1. RICHARD G. SCHROEDER MYRTLE W. CLARK JACK M. CATHEY
FINANCIAL ACCOUNTING
THEORY AND ANALYSIS: TEXT AND CASES
10TH EDITION
RICHARD G. SCHROEDER
MYRTLE W. CLARK
JACK M. CATHEY 4

2. THE DEVELOPMENT OF ACCOUNTING THEORY
CHAPTER 1
THE DEVELOPMENT OF ACCOUNTING THEORY

3. Introduction What is theory?
Webster defines theory as:
“Systematically organized knowledge, applicable in a relatively wide variety of circumstances, a system of assumptions, accepted principles and rules of procedure to analyze, predict or otherwise explain the nature of behavior of a specified set of phenomena.”
Normative theory
Positive theory
Why is the development of a general theory of accounting important?
What is the relationship of accounting research to accounting theory? 5

4. THE EARLY HISTORY OF ACCOUNTING
Zenon Papyri
Renaissance
Fra Luca Pacioli
The evolution of joint ventures into ongoing businesses
The impact of the industrial revolution and the progressive movement
The concept of capital maintenance
The accountant as a protector of business interests 6

5. ACCOUNTING IN THE UNITED STATES SINCE 1930
Meetings between NYSE and AIA
AAA
SEC
Securities Act of 1933
Securities Exchange Act of 1934
Committee on Accounting Procedure
Accounting Principles Board
Financial Accounting Standards Board 7

6. THE ACCOUNTING PRINCIPLES BOARD
Formation and structure
Types of pronouncements
APB Opinions
Accounting for the investment tax credit (1961)
APB Opinions 2 & 4
Rule 203
Criticism of the APB
Independence of members
Structure
Response time 8

7. THE FINANCIAL ACCOUNTING STANDARDS BOARD
The Wheat Committee
The Trueblood Committee
The FASB was established 9

8. Structure of the FASB Financial Accounting Foundation Board of
Trustees
Electors
Appoint and
fund
Govern
Appoint |
Appoint and
fund
Financial
Accounting
Standards
Advisory
Committee
(approx.
20 members)
Financial
Accounting
Standards
Board
(5 members)
Task Forces
of the
Standards
Board
Appoint
Admin Staff
Research Staff 10

9. FASB Sarbanes-Oxley Section 108 Mission Types of pronouncements
Statements of Financial Accounting Concepts
Statements of Financial Accounting Standards
Interpretations
Technical Bulletins 11

10. FASB Accounting Standards Codification
July 1, 2009
Single source of GAAP
Effective for interim & annual periods ending after September 15, 2009 12

11. FASB Accounting Standards Codification
Goals:
Simplicity
Accurate representation of GAAP
Up-to-date research
Expectation
Reduce research time
Mitigate noncompliance risk
Real-time updates
Assist FASB 12

12. FASB Accounting Standards Codification
July 1, 2009
No more SFAS
Changes publicized through an ASU
Summarize key provisions
Detailed amendments to FASB Codification
Explain basis for decision 12

13. FASB Emerging Issues Standards Overload
Standard setting as a political process
Economic Consequences 12

14. GAAP Evolution of phrase:
Changed wording of auditor’s certificate brought about by meetings between NYSE and AIA
The APB’s definition
The Auditing Standards Executive Committee’s definition
SAS 69: determining acceptance of a specific principle is difficult
No single reference 13

15. SFAS No. 162
2008
Hierarchy of GAAP 13

16. GAAP Hierarchy LEVEL A: FASB Statements FASB Interpretations
SEC Rules and Interpretive Releases
Accounting Principles Board Opinions (unless amended)
Account Research Bulletins (unless amended)
LEVEL B:
FASB Technical Bulletins
AICPA Industry Audit Guides that have been reviewed by the FASB

17. GAAP Hierarchy LEVEL C:
AcSEC Practice Bulletins that have been reviewed by the FASB
Consensuses reached by the EITF
LEVEL D:
AICPA Accounting Interpretations (no longer issued)
FASB Implementation Guides
Other widely recognized or prevalent accounting practices

18. SFAS No. 168
2009
Codification
Hierarchy
Replaces 162 13

19. Rule 203 Ethics Must consider pronouncements as primary source of GAAP13

20. THE ROLE OF ETHICS IN ACCOUNTING
The public accountant as a watchdog 20

21. Accounting in Crisis – The Events of the Early 2000s
Enron and the Accounting Scandals

22. Accounting in Crisis – The Events of the Early 2000s
Two major changes in the accounting profession have taken place in the wake of the accounting scandals:
Arthur Andersen
formerly one the Big 5 audit firms
has gone out of business
Sarbanes-Oxley Act
President Bush signed into law July 2002
imposes a number of corporate governance rules on publicly traded companies

23. International Accounting Standards
The concept of harmonization
The IASB
The IASB’s objectives:
To formulate and publish in the public interest accounting standards to be observed in the presentation of financial statements and to promote their worldwide acceptance and observance
To work generally for the improvement and harmonization of regulations, accounting standards, and procedures relating to the presentation of financial statements.
41 Statements of Accounting Standards and 10 Statements of Financial Reporting Standards to date
No enforcement authority

24. Prepared by Kathryn Yarbrough, MBA
End of Chapter 1
Prepared by Kathryn Yarbrough, MBA
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