. Most European countries use IFRS