Chapter 1 Financial Accounting and Accounting Standards
Other means of financial reporting that are not financialstatements include the presidentâs letter or supplementaryschedules in the corporate annual report, prospectuses, reportsfiled with government agencies, news releases, managementforecasts, and social or environmental impact statements.
a) The objectives of Financial Reporting The objective:
The objective is to prepare financial information that is usefulto present and potential equity investors, lenders and otherstakeholders in taking decision
b) General-purpose financialstatements_______________________________________________________________________________________________________________________________________________________________.
c) Entity perspective____________________________________________________________________
d)Provide decision-useful_________________________________________________________________________________________________________________________________________________.
e) The accounting profession has developed a set of standardsand procedures called _________________________________________________________
LO 1.2 Identify the major policy-setting bodies and their rolein the standard-setting process.
Three organizations: Securities and Exchange Commission (SEC):______________________________
American Institute of Certified Public Accountants (AICPA):_______________________________________________________________
Financial Accounting Standards Board (FASB):____________________________
The federal government established the SEC to help develop andstandardize financial information presented to stockholders. Mostcompanies that issue securities to the public or are listed on astock exchange are required to file audited financial statementswith the SEC._____________________________________________________________________________________________________________________________________.
Under the direction of the SEC the__________________________________ was created by the AICPA in_______. It was the first private sector organization that had thetask of setting accounting standards in the United States.
ï· ___________________________________________________ thatnarrowed the wide range of alternative accounting practices then inexistence.
In _______. the __________________________________ was formed tomeet the demand for more structured accounting standards. The APBissued pronouncements on accounting principles until _______. thepronouncements where known as _________________, when it wasreplaced by the __________________________________ .WheatCommitteeâs recommendations resulted in creation of FASB. The FASBrepresents the current rule-making body within the accountingprofession. The mission of the FASB is to establish and improvestandards of financial accounting and reporting for the guidanceand education of the public, which includes issuers, auditors, andusers of financial information.
The FASB differs from the predecessor APB in the following ways:a. __________________________________ b.__________________________________ c.__________________________________ d.__________________________________ e.__________________________________
In 1984, the FASB created the __________________________________.The purpose of the Task Force is to reach a consensus on how toaccount for new and unusual financial transactions that have thepotential for creating differing financial reporting practices.
The FASB issues two major types of pronouncements:
a. When the FASB issues a new standard it is refers as_________________________________to communicate changes to the FASBCodification. They are considered GAAP and must be followed inpractice. o How the FASB has changed US GAAP, including eachspecific amendment to the FASB Codification o Why the FASB decidedto change US GAAP and background information related to the changeo When the changes will be effective and the transition method.
b. __________________________________ The SFACs represent anattempt to move away from the problem-by-problem approach tostandard setting that has been characteristic of the accountingprofession. The Concept Statements are intended to form a cohesiveset of interrelated concepts, a conceptual framework that willserve as tools for solving existing and emerging problems in aconsistent manner. Unlike FASB statements, the Concept Statementsdo not establish GAAP.
Prior to 2009 the FASB issued several type of pronouncementswhich had different levels of authority. The type of pronouncementsare listed in descending order of relative weight of authority theyhad within GAAP
ï· __________________________________
ï· ______________ : these pronouncements refined GAAP byclarifying conflicting or unclear issues relating to previouslyissued standards
ï· ______________ FASB staff issued pronouncements to providemore timely and consistent application guidance and to make narrowand limited revision of standards.
ï· ______________: FASB staff issue these pronouncements toclarify and explain, or elaborate on accounting and reportingproblems.
ï· __________________________________
The FASB board members were CPAs. GAAP The FASB developed theFinancial Accounting Standards Board Accounting StandardsCodification _____________________________ to provide in one placeall the authoritative literature related to a particulartopic._________________________________________________________________________________________________________________
Major sources of GAAP: ï· _______________________________________ï· _______________________________________ ï·_______________________________________
Most countries have recognized the need for more globalstandards. _____________________________________________ and U.S.rule-making bodies are working together to reconcile U.S. GAAP withthe IASB _________________________________________
Major challenges in the financial reporting environment. ï·______________________________________________________________________ï·______________________________________________________________________
