Intermediate accounting 13th edition kieso warfield

Chapter 1-4 Securities and Exchange Commission American Institute of CPAs Financial Accounting Standards Board Changing role of the AICPA Financial Statements and Financial Reporting Pa

Chapter 1-1

4 List the objectives of financial reporting.

standard-setting process.

(GAAP) and the role of the Codification for GAAP.

Learning Objectives

Chapter

1-4

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

Financial Accounting and Accounting Standards

Chapter

1-5 LO 1 Identify the major financial statements and other means of 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.

and Communicates

Flows Statement of Owners’ or Stockholders’

Equity Note Disclosures

Balance Sheet Income Statement Statement of Cash

Flows Statement of Owners’ or Stockholders’

Equity Note Disclosures

President’s letter Prospectuses, SEC Reporting News releases Forecasts Environmental Reports Etc.

President’s letter Prospectuses, SEC Reporting News releases Forecasts Environmental Reports Etc.

Economic Entity

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

Financial Statements and Financial Reporting

Chapter

1-7 LO 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?

accepted accounting principles

statements

the totals of the financial statements

comments

Review

Financial Statements and Financial Reporting

Chapter

1-8

Accounting and Capital Allocation

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

Capital Allocation

Capital Allocation

The 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 Process

and selling securities.

Accounting and Capital Allocation

LO 2 Explain how accounting assists in the efficient use of scare resources.

Review

Chapter

1-10

Challenges Facing Financial Accounting

Nonfinancial Measurements Forward-looking Information Soft Assets

Timeliness

LO 3 Describe some of the challenges facing accounting.

Chapter

1-11

Financial reporting should provide information that:

(a) is useful to present and potential investors and creditors and

other users in making rational investment, credit, and similar decisions

(a) is useful to present and potential investors and creditors and

other users in making rational investment, credit, and similar decisions

(b) helps present and potential investors and creditors and

other users in assessing the amounts, timing, and uncertainty

of prospective cash receipts

(b) helps present and potential investors and creditors and

other users in assessing the amounts, timing, and uncertainty

of prospective cash receipts

(c) clearly portrays 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

(c) clearly portrays 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

Objectives of Financial Accounting

LO 4 List the objectives of financial reporting.

Chapter

1-12

All of the following are objectives of financial

reporting except to provide information

resources, and changes in them

an enterprise

Objectives of Financial Accounting

LO 4 List the objectives of financial reporting.

Review

Chapter

1-13

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 Accounting Principles

(GAAP)

Generally Accepted Accounting Principles

(GAAP)

LO 5 Explain the need for accounting standards.

Chapter

1-14

Parties Involved in Standard Setting

Three organizations:

¾ Securities and Exchange Commission (SEC)

¾ American Institute of Certified Public

Accountants (AICPA)

¾ Financial Accounting Standards Board (FASB)

LO 6 Identify the major policy-setting bodies and

their role in the standard-setting process.

Chapter

1-15

Securities Act of 1933

Securities Act of 1933 Act of 1934 Act of 1934 Securities Securities

Securities and Exchange Commission

Established by federal government Accounting and reporting for public companies

Encouraged private standard-setting body SEC requires public companies to adhere to GAAP SEC Oversight

Enforcement Authority

LO 6 Identify the major policy-setting bodies and

their role in the standard-setting process.

Chapter

1-16

American Institute of CPAs

National professional organization Established the following:

LO 6

Committee on Accounting Procedures

Committee on Accounting Procedures

Accounting Principles Board

Accounting Principles Board

z 1939 to 1959

z Issued 51 Accounting Research Bulletins (ARBs)

z Problem-by-problem approach failed

z 1959 to 1973

z Issued 31 Accounting Principle Board

Opinions (APBOs)

z Wheat Committee recommendations adopted in 1973

http://www.aicpa.org/

Chapter

1-17

Financial Accounting Standards Board

Wheat Committee’s recommendations resulted in the creation of a the Financial Accounting Standards Board in 1973.

