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1 The Environment of Financial Reporting. ntermediate Accounting. I. 中级会计学. Accounting School · Zhongnan University of Economics & Law. Intermediate Accounting 1 The Environment of Financial Reporting. Forewords. Course nature and objective Teaching methods

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slide1
1 The Environment of Financial Reporting

ntermediate Accounting

I

中级会计学

Accounting School ·Zhongnan University of Economics & Law

slide2

Intermediate Accounting 1 The Environment of Financial Reporting

Forewords

  • Course nature and objective
  • Teaching methods
  • Test requirements and form
  • Scoring system
  • Brief contents
slide3

Intermediate Accounting 1 The Environment of Financial Reporting

I. Accounting information: users, uses, and GAAP in U.S.A.

Companies may obtain capital by issuing capital stock or by borrowing from lenders

Bank

Stock Exchange

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Intermediate Accounting 1 The Environment of Financial Reporting

“Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions--in making reasoned choices among alternative courses of action.”(Statement of the Accounting Principles Board No. 4, p. 40)

accounting information economic activities and decision making

Intermediate Accounting 1 The Environment of Financial Reporting

Intermediate Accounting 1 The Environment of Financial Reporting

Impact

External

User

External Decision Making

Accounting

Information

Accumu-

late

Communi-

cate

Internal Decision Making

Internal

User

Impact

Accounting Information Economic Activities and Decision Making

Company’s Economic Activities

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Intermediate Accounting 1 The Environment of Financial Reporting

Major Internal and External Stakeholder Groups

Investors

Government

Community

Board of Directors

Management

Employees

Analysts

Suppliers

Employees

Customers

Creditors

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Intermediate Accounting 1 The Environment of Financial Reporting

Comparison of Financial and Managerial Accounting

Sources of Authority;

Statement Format;

Decision Focus…

Could you illustrate differences between financial and managerial accounting?

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Intermediate Accounting 1 The Environment of Financial Reporting

Financial Reporting

Financial reporting is the process of communicating financial accounting information about a company to external users.

The balance sheet reports, as of a certain point in time, the resources of a company (the assets), the company’s obligations (the liabilities), and the equity of the owners.

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Intermediate Accounting 1 The Environment of Financial Reporting

Financial Reporting

Financial reporting is the process of communicating financial accounting information about a company to external users.

The income statement reports, for a certain interval, the net assets generated through business operations (revenues), the net assets consumed (the expenses), and the net income.

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Intermediate Accounting 1 The Environment of Financial Reporting

Financial Reporting

Financial reporting is the process of communicating financial accounting information about a company to external users.

The statement of cash flows reports, for a certain interval, the amount of cash generated and consumed by a company through operating, financing, and investing activities.

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Intermediate Accounting 1 The Environment of Financial Reporting

Financial Reporting

  • A statement of changes in stockholders’ equity also is included by many companies. This statement summarizes the changes in each item of stockholders’ equity for a period.
  • Accounting estimates and judgments are outlined in the notes to financial statements.
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Intermediate Accounting 1 The Environment of Financial Reporting

Generally Accepted AccountingPrinciples (GAAP)

GAAP are the guidelines, procedures, and practices that a company is required to use in recording and reporting the accounting information in its audited financial statements.

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Intermediate Accounting 1 The Environment of Financial Reporting

Hierarchy of Sources of GAAP

  • Level A
    • FASB Statements and Interpretations
    • APB Opinions
    • CAP Accounting Research Bulletins
    • SEC Regulation S-X and Financial Reporting Releases
  • Level B
    • FASB Technical Bulletins
    • AICPA Industry Audit and Accounting Guides
    • AICPA Statementsof Position
  • Level C
    • Consensus Positions of EITF
    • AICPA Practice Bulletins
  • Level D
    • AICPA Accounting Interpretations
    • FASB “Question and Answer” guides
    • AICPA Accounting Trends and Techniques
  • Level E
    • Other accounting literature

A B C D E

Higher Authority

Lower Authority

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Intermediate Accounting 1 The Environment of Financial Reporting

2. The development of accounting standards in U.S.-CAP

Committee on Accounting Procedures

(CAP)

Born: 1939

Died: 1959

Pronouncements: Accounting Research Bulletins

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Intermediate Accounting 1 The Environment of Financial Reporting

2. The development of accounting standards in U.S.-APB

Accounting Principles Board

(APB)

Born: 1959

Died: 1973

Pronouncements: APB Opinions

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Intermediate Accounting 1 The Environment of Financial Reporting

2. The development of accounting standards in U.S.-FASB

Financial Accounting Standards Board

(FASB)

Born: 1973

Died:

Pronouncements: Statements of Financial Accounting Standards

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Intermediate Accounting 1 The Environment of Financial Reporting

Appoint, fund, and oversee

Financial Accounting Standards Advisory Council (approximately 30 members)

Financial Accounting Standards Board

(7 members)

