kuliah ak 1 ch01

8/12/2019 kuliah ak 1 ch01

1/60

1-1

Prepared by

Coby Harmon

University of California, Santa Barbara

Intermediate

AccountingIntermediate

Accounting

Prepared by

Coby Harmon

University of California, Santa Barbara

Westmont College

INTERMEDIATEACCOUNTINGF I F T E E N T H E D I T I O N

Prepared by

Coby Harmon

University of California Santa Barbara

Westmont College

kieso

weygandt

warfieldteam for success

8/12/2019 kuliah ak 1 ch01

2/60

1-2

PREVIEW OF CHAPTER

Intermediate Accounting

15th Edition

Kieso Weygandt Warfield

1

8/12/2019 kuliah ak 1 ch01

3/60

1-3

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.

LEARNING OBJECTIVES

6. Explain the meaning of generally accepted

accounting principles (GAAP) and the role

of the Codification for GAAP.

7. Describe the impact of user groups on the

rule-making process.8. Describe some of the challenges facing

financial reporting.

9. Understand issues related to ethics and

financial accounting.

After studying this chapter, you should be able to:

Financial Accounting and

Accounting Standards1

8/12/2019 kuliah ak 1 ch01

4/60

1-4

Financial Statements and Reporting

Essential characteristicsof accounting are:

(1) the identification, measurement, and communication

of financial information about

(2) economic entities to

(3) interested parties.

LO 1 Ident i fy the major f inancia l statements and oth er means of f inancia l report ing .

8/12/2019 kuliah ak 1 ch01

5/60

1-5

Financial

Information

Accounting?

Identifies

and

Measures

and

Communicates

Balance Sheet

Income Statement

Statement of CashFlows

Statement of Owners

or Stockholders

Equity

Note Disclosures

Presidents letter

Prospectuses

Reports filed withgovernmental

agencies

News releases

Forecasts

Environmental

impact statements

Etc.GAAP

Financial Statements Additional InformationEconomic Entity



8/12/2019 kuliah ak 1 ch01

6/60

1-6

What is the purpose of information presented in notes to the

financial statements?

a. To provide disclosure required by generally acceptedaccounting principles.

b. To correct improper presentation in the financial statements.

c. To provide recognition of amounts not included in the totals of

the financial statements.

d. To present managements responses to auditor comments.


Question


8/12/2019 kuliah ak 1 ch01

7/60

1-7

LEARNING OBJECTIVES









After studying this chapter, you shou ld be able to:


Accounting Standards11. Identify the major financial statements and








process.

8/12/2019 kuliah ak 1 ch01

8/60

1-8

Resources are limited. Efficient use of resources often

determines whether a business thrives.

LO 2 Expla in how accou nt ing assists in the eff ic ient use of scare resou rces.

Illustration 1-1Capital Allocation Process

Accounting and Capital Allocation


8/12/2019 kuliah ak 1 ch01

9/60

1-9

An effective process of capital allocation is critical to a healthy

economy, which

a. promotes productivity.

b. encourages innovation.

c. provides an efficient and liquid market for buying and

selling securities.

d. All of the above.

Accounting and Capital Allocation

Question


8/12/2019 kuliah ak 1 ch01

10/60

1-10

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 asubsequent 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 investoruncertainty, 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.

ITS THE ACCOUNTING


8/12/2019 kuliah ak 1 ch01

11/60

1-11

LEARNING OBJECTIVES



















process.

8/12/2019 kuliah ak 1 ch01

12/60

1-12 LO 3 Ident i fy the object ives of f inancia l report ing.

Provide financial information about the reporting entity that is

usefulto

present and potential equity investors,

lenders, and

other creditors

in making decisions in their capacity as capital providers.

Objectives of Financial Reporting


8/12/2019 kuliah ak 1 ch01

13/60

1-13

Equity Investors and Creditors

Objective of Financial Accounting

General-Purpose Financial Statements

Provide financial reporting information to a wide variety

of users.

Provide the most useful information possible at the

least cost.

LO 3 Ident i fy the object ives of f inancia l report ing.

Investors are the primary

user group.

8/12/2019 kuliah ak 1 ch01

14/60

1-14

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.

Entity Perspective


Companies viewed as separate and distinct from their

owners.

