Robert Libby Patricia A. Libby Daniel G. Short FINANCIAL ACCOUNTING Robert Libby Patricia A. Libby Daniel G. Short

Financial Accounting Course Outline Accounting Misconceptions Introduction to Chapter 1 – Financial Statements

Course Objectives Understand accounting process Prepare basic financial statements Perform financial statement analysis

Keys to Successful learning in Accounting Prepare for class by reading text prior to the lecture (spend 30 to 40 minutes) Participate in lectures and discussion section (don’t be afraid to ask questions) Practice by completing homework assignments Meet GSIs and Instructors during office hours

Term Project You will be assigned to a group of 6 to 8 Students You will evaluate 2-3 companies (one assigned and two decided by the group) Your team will compare and contrast financial performance and make an investment recommendation

Discussion Section Homework will be due by the end of Discussion Section—no exceptions. You will be able to work on homework during discussion GSIs will encourage you to participate in discussion section and will assist your team with term projects BTW--NO DISCUSSION Section this Friday

EXAMS Questions will be m/c, true false, matching and short problems/essay. Completed exams must be turned in with the scan-tron. Sessions 1 and 2 will not have identical exams so you must attend your sessions exam. No Books, No Calculators and No Bathroom Breaks

Exams (continued) Study in teams Do not memorize– there will be very few memorization questions. Understand concepts and be able to solve problems. There may be more than one right answer—Pick the BEST answer.

GRADING Will be based on a total of 1000 points: Midterms (best 2of3) 400 Final Exam 300 Discussion/Homework 100 Term Project 200 Total 1,000

Grading (continued) Grades will not be given until the end of class Grades will be based on a curve based on total points It will be hard to get an A as approximately 25% of the class will receive an A or A-

Brief History of Accounting Accounting records go back to the Babylonian Empire (4500 B.C.) Fra Luca Pacioli (born 1445) is considered the “Father of accounting” as he was the first to document the double entry accounting used by the Venetian's during the Italian Renaissance Today’s accounting systems can be purchased for as little as $100 and some large companies spent over a $100Million to update systems to be Y2K compliant.

Common Misconceptions Some people believe that financial statements report the market value of the company. Financial statements really report the cost of assets, liabilities and stockholders’ equity.

Are all transactions subject to precise and objective measurement? Some Misconceptions Are all transactions subject to precise and objective measurement? NO ! Almost all accounting numbers are influenced by estimates

Misconception Don’t confuse bookkeeping with accounting. Bookkeeping involves the routine, clerical part of accounting and requires only minimal knowledge of accounting, but . . . An accountant is a trained professional who can design information systems, analyze complex transactions, and interpret financial data.

Generally Accepted Accounting Principles (GAAP) Securities Act of 1933 Securities and Exchange Act of 1934 The Securities and Exchange Commission (SEC) has been given broad powers to determine measurement rules for financial statements.

Generally Accepted Accounting Principles (GAAP) The SEC has worked closely with the accounting profession to work out the detailed rules that have become known as GAAP. Currently, the Financial Accounting Standards Board (FASB) is recognized as the body to formulate GAAP.

Generally Accepted Accounting Principles (GAAP) Companies are interested in GAAP because methods of reporting can have the following economic consequences . . . Affect the selling price of stock. Affect the amount of bonuses received by managers and other employees. Cause a loss of competitive advantage.

Management Responsibility and the Demand for Auditing To ensure the accuracy of the company’s records management: Maintains a system of controls. Hires an outside independent auditor. Board of directors review these two safeguards.

Independent Auditors Overall, I believe these financial statements are fair. Auditors express an opinion as to the fairness of the financial statement presentation. Independent auditors have responsibilities that extend to the general public.

Independent Auditors An audit involves . . . Examining the financial reports to ensure compliance with GAAP. Examining the underlying transactions incorporated into the financial statements. Expressing an opinion as to the fairness of presentation of financial information.

Ethics, Reputation, and Legal Liability The American Institute of Certified Public Accountants requires that all members adhere to a professional code of ethics.

Ethics, Reputation, and Legal Liability A CPA’s reputation for honesty and competence is his/her most important asset. Like physicians, CPAs have liability for malpractice.

End of Lecture 1