Chapter

1-1
Chapter
1-2
C H A P T E R C H A P T E R 1 1
FINANCIAL ACCOUNTING AND FINANCIAL ACCOUNTING AND
ACCOUNTING STANDARDS ACCOUNTING STANDARDS
Intermediate Accounting
13th Edition
Kieso, Weygandt, and Warfield
Chapter
1-3
1. 1. Identify the major financial statements and other means of Identify the major financial statements and other means of
financial reporting. financial reporting.
2. 2. Explain how accounting assists in the efficient use of scarce Explain how accounting assists in the efficient use of scarce
resources. resources.
3. 3. Describe some of the challenges facing accounting. Describe some of the challenges facing accounting.
4. 4. List the objectives of financial reporting. List the objectives of financial reporting.
5. 5. Explain the need for accounting standards. Explain the need for accounting standards.
6. 6. Identify the major policy Identify the major policy--setting bodies and their role in the setting bodies and their role in the
standard standard--setting process. setting process.
7. 7. Explain the meaning of generally accepted accounting principles Explain the meaning of generally accepted accounting principles
(GAAP) and the role of the Codification for GAAP. (GAAP) and the role of the Codification for GAAP.
8. 8. Describe the impact of user groups on the rule Describe the impact of user groups on the rule--making process. making process.
9. 9. Understand issues related to ethics and financial accounting. Understand issues related to ethics and financial accounting.
Learning Objectives Learning Objectives Learning Objectives Learning Objectives
Chapter
1-4
Securities and Securities and
Exchange Exchange
Commission Commission
American Institute of American Institute of
CPAs CPAs
Financial Accounting Financial Accounting
Standards Board Standards Board
Changing role of the Changing role of the
AICPA AICPA
Financial Financial
Statements and Statements and
Financial Reporting Financial Reporting
Parties Involved in Parties Involved in
Standard Setting Standard Setting
Generally Accepted Generally Accepted
Accounting Accounting
Principles Principles
Issues in Financial Issues in Financial
Reporting Reporting
Accounting and Accounting and
capital allocation capital allocation
Challenges Challenges
Objectives Objectives
Need to develop Need to develop
standards standards
FASB Codification FASB Codification Political environment Political environment
Expectations gap Expectations gap
International International
accounting standards accounting standards
Ethics Ethics
Financial Accounting and Accounting Standards Financial Accounting and Accounting Standards Financial Accounting and Accounting Standards Financial Accounting and Accounting Standards
Chapter
1-5
LO 1 Identify the major financial statements and other means of financial reporting LO 1 Identify the major financial statements and other means of financial reporting. ...
Financial Statements and Financial Reporting Financial Statements and Financial Reporting Financial Statements and Financial Reporting Financial Statements and Financial Reporting
Essential characteristics of accounting are:
(1) the identification, measurement, and
communication of financial information about
(2) economic entities to
(3) interested parties.
Chapter
1-6
Financial Financial
Information
Accounting?
Identifies
and
Measures
and
Communicates
Balance Sheet
Income Statement
Statement of Cash
Flows
Statement of
Owners or
Stockholders Equity
Note Disclosures
Presidents letter
Prospectuses,
SEC Reporting
News releases
Forecasts
Environmental
Reports
Etc.
GAAP Not GAAP
Financial Statements Additional Information Economic Entity
LO 1 Identify the major financial statements and other means of financial reporting LO 1 Identify the major financial statements and other means of financial reporting. ...
Financial Statements and Financial Reporting Financial Statements and Financial Reporting Financial Statements and Financial Reporting Financial Statements and Financial Reporting
Chapter
1-7
LO 1 Identify the major financial statements and other means of financial reporting LO 1 Identify the major financial statements and other means of financial reporting. ...
What is the purpose of information presented in What is the purpose of information presented in
notes to the financial statements? notes to the financial statements?
a. a. To provide disclosure required by generally To provide disclosure required by generally
accepted accounting principles. accepted accounting principles.
b. b. To correct improper presentation in the financial To correct improper presentation in the financial
statements. statements.
c. c. To provide recognition of amounts not included in To provide recognition of amounts not included in
the totals of the financial statements. the totals of the financial statements.
d. d. To present managements responses to auditor To present managements responses to auditor
comments. comments.
Review Review
Financial Statements and Financial Reporting Financial Statements and Financial Reporting Financial Statements and Financial Reporting Financial Statements and Financial Reporting
Chapter
1-8
Accounting and Capital Allocation Accounting and Capital Allocation Accounting and Capital Allocation Accounting and Capital Allocation
Resources are limited. Efficient use of resources often
determines whether a business thrives.
Financial Financial
Reporting Reporting
Information to help Information to help
users with capital users with capital
allocation decisions. allocation decisions.
Users Users
Investors, creditors, Investors, creditors,
and other users and other users
Capital Allocation Capital Allocation
The process of The process of
determining how and determining how and
at what cost money at what cost money
is allocated among is allocated among
competing interests. competing interests.
LO 2 Explain how accounting assists in the efficient use of scare resources. LO 2 Explain how accounting assists in the efficient use of scare resources.
Illustration 1-1
Capital Allocation Process
Chapter
1-9
An effective process of capital allocation is critical to a An effective process of capital allocation is critical to a
healthy economy, which healthy economy, which
a. a. promotes productivity. promotes productivity.
b. b. encourages innovation. encourages innovation.
c. c. provides an efficient and liquid market for buying provides an efficient and liquid market for buying
and selling securities. and selling securities.
d. d. All of the above. All of the above.
Accounting and Capital Allocation Accounting and Capital Allocation Accounting and Capital Allocation Accounting and Capital Allocation
LO 2 Explain how accounting assists in the efficient use of scare resources. LO 2 Explain how accounting assists in the efficient use of scare resources.