Advise

Structure of the FASB

Financial Accounting Foundation (16-member board of trustees)

Continued

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Intermediate Accounting 1 The Environment of Financial Reporting

Task Forces of the Standards Board (including Emerging Issues Task Force)

Consult

Support

Appoint

Research and Technical Staff

Consult

Structure of the FASB

Financial Accounting Standards Board

(7 members)

Administrative Staff

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Intermediate Accounting 1 The Environment of Financial Reporting

Types of Pronouncements Issued by the FASB

  • Statements of Financial Accounting Standards
  • Interpretations
  • Technical Bulletins
  • Statements of Financial Accounting Concepts
  • Other Pronouncements
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Intermediate Accounting 1 The Environment of Financial Reporting

Issue Discussion Memorandum or Invitation to Comment

Appoint Task Force

Deliberate on Findings

Conduct Research

Issue Exposure Draft

Hold Public Hearings

FASB Operating Procedures

Identify Topic

Continued

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Intermediate Accounting 1 The Environment of Financial Reporting

Issue Exposure Draft

Modify Exposure Drafts

Vote (super-majority)

Issue

Statement

FASB Operating Procedures

From previous page

Hold Public Hearings

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Intermediate Accounting 1 The Environment of Financial Reporting

Gov’t Regulators

Instructors

  • SEC
  • American Acct.
  • State Boards

Association

of Public Acct.

Statement Preparers

Auditors

  • Financial Executives
  • AICPA
  • State societies of

Institute

CPAs

  • IMA
  • Major audit firms
  • Individual Corps

FASB Authority Sources-- Overview

FASB

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Intermediate Accounting 1 The Environment of Financial Reporting

3. Other organizations currently influencing GAAP in U.S.

  • Securities and Exchange Commission (SEC)
  • American Institute of Certified Public Accountants (AICPA)
  • FASB Emerging Issues Task Force (EITF)
  • Cost Accounting Standards Board (CASB)
  • Internal Revenue Service (IRS)
  • American Accounting Association (AAA)

Continued

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Intermediate Accounting 1 The Environment of Financial Reporting

  • International Accounting Standards Committee (IASC)/International Accounting Standards Board (IASB)
  • Governmental Accounting Standards Board (GASB)
  • Financial Executives International (FEI)
  • Institution of Management Accountants (IMA)
  • Association for Investment Management and Research (AIMR)/ Chartered Financial Analyst Institute (CFAI)
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Intermediate Accounting 1 The Environment of Financial Reporting

Securities Exchange Commission (1933-present)

  • 1929 stock market crash blamed on nonstandard accounting.
  • 1933 Securities Act established SEC to standardize accounting.
  • Created to protect the interests of investors by ensuring full and fair disclosure.
  • Granted legal authority to dictate GAAP.
  • Has tended to defer setting GAAP to the accounting profession.
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Intermediate Accounting 1 The Environment of Financial Reporting

American Institute of Certified Public Accountants

The American Institute of Certified Public Accountants (AICPA) is the professional organization of practicing CPAs in the United States.

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Intermediate Accounting 1 The Environment of Financial Reporting

American Accounting Association

The American Accounting Association (AAA) is primarily an organization for accounting professors.

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Intermediate Accounting 1 The Environment of Financial Reporting

Internal Revenue Service

The Internal Revenue Service (IRS) has the primary goal of equitable collecting revenue.

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Intermediate Accounting 1 The Environment of Financial Reporting

4. Ethics in the accounting environment

Accountants are often faced with ethical dilemmas (ethical conflicts) in their professional roles.

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Intermediate Accounting 1 The Environment of Financial Reporting

Principles of the AICPA Code of Professional Conduct

Responsibilities

In carrying out their responsibilities as professionals, members should exercise sensitive professional judgment in all their activities.

Continued

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Intermediate Accounting 1 The Environment of Financial Reporting

Principles of the AICPA Code of Professional Conduct

The Public Interest

Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism.

Continued

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Intermediate Accounting 1 The Environment of Financial Reporting

Principles of the AICPA Code of Professional Conduct

Integrity

To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

Continued

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Intermediate Accounting 1 The Environment of Financial Reporting

Principles of the AICPA Code of Professional Conduct

Objectivity and Independence

A member should maintain objectivity and be free from conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance.

Continued

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Intermediate Accounting 1 The Environment of Financial Reporting

Principles of the AICPA Code of Professional Conduct

Due Care

A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge the professional responsibility to the best of the member’s ability.

Continued

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Intermediate Accounting 1 The Environment of Financial Reporting

Principles of the AICPA Code of Professional Conduct

Scope and Nature of Service

A member in public practice should observe the Principles of the CPC in determining the scope and nature of services to be provided.

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Intermediate Accounting 1 The Environment of Financial Reporting

5. Comparison of the development of accounting standards in China and in U.S.

Could you compare the development of accounting standards in China and in U.S.?