Acc 3313 Chapter 1

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

Accounting Principles Board (APB)

came after CAP, the major purposes of this group were to a.) advance the written expression of accounting principles b.) determine appropriate practices c.) narrow the areas of difference and inconsistency in practice its pronouncements known as APB opinions were intended to be based mainly on research studies and be supported by reason and analysis

FASB Codification

changes the way GAAP is documented, presented and updated. It is the current source of authoritative accounting standards explains what GAAP is and eliminates nonessential information

Entity Perspective

companies are viewed as separate and distinct from their owners

User (pressure) groups

consist of those most interested in or affected by accounting rules target FASB to pressure it to influence changes in the rules

Emerging Issues Task Force

created by FASB for the purpose of reaching a consensus on how to account for new and unusual financial transactions that have a potential for creating differing financial reporting practices

Financial Accounting Standards Board (FASB)

established after the Wheat Committees recommendations The FAF selects members, funds, and oversees activities Mission is to establish and improve standards of financial accounting and reporting for the guidance and education of the public

SEC

established after the stock market crash in 1929, to help develop and standardize financial information presented to stockholders. currently exercise oversight over 12,000 companies that are listed on the major exchanges

Sarbanes-Oxley Act

established an oversight board- Public Company Accounting Oversight Board (PCAOB) for accounting practices. has oversight and enforcement authority and establishes auditing, quality control, and independence standards and rules

Proprietary perspective

financial reporting should be focused only on the needs of shareholders- not considered appropriate

GAAP

have substantive authoritative support the AICPA's code of professional conduct requires that members prepare financial statements in accordance with GAAP

Decision-usefulness

investors are interest in financial reporting because it provides information that is useful for making decisions 1. the companies ability to generate net cash inflows 2. managements ability to protect and enhance the capital providers' investments

Challenges to facing financial reporting

non-financial measurements, forward-looking information, soft assets, timeliness, understandability

Other financial reporting

presidents letter, prospectuses, reports filed with the SEC and other government agencies, news releases and management forecasts, social or environmental impact statements

Equity investors and creditors

primary users for general purpose financial statements

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 making decision about providing resources to the entity.

FASB's due process system

topics identified and placed on boards agenda, research and analysis conducted and preliminary views of pros and cons issued, public hearing of proposed standard, board evaluated research and public response and issues exposure draft, and board evaluates responses and changes exposure draft, if necessary. Final standard issued

The expectations gap

what people think accountants should do vs. what accountants think they can do

Accounting and capital allocations

-a world of scare resources. accounting helps to identify efficient and inefficient users of resources -capital allocations: accounting assists in the effective capital allocation process by providing financial reports to interested users -changing users needs: accounting will continue to be faced with challenges to providing information needed for an efficient allocation process.

Need for accounting standards

-to meet the various needs of users, companies prepare a single set of general- purpose financial statements -users expect financial statements to present fairly, clearly, and completely the company's financial operations -the accounting profession has developed a set of standards and procedure called generally accepted accounting principles (GAAP)

International Accounting Standards

1. Companies outside the U.S. often prepare financial statements using standards different from GAAP. 2. There is a growing demand for one set of high-quality international standards. 3. There are two sets of acceptable rules for international use—GAAP and International Financial Reporting Standards issued by the International Accounting Standards Board (IASB).

Ethics and Financial accounting

1. In accounting, companies frequently encounter ethical dilemmas. Some of these dilemmas are easy to resolve but many are not, requiring difficult choices among allowable alternatives. 2. Time, job, client, personal, and peer pressures can complicate the process of ethical sensitivity and selection among alternatives. 3. Decisions are sometimes difficult because a public consensus has not emerged to formulate a comprehensive ethical system that provides guidelines in making ethical judgments.