Review Review
Chapter
1-10
Challenges Facing Financial Accounting Challenges Facing Financial Accounting Challenges Facing Financial Accounting Challenges Facing Financial Accounting
Nonfinancial Measurements
Forward-looking Information
Soft Assets
Timeliness
LO 3 Describe some of the challenges facing accounting. LO 3 Describe some of the challenges facing accounting.
Chapter
1-11
Financial reporting should provide information that: Financial reporting should provide information that:
(a) is useful to present and potential investors and creditors and (a) is useful to present and potential investors and creditors and
other users in making rational investment, credit, and similar other users in making rational investment, credit, and similar
decisions. decisions.
(b) helps present and potential investors and creditors and other (b) helps present and potential investors and creditors and other
users in assessing the amounts, timing, and uncertainty of users in assessing the amounts, timing, and uncertainty of
prospective cash receipts. prospective cash receipts.
(c) clearly portrays the economic resources of an enterprise, the (c) clearly portrays the economic resources of an enterprise, the
claims to those resources, and the effects of transactions, claims to those resources, and the effects of transactions,
events, and circumstances that change its resources and events, and circumstances that change its resources and
claims to those resources. claims to those resources.
Objectives of Financial Accounting Objectives of Financial Accounting Objectives of Financial Accounting Objectives of Financial Accounting
LO 4 List the objectives of financial reporting. LO 4 List the objectives of financial reporting.
Chapter
1-12
All of the following are objectives of financial All of the following are objectives of financial
reporting except to provide information reporting except to provide information
a. a. About enterprise resources, claims to those About enterprise resources, claims to those
resources, and changes in them. resources, and changes in them.
b. b. That is useful in investment and credit decisions. That is useful in investment and credit decisions.
c. c. About the management and major shareholders of About the management and major shareholders of
an enterprise. an enterprise.
d. d. That is useful in assessing cash flow prospects. That is useful in assessing cash flow prospects.
Objectives of Financial Accounting Objectives of Financial Accounting Objectives of Financial Accounting Objectives of Financial Accounting
LO 4 List the objectives of financial reporting. LO 4 List the objectives of financial reporting.
Review Review
Chapter
1-13
Need to Develop Standards Need to Develop Standards Need to Develop Standards Need to Develop Standards
Various users
need financial
information
The accounting profession
has attempted to develop a
set of standards that are
generally accepted and
universally practiced.
Financial Statements
Balance Sheet
Income Statement
Statement of Stockholders Equity
Statement of Cash Flows
Note Disclosure
Generally Accepted Generally Accepted
Accounting Principles Accounting Principles
(GAAP) (GAAP)
LO 5 Explain the need for accounting standards. LO 5 Explain the need for accounting standards.
Chapter
1-14
Parties Involved in Standard Setting Parties Involved in Standard Setting Parties Involved in Standard Setting Parties Involved in Standard Setting
Three organizations: Three organizations:
Securities and Exchange Commission (SEC)
American Institute of Certified Public
Accountants (AICPA)
Financial Accounting Standards Board (FASB)
LO 6 Identify the major policy LO 6 Identify the major policy- -setting bodies and setting bodies and
their role in the standard their role in the standard- -setting process. setting process.
Chapter
1-15
Securities Securities Securities Securities
Act of 1933 Act of 1933
Securities Securities Securities Securities
Act of 1934 Act of 1934
Securities and Exchange Commission Securities and Exchange Commission Securities and Exchange Commission Securities and Exchange Commission
Established by federal government
Accounting and reporting for public companies
Encouraged private standard-setting body
SEC requires public companies to adhere to GAAP
SEC Oversight
Enforcement Authority
LO 6 Identify the major policy LO 6 Identify the major policy- -setting bodies and setting bodies and
their role in the standard their role in the standard- -setting process. setting process.
Chapter
1-16
American Institute of CPAs American Institute of CPAs American Institute of CPAs American Institute of CPAs
National professional organization
Established the following:
LO 6 LO 6
Committee on Committee on
Accounting Accounting
Procedures Procedures
Accounting Accounting
Principles Board Principles Board
1939 to 1959
Issued 51 Accounting
Research Bulletins
(ARBs)
Problem-by-problem
approach failed
1959 to 1973
Issued 31 Accounting
Principle Board
Opinions (APBOs)
Wheat Committee
recommendations
adopted in 1973
http://www.aicpa.org/
Chapter
1-17
Financial Accounting Standards Board Financial Accounting Standards Board Financial Accounting Standards Board Financial Accounting Standards Board
Wheat Committees recommendations resulted in the creation of a
the Financial Accounting Standards Board Financial Accounting Standards Board in 1973.
Financial Financial
Accounting Accounting
Foundation Foundation
Selects members of the FASB
Funds their activities
Exercises general oversight.
Financial Financial
Accounting Accounting
Standards Board Standards Board
Financial Accounting Financial Accounting
Standards Advisory Standards Advisory
Council Council
Mission to establish and improve
standards of financial accounting
and reporting.
Consult on major policy issues.
LO 6 Identify the major policy LO 6 Identify the major policy- -setting bodies and setting bodies and
their role in the standard their role in the standard- -setting process. setting process.
Chapter
1-18
FASB FASB
Preparers
(e.g., FEI)
Financial
Community
Government
(SEC, IRS, other
agencies)
Industry
Associations
Business Entities
CPAs and
Accounting Firms
AICPA (AcSEC)
Academicians
Investing Public
Accounting standards, Accounting standards,
interpretations, and bulletins interpretations, and bulletins
Standard Setting Standard Setting
Illustration 1-6
User Groups that Influence
Accounting Standards
LO 8 Describe the impact of user groups on the rule LO 8 Describe the impact of user groups on the rule- -making process. making process.
Chapter
1-19
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