Your SlideShare is downloading. ×
Chapter One
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Chapter One

452
views

Published on


0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
452
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
13
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide
  • Efficient Markets Hypothesis— Implies alternative accounting methods will not significantly affect stock prices Implies investors receive information form a variety of sources
  • Wheat committee
  • 13 Example—options Congress, SEC, EITF
  • Why is there a conceptual framework? The need for a logical and cohesive set of interrelated concepts serve as a guide for the development of financial accounting and reporting standards
  • Key is decision making Liquidity, Solvency, Financial Flexibility, Profitability
  • Qualities to make F.S. most useful for decision making Must be Understandable
  • Representational Faithfulness to Underlying Economic Events Neutrality—Free from Bias
  • Monetary Unit—must be stable Ex. Cost of gas 10 years ago
  • Matching revenues to expenses Ex. depreciation
  • Assets—future economic benefits Liabilities—future claims against assets
  • Also consider downside risk
  • Relativism—widespread acceptance Absolutism—rules Utilitarianism--stakeholders
  • Problem
  • Transcript

    • 1. Chapter 1 The Conceptual Framework and Objectives of Financial Reporting
    • 2. What is Accounting Used For?
      • Decision Making
        • Evaluation of past performance
        • Expectations of future performance
      • Allocation of Resources
    • 3. Free enterprise principle
      • Resources will flow to the segments of the economy
      • that will use them most efficiently in the creation of new wealth
    • 4. Role of Accounting Accounting Information Investors
    • 5. Chapter 1 -- Learning Objective
      • 2. Trace the evolution of generally accepted accounting principles
      • GAAP
    • 6. GAAP
      • A consensus
      • The conventions, rules, and procedures necessary to define accepted accounting practice
    • 7. Sources of GAAP
      • Committee on Accounting Procedures
      • Accounting Principles Board
      • Financial Accounting Principles Board
    • 8. Committee on Accounting Procedure CAP 1939 - 1959
      • First private body concerned with writing accounting rules
      • Issued 51 Accounting Research Bulletins
      • Members were practicing CPAs
      • An “ad hoc” approach
    • 9. Accounting Principles Board APB 1959 - 1973
      • Appointed by the AICPA
      • Primarily from public accounting
      • Issued 31 APB Opinions
      • Criticized for failing to deal with problems on a timely basis
      • Many saw a need for independence
    • 10. Financial Accounting Foundation FAF Established 1973
      • Appoints members of Financial Accounting Standards Board (FASB)
      • Appoints members of Financial Accounting Standards Advisory Committee (FASAC)
      • Provides financial support to FASB
      • Contributions from industry & CPA firms
    • 11. Financial Accounting Standards Board FASB Established 1973
      • 7 members
      • Members are full time, well paid
      • Responsible only to FAF
      • Passage of standards requires 5 out of 7 votes
    • 12. Securities and Exchange Commission
      • Appointed by President
      • Reports to Congress
      • Final authority on reporting by public companies
    • 13. International Accounting Standards
      • International Accounting Standards Committee
      • Standards less specific
      • “Principle Based”
      • Not allowed by SEC
    • 14. Accounting Standard Setting
      • A political process
    • 15. Chapter 1 -- Learning Objective
      • 3. Relate the objectives of financial reporting as stated in the conceptual framework to the accounting process
    • 16. Conceptual Framework
      • Statements of Financial Accounting Concepts (SFACs)
      • Purpose:
        • Establish the objectives and concepts to be used by the FASB in developing standards for financial reporting
    • 17. Conceptual Framework SFACs
      • Objectives of Financial Reporting
      • Qualitative Characteristics
      • Objectives for Nonbusiness Organizations
      • Recognition & Measurement
      • Elements of Financial Statements
    • 18. Objectives of Financial Reporting SFAC No. 1
      • To provide information:
      • 1. Useful in investment and credit decisions
      • 2. Useful in assessing future cash flows
      • 3. About enterprise resources, claims and changes
    • 19. Chapter 1 -- Learning Objective
      • 4. Interpret the meaning of the qualitative characteristics of accounting information enumerated in the conceptual framework
    • 20. Objectives
      • Useful for decision making
      • Information about future cash flows
      • Information about resources, claims to resources, changes in resources
        • Liquidity
        • Solvency
        • Flexibility
        • Profitability
    • 21. Qualitative Characteristics SFAC No. 2
      • Primary Qualities
        • Understandability
        • Relevance
        • Reliability
      • Secondary Qualities
        • Comparability
        • Consistency
    • 22. Relevance
      • The capacity for information to make a difference
      • Predictive Value
      • Feedback Value
      • Timeliness
    • 23. Reliability
      • User has confidence in the information:
      • Verifiability
      • Representational Faithfulness
      • Neutrality
    • 24. Secondary Qualities
      • Comparability—With other enterprises
      • Consistency—Period to Period
        • Changes in accounting must be to Better principles
    • 25. Constraints
      • Measurement and reporting practices are affected by:
      • Cost/benefits
      • Materiality
      • Industry practices
    • 26. Chapter 1 -- Learning Objective
      • 5. Understand the assumptions and conventions underlying the recognition and measurement of accounting data for financial reporting
    • 27. Recognition and Measurement SFAC No. 5
      • Recognition
        • Reporting an item in the financial statements
      • Measurement
        • The amount reported for an item in financial statements
    • 28. Recognition Criteria
      • Definition
        • Must meet definition of an element of financial statements found in SFAC No. 6
      • Measurability
        • Must be measurable with sufficient reliability
      • Relevance
        • Must be capable of making a difference
      • Reliability
        • Must be representationally faithful, verifiable & neutral
    • 29. Basic Accounting Assumptions:
      • Economic entity
      • Going concern (Continuity)
      • Periodicity
      • Monetary unit
    • 30. Basic Conventions and Practices
      • Cost or other measurement attributes
      • Revenue recognition
      • Matching
      • Conservatism
      • Full disclosure
    • 31. Chapter 1 -- Learning Objective
      • 6. Distinguish among the elements of the financial statements
    • 32. Elements of Financial Statements SFAC No. 6
      • Basic Building Blocks
    • 33. Elements of Financial Statements
      • Assets
      • Liabilities
      • Equity
      • Investments by owners
      • Distributions to owners
      • Comprehensive Income
      • Revenues
      • Expenses
      • Gains
      • Losses
      Balance Sheet Income Statement
    • 34. Chapter 1 -- Learning Objective
      • 7. Understand how accounting information is used in investment decision models
    • 35. Investment Decision Model Goal Factors Operating efficiency Capital generation Asset productivity Financial leverage Growth potential Income Statement Balance Sheet
    • 36. Chapter 1 -- Learning Objective
      • 8. Develop an appreciation of ethical and moral considerations in business
    • 37. Decision Model
      • Determine the Facts
      • Define the ethical issues
      • Identify major values
      • Specify the Alternatives
      • Compare values and alternatives
      • Assess consequences
      • Decide
    • 38.
      • 1. Determine the facts
      • 2. Define the ethical issue
      • 3. Identify major values
      • 4. Specify the alternatives
      • 5. Compare values and alternatives
      • 6. Assess the consequences
      • 7. Make the decision
      Decision Model for Ethical Dilemmas