accounting principles and reporting standards section 1: generally accepted accounting principles...
TRANSCRIPT
Accounting Principles and Reporting StandardsAccounting Principles
and Reporting Standards
Section 1: Generally Accepted
Accounting Principles
Chapter
14
Section Objectives1. Understand the process used to develop generally
accepted accounting principles.
2. Identify the major standards-setting bodies and their roles in the standard-setting process.
3. Describe the users and uses of financial reports.
The Need for Generally Accepted Accounting Principles
Generally Accepted Accounting Principles (GAAP)
Ensure that financial statements are meaningful and
useful.
Are used whether the business is large or small.
Allow financial statements of different companies to
be compared.
Allow a company to compare its own financial statements from period to period.
Objective 1. The Development of Generally Accepted Accounting Principles
Public sector government represented by SEC
In the United States, accounting principles are developed through a cooperative effort between the public sector and private sector.
Private sector business represented by FASB
Objective 2. Identify the major accounting standards-setting bodies and their roles in the standards-setting process.
Securities and Exchange Commission
Regulates all publicly held companies and all companies with more than a specified number of shareholders or owners.
Determines the form and content of accounting reports filed by companies under its jurisdiction.
Has authority to define accounting terms and to prescribe accounting principles.
Lets the accounting profession develop principles and standards, but has the final authority.
Financial Accounting Standards Board
Seven member board — each having distinguished accounting backgrounds — who are full-time employees.
Responsible for developing financial accounting standards and principles.
Develops and issues Statements of Financial Accounting Standards.
Has issued about 150 standards that the SEC recognizes as authoritative.
American Institute of Certified Public Accountants (AICPA)
In the past, GAAP were developed by AICPA committees.
In 1972 the AICPA and other organizations formed the FASB.
The AICPA requires its members to confirm that audited companies follow the FASB Statements of Financial Accounting Standards.
Federal and State Agencies
Require detailed systems of accounting for public utilities.
Issue income tax rules for companies (IRS).
Some companies adopt tax accounting rules for financial records, provided the rules don’t conflict with GAAP.
Other Organizations
Federal and State Agencies other than the SEC
AAA (American Accounting Association)
NYSE (New York Stock Exchange)
IASC (International Accounting Standards Committee)
American Accounting Association (AAA)
Has members who:
teach accounting;
write textbooks and articles.
Stimulates the acceptance of accounting principles.
New York Stock Exchange (NYSE)
Required corporations to publish annual reports as early as 1900.
Required independent audits for corporations since 1933.
International Accounting Standards Board (IASB)
Wants to develop standards that can be adopted
throughout the world.
Has issued about 50 international accounting standards.
In an important move, in 2002 the European Union voted to require companies whose securities aretraded on exchanges in member countries toprepare financial reports on the basis of IASBStandards.
Objective 3. Users and Uses of Financial Reports
The FASB has concluded that financial reporting rules should focus on providing information to investors and creditors.
The focus is not on
tax authorities
managementregulatory agencies
Why does FASB focus on helping investors and creditors instead of other interested parties?
QUESTION
The other interested parties — management, tax authorities, regulatory agencies — have access to specific information from the firm’s records not available to the public.
ANSWER
Investors and creditors expect to receive a cash flow directly or indirectly from the business entity:
directly from the distribution of the company’s earnings.
indirectly through the disposal of their interests for cash.
Financial report users need information about:
Profits
Economic resources (assets)
Claims against assets (liabilities and owner’s equity)
Changes in assets and in claims against assets
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The ______ sector (government) is represented by the _____________ ____________________.
The ______ sector (business) is represented by the _________________________________.
The ______ requires its members to confirm that audited companies follow the Statements developed by the _____.
AICPA
private
public
Complete the following sentences:
Securities and
Financial Accounting
Exchange Commission
Standards Board
FASB
SECTION
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The FASB has concluded that financial reporting rules should focus on providing information to ________ and ________.
Cash flows are received _______ from a company through the distribution of the company’s earnings.
Cash flows are received ________ from a company through the sale of interest in the company for cash.
indirectly
directly
investors
Complete the following sentences:
creditors
SECTION
Thank Youfor using
College Accounting, 11th Edition
Price • Haddock • Brock