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37 Cards in this Set
- Front
- Back
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What are the essential characteristics of accounting?
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1. Identify, measure, communicate financial info
2. info provided for economic entities 3. info to interested parties |
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External Parties
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Investors, potential investors, creditors, government agencies
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Internal Parties
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Managers and other employees
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Who are the interested parties?
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External and Internal
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How is financial info communicated to investors and creditors?
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Financial Statements and Related Disclosure Notes
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Financial Statements (GAAP)
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Balance Sheet, Income Statement, Cash Flows, Stock&Owner Equity
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Other Financial Reports
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Presidential Letter, Prospectuses, news releases, forecasts, environmental impact, government agencies
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What is the purpose of information presented in notes to the financial statements?
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To provide, disclosure required by GAAP
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What do creditors and investors need financial info for?
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To determine how to allocate capital resources to competing interests (Invest or Lend $$)
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Efficient use of resources....
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Will determine if a business thrives
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What is the objective of financial reporting?
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To provide useful financial info about the reporting entity to current and future equity investors, lenders,
and other creditors in decisions about providing assets(resources) to the entity. |
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What are the general purposes of financial statements?
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Report info to many users with minimal cost
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Who are the primary user group?
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Investors
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What is the entity's perspective on financial statements?
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Separate and distinct from the owners
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What is the proprietary perspective on financial statements?
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Financial Reporting focused on only the needs of shareholders
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(Decision-Usefulness)
Investors are interested in assessing the company's.... |
Ability to generate net cash inflows and managements ability to protect and enhance the capitol providers investments
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What are accounting standards?
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Rules with authoritative support and practiced universally
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Why do we need Accounting Standards?
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Companies could establish their own standards, which could be confusing, inconsistent and incomparable.
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Who are the primary standard setting bodies?
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SEC, AICPA, FASB
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Describe Securities and Exchange Commission (SEC).
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Established 1933 by Gov.
2 Securities act, 1933-34 Encourage(partner) private standard setting body Requires GAAP Rely on FASB to develop standards |
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What did the American Institute of Public Accountants establish?
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1. 1939-59
Committe on Accounting Procedure(CAP) issued 51 Accounting Research Bulletins(ARB) to deal with acct. problems. (Problem by problem approach failed bc structure) 2. 1959-73 31 APBO (principles approach) Wheat Commitee 1973(created FASB) |
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What were the major purposes of the Accounting Principles Board? (APB)
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1. Advance the written expression of accounting principles, 2. determine appropriate practices, 3. narrow inconsistency and error
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Describe the Accounting Standards Executive Committee(AcSEC).
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Established by AICPA
Speak for AICPA in area of financial accounting and reporting |
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What are the various written communications by the AcSEC?
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1. Audit and Accounting Guides; sumarize acct. practices not in FASB( Casinos, airlines, college, universities, banks, insurance)
2. Statements of Position; guidance on fin. reporting topics until FASB takes over( revise, clarify, audit) 3. Practice Bulletins; AcSEC's views on narrow financial reporting issues not in FASB |
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Describe the Financial Accounting Standards Boards(FASB).
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Created by wheat committee
Mission is to establish and improve standards of financial accounting and reporting |
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What does the Financial Accounting Foundation do? (FAF)
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Selects members of the FASB, fund their activities, exercise general oversight
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What does the Financial Accounting Standards Advisory Council do?
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Consults on major policy issues
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Differences between FASB and APB?
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Smaller Membership
Full-Time, Remunerated Membership Greater Autonomy Increased Independence Broader Representation |
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The first step taken in the establishment of a typical FASB statement is
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Topics are identified and placed on the boards agenda
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What is the due process system of the FASB?
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1. topics id and placed on boards agenda, 2. research and analysis-pros and cons, 3. public hearing on standard, 4. board evaluates research and opinion, 5. board evaluates responses
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What pronouncements does the FASB issue?
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Accounting Standards Updates (Emerging Issues Task Force) and Financial Accounting Concepts(Statements- help move away from problem-problem approach
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What are the most authoritative accounting pronouncements?
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FASB Standards, Interpretations, Staff Positions
APB Opinions AICPA- Accounting Research Bulletins |
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FASB Codification
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All authoritative lit in 1 place
Creates 1 level of GAAP All other acct. literature non-authoratative |
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Which user groups are involved in the rule making process?
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CPA's and Accounting firms, AICPA(AcSEC), Academicians, investing public, business entities, financial community, preparers, government, industry associations
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Issues in Financial Reporting
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Expectation GAAP- public thinks acts should do vs. what accts think they should do
Sarbones-Oxley 2002 Public Company Accounting Oversight board |
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What are the financial reporting challenges?
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Non-financial measurements, forward looking info, soft assets, timeliness, understandability
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What are the international accounting standards?
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US GAAP by FASB or
International Financial Reporting Standards (IFRS) issued by IASB |
