Lecture Intermediate Accounting (13th edition) - 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,...

Chapter 1-1

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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

Financial Accounting and Accounting Standards Financial Accounting and Accounting Standards

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.

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Accounting and Capital Allocation Accounting and Capital Allocation

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

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

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

Review

LO 3  Describe some of the challenges facing accounting.

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Financial reporting should provide information that:

Financial reporting should provide information that:

(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

Objectives of Financial Accounting

LO 4  List the objectives of financial reporting.

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.

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 

 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/

Financial Accounting  Standards Board

Financial Accounting  Standards Advisory 

Council

Financial Accounting  Standards Advisory 

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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.

AICPA continues to develop and grade the CPA examination.

LO 6  Identify the major policy­setting bodies and their role in 

the standard­setting process.

LO 7  Explain the meaning of generally accepted accounting principles  (GAAP) 

and the role of the Codification for GAAP.

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

Financial Community

Industry Associations

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

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

markets will best be served if only one set 

of GAAP is used.

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

(a)  AICPA  (e)  FAF  (i)  CPA

(b)  CAP  (f)  FASAC  (j) FASB

(c)  ARB  (g)  SOP  (k) SEC

(d)  APB  (h)  GAAP  (l)  IASB

LO 9  Understand issues related to ethics and financial accounting. 

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