ACTG 3110 Chapter 1 - Financial Accounting and Accounting Standards.

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Presentation transcript:

ACTG 3110 Chapter 1 - Financial Accounting and Accounting Standards

Overview What is accounting? Financial versus Managerial accounting Importance of financial accounting –Who provides it –Who uses it Financial Statements –Balance Sheet –Income Statement –Statement of Cash Flows –Statement of Owner’s Equity

Challenges Facing Financial Accounting Nonfinancial Measurements Forward-looking Information Soft Assets Timeliness

Overview Economic Environment and Financial Reporting –Capital markets –Corporate form of business –Secondary versus primary market –Cash versus accrual accounting –Need for GAAP Generally Accepted Accounting Principles (GAAP)

Parties Involved in Standard Setting Securities and Exchange Commission (SEC) –1933 and 1934 Acts –Oversight role –Enforcement American Institute of CPAs (AICPA) –Committee of Accounting Procedure (CAP) Formed by AICPA Issued 51 Accounting Research Bulletins

Parties Involved in Standard Setting AICPA –Accounting Principles Board (APB) Formed by AICPA Issued 31 APB Opinions & 4 statements Financial Accounting Standards Board (FASB) –1973 – Present –Established Due Process

Parties Involved in Standard Setting Accounting Standards Executive Committee (AcSEC) –Committee of the AICPA to respond to FASB Emerging Issues Task Force (EITF) –Set up by the FASB –Deals with immediate problems

FASB Supported by the Financial Accounting Foundation 7 voting members are full time employees Members must not retain investments in companies Includes CPAs, Business people, and Academicians More influential than CAP or APB

House of GAAP Most Authoritative –CAP’s Accounting Research Bulletins (ARBs) –APB Opinions –FASB’s Statements of Financial Accounting Concepts (SFAC) –FASB’s Statements of Financial Accounting Standards (SFAS)

House of GAAP Second most authoritative: –FASB Technical Bulletins –AICPA Statements of Positions (SOP) –AICPA Industry Audit and Accounting Guides Third most authoritative: –EITF Statements –AICPA AcSEC Practice Bulletins

House of GAAP Least authoritative –AICPA Accounting Interpretations –FASB Implementation Guides –Widely recognized and prevalent industry practices HOWEVER, SEC is overall ruler on GAAP; may override private sector FASB

Enforcement of Standards SEC AICPA code of Ethics State Boards of Accountancy Courts Bankers

Issues in Financial Reporting Standard Setting in a Political Environment Expectations Gap –Sarbanes-Oxley Act of 2002 (SOX) –Public Oversight Board of Accountancy (PCBOA) International Accounting Standards Board (IASB) Rules-based versus Principles-based approaches to GAAP

Ethics in Accounting AICPA Code of Ethics IMA Code of Ethics IIA Code of Ethics Company’s Codes of Ethics Basic morals