This chapter discusses financial accounting and accounting standards. It identifies the major financial statements and objectives of financial reporting. It explains how accounting assists with efficient allocation of resources and identifies challenges facing accounting. It also describes the standard setting bodies like FASB and GASB, the standard setting process, and major pronouncements. Additionally, it discusses international accounting standards and the expectations gap between public perception and the accounting profession.

1. Chapter 1: Financial Accounting
and Accounting Standards
Intermediate Accounting, 11th Edition
Kieso, Weygandt, and Warfield
Prepared by
Jep Robertson and Renae Clark
New Mexico State University
Las Cruces, New Mexico

2. 1. Identify the major financial statements and
other means of financial reporting.
2. Explain how accounting assists in the efficient
use of scarce resources.
3. Identify some of the challenges facing
accounting.
4. Identify the objectives of financial reporting.
After studying this chapter, you should be able
to:
Chapter 1: Financial Accounting
and Accounting Standards

3. 5. Explain the need for accounting standards.
6. Identify the major policy-setting bodies and
their role in the standards-setting process.
7. Explain the meaning of generally accepted
accounting principles.
8. Describe the impact of user groups on the
standards-setting process.
9. Understand issues related to ethics and
financial accounting.
Chapter 1: Financial Accounting
and Accounting Standards

4. • Accounting identifies, measures and
communicates financial information.
• This information is about economic entities.
• Information is communicated to interested
parties such as investors, creditors, unions
and governmental agencies.
Characteristics of Financial
Accounting

5. Financial Reporting aids users in
the allocation of scarce
resources.
Accounting and the Efficient Use
of Scarce Resources

6. The objectives are specified in Statement of
Financial Accounting Concepts No. 1.
The objectives are as follows:
• Information provided must be useful in
investment and credit decisions.
• Information must be useful in assessing cash
flow prospects.
• Information must be about enterprise resources,
claims to those resources and changes therein.
Objectives of Financial Reporting
by Business Enterprises

7. • The profession has developed GAAP
that present fairly, clearly and
completely the financial operations
of the enterprise.
• GAAP consist of authoritative
pronouncements issued by certain
accounting bodies.
Generally Accepted Accounting
Principles (GAAP)

8. • Securities and Exchange Commission (SEC)
• American Institute of Certified Public
Accountants (AICPA)
• Financial Accounting Standards Board
(FASB)
• Governmental Accounting Standards Board
(GASB)
The Standard Setting Process:
Parties Involved

9. • The FASB enjoys the following advantages
compared to its predecessor, the
Accounting Principles Board:
* smaller membership
* greater autonomy
* increased independence of members
* broader representation on the Board
The Financial Accounting
Standards Board (FASB)

10. • In establishing financial standards, the FASB
follows a due process procedure.
• The due process procedure gives time to
interested persons to make their views
known to the Board.
FASB
Due Process

11. AGENDA
1
Topics for
standard
setting are
identified
Discussion
Memorandum
2
The FASB
issues
initial
research and
analysis
Public
Hearing
3
4
A public
hearing
is
conducted
FASB
Due Process

12. Exposure
Draft
4
The FASB
issues
an exposure
draft
(tentative
standard)
Final Standard
5
The FASB
evaluates
responses and
issues the
final
standard
FASB
Due Process

13. • Standards and Interpretations
• Financial Accounting Concepts
• Technical Bulletins
• Emerging Issues Task Force Statements
Major Types of FASB
Pronouncements

14. Financial
Accounting
Foundation
FASB
Financial
Accounting
Standards
Advisory
Council
GASB
Governmental
Accounting
Standards
Advisory
Council
Staff and
Task Force
Organizational Structure for
Setting Standards

15. House of GAAP

16. • Non-financial measurements need to be
developed and reported.
• More information needs to be provided
regarding soft assets (intangibles).
• Forward-looking information, in addition to
historical information, must be provided.
• Statements may have to be prepared on a
real-time basis (and not just periodically).
Challenges Facing Financial
Accounting

17. An expectations gap exists between the
• public’s perception of the profession’s
accountability and profession’s perception of
its accountability to the public.
Corrective steps include the setting up of the:
• SEC Practice sections and
• Public Oversight Board.
The Expectations Gap

18. • The International Accounting Standards
Committee (IASC) was formed in 1973.
• The objective was to narrow divergence in
international financial reporting.
• There are many similarities between U.S.
and International accounting standards.
• The concern is that international standards
may not be as rigorous as U.S. standards.
International Accounting
Standards

19. Copyright © 2004 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
in Section 117 of the 1976 United States Copyright Act without
the express written permission of the copyright owner is
unlawful. Request for further information should be addressed
to the Permissions Department, John Wiley & Sons, Inc. The
purchaser may make back-up copies for his/her own use only
and not for distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused by the
use of these programs or from the use of the information
contained herein.
COPYRIGHT