Vous êtes sur la page 1sur 50

INTERMEDIATE

ACCOUNTING
14th EDITION

K. Fred Skousen
Earl K. Stice
James D. Stice

This electronic
presentation
prepared by
Douglas Cloud,
Pepperdine
University

Task
Task Force
Force Clip
Clip Art
Art included
included in
in
this
this electronic
electronic presentation
presentation isis
used
used with
with the
the permission
permission of
of
New
New Vision
Vision Technology
Technology of
of
Nepean
Nepean Ontario,
Ontario, Canada
Canada

FINANCIAL
REPORTING

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 FASB in setting
these standards in the United States.
Recognize the importance to financial
reporting of the SEC, AICPA, AAA, and IRS.

Learning Objectives
Realize the growing importance and relevance of

international accounting issues to the practice of


accounting in the United States and understand 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
reporting.

Learning Objectives
Identify career opportunities related to

accounting and financial reporting in the


fields of public accounting, corporate
accounting, financial analysis, banking, and
consulting.

Definition for Accounting


Accounting is a service activity. Its
function is to provide 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).

Definition for Accounting


Key features of this definition:
Accounting provides a vital service in
todays business environment.
Accounting is 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:
Accounting information is used in making
decisions about how to allocate scarce
resources.
Although 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.

10

Users of Accounting Information


All
All parties
parties interested
interested in
in
the
the financial
financial health
health of
of aa
company
company are
are called
called
stakeholders.
stakeholders.

11

Users of Accounting Information


Two major classifications of stakeholders
Internal
Internal users,
users, who
who
make
make decisions
decisions
External users,
users,
directly
directly affecting
affecting the
the External
who
make
decisions
who
make
decisions
internal
operations
internal operations
concerning
their
concerning
their
of
the
enterprise.
of the enterprise.
relationship
relationship to
to the
the
enterprise.
enterprise.

12

Major Internal and External


Stakeholder Groups

Government
Analysts

Investors

Community

Board of Directors
Management
Employees

Suppliers
Employees

Customers
Creditors

13

Financial Reporting
The
The balance
balance sheet
sheet
The
income
The
income
reports,
of
reports, as
asstatement
of aa certain
certainreports, for
statement
reports,
for
point
the
point in
in time,
time,
the interval,
The
of
The statement
statement
of cash
cash
aa certain
the
certain
interval,
the
resources
of
aa
resources
of
flows
flows reports,
reports, for
for aa
net
assets
generated
net
assets
generated
company
assets),
company (the
(thethrough
assets),business
certain
interval,
the
certain
interval,
the
through
business
the
the companys
companys
amount
of
amount
of cash
cash generated
generated
operations
(revenues),
operations
(revenues),
obligations
obligations (the
(thenet assets
and
consumed
by
a
and
consumed
by
a
the
the
net
assets
liabilities),
the
liabilities), and
and
the
company
through
company
through
consumed
(the
consumed
(the
equity
owners.
equity of
of the
the
owners.operating,
operating,
financing, and
and
expenses),
expenses), and
and the
the net
netfinancing,
investing
activities.
investing
activities.
income.
income.

14

Financial Reporting
Accounting
Accounting estimates
estimates and
and
judgments
judgments are
are outlined
outlined in
in
the
the notes
notes to
to financial
financial
statements.
statements.

15

Financial Statement
Relationships

16

Statement of Cash Flows


Cash From Op
Cash From Inv
Cash From Fin
Net Increase
Beg. Cash
End. Cash
Balance Sheet 12/31/X0
Cash
Other
Total

80,000
4,550,000
$4,630,000

Liabilities $2,970,000
Stock
900,000
R/E
760,000
Total
$4,630,000

$ 973,000
(1,188,000)
245,000
$ 30,000
80,000
$ 110,000
Balance Sheet 12/31/X1

Income Statement
Revenues
$12,443,000
Expenses
11,578,400
Net Income $ 864,600
Statement of
Retained Earnings
R/E 12/31/X0 $ 760,000
Net Income
864,600
Dividends
(400,000)
R/E 12/31/X1 $1,224,600

Cash
Other
Total

$ 110,000
4,975,000
$5,085,000

Liabilities $2,860,400
Stock
1,000,000
R/E
1,224,600
Total
$5,085,000

Relative Frequency of
Audit Opinions (1998)

17

Companies

Unqualified

5,978

Unqualified With Explanatory Language

1,030

Qualified

No opinion

Adverse

Total

7,016

Accounting Standard-Setting
Organizations

FAF
GASAC

GASB

SEC

FASAC

AICPA

FASB
EITF

AcSEC

18

Other
U.S. Gov't

IAPC
IASC

Securities and Exchange


Commission (1934-present)
1929 stock 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.

19

U.S. Accounting StandardSetting Bodies


Committee on
Accounting
Procedures
(CAP)
Born:
1939
Died:
1959
Pronouncements:
Accounting Research
Bulletins

20

U.S. Accounting StandardSetting Bodies


Accounting
Principles
Board
(APB)
Born:
1959
Died:
1973
Pronouncements:
APB Opinions

21

U.S. Accounting Standards


Setting Bodies
Financial
Accounting
Standards Board
(FASB)
Born:
1973
Died:
Pronouncements:
Statements of
Financial Accounting
Standards

22

Accounting Standard-Setting
Organizations

FAF
GASAC

GASB

SEC

FASAC

AICPA

FASB
EITF

AcSEC

23

Other
U.S. Gov't

IAPC
IASC

Financial Accounting
Standards Board (1973-present)
Seven full-time members comprise this independent

body.
Issues Statements of Financial Accounting Standards.
Determines GAAP by due process.
Works within the conceptual framework.

