Textbook Notes (363,007)
United States (204,362)
Accounting (115)
ACCT 1201 (75)
Chapter 1

ACCT Chapter 1 Condensed (Day 2).docx

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Northeastern University
ACCT 1201
Ronen Gal-or

Chapter 1 Condensed (Day 2) I. What is Accounting? II. The Four Basic Financial Statements III. Generally Accepted Accounting Principal (GAAP) IV. Management vs. Auditors V. Ethics, Reputation and Legal Liability VI. Types of Business Entities VII. Employment in the Accounting Profession III. Generally Accepted Accounting Principal (GAAP) The measurement rules used to develop the information in financial statements What kinds of accounts require measurement rules? How do you measure the value of a car? Fair market price, blue book value How do you measure the value of a stock investment in another company? How much you could sell stocks for, or the price at which you bought them GAAP vs. IFRS: GAAP is conservative, IFRS is less conservative in many ways In GAAP you value it at the historical price you bought it for until you sell it. In IFRS you value it at the more recent, updated value (which can be subject to hype, worries U.S. due to financial crisis). A. How Are Generally Accepted Accounting Principles Determined? i. Securities and Exchange Commission (SEC) – The U.S. government agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements (SEC oversees GAAP) ii. Financial Accounting Standards Board (FASB) – The private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles (FASB develops GAAP) iii. Changes in GAAP are actively debated, political lobbying takes place, and final rules are a compromise among the wishes of interested parties. New transactions pop up so new rules are needed. This is why your textbook changes and why GAAP changes. SEC oversees FASB, the stock markets, and the PCAOB FASB writes GAAP IASB writes IFRS PCAOB writes auditing standards AICPA writes ethics rules for accountants 1 B. GAAP vs. IFRS i. Since 2002, there has been substantial movement toward the adoption of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB develops IFRS). ii. Examples of jurisdictions requiring the use of IFRS either currently or by 2012 include: 1. European Union 2. Australia and New Zealand 3. Hong Kong, India, Malaysia, and South Korea 4. Israel and Turkey 5. Brazil and Chile 6. Canada and Mexico iii. In the United States, the Securities and Exchange Commission now allows foreign companies whose stock is traded in the U.S. to use IFRS and is considering requiring the use of IFRS for U.S. domestic companies by 2014. GAAP is required in U.S., IFRS is optional in U.S. (having IFRS accounting all
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