Intermediate Accounting (New Mexico State University)ch01

Intermediate Accounting, 11th Edition Kieso, Weygandt, and Warfield

Chapter 1: Financial Accounting and Accounting StandardsPrepared by Jep Robertson and Renae Clark New Mexico State University Las Cruces, New Mexico

Chapter 1: Financial Accounting and Accounting StandardsAfter studying this chapter, you should be able to:1. Identify the major financial statements and other means of financial reporting. 2. Explain how accounting assists in the efficient use of scarce resources. 3. Identify some of the challenges facing accounting. 4. Identify the objectives of financial reporting.

Chapter 1: Financial Accounting and Accounting Standards5. Explain the need for accounting standards. 6. Identify the major policy-setting bodies and their role in the standards-setting process. 7. Explain the meaning of generally accepted accounting principles. 8. Describe the impact of user groups on the standards-setting process. 9. Understand issues related to ethics and financial accounting.

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.

Accounting and the Efficient Use of Scarce ResourcesFinancial Reporting aids users in the allocation of scarce resources.

Objectives of Financial Reporting by Business EnterprisesThe 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.

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.

The Standard Setting Process: Parties Involved Securities and Exchange Commission (SEC) American Institute of Certified Public Accountants (AICPA) Financial Accounting Standards Board (FASB) Governmental Accounting Standards Board (GASB)

The Financial Accounting Standards Board (FASB) 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

FASB Due Process In establishing financial standards, the FASB follows a due process procedure. The due process procedure gives time to interested persons to make their views known to the Board.

FASB Due Process1 AGENDA 2 3 4

Discussion Memorandum

Public Hearing

Topics for standard setting are identified

The FASB issues initial research and analysis

A public hearing is c

onducted

FASB Due Process4 Exposure Draft 5 Final Standard

The FASB issues an exposure draft (tentative standard)

The FASB evaluates responses and issues the final standard

Major Types of FASB Pronouncements

Standards and Interpretations

Financial Accounting ConceptsTechnical Bulletins Emerging Issues Task Force Statements

Organizational Structure for Setting StandardsFinancial Accounting Foundation

FASBFinancial Accounting Standards Advisory Council

GASBStaff and Task ForceGovernmental Accounting Standards Advisory Council

House of GAAP

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).