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1 The Environment of Financial Reporting
Accounting School · Zhongnan University of Economics & Law
ntermediate Accounntermediate Accountingting
I
中级会计学
Intermediate Accounting 1 The Environment of Financial Reporting
Forewords Forewords
Course nature and objective Teaching methods Test requirements and form Scoring system Brief contents
Intermediate Accounting 1 The Environment of Financial Reporting
I. Accounting information: users, uses,
and GAAP in U.S.A. I. Accounting information: users, uses,
and GAAP in U.S.A.
Companies may obtain capital by issuing capital stock or by borrowing
from lenders
Stock Exchange
Bank
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 Accounting Information Economic Activities and Decision Makingand Decision Making
Accounting Information Economic Activities Accounting Information Economic Activities and Decision Makingand Decision Making
Accumu-late
AccountingInformation
Communi-cate
External User
Internal User
External Decisio
n Making
Internal Decisio
n Making
Company’s Economic Activities
Impact
Impact
Intermediate Accounting 1 The Environment of Financial ReportingIntermediate Accounting 1 The Environment of Financial Reporting
InvestorsCommunity
Board of DirectorsManagementEmployees
Suppliers
Employees
CreditorsCustomers
Analysts
Government
Major Internal and External Stakeholder Groups
Major Internal and External Stakeholder Groups
Intermediate Accounting 1 The Environment of Financial Reporting
Intermediate Accounting 1 The Environment of Financial Reporting
Comparison of Financial and Managerial Comparison of Financial and Managerial AccountingAccounting
Comparison of Financial and Managerial Comparison of Financial and Managerial AccountingAccounting
Sources of Authority;
Statement Format;Decision Focus…
Sources of Authority;
Statement Format;Decision Focus…
Could you illustrate differences between
financial and managerial accounting?
Could you illustrate differences between
financial and managerial accounting?
Intermediate Accounting 1 The Environment of Financial Reporting
Financial ReportingFinancial ReportingFinancial ReportingFinancial 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.
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.
Intermediate Accounting 1 The Environment of Financial Reporting
Financial ReportingFinancial ReportingFinancial ReportingFinancial 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.
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.
Intermediate Accounting 1 The Environment of Financial Reporting
Financial ReportingFinancial ReportingFinancial ReportingFinancial 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.
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.
Intermediate Accounting 1 The Environment of Financial Reporting
Financial ReportingFinancial Reporting Financial ReportingFinancial 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.
Intermediate Accounting 1 The Environment of Financial Reporting
Generally Accepted AccountingGenerally Accepted AccountingPrinciples (GAAP)Principles (GAAP)
Generally Accepted AccountingGenerally Accepted AccountingPrinciples (GAAP)Principles (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.
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.
Intermediate Accounting 1 The Environment of Financial Reporting
Hierarchy of Sources of GAAPHierarchy of Sources of GAAPHierarchy of Sources of GAAPHierarchy 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 Statements of 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
Higher Authority Lower Authority A B C D E
Committee on Accounting Procedures
(CAP)Born: 1939Died: 1959
Pronouncements: Accounting Research Bulletins
2. The development of accounting
standards in U.S. -CAP
2. The development of accounting
standards in U.S. -CAP
Intermediate Accounting 1 The Environment of Financial Reporting
Accounting Principles
Board(APB)
Born: 1959Died: 1973
Pronouncements: APB Opinions
Intermediate Accounting 1 The Environment of Financial Reporting
2. The development of accounting
standards in U.S. -APB
2. The development of accounting
standards in U.S. -APB
Financial Accounting
Standards Board(FASB)
Born: 1973Died:
Pronouncements: Statements of Financial Accounting Standards
Intermediate Accounting 1 The Environment of Financial Reporting
2. The development of accounting
standards in U.S. -FASB
2. The development of accounting
standards in U.S. -FASB
Intermediate Accounting 1 The Environment of Financial Reporting
Structure of the FASBStructure of the FASBStructure of the FASBStructure of the FASB
Financial Accounting Standards Advisory Council
(approximately 30 members)
Financial Accounting Standards Board
(7 members)
Appoint, fund, and oversee
Financial Accounting Foundation (16-member board of trustees)
Advise
ContinuedContinuedContinuedContinued
Intermediate Accounting 1 The Environment of Financial Reporting
Structure of the FASBStructure of the FASBStructure of the FASBStructure of the FASB
Financial Accounting Standards Board
(7 members)
Task Forces of the Standards Board
(including Emerging Issues Task Force)
Appoint
Consult
Support