Objective of Financial Accounting

8/12/2019 kuliah ak 1 ch01

15/60

1-15

In addition to providing decision-useful information about future cash flows,

management also is accountable to investors for the custody and safekeeping of

the companys economic resources and for their efficient and profitable use. For

example, the management of The Hershey Company has the responsibility for

protecting its economic resources from unfavorable effects of economic factors,

such as price changes, and technological and social changes. Because Hersheys

performance in discharging its responsibilities (referred to as its stewardship

responsibilities) usually affects its ability to generate net cash inflows, financial

reporting may also provide decision-useful information to assess management

performance in this role.

DONT FORGET STEWARDSHIP


8/12/2019 kuliah ak 1 ch01

16/60

1-16

LEARNING OBJECTIVES



















process.

8/12/2019 kuliah ak 1 ch01

17/60

1-17

Various users

need financial

information

The accounting profession has

attempted to develop a set of

standards that are generally

accepted and universally

practiced.

Financial StatementsBalance Sheet

Income Statement

Statement of Stockholders Equity

Statement of Cash Flows

Note Disclosure

Generally AcceptedAccounting Principles

(GAAP)

LO 4 Expla in the need for accou nt ing standards.

The Need To Develop Standards

8/12/2019 kuliah ak 1 ch01

18/60

1-18

LEARNING OBJECTIVES



















process.

8/12/2019 kuliah ak 1 ch01

19/60

1-19

Parties Involved In Standard Setting

Three organizations:

Securities and Exchange Commission (SEC).

American Institute of Certified Public Accountants (AICPA).

Financial Accounting Standards Board (FASB).

LO 5 Ident i fy the major pol icy-set t ing bo dies andtheir ro le in the standard-set ting proc ess.

8/12/2019 kuliah ak 1 ch01

20/60

1-20

Securities Act of

1933

Securities Act of

1934

Established by federal government.

Accounting and reporting for public companies.

Encouraged private standard-setting body.

SEC requires public companies to adhere to GAAP.

SEC Oversight.

Enforcement Authority.


Securities and Exchange Commission (SEC)

http://www.sec.gov/

http://www.sec.gov/http://www.sec.gov/http://www.sec.gov/http://www.sec.gov/

8/12/2019 kuliah ak 1 ch01

21/60

1-21 LO 5

Committee on Accounting

Procedures

Accounting Principles

Board

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

http://www.aicpa.org/

American Institute of CPAs (AICPA) National professional organization

Established the following:

http://www.aicpa.org/http://www.aicpa.org/

8/12/2019 kuliah ak 1 ch01

22/60

1-22

Wheat Committees recommendations resulted in creation of FASB.

Financial

AccountingFoundation

Selects members of the FASB.

Funds their activities. Exercises general oversight.

Financial

Accounting

Standards Board

Financial Accounting

Standards Advisory

Council

Mission to establish and improve

standards of financial accounting

and reporting.

Consult on major policy issues.

LO 5

Financial Accounting Standards Board (FASB)


8/12/2019 kuliah ak 1 ch01

23/60

1-23

Missions is to establish and improve standards of financialaccounting and reporting. Differences between FASB and APB

include:

Financial Accounting Standards Board

Smaller Membership.

Full-time, Remunerated Membership.

Greater Autonomy.

Increased Independence.

Broader Representation.


http://www.fasb.org/
http://www.fasb.org/http://www.sec.gov/http://www.fasb.org/http://www.sec.gov/

8/12/2019 kuliah ak 1 ch01

24/60

1-24

The first step taken in the establishment of a typical FASB

statement is

a. The board conducts research and analysis and adiscussion memorandum is issued.

b. A public hearing on the proposed standard is held.

c. The board evaluates the research and public response

and issues an exposure draft.

d. Topics are identified and placed on the boards agenda.



Question

8/12/2019 kuliah ak 1 ch01

25/60

1-25

Illustration 1-3The Due Process

System of the

FASB



8/12/2019 kuliah ak 1 ch01

26/60

1-26

Types of Pronouncements

Accounting Standards Updates.

Financial Accounting Concepts.



8/12/2019 kuliah ak 1 ch01

27/60

1-27

LEARNING OBJECTIVES





rule-making process.

8. Describe some of the challenges facing














process.

8/12/2019 kuliah ak 1 ch01

28/60

1-28

Principles that have substantial authoritative support.

Major sources of GAAP:

FASB Standards, Interpretations, and Staff Positions.

APB Opinions.

AICPA Accounting Research Bulletins.

LO 6 Expla in the meaning of general ly accepted account ing pr inc ip les(GAAP) and the role of th e Codif icat ion for GAAP.

