1. Chapter 1: Financial Accounting and Accounting Standards
Intermediate Accounting, 10th Edition
Kieso, Weygandt, and Warfield
Chapter 1: Financial Accounting and Accounting Standards
Prepared by
Drs.Gusnardi,SE.,Ak
Pekanbaru 2

2. Characteristics of Financial Accounting
Accounting identifies, measures and communicates financial information.
This information is about economic entities.
Information is communicated to interested parties such as investors, creditors, unions and governmental agencies.
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

3. Accounting and the Efficient Use of Scarce Resources (1 of 2)
Financial Reporting aids users
in the allocation
of scarce resources.
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

4. Accounting and the Efficient Use of Scarce Resources (2 of 2)
Financial
Reporting
aids
Users
(present and
potential) in
Capital
Allocation
decisions
Reports consist
of:
balance sheet,
income st, cash
flow st, and
other data
Users are:
investors,
creditors,
unions and
govt. agencies
Involve
determining
how funds are
allocated among
competing
interests
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5. Objectives of Financial Reporting by Business Enterprises
The objectives are specified in Statement of Financial Accounting Concepts No. 1.
The objectives are as follows:
Information provided must be useful in investment and credit decisions
Information must be useful in assessing cash flow prospects
Information must be about enterprise resources, claims to those resources and changes therein.
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

6. Generally Accepted Accounting Principles (GAAP)
The profession has developed GAAP that present fairly, clearly and completely the financial operations of the enterprise.
GAAP consist of authoritative pronouncements issued by certain accounting bodies.
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

7. The Standard Setting Process: Parties Involved
Securities and Exchange Commission
American Institute of Certified Public Accountants
Financial Accounting Standards Board
Governmental Accounting Standards Board
A federal agency with oversight powers.
The national professional organization of practicing CPAs
Establishes and improves reporting standards. Private sector agency.
Regulates state and local governmental reporting issues
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

8. The Financial Accounting Standards Board (FASB)
The FASB, the Financial Accounting Foundation and the Advisory Councils make up the standard setting structure.
The FASB enjoys the following advantages compared to its predecessor, the Accounting Principles Board:
* smaller membership
* greater autonomy
* increased independence of members
* broader representation on the Board
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

9. Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)
The Due Process (1 of 3)
In establishing financial standards, the FASB follows the due process.
The due process gives time to interested persons to make their views known to the Board.
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

10. Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)
The Due Process (2 of 3)
Public
Hearing 3 4
A public
hearing is
conducted
AGENDA 1
Topics for
standard
setting are
identified
Discussion
Memorandum 2
The FASB
issues
initial
research and
analysis
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

11. Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)
The Due Process (3 of 3)
Exposure
Draft 4
The FASB
issues
an exposure
draft
(tentative
standard)
Final Standard 5
The FASB
evaluates
responses and
issues the
final
standard
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12. Major Types of FASB Pronouncements
Standards and Interpretations :are modifications or extensions of standards
Financial Accounting Concepts :are objectives and concepts used in the development of standards
Technical Bulletins :provide timely guidance on reporting issues
Emerging Issues Task Force Statements
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

13. Organizational Structure for Setting Standards
Financial
Accounting
Foundation
FASB
Financial
Accounting
Standards
Advisory
Council
GASB
Governmental
Accounting
Standards
Advisory
Council
Staff and
Task Force
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

14. GAAP and Other Authoritative Pronouncements
GAAP consist of FASB Standards and Interpretations, APB Opinions and AICPA Accounting Research Bulletins.
However, there are other documents that are considered to provide authoritative support.
See next slide for a hierarchy of these pronouncements.
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

15. Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)
House of GAAP
Most authoritative
Level 2
Level 3
Least authoritative
FASB Standards and Interpretations, APB Opinions and AICPA Research Bulletins
FASB Technical Bulletins, AICPA Industry Guides, AICPA Statements of Position
Emerging Issues Task Force, AICPA Practice Bulletins
Implementation Guides
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16. Challenges Facing Financial Accounting
Non financial measurements need to be developed and reported.
More information needs to be provided regarding soft assets (intangibles)
Forward-looking information, in addition to historical information, must be provided.
Statements may have to be prepared on a real time basis (and not just periodically)
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

17. Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)
The Expectations Gap
An expectations gap exists between the
public’s perception of the profession’s accountability and
profession’s perception of its accountability to the public.
Corrective steps include the setting up of the:
SEC Practice sections and
Public Oversight Board.
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

18. International Accounting Standards
The International Accounting Standards Committee (IASC) was formed in 1973.
The objective was to narrow divergence in international financial reporting.
There are many similarities between U.S. and International accounting standards.
The concern is that international standards may not be as rigorous as U.S. standards.
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Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)

19. Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)
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12/4/2018
Intermediate Accounting, 10th Edition, Chapter 1 (Kieso et al.)