Administrative Administrative StaffStaff
Research and Research and Technical StaffTechnical Staff Consult
Intermediate Accounting 1 The Environment of Financial Reporting
Types of Pronouncements Issued by the Types of Pronouncements Issued by the FASBFASB
Types of Pronouncements Issued by the Types of Pronouncements Issued by the FASBFASB
Statements of Financial Accounting Standards Interpretations Technical Bulletins Statements of Financial Accounting Concepts Other Pronouncements
Intermediate Accounting 1 The Environment of Financial Reporting
FASB Operating ProceduresFASB Operating ProceduresFASB Operating ProceduresFASB Operating Procedures
Identify Topic
Appoint Task Force
Conduct Research
Issue Discussion
Memorandum or Invitation to
Comment
Deliberate on Findings
Hold Public Hearings
Issue Exposure
Draft
ContinuedContinuedContinuedContinued
Intermediate Accounting 1 The Environment of Financial Reporting
FASB Operating ProceduresFASB Operating ProceduresFASB Operating ProceduresFASB Operating Procedures
From previous
page
Issue Exposure
Draft
Hold Public Hearings
Modify Exposure
Drafts
Vote (super-
majority)
Issue Statement
Intermediate Accounting 1 The Environment of Financial Reporting
FASB Authority Sources-- Overview FASB Authority Sources-- Overview
• American Acct.InstructorsInstructors
Association
Gov’t RegulatorsGov’t Regulators• SEC• State Boards
of Public Acct.
Statement PreparersStatement Preparers• Financial Executives
Institute• IMA• Individual Corps
AuditorsAuditors• AICPA• State societies of
CPAs• Major audit firms
FASB
Intermediate Accounting 1 The Environment of Financial Reporting
3. Other organizations currently
influencing GAAP in U.S. 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)
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)
ContinuedContinuedContinuedContinued
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)
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)
Intermediate Accounting 1 The Environment of Financial Reporting
Securities Exchange Commission (1933-present)
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.
Intermediate Accounting 1 The Environment of Financial Reporting
American Institute of Certified Public Accountants
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.
Intermediate Accounting 1 The Environment of Financial Reporting
American Accounting AssociationAmerican Accounting Association
The American Accounting
Association (AAA) is primarily an
organization for accounting professors.
Intermediate Accounting 1 The Environment of Financial Reporting
Internal Revenue ServiceInternal Revenue Service
The Internal Revenue Service (IRS) has the
primary goal of equitable collecting
revenue.
Intermediate Accounting 1 The Environment of Financial Reporting
4. Ethics in the accounting
environment 4. Ethics in the accounting
environment
Accountants are often faced with ethical dilemmas (ethical conflicts) in their professional roles.
Accountants are often faced with ethical dilemmas (ethical conflicts) in their professional roles.
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
ResponsibilitiesResponsibilities
In carrying out their responsibilities as
professionals, members should exercise sensitive
professional judgment in all their activities.
In carrying out their responsibilities as
professionals, members should exercise sensitive
professional judgment in all their activities.
ContinuedContinuedContinuedContinued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
The Public InterestThe 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.
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.
ContinuedContinuedContinuedContinued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
IntegrityIntegrity
To maintain and broaden public confidence,
members should perform all professional
responsibilities with the highest sense of integrity.
To maintain and broaden public confidence,
members should perform all professional
responsibilities with the highest sense of integrity.
ContinuedContinuedContinuedContinued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
Objectivity and IndependenceObjectivity 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.
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.
ContinuedContinuedContinuedContinued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
Due CareDue 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.
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.
ContinuedContinuedContinuedContinued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
Principles of the AICPA Code Principles of the AICPA Code of Professional Conductof Professional Conduct
Scope and Nature of ServiceScope 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.
A member in public practice should observe the Principles of the CPC in determining the scope and nature of services
to be provided.
Intermediate Accounting 1 The Environment of Financial Reporting
5. Comparison of the development of accounting standards in China and in
U.S.
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.?
Could you compare the development of accounting standards in China and in U.S.?
The EndThe End