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F I F T E E N T H E D I T I O N
Intermediate
Intermediate
ACCOUNTING
Accounting
Accounting
Prepared by
Prepared by
Coby Harmon
Coby Harmon Prepared by
University of California
University Santa Coby
Santa Barbara
of California, BarbaraHarmon
Westmont University of California, Santa Barbara
College
1-1 Westmont College
PREVIEW OF CHAPTER 1
Intermediate Accounting
15th Edition
Kieso Weygandt Warfield
1-2
Financial Accounting and
1 Accounting Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally accepted
other means of financial reporting. accounting principles (GAAP) and the role
of the Codification for GAAP.
2. Explain how accounting assists in the
efficient use of scarce resources. 7. Describe the impact of user groups on the
rule-making process.
3. Identify the objective of financial reporting.
8. Describe some of the challenges facing
4. Explain the need for accounting standards.
financial reporting.
5. Identify the major policy-setting bodies
9. Understand issues related to ethics and
and their role in the standard-setting
financial accounting.
process.
1-3
Financial Statements and Reporting
1-4 LO 1 Identify the major financial statements and other means of financial reporting.
Financial Statements and Reporting
1-5 LO 1 Identify the major financial statements and other means of financial reporting.
Financial Statements and Reporting
Question
What is the purpose of information presented in notes to the
financial statements?
1-6 LO 1 Identify the major financial statements and other means of financial reporting.
Financial Accounting and
1 Accounting Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally accepted
other means of financial reporting. accounting principles (GAAP) and the role
of the Codification for GAAP.
2. Explain how accounting assists in the
efficient use of scarce resources. 7. Describe the impact of user groups on the
rule-making process.
3. Identify the objective of financial reporting.
8. Describe some of the challenges facing
4. Explain the need for accounting standards.
financial reporting.
5. Identify the major policy-setting bodies
9. Understand issues related to ethics and
and their role in the standard-setting
financial accounting.
process.
1-7
Financial Statements and Reporting
1-8 LO 2 Explain how accounting assists in the efficient use of scare resources.
Accounting and Capital Allocation
Question
An effective process of capital allocation is critical to a healthy
economy, which
a. promotes productivity.
b. encourages innovation.
1-9 LO 2 Explain how accounting assists in the efficient use of scare resources.
ITS THE ACCOUNTING
Its the accounting. Thats what many investors seem to be saying these days.
Even the slightest hint of any accounting irregularity at a company leads to a
subsequent pounding of the companys stock price. For example, the Wall Street
Journal has run the following headlines related to accounting and its effects on the
economy.
Stocks take a beating as accounting woes spread beyond Enron.
Quarterly reports from IBM and Goldman Sachs sent stocks tumbling.
VeriFone finds accounting issues; stock price cut in half.
Bank of America admits hiding debt.
Facebook, Zynga, Groupon: IPO drops due to accounting, not valuation.
It now has become clear that investors must trust the accounting numbers, or they
will abandon the market and put their resources elsewhere. With investor
uncertainty, the cost of capital increases for companies who need additional
resources. In short, relevant and reliable financial information is necessary for
markets to be efficient.
1-10 LO 2 Explain how accounting assists in the efficient use of scare resources.
Financial Accounting and
1 Accounting Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally accepted
other means of financial reporting. accounting principles (GAAP) and the role
of the Codification for GAAP.
2. Explain how accounting assists in the
efficient use of scarce resources. 7. Describe the impact of user groups on the
rule-making process.
3. Identify the objective of financial reporting.
8. Describe some of the challenges facing
4. Explain the need for accounting standards.
financial reporting.
5. Identify the major policy-setting bodies
9. Understand issues related to ethics and
and their role in the standard-setting
financial accounting.
process.
1-11
Financial Statements and Reporting
Entity Perspective
Companies viewed as separate and distinct from their
owners.
Decision-Usefulness
Investors are interested in assessing the companys
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally accepted
other means of financial reporting. accounting principles (GAAP) and the role
of the Codification for GAAP.
2. Explain how accounting assists in the
efficient use of scarce resources. 7. Describe the impact of user groups on the
rule-making process.
3. Identify the objective of financial reporting.
8. Describe some of the challenges facing
4. Explain the need for accounting standards.
financial reporting.
5. Identify the major policy-setting bodies
9. Understand issues related to ethics and
and their role in the standard-setting
financial accounting.
process.
