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INTERMEDIATE team for success
Intermediate
F I F T E E N T H E D I T I O N
Intermediate
ACCOUNTING
Accounting
Accounting
Prepared by
Prepared by
Coby Harmon
Coby Harmon Prepared by
University of California Santa Barbara Coby Harmon
University of California, Santa Barbara
1-1 Westmont University of California, Santa Barbara
College
Westmont College
PREVIEW OF CHAPTER 1
Intermediate Accounting
15th Edition
Kieso Weygandt Warfield
1-2
1 Financial Accounting and
Accounting Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally
other means of financial reporting. accepted accounting principles (GAAP)
2. Explain how accounting assists in the and the role of the Codification for GAAP.
efficient use of scarce resources. 7. Describe the impact of user groups on the
3. Identify the objective of financial reporting. rule-making process.
4. Explain the need for accounting standards. 8. Describe some of the challenges facing
financial reporting.
5. Identify the major policy-setting bodies and
their role in the standard-setting process. 9. Understand issues related to ethics and
financial accounting.
1-3
Financial Statements and Reporting
1-4 LO 1 Identify the major financial statements and other means of financial reporting.
Financial Statements and Reporting
Question
What is the purpose of information presented in notes to the
financial statements?
1-6 LO 1 Identify the major financial statements and other means of financial reporting.
1 Financial Accounting and
Accounting Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally
other means of financial reporting. accepted accounting principles (GAAP)
2. Explain how accounting assists in the and the role of the Codification for GAAP.
efficient use of scarce resources. 7. Describe the impact of user groups on the
3. Identify the objective of financial reporting. rule-making process.
4. Explain the need for accounting standards. 8. Describe some of the challenges facing
financial reporting.
5. Identify the major policy-setting bodies and
their role in the standard-setting process. 9. Understand issues related to ethics and
financial accounting.
1-7
Financial Statements and Reporting
1-8 LO 2 Explain how accounting assists in the efficient use of scare resources.
Accounting and Capital Allocation
Question
An effective process of capital allocation is critical to a healthy
economy, which
a. promotes productivity.
b. encourages innovation.
1-9 LO 2 Explain how accounting assists in the efficient use of scare resources.
IT’S THE ACCOUNTING
“It’s the accounting.” That’s what many investors seem to be saying these days.
Even the slightest hint of any accounting irregularity at a company leads to a
subsequent pounding of the company’s stock price. For example, the Wall Street
Journal has run the following headlines related to accounting and its effects on the
economy.
• Stocks take a beating as accounting woes spread beyond Enron.
• Quarterly reports from IBM and Goldman Sachs sent stocks tumbling.
• VeriFone finds accounting issues; stock price cut in half.
• Bank of America admits hiding debt.
• Facebook, Zynga, Groupon: IPO drops due to accounting, not valuation.
It now has become clear that investors must trust the accounting numbers, or they
will abandon the market and put their resources elsewhere. With investor
uncertainty, the cost of capital increases for companies who need additional
resources. In short, relevant and reliable financial information is necessary for
markets to be efficient.
1-10 LO 2 Explain how accounting assists in the efficient use of scare resources.
1 Financial Accounting and
Accounting Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally
other means of financial reporting. accepted accounting principles (GAAP)
2. Explain how accounting assists in the and the role of the Codification for GAAP.
efficient use of scarce resources. 7. Describe the impact of user groups on the
3. Identify the objective of financial reporting. rule-making process.
4. Explain the need for accounting standards. 8. Describe some of the challenges facing
financial reporting.
5. Identify the major policy-setting bodies and
their role in the standard-setting process. 9. Understand issues related to ethics and
financial accounting.
1-11
Financial Statements and Reporting
Entity Perspective
Companies viewed as separate and distinct from their
owners.
Decision-Usefulness
Investors are interested in assessing the company’s
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally
other means of financial reporting. accepted accounting principles (GAAP)
2. Explain how accounting assists in the and the role of the Codification for GAAP.
efficient use of scarce resources. 7. Describe the impact of user groups on the
3. Identify the objective of financial reporting. rule-making process.
4. Explain the need for accounting standards. 8. Describe some of the challenges facing
financial reporting.
5. Identify the major policy-setting bodies and
their role in the standard-setting process. 9. Understand issues related to ethics and
financial accounting.
1-16
The Need To Develop Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally
other means of financial reporting. accepted accounting principles (GAAP)
2. Explain how accounting assists in the and the role of the Codification for GAAP.
efficient use of scarce resources. 7. Describe the impact of user groups on the
3. Identify the objective of financial reporting. rule-making process.
4. Explain the need for accounting standards. 8. Describe some of the challenges facing
financial reporting.
