This document provides an overview of financial reporting and accounting standards. It defines accounting as a service that provides quantitative financial information to help users make economic decisions. The three primary financial statements are the balance sheet, income statement, and statement of cash flows. The Financial Accounting Standards Board (FASB) sets accounting standards in the US according to a formal process.

1. INTERMEDIATE ACCOUNTING 14th EDITION K. Fred Skousen Earl K. Stice James D. Stice

2. This electronic presentation prepared by Douglas Cloud, Pepperdine University

3. Task Force Clip Art included in this electronic presentation is used with the permission of New Vision Technology of Nepean Ontario, Canada

4. FINANCIAL REPORTING

11. Users of Accounting Information All parties interested in the financial health of a company are called stakeholders.

12. Users of Accounting Information Internal users, who make decisions directly affecting the internal operations of the enterprise. External users, who make decisions concerning their relationship to the enterprise. Two major classifications of stakeholders

13. Investors Community Board of Directors Management Employees Suppliers Employees Creditors Customers Analysts Government Major Internal and External Stakeholder Groups

14. Financial Reporting 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 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 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 .

15. Accounting estimates and judgments are outlined in the notes to financial statements. Financial Reporting

16. Financial Statement Relationships Balance Sheet 12/31/X0 Cash $ 80,000 Other 4,550,000 Total $4,630,000 Liabilities $2,970,000 Stock 900,000 R/E 760,000 Total $4,630,000 Statement of Cash Flows Cash From Op $ 973,000 Cash From Inv (1,188,000) Cash From Fin 245,000 Net Increase $ 30,000 Beg. Cash 80,000 End. Cash $ 110,000 Statement of Retained Earnings R/E 12/31/X0 $ 760,000 Net Income 864,600 Dividends (400,000 ) R/E 12/31/X1 $1,224,600 Revenues $12,443,000 Expenses 11,578,400 Net Income $ 864,600 Income Statement Cash $ 110,000 Other 4,975,000 Total $5,085,000 Liabilities $2,860,400 Stock 1,000,000 R/E 1,224,600 Total $5,085,000 Balance Sheet 12/31/X1

17. Relative Frequency of Audit Opinions (1998) Companies Unqualified 5,978 Unqualified With Explanatory Language 1,030 Qualified 6 No opinion 2 Adverse 0 Total 7,016

18. Accounting Standard-Setting Organizations FASAC FASB FAF SEC AcSEC AICPA IASC IAPC Other EITF GASAC GASB U.S. Gov't

20. U.S. Accounting Standard- Setting Bodies Committee on Accounting Procedures (CAP) Born: 1939 Died: 1959 Pronouncements: Accounting Research Bulletins

21. U.S. Accounting Standard- Setting Bodies Accounting Principles Board (APB) Born: 1959 Died: 1973 Pronouncements: APB Opinions

22. U.S. Accounting Standards Setting Bodies Financial Accounting Standards Board (FASB) Born: 1973 Died: Pronouncements: Statements of Financial Accounting Standards

23. FASAC FASB FAF SEC AcSEC AICPA IASC IAPC Other EITF GASAC GASB U.S. Gov't Accounting Standard-Setting Organizations

28. AICPA FASB Members of the AICPA Endorsement of FASB through Rule 203 GAAP FASB Authority Sources -- AICPA Continuing Membership

33. International Accounting Standards Committee The International Accounting Standards Committee (ISAC) was formed in 1973 to develop worldwide accounting standards. The accounting standards produced by the International Accounting Standards Committee are referred to as International Accounting Standards (IASs).

34. Conceptual Framework Overview Objectives of Financial Reporting Qualitative Characteristics of Information Accounting Elements of Financial Statements Recognition and Measurement Concepts Assumptions Principles Constraints

36. Objectives of Financial Reporting Usefulness Financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.

37. Objectives of Financial Reporting Understandability Financial reporting should provide information that is understandable to one who has a reasonable knowledge of accounting and business and who is willing to study and analyze the information presented.

38. Objectives of Financial Reporting Target Audience While there are many potential users of financial reports, the objectives are directed primarily toward investors and creditors.

39. Objectives of Financial Reporting Assessing Future Cash Flows Financial reporting should provide information that is useful in assessing amounts, timing, and uncertainty (risk) of prospective cash flows.

40. Objectives of Financial Reporting Evaluating Economic Resources Financial reporting should also provide information about an enterprise’s assets, liabilities, and owners’ equity to help investors, creditors, and others evaluate the financial strengths and weaknesses of the enterprise and its liquidity and solvency.

41. Objectives of Financial Reporting Primary Focus on Earnings Information about enterprise earnings, measured by accrual accounting, generally provides a better basis for forecasting future performance than does information about current cash receipts and disbursements.

42. Qualitative Characteristics of Accounting Information Primary Qualities A. Relevance 1. Predictive Value 2. Feedback Value 3. Timeliness B. Reliability 1. Verifiability 2. Representational Faithfulness 3. Neutrality Secondary Qualities A. Comparability B. Consistency

43. Qualitative Characteristics of Accounting Information Comparability Consistency Predictive Value Feedback Value Timeliness Relevance Verifiability Neutrality Representational Faithfulness Reliability Decision Usefulness Understandability Decision Makers Benefits > Cost Materiality

44. What About Conservatism? The concept of conservatism can be summarized as follows: When in doubt, recognize all losses but don’t recognize any gains.

50. The End