1-16
The Need To Develop Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally accepted
other means of financial reporting. accounting principles (GAAP) and the role
of the Codification for GAAP.
2. Explain how accounting assists in the
efficient use of scarce resources. 7. Describe the impact of user groups on the
rule-making process.
3. Identify the objective of financial reporting.
8. Describe some of the challenges facing
4. Explain the need for accounting standards.
financial reporting.
5. Identify the major policy-setting bodies
9. Understand issues related to ethics and
and their role in the standard-setting
financial accounting.
process.
1-18
Parties Involved In Standard Setting
Three organizations:
Securities and Exchange Commission (SEC).
1-21 LO 5
Parties Involved In Standard Setting
Financial Accounting
Standards Advisory Consult on major policy issues.
Council
1-22 LO 5
Financial Accounting Standards Board
Smaller Membership.
Greater Autonomy.
Increased Independence.
http://www.fasb.org/
Broader Representation.
Question
The first step taken in the establishment of a typical FASB
statement is
a. The board conducts research and analysis and a
discussion memorandum is issued.
Illustration 1-3
The Due Process
System of the
FASB
Types of Pronouncements
Accounting Standards Updates.
Financial Accounting Concepts.
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally accepted
other means of financial reporting. accounting principles (GAAP) and the role
of the Codification for GAAP.
2. Explain how accounting assists in the
efficient use of scarce resources. 7. Describe the impact of user groups on the
rule-making process.
3. Identify the objective of financial reporting.
8. Describe some of the challenges facing
4. Explain the need for accounting standards.
financial reporting.
5. Identify the major policy-setting bodies
9. Understand issues related to ethics and
and their role in the standard-setting
financial accounting.
process.
1-27
Generally Accepted Accounting Principles
Illustration 1-4
GAAP Documents
Question
Which of the following accounting pronouncements is the most
authoritative?
a. FASB Statement of Financial Accounting Concepts.
FASB Codification
Goal in developing the Codification is to provide in one place all
the authoritative literature related to a particular topic.
1-32 LO 6
Generally Accepted Accounting Principles
Illustration 1-5
FASB Codification
Framework
1-33 LO 6
Financial Accounting and
1 Accounting Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally accepted
other means of financial reporting. accounting principles (GAAP) and the role
of the Codification for GAAP.
2. Explain how accounting assists in the
efficient use of scarce resources. 7. Describe the impact of user groups on the
rule-making process.
3. Identify the objective of financial reporting.
8. Describe some of the challenges facing
4. Explain the need for accounting standards.
financial reporting.
5. Identify the major policy-setting bodies
9. Understand issues related to ethics and
and their role in the standard-setting
financial accounting.
process.
1-34
Issues in Financial Reporting
Illustration 1-6
GAAP in a Political Environment User Groups that
Influence the Formulation
of Accounting Standards
GAAP is as
much a product
of political
action as they
are of careful
logic or
empirical
findings.
Expectation GAAP
What the public thinks accountants should do vs. what
accountants think they can do.
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally accepted
other means of financial reporting. accounting principles (GAAP) and the role
of the Codification for GAAP.
2. Explain how accounting assists in the
efficient use of scarce resources. 7. Describe the impact of user groups on the
rule-making process.
3. Identify the objective of financial reporting.
8. Describe some of the challenges facing
4. Explain the need for accounting standards.
financial reporting.
5. Identify the major policy-setting bodies
9. Understand issues related to ethics and
and their role in the standard-setting
financial accounting.
process.
1-39
Issues in Financial Reporting
Forward-looking information.
Soft assets.
Timeliness
Understandability
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally accepted
other means of financial reporting. accounting principles (GAAP) and the role
of the Codification for GAAP.
2. Explain how accounting assists in the
efficient use of scarce resources. 7. Describe the impact of user groups on the
rule-making process.
3. Identify the objective of financial reporting.
8. Describe some of the challenges facing
4. Explain the need for accounting standards.
financial reporting.
5. Identify the major policy-setting bodies
9. Understand issues related to ethics and
and their role in the standard-setting
financial accounting.
process.
1-42
Issues in Financial Reporting
http://www.iosco.org/
1-54 LO 10
Hierarchy of IFRS
Companies first look to:
Any U.S. incorporation of IFRS in GAAP will occur over several years.
1-57 LO 10
IFRS SELF-TEST QUESTIONS
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1-60