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I 1 The Environment of Financial Reporting ntermediate Accounting

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1 I 1 The Environment of Financial Reporting ntermediate Accounting
中级会计学 Accounting School · Zhongnan University of Economics & Law

2 Forewords Course nature and objective Teaching methods
Intermediate Accounting The Environment of Financial Reporting Forewords Course nature and objective Teaching methods Test requirements and form Scoring system Brief contents

3 I. Accounting information: users, uses, and GAAP in U.S.A.
Intermediate Accounting The Environment of Financial Reporting I. Accounting information: users, uses, and GAAP in U.S.A. Companies may obtain capital by issuing capital stock or by borrowing from lenders Bank Stock Exchange

4 Intermediate Accounting 1 The Environment of Financial Reporting
“Accounting is a service activity. Its function is to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions--in making reasoned choices among alternative courses of action.” (Statement of the Accounting Principles Board No. 4, p. 40)

5 Accounting Information Economic Activities and Decision Making
Intermediate Accounting The Environment of Financial Reporting Intermediate Accounting The Environment of Financial Reporting Accounting Information Economic Activities and Decision Making Impact External User Internal External Decision Making Internal Decision Making Accounting Information Company’s Economic Activities Accumu- late Communi- cate

6 Major Internal and External Stakeholder Groups
Intermediate Accounting The Environment of Financial Reporting Major Internal and External Stakeholder Groups Investors Government Community Board of Directors Management Employees Analysts Suppliers Employees Customers Creditors

7 Comparison of Financial and Managerial Accounting
Intermediate Accounting The Environment of Financial Reporting Comparison of Financial and Managerial Accounting Sources of Authority; Statement Format; Decision Focus… Could you illustrate differences between financial and managerial accounting?

8 Intermediate Accounting 1 The Environment of Financial Reporting
Financial reporting is the process of communicating financial accounting information about a company to external users. 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.

9 Intermediate Accounting 1 The Environment of Financial Reporting
Financial reporting is the process of communicating financial accounting information about a company to external users. 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.

10 Intermediate Accounting 1 The Environment of Financial Reporting
Financial reporting is the process of communicating financial accounting information about a company to external users. 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.

11 Intermediate Accounting 1 The Environment of Financial Reporting
A statement of changes in stockholders’ equity also is included by many companies. This statement summarizes the changes in each item of stockholders’ equity for a period. Accounting estimates and judgments are outlined in the notes to financial statements.

12 Generally Accepted Accounting Principles (GAAP)
Intermediate Accounting The Environment of Financial Reporting Generally Accepted Accounting Principles (GAAP) GAAP are the guidelines, procedures, and practices that a company is required to use in recording and reporting the accounting information in its audited financial statements.

13 Hierarchy of Sources of GAAP
Intermediate Accounting The Environment of Financial Reporting Hierarchy of Sources of GAAP Level A FASB Statements and Interpretations APB Opinions CAP Accounting Research Bulletins SEC Regulation S-X and Financial Reporting Releases Level B FASB Technical Bulletins AICPA Industry Audit and Accounting Guides AICPA Statements of Position Level C Consensus Positions of EITF AICPA Practice Bulletins Level D AICPA Accounting Interpretations FASB “Question and Answer” guides AICPA Accounting Trends and Techniques Level E Other accounting literature A B C D E Higher Authority Lower Authority

14 2. The development of accounting standards in U.S. -CAP
Intermediate Accounting The Environment of Financial Reporting 2. The development of accounting standards in U.S. -CAP Committee on Accounting Procedures (CAP) Born: 1939 Died: 1959 Pronouncements: Accounting Research Bulletins

15 2. The development of accounting standards in U.S. -APB
Intermediate Accounting The Environment of Financial Reporting 2. The development of accounting standards in U.S. -APB Accounting Principles Board (APB) Born: 1959 Died: 1973 Pronouncements: APB Opinions

16 2. The development of accounting standards in U.S. -FASB
Intermediate Accounting The Environment of Financial Reporting 2. The development of accounting standards in U.S. -FASB Financial Accounting Standards Board (FASB) Born: 1973 Died: Pronouncements: Statements of Financial Accounting Standards

17 Structure of the FASB Continued
Intermediate Accounting The Environment of Financial Reporting Structure of the FASB Financial Accounting Foundation (16-member board of trustees) Financial Accounting Standards Advisory Council (approximately 30 members) Financial Accounting Standards Board (7 members) Appoint, fund, and oversee Advise Continued

18 Structure of the FASB Financial Accounting Standards Board (7 members)
Intermediate Accounting The Environment of Financial Reporting Structure of the FASB Financial Accounting Standards Board (7 members) Task Forces of the Standards Board (including Emerging Issues Task Force) Appoint Consult Support Research and Technical Staff Consult Administrative Staff