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 6 Identify the major policy-setting bodies and

their role in the standard-setting process.

Chapter

1-18

Missions is to establish and improve standards of

financial accounting and reporting Differences

between FASB and APB include:

Financial Accounting Standards Board

Smaller MembershipFull-time, Remunerated MembershipGreater Autonomy

Increased IndependenceBroader Representation

http://www.fasb.org/

LO 6 Identify the major policy-setting bodies and

their role in the standard-setting process.

Chapter

1-19

The first step taken in the establishment of a typical FASB statement is

discussion memorandum is issued

response and issues an exposure draft

agenda

Financial Accounting Standards Board

Review

LO 6 Identify the major policy-setting bodies and

their role in the standard-setting process.

Chapter

1-20

FASB relies on two basic premises:

(1) Responsive to entire economic community

(2) Operate in full view of the public

Due Process

issued.

issues Exposure Draft

Statement of Financial Accounting Standard

LO 6 Identify the major policy-setting bodies and

their role in the standard-setting process.

Standards, Interpretations, and Staff Positions.

Financial Accounting ConceptsEmerging Issues Task Force Statements

LO 6 Identify the major policy-setting bodies and

their role in the standard-setting process.

Chapter

1-22

Types of Pronouncements

Types of Pronouncements

LO 6 Identify the major policy-setting bodies and

their role in the standard-setting process.

Chapter

1-23

The AICPA established the Accounting Standards Executive

Committee (AcSEC):

¾ Audit and Accounting Guides

¾ Statements of Position (SOP)

¾ Practice Bulletins

Changing Role of AICPA

LO 6

AICPA and AcSEC no longer issues authoritative accounting

guidance for public companies

PCAOB oversees the development of auditing standards

AICPA continues to develop and grade the CPA examination.

LO 6 Identify the major policy-setting bodies and

their role in the standard-setting process.

Chapter

1-24

Generally Accepted Accounting Principles

Those principles that have substantial authoritative

support

Major sources of GAAP are:

FASB Standards, Interpretations, and Staff PositionsAPB Opinions

AICPA Accounting Research Bulletins

LO 7 Explain the meaning of generally accepted accounting principles

(GAAP) and the role of the Codification for GAAP.

Chapter

1-25

Generally Accepted Accounting Principles

LO 7 Explain the meaning of generally accepted accounting principles

(GAAP) and the role of the Codification for GAAP.

Illustration 1-4

GAAP Documents

Chapter

1-26

Which of the following accounting pronouncements is the most authoritative?

Generally Accepted Accounting Principles

Review

LO 7 Explain the meaning of generally accepted accounting principles

(GAAP) and the role of the Codification for GAAP.

Chapter

1-27

Issues in Financial Reporting

Standard 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 rule-making process

Chapter

1-28

FASB Preparers Preparers (e.g., FEI) (e.g., FEI)

Financial Community

Financial Community

Industry Associations

Standard Setting Illustration 1-6 User Groups that Influence

Accounting Standards

LO 8 Describe the impact of user groups on the rule-making process

Chapter

1-29

All those who serve on the FASB must be

Certified Public Accountants.

Chapter

1-30

Issues in Financial Reporting

Expectation Gap

What the public thinks accountants should do vs.

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 rule-making process

Chapter

1-31

Issues in Financial Reporting

International 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 rule-making process

Chapter

1-32

Issues in Financial Reporting

LO 9 Understand issues related to ethics and financial accounting

CA1-9 (GAAP Terminology): With accounting and finance, it often helps to be fluent in abbreviations and acronyms

Instructions:

Presented below is a list of common accounting acronyms

Identify the term for which each acronym stands, and provide

a brief definition of each term

Chapter

1-33

Issues in Financial Reporting

Ethics in the Environment of Financial Accounting

In accounting, we frequently encounter ethical

Chapter

1-34

Diversity in Practice

¾ iGAAP includes the standards, referred to as International

Financial Reporting Standards (IFRS), developed by the IASB

¾ Differences between U.S GAAP and iGAAP exist because of

different user needs

¾ iGAAP tends to be simpler and less stringent than U.S GAAP

¾ Regulators have recently eliminated the need for foreign

companies that trade shares in U.S markets to reconcile their accounting with U.S GAAP.

