McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. 1-1 Chapter 1 Accounting-Present and Past McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 1 Accounting-Present and Past

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. 1-2 What is Accounting? Accounting is the process of: Identifying Measuring Communicating Economic information about an entity For decisions and informed judgments L O 1

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. 1-3 Users and Uses of Accounting Information L O 2

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. 1-4 Financial Accounting Financial accounting generally refers to the process that results in the preparation and reporting of financial statements for an entity. Financial accounting is primarily externally oriented and concerned with the historical results of an entity’s performance. L O 3

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. 1-5 Managerial Accounting/Cost Accounting Managerial accounting is concerned with the use of economic and financial information to plan and control many of the activities of the entity and to support the management decision- making process. Cost accounting relates to the determination and accumulation of product, process, or service costs. L O 3

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. 1-6 Auditing—Public Accounting Public accounting firms and individual Certified Public Accountants (CPAs) provide auditing services and issue an independent auditor’s report. An independent auditor’s report usually contains four brief paragraphs and states whether the financial statements are prepared in conformity with generally accepted accounting principles. An auditor’s report can be unqualified (a “clean opinion) or qualified. L O 3

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. 1-7 Internal Auditing Internal Auditing Internal auditors are professional accountants who perform functions much like those of an external auditor. However, internal auditors are employed in industry rather than public accounting. L O 3

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. 1-8 Governmental and Not-for-Profit Accounting Governmental units (e.g., municipal, state, and federal agencies) and not- for-profit entities (e.g., universities, hospitals, and religious organizations) require the same accounting functions to be performed as do other accounting entities. L O 3

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved. 1-9 Income Tax Accounting Tax practitioners often develop specialties in the taxation of individuals, partnerships, corporations, trusts and estates, or international tax law issues. L O 3

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved How Has Accounting Developed? The Financial Accounting Foundation (FAF) was created and established the Financial Accounting Standards Board (FASB) as the authoritative standard-setting body within the accounting profession. The FASB has issued 164 Statements of Financial Accounting Standards that have established standards of accounting and reporting for particular issues B.C ’s1900’s1932 to & to L O 5

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved How Has Accounting Developed? The Sarbanes-Oxley Act of 2002 created the five-member Public Company Accounting Oversight Board (PCAOB), which has the authority to set and enforce auditing, attestation, quality control, and ethics standards for public companies B.C ’s1900’s1932 to & to L O 6

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved Managerial/Cost Accounting Cost Accounting Standards Board (CASB) for government contracts Auditing/Public Accounting Auditing Standards Board (part of AICPA) State and Local Governments Governmental Accounting Standards Board (GASB) Standards for Other Types of Accounting L O 6

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved International Accounting Standards The International Accounting Standards Board (IASB) seeks methods of providing comparability between financial statements prepared according to the differing accounting standards of its member nations. L O 6

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved Ethics and the Accounting Profession Independence Integrity Objectivity Competence L O 7

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved The Conceptual Framework Statements of Financial Accounting Concepts (SFACs) describe concepts and relationships that underlie financial accounting standards. L O 8 1.Objectives of Financial Reporting of Business Enterprises 2.Qualitative Characteristics of Accounting Information 3.Elements of Financial Statements of Business Enterprises 4.Objectives of Financial Reporting of Nonbusiness Organizations 5.Recognition and Measurement in Financial Statements 6.Elements of Financial Statements 7.Using Cash Flow Information and Present Value in Accounting Measurement

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc., All Rights Reserved Concepts Statement No. 1 Financial reporting should provide useful information:  For present and potential investors and creditors to make informed investment, credit, and similar decisions;  For present and potential investors and creditors to assess amounts, timing, and uncertainty of net cash flows; and  About the economic resources, claims to the resources, and changes in the economic resources and claims to the resources of a business entity. L O 9 Objectives of Financial Reporting by Business Enterprises