1. Environ - 1 The Environment of Accounting

2. Environ - 2 NATURE OF ACCOUNTING An information system designed to...  Identify  Collect  Measure  Process  Communicate, economic data to interested parties to assist decision-making. “Accounting is the language of business”

3. Environ - 3 Accounting Environment Accounting information helps decision makers evaluate economic opportunities for gain and the related inherent risks of providing capital to a particular venture. “Resource Allocation”

4. Environ - 4 Financial Accounting External Users For those who lack direct access to the information generated by the internal operations of a company. Concepts, principles, and procedures known as Generally Accepted Accounting Principles (GAAP) were developed to meet the needs of external users. GAAP

5. Environ - 5 Management Accounting Internal Users Developed to meet the needs of management. Information that aids planning and control. Much of the information is confidential.

6. Environ - 6 The Interaction of Financial Accounting with Its Environment Financial Accounting Determine regulatory tax payments. Establish the attractiveness of a company as an acquisition. Evaluate the effectiveness of individual managers. Determine whether bond and other contract provisions are satisfied. Help lenders evaluate risk of a potential loan. Serve as input to local, state, and federal regulators.

7. Fin Acctg Concepts - 7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES  Reasons for Generally Accepted Accounting Principles (GAAP)  Entities influencing GAAP GAAP

8. Fin Acctg Concepts - 8 GAAP  Generally Accepted Accounting Principles (GAAP) –The guidance U.S. companies currently use to measure and report performance –Is very flexible Allows management judgment Different methods of measurement allowed @Cambridge Business Publishers, 2009 Who prepares a company’s financial statements? Management

9. Fin Acctg Concepts - 9 GAAP FAQs  Why did GAAP arise? –To mutually benefit the capital market participants who use financial statements –To help evaluate risk and return –To give confidence to users that information helps make better decisions  Created by Financial Accounting Standards Board (FASB) Overseen by the Securities and Exchange Commission (SEC)  SEC has the ultimate power to set accounting standards @Cambridge Business Publishers, 2009

10. Fin Acctg Concepts - 10 International Accounting Standards  Attempt to harmonize accounting standards through creation of International Financial Reporting Standards (IFRS)  Some countries are using IFRS –European Union converted in 2005  Recent impact on U.S. –Late 2007, U. S. SEC voted to allow foreign registrants to file financial statements with the U.S. using IFRS Previously required to use or reconcile to U.S. GAAP @Cambridge Business Publishers, 2009 10

11. Fin Acctg Concepts - 11 Proposed SEC Roadmap for IFRS #-Staggered adoption possible based on earliest adoption in 2015 or 2016. 11

12. Environ - 12 FASB Financial Independence Smaller Size Reporting Autonomy Broad Representation Increased Staff F FASB

13. Environ - 13 Impact of Other Organizations on GAAP GAAP Internal Revenue Service American Institute of CPAs Securities and Exchange Commission American Accounting Association Governmental Accounting Standards Board Financial Executives Institute Institute of Management Accountants

14. Environ - 14 “FINANCIAL STATEMENT PACKAGE”  Formal financial statements  Footnotes  Supplementary information  Attestation reports

15. Environ - 15 FINANCIAL STATEMENTS  Statement of Financial Position (Balance Sheet)  Income Statement (Earnings Statement) –Statement of Comprehensive Income  Statement of Retained Earnings (Stockholders’ Equity)  Statement of Cash Flows

16. Environ - 16 ATTESTATION REPORTS  Management Report  Audit Committee Report  Independent Auditor’s Report