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1、INTERMEDIATE ACCOUNTING,6th EDITION,Lanny G. ChasteenRichard E. FlahertyMelvin C. OConnor,2,FINANCIAL REPORTING,3,Learning Objectives,Describe the purpose of financial reporting and identify the primary financial statements.Explain the function of accounting standards and describe the role of the FA
2、SB in setting these standards in the United States.Recognize the importance to financial reporting of the SEC, AICPA, AAA, and IRS.,4,Learning Objectives,Realize the growing importance and relevance of international accounting issues to the practice of accounting in the United States and understand
3、the role of the IASC in international accounting standard setting.Understand the significance of the FASBs conceptual framework in outlining the qualities of good accounting information, defining terms such as asset and revenue, and providing guidance about appropriate recognition, measurement, and
4、reporting.,5,Learning Objectives,Identify career opportunities related to accounting and financial reporting in the fields of public accounting, corporate accounting, financial analysis, banking, and consulting.,6,Definition for Accounting,“Accounting is a service activity. Its function is to provid
5、e quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions-in making reasoned choices among alternative courses of action.” (APB 4.40).,7,Accounting provides a vital service in todays business environment.Accounting i
6、s concerned primarily with quantitative financial information that is used in conjunction with qualitative evaluations in making judgments.,Definition for Accounting,Key features of this definition:,8,Accounting information is used in making decisions about how to allocate scarce resources.Although
7、accountants place much emphasis on reporting what has already occurred, this past information is intended to be useful in making economic decisions about the future.,Definition for Accounting,Key features of this definition:,9,Users of Accounting Information,All parties interested in the financial h
8、ealth of a company are called stakeholders.,10,Users of Accounting Information,Internal users, who make decisions directly affecting the internal operations of the enterprise.,External users, who make decisions concerning their relationship to the enterprise.,Two major classifications of stakeholder
9、s,11,Investors,Community,Board of DirectorsManagementEmployees,Suppliers,Employees,Creditors,Customers,Analysts,Government,Major Internal and External Stakeholder Groups,12,Financial Reporting,The balance sheet reports, as of a certain point in time, the resources of a company (the assets), the comp
10、anys obligations (the liabilities), and the equity of the owners.,The income statement reports, for a certain interval, the net assets generated through business operations (revenues), the net assets consumed (the expenses), and the net income.,The statement of cash flows reports, for a certain inte
11、rval, the amount of cash generated and consumed by a company through operating, financing, and investing activities.,13,Accounting estimates and judgments are outlined in the notes to financial statements.,Financial Reporting,14,Financial Statement Relationships,15,Relative Frequency of Audit Opinio
12、ns (1998),Companies,Unqualified5,978Unqualified With Explanatory Language1,030Qualified6No opinion2Adverse 0 Total7,016,16,Accounting Standard-Setting Organizations,FASAC,FASB,FAF,SEC,AcSEC,AICPA,IASC,IAPC,Other,EITF,GASAC,GASB,U.S. Govt,17,Securities and Exchange Commission (1934-present),1929 stoc
13、k market crash blamed on nonstandard accounting.1934 Securities Act established SEC to standardize accounting.Created to protect the interests of investors by ensuring full and fair disclosure.Granted legal authority to dictate GAAP.Has tended to defer setting GAAP to the accounting profession.,18,U
14、.S. Accounting Standard- Setting Bodies,Committee on Accounting Procedures(CAP),Born:1939Died: 1959,Pronouncements: Accounting Research Bulletins,19,U.S. Accounting Standard- Setting Bodies,Accounting Principles Board(APB),Born: 1959Died:1973,Pronouncements: APB Opinions,20,U.S. Accounting Standards
15、 Setting Bodies,Financial Accounting Standards Board(FASB),Born: 1973Died:,Pronouncements: Statements of Financial Accounting Standards,21,FASAC,FASB,FAF,SEC,AcSEC,AICPA,IASC,IAPC,Other,EITF,GASAC,GASB,U.S. Govt,Accounting Standard-Setting Organizations,22,Financial AccountingStandards Board (1973-p
16、resent),Seven full-time members comprise this independent body.Issues Statements of Financial Accounting Standards.Determines GAAP by “due process.”Works within the conceptual framework.,FASB,FASB Authority Sources- Overview,23,24,Maintains power to regulate registrant companies.,Congress,FASB Autho
17、rity Sources-SEC,25,FASB Authority Sources- AICPA,Provides authority to the FASB through its Code of Professional Conduct Rule 203.AICPA members must show that client financial statements comply with FASB pronouncements (GAAP).AICPA grants continuing membership to its members who comply with Rule 20