Generally Accepted Accounting Principles

8/12/2019 kuliah ak 1 ch01

29/60

1-29

Illustration 1-4GAAP Documents



8/12/2019 kuliah ak 1 ch01

30/60

1-30

Which of the following accounting pronouncements is the most

authoritative?

a. FASB Statement of Financial Accounting Concepts.

b. FASB Technical Bulletins.

c. AICPA Accounting Principles Board Opinion.

d. AICPA Statement of Position.


Question


8/12/2019 kuliah ak 1 ch01

31/60

1-31

Should the accounting profession have principles-based standards or rules-based

standards? Critics of the profession today say that over the past three decades,standard-setters have moved away from broad accounting principles aimed

at ensuring that companies financial statements are fairly presented.

Instead, these critics say, standard-setters have moved toward drafting voluminous

rules that, if technically followed in check-box fashion, may shield auditors and

companies from legal liability. That has resulted in companies creating complex

capital structures that comply with GAAP but hide billions of dollars of debt andother obligations. To add fuel to the fi re, the chief accountant of the enforcement

division of the SEC noted, One can violate SEC laws and still comply with GAAP.

In short, what he is saying is that it is not enough just to check the boxes. This

point was reinforced by the Chief Accountant of the SEC, who remarked that

judgments should result in accounting that reflects the substance of the

transaction, as well as being in accordance with the literature. That is, you have toexercise judgment in applying GAAP to achieve high-quality reporting.

YOU HAVE TO STEP BACK


8/12/2019 kuliah ak 1 ch01

32/60

1-32

Goal in developing the Codification is to provide in one place all

the authoritative literature related to a particular topic.

Creates one level of GAAP, which is considered authoritative.

All other accounting literature is considered non-authoritative.

FASB Codification

LO 6

FASB has developed the Financial Accounting

Standards Board Codification Research System(CRS). CRS is an online real-time database that

provides easy access to the Codification.


8/12/2019 kuliah ak 1 ch01

33/60

1-33 LO 6

Illustration 1-5FASB Codification

Framework


8/12/2019 kuliah ak 1 ch01

34/60

1-34

LEARNING OBJECTIVES




















process.

8/12/2019 kuliah ak 1 ch01

35/60

1-35

Issues in Financial Reporting

GAAP is as

much a product

of politicalaction as they

are of careful

logic or

empiricalfindings.

LO 7 Descr ibe the imp act of user grou ps on the rule-making p rocess.

GAAP in a Political EnvironmentIllustration 1-6

User Groups thatInfluence the Formulation

of Accounting Standards

8/12/2019 kuliah ak 1 ch01

36/60

1-36 LO 7 Descr ibe the imp act of user grou ps on the rule-making p rocess.

8/12/2019 kuliah ak 1 ch01

37/60

1-37

One of the more difficult issues related to convergence and international

accounting standards is that countries have different cultures and customs. Forexample, the former chair of the IASB explained it this way regarding Europe:

In the U.K. everything is permitted unless it is prohibited. In Germany, it is the

other way around; everything is prohibited unless it is permitted. In the

Netherlands, everything is prohibited even if it is permitted. And in France,

everything is permitted even if it is prohibited. Add in countries like Japan, the

United States and China, it becomes very difficult to meet the needs of each ofthese countries. With this diversity of thinking around the world, it understandable

why accounting convergence has been so elusive.

CAN YOU DO THAT


8/12/2019 kuliah ak 1 ch01

38/60

1-38

What the public thinks accountants should do vs.what

accountants think they can do.

Difficult to close in light of accounting scandals.

Sarbanes-Oxley Act (2002).

Public Company Accounting Oversight Board

(PCAOB).

Expectation GAAP



8/12/2019 kuliah ak 1 ch01

39/60

1-39

LEARNING OBJECTIVES




















process.

8/12/2019 kuliah ak 1 ch01

40/60

1-40

Non-financial measurements.

Forward-looking information.

Soft assets.

Timeliness

Understandability

Financial Reporting Challenges

LO 8 Descr ibe som e of the chal lenges facing f inancia l report ing .


8/12/2019 kuliah ak 1 ch01

41/60

1-41

Two sets of standards accepted for international use:

U.S. GAAP, issued by the FASB.

International Financial Reporting Standards (IFRS),

issued by the IASB.

International Accounting Standards

LO 8 Descr ibe som e of the chal lenges facing f inancia l report ing .


