ACC 301 Chapter 1

IASB vs. FASB

*IASB 14 members, FASB 7 members

Essential characteristics of accounting

1) the identification, measurement, and communication of financial information about 2) economic entities to 3) interested parties

FASB rule-making activities

1. improvement in financial reporting 2. simplification of accounting literature and rule-making process 3. international convergence

Differences between FASB and APB

1. smaller membership: FASB 7 memebers compared to APB 18 members 2. Full-time remunerated membership: FASB full time appointment renewable 5 year terms. APB volunteered part-time work 3. Greater autonomy: APB senior committee to AICPA, FASB is only answerable to FAF 4. Increased independence: APB members retained private positions to firms, FASB members must sever ties 5. Broader representation: all APB members are CPAs and members of AICPA, FASB CPA membership not necessary

Auditing Standards Board

AICPA develops auditing standards,

major sources of GAAP

APB Opinions, FASB Standards, AICPA Research Bulletins. mixture of over 2000 documents from the last 70 years.

Types of FASB pronouncements

Accounting Standards Updates and Financial Accounting Concepts

International Accounting Standards Board (IASB)

An organization that issues International Financial Reporting Standards for many countries outside the United States. *issues IFRS used on most foreign exchanges * assists in IOSC *composed of: International Accounting Standards Committee Foundation, Interanational Financial Reporting Interpretations Committee (IFRIC),

Committee on Accounting Procedure (CAP)

Committee established by the AICPA in 1939 at the urging of the SEC to deal with accounting problems. The CAP issued 51 Accounting Research Bulletins and was replaced by the Accounting Principles Board in 1959. **failed to provide the structure needed for accounting principles

Forward-looking information

Financial reports failed to provide forward-looking information needed by present and potential investors and creditors

soft assets

Financial reports focused on hard assets (inventory, plant assets) but failed to provide much information about a company's soft assets (intangibles)

Emerging Issues Task Force (EITF)

Group created in 1984 by the FASB. EITF provides implementation guidance within the framework of the Codification to reduce diversity practice on a timely basis. EITF designed to minimize the need for the FASB to spend time and effort to address narrow implementation, application or other emerging issues that can be analyzed within existing GAAP. **identifies controversial accounting problems **can EITF solve them or involve FASB

type of IASB pronouncements

International Financial Reporting Standards, The Conceptual Framework for Financial Reporting, International Financial Reporting Interpretations

International Financial Reporting Interpretations

Issued by the International Financial Reporting Committee (IFRIC) are considered authoritative and must be followed. * newly identified financial reporting issues not dealt with in IFRS *issues where unsatisfactory or conflicting interpretations have developed

Financial reporting issues

Nonfinancial measurements. Forward-looking information. Soft assets. Timeliness. Understandability.

Norwalk agreement

The IASB and FASB pledged to: 1) Make their existing financial reporting standards fully compatible as soon as practicable, and 2) to coordinate their future work programs to ensure that, once achieved, compatibility is maintained

Financial Accounting Standards Board (FASB)

The major operating organization of the FAF. Its mission is to establish and improve standards of financial accounting and reporting for the guidance and education of the public including: issuers, auditors, and users of financial information.

APB opinions

The official pronouncements of the Accounting Principles Board, intended to be based mainly on research studies and be supported by reasons and analysis. Between its inception in 1959 and its dissolution in 1973, the APB issued 31 opinions.

Financial Statements

The principal means through which a company communicates its financial information to those outside it The statements most frequently provided are (1) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners' or stockholders' equity. Note disclosures are an integral part of a company's financial statements.

Accounting Standards Updates

These Updates amend the Accounting Standards Codification, which represents the source of authoritative accounting standards, other than standards issued by the SEC. *issued by FASB

Codification Framework citations

Topic-Subtopic-Section-Paragraph

proprietary perspective

a perspective that financial reporting should be focused only on the needs of shareholders. is not appropriate for a business environment.

internal controls

a system of checks and balances designed to prevent and detect fraud and errors.

Financial Accounting Standards Board Codification Research System (CRS)

an online, realtime database that provides easy access to Codification. It uses an organzied structure, subdivided into topic, subtopic, sections, and paragraphs, using a numerical index system.

Statements of Financial Accounting Concepts

apart of FASB conceptual framework project. It sets forth fundamental objectives and concepts the Board uses in developing future standards of financial accounting and reporting. **does not establish GAAP **pass throughs a due process system.

International Financial Reporting Commmittee (IFRIC)

applies a principles based approach in providing interpretative guidance.

Financial Reporting Executive Committee (FinREC)

authorized to make public statements on behalf of the AICPA on financial reporting matters. The mission is to determine the AICPA's technical policies regarding financial reporting standards *ultimate purpose: serve public interest by improving financial reporting. **issues audit and accounting guides: address particular areas in financial reporting requiring attention (specialized accounting practices, unique regulatory considerations within the construction, casino, and airline industries).

SEC powers

companies are required to file audited financial statements, broad powers to prescribe the acounting standards to be employed by companies that fall within its jurisdiction.

Entity Perspective

companies are viewed as separate and distinct from their owners. consistent with the present business environment.

Timeliness

companies only prepared financial statements quarterly and provided audited financial annually. little to no real-time financial statement information was available.

