1 / 50

INTERMEDIATE ACCOUNTING

INTERMEDIATE ACCOUNTING. 14th EDITION. K. Fred Skousen Earl K. Stice James D. Stice. This electronic presentation prepared by Douglas Cloud, Pepperdine University.

sarila
Download Presentation

INTERMEDIATE ACCOUNTING

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. INTERMEDIATE ACCOUNTING 14th EDITION K. Fred Skousen Earl K. Stice James D. Stice

  2. This electronic presentation prepared by Douglas Cloud, Pepperdine University

  3. Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada

  4. FINANCIAL REPORTING

  5. Learning Objectives • Describe the purpose of financial reporting and identify the primary financial statements. • Explain the function of accounting standards and describe the role of the FASB in setting these standards in the United States. • Recognize the importance to financial reporting of the SEC, AICPA, AAA, and IRS.

  6. Learning Objectives • Realize the growing importance and relevance of international accounting issues to the practice of accounting in the United States and understand the role of the IASC in international accounting standard setting. • Understand the significance of the FASB’s conceptual framework in outlining the qualities of good accounting information, defining terms such as asset and revenue, and providing guidance about appropriate recognition, measurement, and reporting.

  7. Learning Objectives • Identify career opportunities related to accounting and financial reporting in the fields of public accounting, corporate accounting, financial analysis, banking, and consulting.

  8. Definition for Accounting “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.” (APB 4.40).

  9. Definition for Accounting Key features of this definition: • Accounting provides a vital service in today’s business environment. • Accounting is concerned primarily with quantitative financial information that is used in conjunction with qualitative evaluations in making judgments.

  10. Definition for Accounting Key features of this definition: • Accounting information is used in making decisions about how to allocate scarce resources. • Although accountants place much emphasis on reporting what has already occurred, this past information is intended to be useful in making economic decisions about the future.

  11. Users of Accounting Information All parties interested in the financial health of a company are called stakeholders.

  12. Users of Accounting Information Two major classifications of stakeholders Internal users, who make decisions directly affecting the internal operations of the enterprise. External users, who make decisions concerning their relationship to the enterprise.

  13. Major Internal and External Stakeholder Groups Investors Government Community Board of Directors Management Employees Analysts Suppliers Employees Customers Creditors

  14. Financial Reporting 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. 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. 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.

  15. Financial Reporting Accounting estimates and judgments are outlined in the notes to financial statements.

  16. Financial Statement Relationships Statement of Cash Flows Cash From Op $ 973,000 Cash From Inv (1,188,000) Cash From Fin 245,000 Net Increase $ 30,000 Beg. Cash 80,000 End. Cash $ 110,000 Balance Sheet 12/31/X1 Balance Sheet 12/31/X0 Income Statement Cash $ 80,000 Other 4,550,000 Total $4,630,000 Liabilities $2,970,000 Stock 900,000 R/E 760,000 Total $4,630,000 Cash $ 110,000 Other 4,975,000 Total $5,085,000 Liabilities $2,860,400 Stock 1,000,000 R/E 1,224,600 Total $5,085,000 Revenues $12,443,000 Expenses 11,578,400 Net Income $ 864,600 Statement of Retained Earnings R/E 12/31/X0 $ 760,000 Net Income 864,600 Dividends (400,000) R/E 12/31/X1 $1,224,600

  17. Relative Frequency of Audit Opinions (1998) Companies Unqualified 5,978 Unqualified With Explanatory Language 1,030 Qualified 6 No opinion 2 Adverse 0 Total 7,016

  18. Accounting Standard-Setting Organizations FAF SEC AICPA Other GASAC GASB FASAC FASB AcSEC U.S. Gov't IAPC IASC EITF

  19. Securities and Exchange Commission (1934-present) • 1929 stock market crash blamed on nonstandard accounting. • 1934 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.

  20. U.S. Accounting Standard- Setting Bodies Committee on Accounting Procedures (CAP) Born: 1939 Died: 1959 Pronouncements: Accounting Research Bulletins

  21. U.S. Accounting Standard- Setting Bodies Accounting Principles Board (APB) Born: 1959 Died: 1973 Pronouncements: APB Opinions

  22. U.S. Accounting Standards Setting Bodies Financial Accounting Standards Board (FASB) Born: 1973 Died: Pronouncements: Statements of Financial Accounting Standards

  23. Accounting Standard-Setting Organizations FAF SEC AICPA Other GASAC GASB FASAC FASB AcSEC U.S. Gov't IAPC IASC EITF

  24. Financial AccountingStandards Board (1973-present) • Seven full-time members comprise this independent body. • Issues Statements of Financial Accounting Standards. • Determines GAAP by “due process.” • Works within theconceptual framework.