8/12/2019 kuliah ak 1 ch01

42/60

1-42

LEARNING OBJECTIVES




















process.

8/12/2019 kuliah ak 1 ch01

43/60

1-43

In accounting, we frequently encounter ethical dilemmas.

GAAP does not always provide an answer.

Doing the right thing is not always easy or obvious.

LO 9 Understand issues related to ethics and f inancia l accou nt ing.

Ethics in the Environment of FinancialAccounting


8/12/2019 kuliah ak 1 ch01

44/60

1-44

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.

RELEVANT FACTS

LO 10 Comp are the procedures related to f inancia l accoun t ing

and accou nt ing standards u nder GAAP and IFRS.

8/12/2019 kuliah ak 1 ch01

45/60

1-45

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 thatthe 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).

RELEVANT FACTS



8/12/2019 kuliah ak 1 ch01

46/60

1-46

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.

RELEVANT FACTS



8/12/2019 kuliah ak 1 ch01

47/60

1-47

ABOUT THE NUMBERS Illustration IFRS1-1Global Companies



8/12/2019 kuliah ak 1 ch01

48/60

8/12/2019 kuliah ak 1 ch01

49/60

1-49

IFRS stands for:

a. International Federation of Reporting Services.

b. Independent Financial Reporting Standards.

c. International Financial Reporting Standards.

d. Integrated Financial Reporting Services.



IFRS SELF-TEST QUESTIONS

8/12/2019 kuliah ak 1 ch01

50/60

1-50

International Organization of SecuritiesCommissions (IOSCO)

Does not set accounting standards.

Dedicated to ensuring that global

markets can operate in an efficient

and effective basis.

http://www.iosco.org/


http://www.iosco.org/http://www.iosco.org/

8/12/2019 kuliah ak 1 ch01

51/60

1-51

The major key players on the international side are the:

a. IASB and FASB.

b. SEC and FASB.

c. IOSCO and the SEC.

d. IASB and IOSCO.




8/12/2019 kuliah ak 1 ch01

52/60

1-52

International Accounting Standards Board (IASB)

Composed of four organizations


Committee Foundation (IASCF).


Board (IASB).

Standards Advisory Council.

International Financial Reporting

Interpretations Committee (IFRIC).

http://www.iasb.org


http://www.iasb.org/http://www.iasb.org/

8/12/2019 kuliah ak 1 ch01

53/60

1-53

Illustration IFRS1-2

International Standard-Setting Structure



8/12/2019 kuliah ak 1 ch01

54/60

1-54

International Financial Reporting Standards.

Framework For Financial Reporting.

International Financial Reporting Interpretations.

Types of Pronouncements

LO 10

8/12/2019 kuliah ak 1 ch01

55/60

1-55

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).

Hierarchy of IFRS



8/12/2019 kuliah ak 1 ch01

56/60

1-56

IFRS is comprised of:

a. International Financial Reporting Standards and FASB financial

reporting standards.

b. International Financial Reporting Standards, International

Accounting Standards, and international accounting

interpretations.

c. International Accounting Standards and international accounting

interpretations.

d. FASB financial reporting standards and International Accounting

Standards.




8/12/2019 kuliah ak 1 ch01

57/60

1-57

The SEC appears committed to move to IFRS, assuming that

certain conditions are met.Illustration IFRS1-3

SEC Roadmap

International Accounting Convergence

Any U.S. incorporation of IFRS in GAAP will occur over several years.

LO 10

8/12/2019 kuliah ak 1 ch01

58/60

1-58

Which of the following statements is true?

a. The IASB has the same number of members as the

FASB.b. The IASB structure has both advisory and interpretation

functions, but no trustees.

c. The IASB has been in existence longer than the FASB.

d. The IASB structure is quite similar to the FASBs, except

the IASB has a larger number of board members.




8/12/2019 kuliah ak 1 ch01

59/60

8/12/2019 kuliah ak 1 ch01

60/60

Copyright 2013 John Wiley & Sons, Inc. All rights reserved.Reproduction or translation of this work beyond that permitted in

Section 117 of the 1976 United States Copyright Act without the

express written permission of the copyright owner is unlawful.

Request for further information should be addressed to thePermissions Department, John Wiley & Sons, Inc. The purchaser

may make back-up copies for his/her own use only and not for

distribution or resale. The Publisher assumes no responsibility for

errors, omissions, or damages, caused by the use of theseprograms or from the use of the information contained herein.

Copyright