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Prepared by Prepared by Coby Harmon Prepared by Coby Harmon Harmon University of California Santa Barbara University of California, Santa Coby Barbara University of California, Santa Barbara Westmont College Westmont College
PREVIEW OF CHAPTER
LEARNING OBJECTIVES
After studying this chapter, you should be able to: 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-setting process.
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6.
Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Describe the impact of user groups on the rule-making process. Describe some of the challenges facing financial reporting. Understand issues related to ethics and financial accounting.
7. 8. 9.
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LO 1 Identify the major financial statements and other means of financial reporting.
Financial Statements
Balance Sheet Income Statement Statement of Cash Flows Statement of Owners or Stockholders Equity Note Disclosures
Additional Information
Presidents letter Prospectuses Reports filed with governmental agencies News releases Forecasts Environmental impact statements Etc.
GAAP
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LO 1 Identify the major financial statements and other means of financial reporting.
b. c.
d.
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LO 1 Identify the major financial statements and other means of financial reporting.
LEARNING OBJECTIVES
After studying this chapter, you should be able to: 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-setting process.
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6.
Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Describe the impact of user groups on the rule-making process. Describe some of the challenges facing financial reporting. Understand issues related to ethics and financial accounting.
7. 8. 9.
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d.
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LEARNING OBJECTIVES
After studying this chapter, you should be able to: 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-setting process.
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6.
Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Describe the impact of user groups on the rule-making process. Describe some of the challenges facing financial reporting. Understand issues related to ethics and financial accounting.
7. 8. 9.
lenders, and
other creditors
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Decision-Usefulness
Investors are interested in assessing the companys
1. ability to generate net cash inflows and 2. managements ability to protect and enhance the capital
providers investments.
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LEARNING OBJECTIVES
After studying this chapter, you should be able to: 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-setting process.
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6.
Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Describe the impact of user groups on the rule-making process. Describe some of the challenges facing financial reporting. Understand issues related to ethics and financial accounting.
7. 8. 9.
The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced.
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LEARNING OBJECTIVES
After studying this chapter, you should be able to: 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-setting process.
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6.
Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Describe the impact of user groups on the rule-making process. Describe some of the challenges facing financial reporting. Understand issues related to ethics and financial accounting.
7. 8. 9.
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LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.
http://www.sec.gov/
Encouraged private standard-setting body. SEC requires public companies to adhere to GAAP. SEC Oversight. Enforcement Authority.
LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.
http://www.aicpa.org/
1939 to 1959 Issued 51 Accounting Research Bulletins (ARBs) Problem-by-problem approach failed
1959 to 1973 Issued 31 Accounting Principle Board Opinions (APBOs) Wheat Committee recommendations adopted in 1973
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LO 5
Selects members of the FASB. Funds their activities. Exercises general oversight. Mission to establish and improve standards of financial accounting and reporting.
Smaller Membership. Full-time, Remunerated Membership. Greater Autonomy. Increased Independence. Broader Representation.
http://www.fasb.org/
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LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.
b. c.
d.
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LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.
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LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.
LEARNING OBJECTIVES
After studying this chapter, you should be able to: 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-setting process.
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6.
Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Describe the impact of user groups on the rule-making process. Describe some of the challenges facing financial reporting. Understand issues related to ethics and financial accounting.
7. 8. 9.
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LO 6 Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP.
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LO 6 Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP.
b.
c. d.
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LO 6 Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP.
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LO 6 Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP.
Goal in developing the Codification is to provide in one place all the authoritative literature related to a particular topic.
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LO 6
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LO 6
LEARNING OBJECTIVES
After studying this chapter, you should be able to: 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-setting process.
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6.
Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Describe the impact of user groups on the rule-making process. Describe some of the challenges facing financial reporting. Understand issues related to ethics and financial accounting.
7. 8. 9.
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LEARNING OBJECTIVES
After studying this chapter, you should be able to: 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-setting process.
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6.
Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Describe the impact of user groups on the rule-making process. Describe some of the challenges facing financial reporting. Understand issues related to ethics and financial accounting.
7. 8. 9.
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U.S. GAAP, issued by the FASB. International Financial Reporting Standards (IFRS), issued by the IASB.
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LEARNING OBJECTIVES
After studying this chapter, you should be able to: 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-setting process.
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6.
Explain the meaning of generally accepted accounting principles (GAAP) and the role of the Codification for GAAP. Describe the impact of user groups on the rule-making process. Describe some of the challenges facing financial reporting. Understand issues related to ethics and financial accounting.
7. 8. 9.
GAAP does not always provide an answer. Doing the right thing is not always easy or obvious.
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RELEVANT FACTS
International standards are referred to as International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB). Recent events in the global capital markets have underscored the importance of financial disclosure and transparency not only in the United States but in markets around the world. 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. In some countries, the primary users of financial statements are private investors; in others, the primary users are tax authorities or central government planners. It appears that the United States and the international standard-setting environment are primarily driven by meeting the needs of investors and creditors. LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
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RELEVANT FACTS
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. Debate about international companies (non-U.S.) adopting SOX-type standards centers on whether the benefits exceed the costs. The concern is that the higher costs of SOX compliance are making the U.S. securities markets less competitive. The textbook mentions a number of ethics violations, such as WorldCom, AIG, and Lehman Brothers. These problems have also occurred internationally, for example, at Satyam Computer Services (India), Parmalat (Italy), and Royal Ahold (the Netherlands).
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
RELEVANT FACTS
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. The SEC allows foreign companies that trade shares in U.S. markets to file their IFRS financial statements without reconciliation to GAAP.
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
Issues International Financial Reporting Standards (IFRS). Standards used on most foreign exchanges. Standards used by foreign companies listing on U.S. securities exchanges. IFRS used in over 115 countries.
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
Does not set accounting standards. Dedicated to ensuring that global markets can operate in an efficient and effective basis.
http://www.iosco.org/
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
http://www.iasb.org
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
Types of Pronouncements
International Financial Reporting Standards. Framework For Financial Reporting. International Financial Reporting Interpretations.
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LO 10
Hierarchy of IFRS
Companies first look to:
1. International Financial Reporting Standards; 2. International Accounting Standards; and 3. Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC).
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
b. International Financial Reporting Standards, International Accounting Standards, and international accounting interpretations.
c. International Accounting Standards and international accounting interpretations.
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Any U.S. incorporation of IFRS in GAAP will occur over several years.
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LO 10
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ON THE HORIZON
Financial statements prepared according to IFRS have become an important standard around the world for communicating financial information to investors and creditors. The SEC and the FASB are working with their international counterparts to achieve the goal of a single set of high-quality financial reporting standards for use around the world. While there are still many bumps in the road to the establishment of one set of worldwide standards, we are optimistic that this goal can be achieved, which will be of value to all.
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LO 10 Compare the procedures related to financial accounting and accounting standards under GAAP and IFRS.
Copyright
Copyright 2013 John Wiley & Sons, Inc. All rights reserved.
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