19 Types of Pronouncements Issued by the FASB
Intermediate Accounting The Environment of Financial Reporting Types of Pronouncements Issued by the FASB Statements of Financial Accounting Standards Interpretations Technical Bulletins Statements of Financial Accounting Concepts Other Pronouncements

20 FASB Operating Procedures
Intermediate Accounting The Environment of Financial Reporting FASB Operating Procedures Issue Discussion Memorandum or Invitation to Comment Identify Topic Appoint Task Force Conduct Research Deliberate on Findings Hold Public Hearings Issue Exposure Draft Continued

21 FASB Operating Procedures
Intermediate Accounting The Environment of Financial Reporting FASB Operating Procedures From previous page Issue Exposure Draft Hold Public Hearings Modify Exposure Drafts Vote (super-majority) Issue Statement

22 FASB Authority Sources-- Overview
Intermediate Accounting The Environment of Financial Reporting FASB Authority Sources-- Overview Gov’t Regulators SEC State Boards of Public Acct. American Acct. Instructors Association FASB Statement Preparers Financial Executives Institute IMA Individual Corps Auditors AICPA State societies of CPAs Major audit firms

23 3. Other organizations currently influencing GAAP in U.S.
Intermediate Accounting The Environment of Financial Reporting 3. Other organizations currently influencing GAAP in U.S. Securities and Exchange Commission (SEC) American Institute of Certified Public Accountants (AICPA) FASB Emerging Issues Task Force (EITF) Cost Accounting Standards Board (CASB) Internal Revenue Service (IRS) American Accounting Association (AAA) Continued

24 Governmental Accounting Standards Board (GASB)
Intermediate Accounting The Environment of Financial Reporting International Accounting Standards Committee (IASC)/International Accounting Standards Board (IASB) Governmental Accounting Standards Board (GASB) Financial Executives International (FEI) Institution of Management Accountants (IMA) Association for Investment Management and Research (AIMR)/ Chartered Financial Analyst Institute (CFAI)

25 Securities Exchange Commission (1933-present)
Intermediate Accounting The Environment of Financial Reporting Securities Exchange Commission (1933-present) 1929 stock market crash blamed on nonstandard accounting. 1933 Securities Act established SEC to standardize accounting. Created to protect the interests of investors by ensuring full and fair disclosure. Granted legal authority to dictate GAAP. Has tended to defer setting GAAP to the accounting profession.

26 American Institute of Certified Public Accountants
Intermediate Accounting The Environment of Financial Reporting American Institute of Certified Public Accountants The American Institute of Certified Public Accountants (AICPA) is the professional organization of practicing CPAs in the United States.

27 American Accounting Association
Intermediate Accounting The Environment of Financial Reporting American Accounting Association The American Accounting Association (AAA) is primarily an organization for accounting professors.

28 Internal Revenue Service
Intermediate Accounting The Environment of Financial Reporting Internal Revenue Service The Internal Revenue Service (IRS) has the primary goal of equitable collecting revenue.

29 4. Ethics in the accounting environment
Intermediate Accounting The Environment of Financial Reporting 4. Ethics in the accounting environment Accountants are often faced with ethical dilemmas (ethical conflicts) in their professional roles.

30 Principles of the AICPA Code of Professional Conduct
Intermediate Accounting The Environment of Financial Reporting Principles of the AICPA Code of Professional Conduct Responsibilities In carrying out their responsibilities as professionals, members should exercise sensitive professional judgment in all their activities. Continued

31 Principles of the AICPA Code of Professional Conduct
Intermediate Accounting The Environment of Financial Reporting Principles of the AICPA Code of Professional Conduct The Public Interest Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism. Continued

32 Principles of the AICPA Code of Professional Conduct
Intermediate Accounting The Environment of Financial Reporting Principles of the AICPA Code of Professional Conduct Integrity To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity. Continued

33 Principles of the AICPA Code of Professional Conduct
Intermediate Accounting The Environment of Financial Reporting Principles of the AICPA Code of Professional Conduct Objectivity and Independence A member should maintain objectivity and be free from conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance. Continued

34 Principles of the AICPA Code of Professional Conduct
Intermediate Accounting The Environment of Financial Reporting Principles of the AICPA Code of Professional Conduct Due Care A member should observe the profession’s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge the professional responsibility to the best of the member’s ability. Continued

35 Principles of the AICPA Code of Professional Conduct
Intermediate Accounting The Environment of Financial Reporting Principles of the AICPA Code of Professional Conduct Scope and Nature of Service A member in public practice should observe the Principles of the CPC in determining the scope and nature of services to be provided.

36 Intermediate Accounting 1 The Environment of Financial Reporting
5. Comparison of the development of accounting standards in China and in U.S. Could you compare the development of accounting standards in China and in U.S.?

37 The End

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