  25. 25 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

  26. FASB Authority Sources--SEC SEC FASB Registrant Companies • Maintains power to regulate registrant companies. Congress

  27. FASB Authority Sources-- AICPA • Provides authority to the FASB through its Code of Professional Conduct Rule 203. • AICPA members must show that client financial statements comply with FASB pronouncements (GAAP). • AICPA grants continuing membership to its members who comply with Rule 203.

  28. Continuing Membership FASB Authority Sources -- AICPA Endorsement of FASB through Rule 203 AICPA FASB Members of the AICPA GAAP

  29. FASB “Due Process” • Topic or project added to agenda. • Task force assembled to study topic. • Research and analysis performed by FASB technical staff. • Discussion Memorandum drafted and released. • Public hearing, usually 60 days later, is held.

  30. FASB “Due Process” • Board analyzes and evaluates public response. • Exposure Draft prepared and released. • Sixty-day exposure period allows for public comment. • Committee studies public response to exposure draft and prepares final draft. • Board votes on final draft (5-2 margin required for passage).

  31. SEC Authoritative Literature • Financial Reporting Releases • Staff Accounting Bulletins • Accounting and Auditing Enforcement Releases • Accounting Series Releases

  32. Level A FASB Statements and Interpretations APB Opinions CAP Accounting Research Bulletins Level B FASB Technical Bulletins AICPA Industry Audit and Accounting Guides AICPA Statements of Position Level C Consensus Positions of EITF AICPA Practice Bulletins Level D AICPA Accounting Interpretations FASB “Question and Answer” guides Other widely recognized industry practices What is GAAP?

  33. International Accounting Standards Committee The International Accounting Standards Committee (ISAC) was formed in 1973 to develop worldwide accounting standards. The accounting standards produced by the International Accounting Standards Committee are referred to as International Accounting Standards (IASs).

  34. Conceptual Framework Overview Objectives of Financial Reporting Qualitative Characteristics of Information Accounting Elements of Financial Statements Recognition and Measurement Concepts Assumptions Principles Constraints

  35. Objectives of Financial Reporting • Usefulness. • Understandability. • Target audience: investors and creditors. • Assessing future cash flows. • Evaluating economic resources. • Primary focus on earnings.

  36. Objectives of Financial Reporting Usefulness Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.

  37. Objectives of Financial Reporting Understandability Financial reporting should provide information that is understandable to one who has a reasonable knowledge of accounting and business and who is willing to study and analyze the information presented.

  38. Objectives of Financial Reporting Target Audience While there are many potential users of financial reports, the objectives are directed primarily toward investors and creditors.

  39. Objectives of Financial Reporting Assessing Future Cash Flows Financial reporting should provide information that is useful in assessing amounts, timing, and uncertainty (risk) of prospective cash flows.

  40. Objectives of Financial Reporting Evaluating Economic Resources Financial reporting should also provide information about an enterprise’s assets, liabilities, and owners’ equity to help investors, creditors, and others evaluate the financial strengths and weaknesses of the enterprise and its liquidity and solvency.

  41. Objectives of Financial Reporting Primary Focus on Earnings Information about enterprise earnings, measured by accrual accounting, generally provides a better basis for forecasting future performance than does information about current cash receipts and disbursements.

  42. Qualitative Characteristics of Accounting Information Primary Qualities A. Relevance 1. Predictive Value 2. Feedback Value 3. Timeliness B. Reliability 1. Verifiability 2. Representational Faithfulness 3. Neutrality Secondary Qualities A. Comparability B. Consistency

  43. Qualitative Characteristics of Accounting Information Decision Makers Benefits > Cost Understandability Decision Usefulness Relevance Reliability Predictive Feedback Representational Timeliness Verifiability Neutrality Value Value Faithfulness Consistency Comparability Materiality

  44. What About Conservatism? The concept of conservatism can be summarized as follows: When in doubt, recognize all losses but don’t recognize any gains.

  45. Elements of Financial Statements • Assets • Liabilities • Equity • Investment • Distribution • Comprehensive Income • Revenues • Expenses • Gains • Losses

  46. Recognition andMeasurement Concepts Assumptions Principles Constraints • Economic Entity • Going Concern • Arm’s-Length Transactions • Monetary Unit • Periodicity • Historical Cost • Revenue Recognition • Matching • Full Disclosure • Cost-Benefit • Materiality • Industry Practice • Conservatism

  47. Financial Statements v.Financial Reporting A “full set of financial statements” is necessary to meet the objectives of financial reporting. Included in the recommended set of general-purpose financial statements are reports that show: • Financial position at the end of the period. • Earnings (net income) for the period. • Cash flows during the period. • Investments by and distributions to owners during the period. • Comprehensive income for the period.

  48. Traditional Assumptions of the Accounting Model • Economic entity. • Going concern. • Arm’s-length transactions. • Stable monetary unit. • Accounting period.

  49. Careers in Financial Accounting • Public accounting. • Company accounting. • User (analyst, banker, consultant).

  50. The End

More Related