Lecture Accounting: What the numbers mean (5/e) - Chapter 1: Accounting - Present and past

After reading this chapter, you should be able to answer the following questions: What is the FASB? Who uses accounting information and why? What is accounting? What do accountants do? Where did accounting come from? Where did accounting standards come from? What are the accounting ethical standards? What is the Conceptual Framework? Why do businesses report financial information?

CHAPTER 1

ACCOUNTING PRESENT AND PAST

-Learning Objectives

1 What is the FASB?

2 Who uses accounting information

and why?

3 What is accounting?

4 What do accountants do?

5 Where did accounting come

from?

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002

Learning Objective 1

• What is accounting?

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002

Accounting is the process of:

Identifying

Measuring

Communicating

Economic information about an entity

>

For decisions and

informed judgments

Learning Objective 2

• Who uses accounting information

and why?

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002

• Creditors - probability of collection

• Employees - job prospects and

retirement benefits

• SEC - full disclosure of financial

information

Learning Objective 3

• What do accountants do?

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002

Professional Services Provided by Accountants

Learning Objective 4

• Where did accounting come

from?

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002

Early History of Accounting

• Found accounting records on

Mesopotamian clay tablets from 3000 BC

• Luca Pacioli published a description of

double-entry bookkeeping systems in 1494

• Industrial revolution led to non-owner

managers who needed to report financial

information to owners

Accounting Profession in the

United States

• The Securities Act of 1933 and the Securities

Exchange Act of 1934 gave the SEC the

authority to establish accounting principles for

SEC firms

• The SEC delegated standard setting to other

organizations

– Committee on Accounting Procedure 1939 - 1959

– Accounting Principles Board 1959 -1973

– Financial Accounting Standards Board 1973 -

present

©The McGraw­Hill Companies, Inc., 2002 McGraw­Hill/Irwin

Learning Objective 5

• What is the FASB?

Financial Accounting

Standards Board

• Has issued seven concept statements

• Has issued over 140 standards

statements

• Uses due process is setting standards

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002

Learning Objective 6

• Where did accounting standards come from?

Other Accounting Standards

• Cost Accounting Standards Board -

government contracts, colleges and

universities that receive federal research

funds

• Governmental Accounting Standards Board - state and local governments

• International Accounting Standards

Committee - seeks comparability of financial statements across

nations

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002

Learning Objective 7

• What are the accounting

ethical standards?

Ethics in the Accounting

• Objectivity - impartial and free from conflicts of interest

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002

Learning Objective 8

• What is the Conceptual Framework?

Conceptual Framework

• Standards are based on a foundation

provided by the Statements of

Financial Accounting Concepts:

– Objectives of financial reporting

– Qualitative characteristics of accounting

information

– Elements of financial statements

– Recognition and measurement in

financial statements

– Using cash flow information

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002

Learning Objective 9

• Why do businesses report

financial information?

Concepts Statement No 1:

Objectives of Financial

Reporting

• Intended for investors and creditors

• For assessing the amounts, timing,

and uncertainty of prospective cash

flows

• For providing information about

economic resources and claims to

those resources

McGraw­Hill/Irwin ©The McGraw­Hill Companies, Inc., 2002