CHAPTER 1

INTRODUCTION TO
FINANCIAL REPORTING
ANALYSIS OF FINANCIAL
STATEMENT
GROUP 5
1)16061 M.Bilal Raza
2) Adnan Khan
3)Mughees Nazir
 INTRODUCTION TO FINANCIAL
REPORTING
 Financial Statements are used by all Companies stake holders and General Public.
The financial reports are used to make decisions for example As an Investors point
of view weather to make investments in XYZ Company or not in terms of stocks,
Suppliers point of view to sell merchandise on credit or not? Is Company is capable
enough to pay their bills on time? And checking the Companies profitability all
these decisions are made on analyzing the financial reporting of the Organizations

DEVELOPMENT OF G.A.A.P
 In 1972 the development in G.A.A.P was made that is still existed in United States that it began with
securities act 1933 and 1934, in that it was mention that Disclosure of Financial Information is applied only on
that Companies whose shares are listed on NYSE.
 In 1929 the stock Market crashed, many alleged that the Financial Disclosure was influenced by lack of
acceptability of Financial Reporting requirements to investors and creditors. The Securities Act 1933 was
designed to protect investors from abuses in Financial Reporting.
 No of organization played an important role in development of G.A.A.P . A.I.C.P.A and F.A.S.B have influence
the most.
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

 The American Institute of Certified Public Accountants (AICPA) is the national professional organization of
Certified Public Accountants (CPAs) in the United States, with more than 428,000 members in 130 countries in
business and industry, public practice, government, education, student affiliates and international associates the
organization sets ethical standards for the profession and U.S. auditing standards for audits of private companies,
non-profit organizations, federal, state and local governments. During 1930 this organization had a special
committee working with NYSE on common interest matters the success of this committee was established in 1939
of two establishing committees the committee on Accounting Procedures and the committee on Accounting
Terminology they resolve issues problem by problem related to that issues. These two committees was further
replaced by Accounting Principles Board (APB) and Accounting Research Division (ARD) But they were also not
much successful and was replaced by Financial Accounting Standards Boards (FASB) in 1973
  
Financial Accounting Standards Board
 The Financial Accounting Standards Board (FASB) is a private standard-setting body whose
primary purpose is to establish and improve Generally Accepted Accounting Principles (GAAP)
within the United States in the public's interest. The Securities and Exchange Commission (SEC)
designated the FASB as the organization responsible for setting accounting standards for public
companies in the US
 The F.A.S.B issues four types of pronouncements
 1) Statements of Financial Accounting Standards (SFAS)
 2) Interpretations
 3) Technical Bulletins
 4)Statements of Financial Accounting Concepts
AICPA
 The American Institute of Certified Public Accountants (AICPA) is the national professional
organization of Certified Public Accountants (CPAs) in the United States, with more than 428,000
members in 130 countries in business and industry, public practice, government, education, student
affiliates and international associates. It sets the auditing standards for Private Auditing Companies.
They are the part of G.A.A.P, AICPA plays an important role that Private sector should give priority
to G.A.A.P through Accounting Standard Divisions. The Accounting Standard Divisions published
numerous documents including Industry Audit Guide, Industry Accounting Guide & Statements of
Positions (SOPS). It helps the Auditor in examining and reporting on Financial Statements of the
Company and to maintain the standard of Accounting

EMERGING ISSUES OF TASK FORCE

 The F.A.S.B established E.I.T.F in 1984 to identify emerging issues which were effecting Financial
reporting and creating hurdles in authoritative pronouncement. The task force team consists of 15
members the meeting was held after every 6 weeks. The ETF statements became an important source
of G.A.A.P, the task force has the capability to review a number of issues within short time
F.A.S.B ACCOUNTING STANDARDS
CODIFICATION
 There have been sources of authoritive U.S G.A.A.P, which results in thousands of pages addressing US
G.A.A.P which become confusing . So after that F.A.S.B released Codification of G.A.A.P in 2009 after that
all other unnecessary literature became non authoritative. It improves researching in G.A.A.P
 Codification involves Assets, Liabilities, Equity , Revenue , Expenses, Presentations (Balance Sheet ,
Income Statement , Cash Flow Statements , R.E.S etc)

TRADITIONAL ASSUMPTIONS OF
ACCOUNTING MODLE
1)BUSINESS ENTITY
 Business entity means business has its own entity and owner has it own. Financial statements are
prepared which are distinct from its owner. Personal transactions of the owner are not involve in the
business because both have their separate entity.

2)GOING CONCERN OR CONTINUTY

 Business will continue for indefinite period of time there is no certain time period of time /
no end time the business continues on as the Company earns Profit.

3)TIME PERIOD
Businesses use the calendar year and thus end the accounting period on December 31. Some
select a 12-month accounting period, known as a fiscal year, which closes at the end of a
month other than December. The accounting period may be shorter than a year, such as a
month. The shorter the period of time, the more in accuracies we typically expect in the
reporting.
 4)MONETARY UNIT
 Accountants need some standard of measure to bring financial transactions together in a meaningful
way. Without some standard of measure, accountants would be forced to report in such terms as 5
cars, 1 factory, and 100 acres. This type of reporting would not be every meaningful. accountants
have concluded that money is the best for the purpose of measuring financial transactions.

5)HISTORICAL COST
 Historical Cost means if a owner purchase a building of Rupees 1 Crore for his business he will
record in the Accounting books as 1 Crore even after 10 years and no matters the Building value
has been in last 10 years but it will be recorded on 1 Crore Rupees on its Realizable Value

6)CONSERVATISM
 Accounting Conservatism is a principle that requires Company accounts to be prepared with
caution and high degrees of verification. All losses are recorded when they are discovered but
gain can only be registered when they are fully realized.