5. Identify the major policy-setting bodies and
their role in the standard-setting process. 9. Understand issues related to ethics and
financial accounting.
1-18
Parties Involved In Standard Setting
Three organizations:
Securities and Exchange Commission (SEC).
American Institute of Certified Public Accountants (AICPA).
Financial Accounting Standards Board (FASB).
Securities
SecuritiesAct
Act of
of Securities
SecuritiesAct
Act of
of http://www.sec.gov/
1933
1933 1934
1934
Encouraged private standard-setting body.
SEC requires public companies to adhere to GAAP.
SEC Oversight.
Enforcement Authority.
LO 5 Identify the major policy-setting bodies and
1-20
their role in the standard-setting process.
Parties Involved In Standard Setting
1-21 LO 5
Parties Involved In Standard Setting
Financial Accounting
Standards Advisory Consult on major policy issues.
Council
1-22 LO 5
Financial Accounting Standards Board
Smaller Membership.
Full-time, Remunerated Membership.
Greater Autonomy.
Increased Independence. http://www.fasb.org/
Broader Representation.
Question
The first step taken in the establishment of a typical FASB
statement is
Illustration 1-3
The Due Process
System of the
FASB
Types of Pronouncements
Accounting Standards Updates.
Financial Accounting Concepts.
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally
other means of financial reporting. accepted accounting principles (GAAP)
2. Explain how accounting assists in the and the role of the Codification for GAAP.
efficient use of scarce resources. 7. Describe the impact of user groups on the
3. Identify the objective of financial reporting. rule-making process.
4. Explain the need for accounting standards. 8. Describe some of the challenges facing
financial reporting.
5. Identify the major policy-setting bodies and
their role in the standard-setting process. 9. Understand issues related to ethics and
financial accounting.
1-27
Generally Accepted Accounting Principles
Illustration 1-4
GAAP Documents
Question
Which of the following accounting pronouncements is the most
authoritative?
FASB Codification
Goal in developing the Codification is to provide in one place all
the authoritative literature related to a particular topic.
Creates one level of GAAP, which is considered authoritative.
All other accounting literature is considered non-authoritative.
1-32 LO 6
Generally Accepted Accounting Principles
Illustration 1-5
FASB Codification
Framework
1-33 LO 6
1 Financial Accounting and
Accounting Standards
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally
other means of financial reporting. accepted accounting principles (GAAP)
2. Explain how accounting assists in the and the role of the Codification for GAAP.
efficient use of scarce resources. 7. Describe the impact of user groups on the
3. Identify the objective of financial reporting. rule-making process.
4. Explain the need for accounting standards. 8. Describe some of the challenges facing
financial reporting.
5. Identify the major policy-setting bodies and
their role in the standard-setting process. 9. Understand issues related to ethics and
financial accounting.
1-34
Issues in Financial Reporting
Illustration 1-6
GAAP in a Political Environment User Groups that
Influence the Formulation
of Accounting Standards
GAAP is as
much a product
of political
action as they
are of careful
logic or
empirical
findings.
Expectation GAAP
What the public thinks accountants should do vs. what
accountants think they can do.
Difficult to close in light of accounting scandals.
Sarbanes-Oxley Act (2002).
Public Company Accounting Oversight Board
(PCAOB).
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally
other means of financial reporting. accepted accounting principles (GAAP)
2. Explain how accounting assists in the and the role of the Codification for GAAP.
efficient use of scarce resources. 7. Describe the impact of user groups on the
3. Identify the objective of financial reporting. rule-making process.
4. Explain the need for accounting standards. 8. Describe some of the challenges facing
financial reporting.
5. Identify the major policy-setting bodies and
their role in the standard-setting process. 9. Understand issues related to ethics and
financial accounting.
1-39
Issues in Financial Reporting
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the major financial statements and 6. Explain the meaning of generally
other means of financial reporting. accepted accounting principles (GAAP)
2. Explain how accounting assists in the and the role of the Codification for GAAP.
efficient use of scarce resources. 7. Describe the impact of user groups on the
3. Identify the objective of financial reporting. rule-making process.
4. Explain the need for accounting standards. 8. Describe some of the challenges facing
financial reporting.
5. Identify the major policy-setting bodies and
their role in the standard-setting process. 9. Understand issues related to ethics and
financial accounting.
1-42
Issues in Financial Reporting
http://www.iosco.org/
1-54 LO 10
Hierarchy of IFRS
Companies first look to:
Any U.S. incorporation of IFRS in GAAP will occur over several years.
1-57 LO 10
IFRS SELF-TEST QUESTIONS
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