Lecture Intermediate accounting, (12th Edition): Chapter 1 - Kieso, Weygandt, Warfield

Chapter 1 - Financial accounting and accounting standards. After studying this chapter, you should be able to: Explain how accounting makes it possible to use scarce resources more efficiently, explain the meaning of “stakeholder” and identify key stakeholders in financial reporting, explaining what is at stake for each one, identify the objective of financial reporting,...

Prepared by Coby Harmon, University of California, Santa Barbara

Parties Involved in Standard Setting

Generally Accepted Accounting Principles

Generally Accepted Accounting Principles

Issues in Financial Reporting

Issues in Financial Reporting

Securities 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 AICPA

Political Environment The Expectations Gap

International Accounting Standards Ethics

Balance Sheet Income Statement Statement of Cash 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.

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 1­1  Capital  Allocation Process

Chapter

1-8

An effective process of capital allocation is critical to a healthy economy,  which

LO 3  Describe some of the challenges facing accounting.

Chapter

1-10

Financial reporting should provide information:

Financial reporting should provide information:

(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. 

Objectives of Financial Accounting

Objectives of Financial Accounting

LO 4  List the objectives of financial reporting.

Income Statement Statement of Stockholders’ Equity Statement of Cash Flows

Note Disclosure

Financial StatementsBalance 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.

Encouraged private standard­setting body SEC requires public companies to adhere to GAAP SEC Oversight

Enforcement Authority

LO 6  Identify the major policy­setting bodies and their role in 

the standard­setting process.

Committee on  Accounting Procedures

Committee on  Accounting Procedures Accounting Principles 

approach failed

 1959 to 1973

 Issued 31 Accounting Principle Board

Opinions (APBOs)

recommendations adopted in 1973

http://www.aicpa.org/

Financial Accounting  Standards Board

Financial Accounting  Standards Advisory 

Council

Financial Accounting  Standards Advisory 

Chapter

1-17

Missions is to establish and improve standards of financial accounting and  reporting.  Differences between FASB and APB include:

Financial Accounting Standards Board

Financial Accounting Standards Board

Smaller Membership Full­time, Remunerated Membership Greater Autonomy

Increased Independence Broader Representation

http://www.fasb.org/

LO 6  Identify the major policy­setting bodies and their role in 

the standard­setting process.

the standard­setting process.

Financial Accounting  Standards Board

Financial Accounting  Standards Advisory Council

Financial Accounting  Standards Advisory Council

Governmental  Accounting Standards 

Board

Governmental  Accounting Standards 

Board

Governmental Accounting  Standards Advisory 

Council

Governmental Accounting  Standards Advisory 

Council

http://www.gasb.org/

LO 7  Explain the meaning of generally accepted accounting principles.

FASB Technical Bulletins AICPA Industry Audit and  AICPA Industry Audit and  Accounting Guides Accounting Guides AICPA Statements of  AICPA Statements of  Position Position

LO 8 Describe the impact of user groups on the standard­setting process. 

Financial Community

Industry Associations

LO 8 Describe the impact of user groups on the standard­setting process. 

Illustration 1­5  User Groups  that Influence Accounting  Standards

LO 8 Describe the impact of user groups on the standard­setting process. 

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 standard­setting process. 

LO 9 Understand issues related to ethics and financial accounting. 

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