Financial Acccounting Foundation (FAF)

composed of three organiations: Financial Accounting Foundation, Financial Accounting Standards Board, and Financial Accounting Standards Advisory Council. Purpose: select members of FASB and Advisory Council, fund their activities, oversee FASB activities.

Accounting Principles Board (APB)

created by the AICPA, major purposes: 1. advance the written expression of accounting principles 2. determine appropriate practices 3. narrow the areas of difference and inconsistency in practice **bottom line- develop overall conceptual framework to assist with resolving problems and research individual issues before AICPA issued pronouncements.

managerial accounting

is the process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company's operations.

Roadmap

document spelling out conditions where the SEC supports a move to IFRS

Accrual Basis Accounting

ensures that a company records events that change its financial statements in the periods in which the events occur, rather than only in the periods in which it receives or pays cash

Public Accounting Oversight Board (PCAOB)

established by sarbanes-oxley. PCAOB has oversight and eforcement authority and establishes auditing, quality control, and independence standards/rules

Securities and Exchange Commission (SEC)

established by the federal government to help develop and standardize financial informmation presented to stockholders. **began after the market crashed in 1929 **relies on FASB to develop accounting standards and makes recommendations when needed

International Financial Reporting Standards (IFRS)

financial accounting standards issued by the IASB. currently issued 17 standartds

nonfinancial measurements

financial reports failed to provide some key performance measures widely used by management, such as customer satisfaction indeses, backlog information, reject rates on goods purchases, results fo sustainability efforts

Due Process

gives interested persons ample opportunity to make views known when FASB is working on new pronouncement

sections

indicate the type of content in a subtopic

understandability

investors and market regulators were raising concerns about the complexity and lack of understandability of financial reports.

decision-usefulness approach

investors are interested in financial reporting because it provides information that is useful for making decisions *company's ability to generate net cash inflows *managements ability to protect and enhance the capital providers investments

paragraphs

level where you will find the substantive content related to the issue researched

reason for one set on international accounting standards

multinational corporations, mergers and acquisitions, information technology, financial markets

International Organization of Securities Commissions

organization dedicated to ensuring that the global markets can operate in an efficient and effective basis. *promote high standards of regulations *exchange information on experiences to promote development of domestic markets *unite to establish standards and effective surveillance of international securities transactions *provide mutual assistance to promote market integrity. by application of standards and effective enforcement against offenses.

American Institute of Certified Public Accountants (AICPA)

the national professional organization of practicing Certified Public Accountants, is an important contributor to the development of GAAP. *committee CAP appointed by AICPA contributes to development of GAAP *APB *Wheat Committee *FASB

Sarbanes-Oxley Act

passed in response to string of accounting scandals. This law increased resources for the SEC to combat fraud and curb poor reporting practices. SEC increased its policing efforts, approving new auditor independence rules and materiality guidelines for financial reporting. *PCAOB for accounting practices *stronger auditor independence *CEO/CFO certify financial statements/diclosures *require independent audit committees *requires code of ethics for senior financial officers

Rule 203 of the Code

prohibits a member from expressing an unqualified opinion on financial statements that contain a material departure from generally accepted accounting principles. *AICPA Code of Professional Conduct

Topic

provide a collection of related guidance on a given subject

general-purpose financial statements

provide financial reporting information to a wide variety of users. The statements provide the most useful information possible at the least cost. **primary users are investors and creditors

Section 404 of SOX

requires public companies to attest to the effectiveness of their internal controls over financial reporting.

The Conceptual Framework for Financial reporting

sets forth fundamental objectives and concepts that the Board uses in developing future standards of financial reporting. Tool to solve existing and emerging problems in a consistent manner. *utilizes due process * does not define standards for any particular measurement or disclosure issue.

Financial reporting

some financial information is better provided, or can be provided only, by means of financial reporting other than formal financial statements. The financial information a company provides to help users with capital allocation decisions about the company.

subtopics

subset of a topic and distinguihed by type or scope

Financial Accounting Standards Board Codification (the Codification)

the FASB primary goal in developing the Codification is to provide in one place all the authoritative literature related to a particular topic. *simplify user access to all authoritative US GAAP *establishes the way GAAP is documented, presented, and updated. *explains what GAAP is and eliminates nonessential information (redundant document summaries, basis for conclusion sections, historical context). *integrates and synthesizes existing GAAP, doesn't create new GAAP

Generally Accepted Accounting Principles (GAAP)

the common set of standards and procedures by which audited financial statements are prepared

capital allocation

the process of determining how and at what cost money is allocated among competing interests. it promotes productivity, encourages innovation, and provides an efficient and liquid market for buying and selling securiities and obtaining and granting credit.

Financial Accounting

the process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties

Financial Accounting Standards Advisory Council (FASAC)

they consult with FASB on major policy and technical issues, and help select task force members.

Study Group on Establishment of Accounting Principles (Wheat Committee)

this group examines the organiztion and operation of the APB and determined the necessary changes to attain better results

what is objective of financial reporting

to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity. identify investors and creditors as the primary users for general-purpose financial statements. **decisions include buy/sell/hold equity and debt instruments and provide/settle loans and other forms of credit.

heirarchy of IFRS

used to determine what recognition,valuation and disclosure requirements should be used. 1. IFRS 2. IAS 3. IFRIC

expectations gap

what the public thinks accountants should do and what accountants think they can do