IFRS Insights

1. Most agree that there is a need for one set of international accounting standards. 2. Relevant Facts a. International standards are referred to as International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB). As a result of recent events in the global capital markets, many are examining which accounting and financial disclosure rules should be followed. b. U.S. standards, referred to as generally accepted accounting principles (GAAP), are developed by the Financial Accounting Standards Board (FASB). The fact that there are differences between what is in this textbook (which is based on U.S. standards) and IFRS should not be surprising because the FASB and IASB have responded to different user needs. It appears that the United States and the international standard-setting environment are primarily driven by meeting the needs of investors and creditors. c. The internal control standards applicable to Sarbanes-Oxley (SOX) apply only to large public companies listed on U.S. exchanges. There is a continuing debate as to whether non-U.S. companies should have to comply with this extra layer of regulation as it will generate higher costs. d. A number of ethics violations have occurred. e. IFRS tends to be simpler in its accounting and disclosure requirements; some people say more "principles-based." GAAP is more detailed; some people say more "rules-based." This difference in approach has resulted in a debate about the merits of "principles-based" versus "rules-based" standards. 3. International Accounting Convergence. a. The FASB and the IASB have been working diligently to (1) make their existing financial reporting standards fully compatible as soon as is practicable, and (2) coordinate their future work programs to ensure that once achieved, compatibility is maintained.

Parties involved in standard setting

1. Securities and Exchange Commission (SEC) 2. American Institute of Certified Public Accountants (AICPA) 3. Financial Accounting Standards Board (FASB)

Two major types of pronouncements issued by FASB

Accounting Standards Updates and Financial Accounting Concepts

GAAP includes

FASB standards and interpretations, APB opinions, AICPA Accounting research bulletins, AICPA industry Audit and Accounting Guides, AICPA Statements of Position, FASB Technical Bulletins, FASB emerging issues task force, AICPA AcSEC Practice Bulletins, AICPA Accounting interpretations, FASB Implementation Guides (Q and A)

Organization structure for setting accounting standards

Financial Accounting Foundation selects members of the FASB and GASB and their advisory councils, fund their activities and exercise general oversight -> FASB establishes and improves standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information ->Financial Accounting Standards Advisory Council (FASAC) consults on major policy issues, technical issues, protect priorities, and selection and organization of task forces

Most frequent financial statements

balance sheet, income statement, the statement of cash flows, and the statement of stockholders equity

Accural-based accounting

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.

The FASB and the IASB have agreed to use their best efforts to

a. Make their existing financial reporting standards fully compatible as soon as practicable, and b. Coordinate their future work programs to ensure that once achieved, compatibility is maintained.

Delegation of SEC's authority to private sector

accounting standards have developed in the private sector through AICPA or FASB supports FASB SEC requires registrants to adhere to GAAP and continues to support standards from the private sector

Economic consequences

although accounting standards should be based on sound concepts, the FASB must be attentive to the economic consequences of its pronouncements

Accounting Standards Updates

amend the FASB codification, which represents the sources of authoritative accounting standards, other than standards issued by the SEC

General-purpose financial statements

provide at the least cost the most useful information possible

Financial Accounting Concepts

represent an attempt to move away from the problem by problem approach to standard setting that has been characteristic of the accounting profession. intended to form a cohesive set of interrelate concepts, a conceptual framework

Changing role of the AICPA

role in standard setting has diminished, however it continues to develop and grade the CPA exam

Committee of accounting procedure (CAP)

served from 1939-1959, first group that tried to set standards, issued 51 Accounting Research bulletins that narrowed the wide range of alternative accounting practices then in existence

Differences between FASB and APB

smaller membership, full time staff, greater autonomy, members must sever ties with firms, broader representation (don't have to be a CPA)


Kaugnay na mga set ng pag-aaral

Ratification of The Constitution

View Set

MK1 1001 Chapters 13 and 14 Quiz

View Set

WSU SOE 230 Exam 3 Learning Catalytics

View Set

Chapter 10 - Common Administrative Tasks

View Set

bychapter exam health and accident

View Set