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Chapter 2-1

Chapter

2-2

C H A P T E R 2

CONCEPTUAL FRAMEWORK UNDERLYING FINANCIAL

ACCOUNTING

Intermediate Accounting

13th Edition Kieso, Weygandt, and Warfield

Chapter

2-3

framework

information

accounting

accounting information

Learning Objectives

Chapter

2-4

Decision usefulness Information about economic

Third Level:

Recognition and Measurement

Need

Development

Qualitative characteristics Basic elements

Basic assumptions Basic principles Constraints

Financial Accounting and Accounting Standards Financial Accounting and Accounting Standards

Chapter

2-5

The Need for a Conceptual Framework

To develop a coherent set of standards and rules

To solve new and emerging practical problems

Conceptual Framework

LO 1 Describe the usefulness of a conceptual framework.

nature, function, and limits of financial accounting and financial statements.

Conceptual Framework

LO 1 Describe the usefulness of a conceptual framework.

True

Conceptual Framework

LO 1 Describe the usefulness of a conceptual framework.

False

Chapter

The FASB has issued six Statements of Financial

Accounting Concepts (SFAC) for business enterprises.

The FASB has issued six Statements of Financial

Development of Conceptual Framework

SFAC No 6)

Accounting Measurements

LO 2 Describe the FASB’s efforts to construct a conceptual framework.

Chapter

2-9

The Framework is comprised of three levels:

First Level = Basic Objectives

Second Level = Qualitative Characteristics and Basic Elements

Concepts.

Conceptual Framework

LO 2 Describe the FASB’s efforts to construct a conceptual framework.

The FASB and the IASB have agreed on a joint project to develop a common and improved conceptual framework.

2 Going concern 3.

3 Monetary unit 4.

4 Periodicity

PRINCIPLES

1.

1 Measurement 2.

2 Revenue recognition 3.

3 Expense recognition 4.

4 Full disclosure

CONSTRAINTS

1.

1 Cost-benefit 2.

2 Materiality 3.

3 Industry practice 4.

4 Conservatism

OBJECTIVES

1 Useful in investment and credit decisions

2 Useful in assessing future cash flows

3 About enterprise resources, claims to resources, and changes in them

ELEMENTS

Assets, Liabilities, and Equity Investments by owners

Distribution to owners Comprehensive income Revenues and Expenses Gains and Losses

LO 2 Describe the FASB’s

efforts to construct a conceptual framework.

QUALITATIVE CHARACTERISTICS

Relevance Reliability Comparability Consistency

Chapter

2-11

What are the Statements of Financial Accounting

Concepts intended to establish?

a Generally accepted accounting principles in

financial reporting by business enterprises.

b The meaning of “Present fairly in accordance with

generally accepted accounting principles.”

c The objectives and concepts for use in developing

standards of financial accounting and reporting.

d The hierarchy of sources of generally accepted

Chapter

2-12

Financial reporting should provide information that:

(a) is useful to present and potential investors and creditors and

other users in making rational investment, credit, and similar decisions

(a) is useful to present and potential investors and creditors and

other users in making rational investment, credit, and similar decisions

(b) helps present and potential investors and creditors and

other users in assessing the amounts, timing, and uncertainty

of prospective cash receipts

(b) helps present and potential investors and creditors and

other users in assessing the amounts, timing, and uncertainty

of prospective cash receipts

(c) portrays 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

(c) portrays 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

First Level: Basic Objectives

LO 3 Understand the objectives of financial reporting.