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1 Identify the major financial statements and other means of financial reporting.2 Explain how accounting assists in the efficient use of scarce resources.3 Identify the objective of financial reporting.4 Explain the need for accounting standards.5 Identify the major policy-setting bodies and their role in the standard... |
As our opening story indicates, the U.S. system of financial reporting has long been the most robust and transparent in the world. However, to ensure that it continues to provide the most relevant and reliable financial information to users, a number of financial reporting issues must be resolved. These issues include ... |
The financial informationa company provides to help users with capitalallocation decisions aboutthe company.Investors and creditorsuse financial reports tomake their capitalallocation decisions.Users(present and potential)The process ofdetermining how and atwhat cost money isallocated among competing interests.Financia... |
6 Chapter 1 Financial Accounting and Accounting StandardsHershey’s ability to generate net cash inflow and to understand management’s ability to protect and enhance the assets of the company, which will be used to generate future net cash inflows. As a result, the primary user groups are not management, regulators, or ... |
5 LEARNING OBJECTIVEIdentify the major policy-setting bodies and their role in the standard-setting process.Underlying ConceptsPreparing fi nancial statements prepared according to accepted accounting standards contributes to the comparability of accounting information.
8 Chapter 1 Financial Accounting and Accounting ... |
Parties Involved in Standard-Setting 9accounting for business combinations and intangible assets. It is also high-lighted by concerns over the accounting for off-balance-sheet special-purpose entities, highlighted in the failure of Enron and, more recently, the subprime crises that led to the failure of IndyMac Bank.En... |
10 Chapter 1 Financial Accounting and Accounting StandardsChanging Role of the AICPAWhen the FASB replaced the Accounting Principles Board, the AICPA established the Accounting Standards Executive Committee (AcSEC) as the committee authorized to speak for the AICPA in the area of financial accounting and reporting. It ... |
5Other advisory groups, such as the Investors Technical Advisory Committee (ITAC), the Not-for-Profit Advisor Committee (NAC), the Valuation Resource Group (VRG), and the recently established Private Company Financial Reporting Committee (PCFRC), share their views and experience with the Board on matters related to pro... |
Board evaluates research andpublic response and issuesexposure draft.Board evaluates responses andchanges exposure draft, if necessary.Final standard issued.Public hearing on proposed standard.T opic AT opic BT opic Cxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx... |
FASB Codifi cationHistorically, the documents that comprised GAAP varied in format, completeness, and structure. In some cases, these documents were inconsistent and difficult to interpret. As a result, financial statement preparers sometimes were not sure whether they had the right GAAP. Determining what was authoritat... |
Generally Accepted Accounting Principles 15is cited, using Receivables as the example. The purpose of the search shown below is to determine GAAP for accounting for loans and trade receivables not held for sale subsequent to initial measurement.Topic Go to FASB ASC 310 to access the Receivables topic.Subtopics Go to FA... |
8FASB board members acknowledged that they undertook many of the Board’s projects, such as “Accounting for Contingencies,” “Accounting for Pensions,” “Statement of Cash Flows,” and “Accounting for Derivatives,” due to political pressure.Generally Accepted Accounting PrinciplesFASBFinancial community(analysts, bankers, ... |
18 Chapter 1 Financial Accounting and Accounting Standardsfor financial reporting. In addition, the Sarbanes-Oxley Act introduces sweeping changes to the institutional structure of the accounting profession. The following are some of the key provisions of the legislation.• E s t a b l i s h e s a n o v e r s i g h t ... |
20 Chapter 1 Financial Accounting and Accounting StandardsChanges in these directions will enhance the relevance of financial reporting and pro-vide useful information to financial statement readers.International Accounting StandardsFormer Secretary of the Treasury, Lawrence Summers, has indicated that the single most ... |
CAN YOU DO THAT?What do the numbers mean?One of the more diffi cult issues related to convergence and international accounting standards is that countries have different cultures and customs. For example, the former chair of the IASB explained it this way regarding Europe:“In the U.K. everything is permitted unless it... |
FASB Codifi cation 236Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Generally accepted account-ing principles (GAAP) are those principles that have substantial authoritative support, such as FASB standards, interpretations, and Staff Positions, APB Opi... |
CA1-1 (FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false. 1. GAAP is the term used to indicate the whole body of FASB authoritative literature. 2. Any company claiming compliance with GAAP must comply with most standar... |
26 Chapter 1 Financial Accounting and Accounting StandardsInstructions(a) Differentiate between financial accounting and managerial accounting.(b) One part of financial accounting involves the preparation of financial statements. What are the financial statements most frequently provided?(c) What is the difference betw... |
Instructions(a) T h e C o m m i t t e e o n A c c o u n t i n g P r o c e d u r e o f t h e A I C P A w a s e s t a b l i s h e d i n t h e m i d - t o l a t e 1 9 3 0 s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standa... |