24

FASB Authority Sources-Overview


Govt Regulators

Instructors

SEC
State Boards
of Public Acct.

American Acct.
Association

FASB
Statement Preparers

Financial Executives
Institute
IMA
Individual Corps

Auditors

AICPA
State societies of
CPAs
Major audit firms

2
5

FASB Authority Sources--SEC


Maintains power to regulate
registrant companies.
Congress

SEC
FASB
Registrant
Companies

26

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 203.

27

FASB Authority Sources -AICPA

28

Endorsement of FASB through Rule 203

AICPA
AICPA

Continuing
Membership

Members
Membersof
of
the
theAICPA
AICPA

GAAP

FASB
FASB

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.
Public hearing, usually 60 days later, is held.

29

FASB Due Process

30

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 margin required for
passage).

SEC Authoritative Literature


Financial Reporting Releases
Staff Accounting Bulletins
Accounting and Auditing
Enforcement Releases
Accounting Series Releases

31

What is GAAP?
Level A
FASB Statements and
Interpretations
APB Opinions
CAP Accounting
Research Bulletins
Level B

32

Level C
Consensus Positions of
EITF
AICPA Practice Bulletins
Level D
AICPA Accounting
Interpretations
FASB Question and
FASB Technical Bulletins
Answer guides
AICPA Industry Audit
and Accounting Guides
Other widely recognized
AICPA Statements of
industry practices
Position

International Accounting
Standards Committee
The
accounting
standards
produced
The
International
Accounting
The
accounting
standards
produced
The
International
Accounting
by
Accounting
Standards
Committee
(ISAC)
by the
the International
International
Accounting
Standards
Committee
(ISAC) was
was
Standards
Committee
referred
formed
in
develop
Standards
Committee
are
referred to
to
formed
in 1973
1973 to
toare
develop
as
Accounting
worldwide
accounting
standards.
as International
International
Accounting
worldwide
accounting
standards.
Standards
Standards (IASs).
(IASs).

33

Conceptual Framework Overview

Objectives
of Financial
Reporting

Qualitative
Characteristics
of Information
Accounting

Elements
of Financial
Statements

Recognition and Measurement Concepts


Assumptions

Principles

Constraints

34

Objectives of Financial
Reporting

Usefulness.

Understandability.

Target audience: investors and creditors.

Assessing future cash flows.

Evaluating economic resources.

Primary focus on earnings.

35

Objectives of Financial
Reporting
Usefulness
Usefulness
Financial reporting should provide
information that is useful to present and
potential investors and creditors and
other users in making rational
investment, credit, and similar decisions.

36

Objectives of Financial
Reporting
Understandability
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.

37

Objectives of Financial
Reporting
Target
Target Audience
Audience
While there are many potential users of
financial reports, the objectives are directed
primarily toward investors and creditors.

38

Objectives of Financial
Reporting
Assessing
Assessing Future
Future Cash
Cash Flows
Flows
Financial reporting should provide
information that is useful in assessing
amounts, timing, and uncertainty (risk) of
prospective cash flows.

39

Objectives of Financial
Reporting
Evaluating
Evaluating Economic
Economic Resources
Resources
Financial reporting should also provide
information about an enterprises assets,
liabilities, and owners equity to help
investors, creditors, and others evaluate the
financial strengths and weaknesses of the
enterprise and its liquidity and solvency.

40

Objectives of Financial
Reporting
Primary
Primary Focus
Focus on
on Earnings
Earnings
Information about enterprise earnings,
measured by accrual accounting, generally
provides a better basis for forecasting
future performance than does information
about current cash receipts and
disbursements.

41

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
Secondary Qualities
A. Comparability
B. Consistency

42

Qualitative Characteristics of
Accounting Information

43

Decision
Makers
Benefits > Cost
Understandability
Decision
Usefulness
Relevance
Predictive
Value

Feedback
Value

Reliability
Timeliness

Verifiability

Neutrality

Consistency

Comparability

Materiality

Representational
Faithfulness

What About Conservatism?


The
The concept
concept of
of conservatism
conservatismcan
can
be
be summarized
summarized as
as follows:
follows: When
When
in
in doubt,
doubt, recognize
recognize all
all losses
losses but
but
dont
dontrecognize
recognize any
any gains.
gains.

44

Elements of Financial Statements


Assets
Liabilities
Equity
Investment
Distribution
Comprehensive Income
Revenues
Expenses
Gains
Losses

45

Recognition and
Measurement Concepts
Principles

Assumptions

Historical Cost
Revenue Recognition
Matching
Full Disclosure

Economic Entity
Going Concern
Arms-Length
Transactions
Monetary Unit
Periodicity

Constraints

Cost-Benefit
Materiality
Industry Practice
Conservatism

46

Financial Statements 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 period.
Cash flows during the period.
Investments by and distributions to owners
during the period.
Comprehensive income for the period.

47

Traditional Assumptions of the


Accounting Model

Economic entity.
Going concern.
Arms-length transactions.
Stable monetary unit.
Accounting period.

48

Careers in Financial Accounting


Public accounting.
Company
accounting.
User (analyst,
banker, consultant).

49

50

The End