intermediate financial accounting ch 1
DESCRIPTION
Intermediate Financial Accounting CH 1 for BUS 165 ATRANSCRIPT
1-1
PREVIEW OF CHAPTER 1
1-2
What is accounting?
Bookkeeping?
Accounting
1-3
Financial Statements and Reporting
Essential characteristics of accounting are:
(1) the identification, measurement, and communication
of financial information about
(2) economic entities to
(3) interested parties
1-4
Accounting and Photography
Bookkeeping
1-5
Financial Statements and Other Means of Financial Reporting Major financial statements include:
Balance Sheet Income Statement Statement of Cash Flows Statement of Shareholders’ (Owners’) Equity
+ [Note Disclosures]
Other forms of financial reporting include: News releases Management forecasts, etc.
1-6
Financial Reporting Aids Capital Allocation
What’s the role for accounting?• Measure performance and prepare financial statement (accountant)
• Validate (auditor)• Analyze (analysts, both credit and equity)
• Quarterly reports from IBM and Goldman Sachs sent stocks tumbling.
• Google share price rises on better than expected earnings
1-7
Provide financial information about the reporting entity that is
useful to
present and potential equity investors,
lenders, and
other creditors
in making decisions in their capacity as capital providers.
Objectives of Financial Reporting
Financial Statements and Reporting
Provide useful information to assist capital allocation
1-8
Decision-Usefulness (i.e., what do investors care about?)
Investors are interested in assessing the company’s
1. ability to generate net cash inflows and
2. management’s ability to protect and enhance the capital
providers’ investments.
Financial reporting should help investors assess both.
Objective of Financial Accounting
1-9
Various users need financial
information
Various users need financial
information
The accounting profession has
attempted to develop a set of
standards that are generally
accepted and universally
practiced.
Financial StatementsBalance SheetIncome StatementStatement of Stockholders’ EquityStatement of Cash FlowsNote Disclosure
Financial StatementsBalance SheetIncome StatementStatement of Stockholders’ EquityStatement of Cash FlowsNote Disclosure
Generally Accepted Accounting Principles
(GAAP)
Generally Accepted Accounting Principles
(GAAP)
The Need To Develop Standards
1-10
Parties Involved In Standard Setting
Three organizations:
Securities and Exchange Commission (SEC).
• Federal agency;
• Requires registrants to adhere to GAAP.
Two private sector entities that develop accounting
standards:
American Institute of Certified Public Accountants
(AICPA).
Financial Accounting Standards Board (FASB).
1-11
Principles that have substantial authoritative support.
Major sources of GAAP:
FASB Standards, Interpretations, and Staff Positions.
APB Opinions.
APB: Accounting Principle Board, FASB’s predecessor
AICPA Accounting Research Bulletins.
Generally Accepted Accounting Principles
1-12
Goal in developing the Codification is to provide in one place all
the authoritative literature related to a particular topic.
Creates one level of GAAP, which is considered authoritative.
All other accounting literature is considered non-authoritative.
FASB Codification
FASB has developed the Financial Accounting
Standards Board Codification Research System
(CRS). CRS is an online real-time database that
provides easy access to the Codification.
Generally Accepted Accounting Principles
1-13
Issues in Financial Reporting
GAAP is as
much a product
of political
action as they
are of careful
logic or
empirical
findings.
GAAP in a Political EnvironmentIllustration 1-6User Groups that Influence the Formulation of Accounting Standards
1-14
Two sets of standards accepted for international use:
U.S. GAAP, issued by the FASB.
International Financial Reporting Standards (IFRS),
issued by the IASB.
International Accounting Standards
Issues in Financial Reporting
1-15
In accounting, we frequently encounter ethical dilemmas.
GAAP does not always provide an answer.
Doing the right thing is not always easy or obvious.
Ethics in the Environment of Financial Accounting
Issues in Financial Reporting
“The Generally Accepted Accounting Principles weren’t as generally accepted as I thought.“