28 Chapter 1 Financial Accounting and Accounting StandardsInstructions(a) Explain from where the Securities and Exchange Commission receives its authority.(b) D e s c r i b e t h e o f f i c i a l r o l e o f t h e S e c u r i t i e s a n d E x c h a n g e C o m m i s s i o n i n t h e d e v e l o p m e n t... |
(c) What would you do if you were Troy Normand?(d) Who are the major stakeholders in this case?CA1-16 (Economic Consequences) Presented below are comments made in the financial press.InstructionsPrepare responses to the requirements in each item.(a) Rep. John Dingell, at one time the ranking Democrat on the House Comme... |
30 Chapter 1 Financial Accounting and Accounting Standards(c) What economic consequences arguments are used in this letter?(d) What do you believe is the main point of the letter?(e) Why do you believe a copy of this letter was sent by the business community to influential members of the U.S. Congress?FINANCIAL REPORTI... |
INSIGHTS10 LEARNING OBJECTIVECompare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
32 Chapter 1 Financial Accounting and Accounting Standards• The SEC allows foreign companies that trade shares in U.S. markets to fi le their IFRS fi nancial statements without reconcilia... |
Types of PronouncementsThe IASB issues three major types of pronouncements: 1. International Financial Reporting Standards. 2. Framework for Financial Reporting. 3. International Financial Reporting Interpretations.International Financial Reporting Standards. Financial accounting standards issued by the IASB are referr... |
36 Chapter 1 Financial Accounting and Accounting StandardsInternational Accounting ConvergenceThe SEC recognizes that the establishment of a single, widely accepted set of high-quality accounting standards benefits both global capital markets and U.S. investors. U.S. investors will make better-informed investment decis... |
Transition Period. In the transition period, the FASB and SEC will execute a transition plan for evaluating IFRS for incorporation into GAAP . The transition plan groups IFRS into one of three categories, as summarized in Illustration IFRS1-4.
As indicated, in the transition period, the FASB will continue to work with ... |
IFRS1-1 Who are the two key international players in the development of international accounting standards? Explain their role.IFRS1-2 What might explain the fact that different accounting standard-setters have developed account-ing standards that are sometimes quite different in nature?IFRS1-3 What is the benefit of a... |
How would you answer the following questions? 1. Should Phil N. Tropic recognize his lottery ticket as an asset in his financial statements? 2. Assuming that Phil N. Tropic recognizes the lottery ticket as an asset, at what amount should it be reported? Some possible answers are $150, $100, and $90.Conceptual Framewor... |
42 Chapter 2 Conceptual Framework for Financial ReportingCONCEPTUAL FRAMEWORKA conceptual framework establishes the concepts that underlie financial reporting. A conceptual framework is a coherent system of concepts that flow from an objective. The objective identifies the purpose of financial reporting. The other conc... |
Development of a Conceptual FrameworkOver the years, numerous organizations developed and published their own conceptual frameworks, but no single framework was universally accepted and relied on in practice. In 1976, the FASB began to develop a conceptual framework that would be a basis for setting accounting rules an... |
The first level identifies the objective of financial reporting—that is, the purpose of financial reporting. The second level provides the qualitative characteristics that make accounting information useful and the elements of financial statements (assets, liabili-ties, and so on). The third level identifies the recogn... |
5 “Chapter 1, The Objective of General Purpose Financial Reporting,” Statement of Financial Accounting Concepts No. 8 (Norwalk, Conn.: FASB, September 2010), par. OB2.6 “Chapter 3, Qualitative Characteristics of Useful Financial Information,” Statement of Financial Accounting Concepts No. 8 (Norwalk, Conn.: FASB, Septe... |
48 Chapter 2 Conceptual Framework for Financial Reportingconsensus analysts’ earnings numbers, preserve a positive earnings trend, convert a loss to a profit or vice versa, increase management compensation, or hide an illegal transac-tion like a bribe. In other words, companies must consider both quantitative and quali... |
8Sometimes, in practice, it has been acceptable to invoke prudence or conservatism as a justifica-tion for an accounting treatment under conditions of uncertainty. Prudence or conservatism means when in doubt, choose the solution that will be least likely to overstate assets or income and/or understate liabilities or e... |
9Surveys indicate that users highly value consistency. They note that a change tends to destroy the comparability of data before and after the change. Some companies assist users to under-stand the pre- and post-change data. Generally, however, users say they lose the ability to analyze over time. GAAP guidelines (disc... |
11“Chapter 3, Qualitative Characteristics of Useful Financial Information,” Statement of Financial Accounting Concepts No. 8 (Norwalk, Conn.: FASB, September 2010), paras. QC30–QC31.
Third Level: Recognition and Measurement Concepts 53ASSETS. Probable future economic benefi ts obtained or controlled by a particular en... |
13Recently, the FASB has proposed to link the definition of an entity to its financial reporting objective. That is, a reporting entity is described as a circumscribed area of business activity of interest to present and potential equity investors, lenders, and other capital providers. See IASB/FASB, “The Reporting Ent... |
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