18、3.,26,AICPA,FASB,Members of the AICPA,Endorsement of FASB through Rule 203,GAAP,FASB Authority Sources - AICPA,27,FASB “Due Process”,Topic or project added to agenda.Task force assembled to study topic.Research and analysis performed by FASB technical staff.Discussion Memorandum drafted and released
19、.Public hearing, usually 60 days later, is held.,28,Board analyzes and evaluates public response.Exposure Draft prepared and released.Sixty-day exposure period allows for public comment.Committee studies public response to exposure draft and prepares final draft.Board votes on final draft (5-2 margi
20、n required for passage).,FASB “Due Process”,29,SEC Authoritative Literature,Financial Reporting ReleasesStaff Accounting BulletinsAccounting and Auditing Enforcement ReleasesAccounting Series Releases,30,What is GAAP?,Level AFASB Statements and InterpretationsAPB OpinionsCAP Accounting Research Bull
21、etinsLevel BFASB Technical BulletinsAICPA Industry Audit and Accounting GuidesAICPA Statements of Position,Level CConsensus Positions of EITFAICPA Practice BulletinsLevel DAICPA Accounting InterpretationsFASB “Question and Answer” guidesOther widely recognized industry practices,31,International Acc
22、ounting Standards Committee,The International Accounting Standards Committee (ISAC) was formed in 1973 to develop worldwide accounting standards.,The accounting standards produced by the International Accounting Standards Committee are referred to as International Accounting Standards (IASs).,32,Con
23、ceptual Framework Overview,Objectivesof FinancialReporting,QualitativeCharacteristicsof InformationAccounting,Elementsof FinancialStatements,Recognition and Measurement Concepts,Assumptions,Principles,Constraints,33,Objectives of Financial Reporting,Usefulness.Understandability.Target audience: inve
24、stors and creditors.Assessing future cash flows.Evaluating economic resources.Primary focus on earnings.,34,Objectives of Financial Reporting,Usefulness,Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational i
25、nvestment, credit, and similar decisions.,35,Objectives of Financial Reporting,Understandability,Financial reporting should provide information that is understandable to one who has a reasonable knowledge of accounting and business and who is willing to study and analyze the information presented.,3
26、6,Objectives of Financial Reporting,Target Audience,While there are many potential users of financial reports, the objectives are directed primarily toward investors and creditors.,37,Objectives of Financial Reporting,Assessing Future Cash Flows,Financial reporting should provide information that is
27、 useful in assessing amounts, timing, and uncertainty (risk) of prospective cash flows.,38,Objectives of Financial Reporting,Evaluating Economic Resources,Financial reporting should also provide information about an enterprises assets, liabilities, and owners equity to help investors, creditors, and
28、 others evaluate the financial strengths and weaknesses of the enterprise and its liquidity and solvency.,39,Objectives of Financial Reporting,Primary Focus on Earnings,Information about enterprise earnings, measured by accrual accounting, generally provides a better basis for forecasting future per
29、formance than does information about current cash receipts and disbursements.,40,Qualitative Characteristics of Accounting Information,Primary Qualities A. Relevance 1. Predictive Value 2. Feedback Value 3. Timeliness B. Reliability 1. Verifiability 2. Representational Faithfulness 3. Neutrality Sec
30、ondary Qualities A. Comparability B. Consistency,41,Comparability,Consistency,Predictive,Value,Feedback,Value,Timeliness,Relevance,Verifiability,Neutrality,Representational,Faithfulness,Reliability,Decision,Usefulness,Understandability,Decision Makers,Qualitative Characteristics of Accounting Inform
31、ation,Benefits Cost,Materiality,42,What About Conservatism?,The concept of conservatism can be summarized as follows: When in doubt, recognize all losses but dont recognize any gains.,43,Elements of Financial Statements,Assets Liabilities Equity Investment Distribution Comprehensive Income Revenues
32、Expenses Gains Losses,44,Recognition andMeasurement Concepts,Assumptions,Principles,Constraints,Economic EntityGoing ConcernArms-Length TransactionsMonetary UnitPeriodicity,Historical CostRevenue RecognitionMatchingFull Disclosure,Cost-BenefitMaterialityIndustry PracticeConservatism,45,Financial Sta
33、tements v.Financial Reporting,A “full set of financial statements” is necessary to meet the objectives of financial reporting. Included in the recommended set of general-purpose financial statements are reports that show:,Financial position at the end of the period.Earnings (net income) for the peri
34、od.Cash flows during the period.Investments by and distributions to owners during the period.Comprehensive income for the period.,46,Traditional Assumptions of the Accounting Model,Economic entity.Going concern.Arms-length transactions.Stable monetary unit.Accounting period.,47,Careers in Financial Accounting,Public accounting.Company accounting.User (analyst, banker, consultant).,48,The End,
