Chapter 1 Financial Accounting and Accounting Standards

Other means of financial reporting that are not financial statements include the presidents letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management forecasts, and social or environmental impact statements.

a) The objectives of Financial Reporting The objective:

The objective is to prepare financial information that is useful to present and potential equity investors, lenders and other stakeholders in taking decision

b) General-purpose financial statements____________________________________________________ _____________________________________________________________________________________ ______________________.

c) Entity perspective ____________________________________________________________________

d)Provide decision-useful _______________________________________________________________ __________________________________________________________________________________.

e) The accounting profession has developed a set of standards and procedures called __________________ _______________________________________

LO 1.2 Identify the major policy-setting bodies and their role in the standard-setting process.

Three organizations: Securities and Exchange Commission (SEC): ______________________________

American Institute of Certified Public Accountants (AICPA): _________________ ______________________________________________

Financial Accounting Standards Board (FASB): ____________________________

The federal government established the SEC to help develop and standardize financial information presented to stockholders. Most companies that issue securities to the public or are listed on a stock exchange are required to file audited financial statements with the SEC.__________________________ _____________________________________________________________________________________ ______________________.

Under the direction of the SEC the __________________________________ was created by the AICPA in _______. It was the first private sector organization that had the task of setting accounting standards in the United States.

___________________________________________________ that narrowed the wide range of alternative accounting practices then in existence.

In _______. the __________________________________ was formed to meet the demand for more structured accounting standards. The APB issued pronouncements on accounting principles until _______. the pronouncements where known as _________________, when it was replaced by the __________________________________ .Wheat Committees recommendations resulted in creation of FASB. The FASB represents the current rule-making body within the accounting profession. The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, which includes issuers, auditors, and users of financial information.

The FASB differs from the predecessor APB in the following ways: a. __________________________________ b. __________________________________ c. __________________________________ d. __________________________________ e. __________________________________

In 1984, the FASB created the __________________________________ .The purpose of the Task Force is to reach a consensus on how to account for new and unusual financial transactions that have the potential for creating differing financial reporting practices.

The FASB issues two major types of pronouncements:

a. When the FASB issues a new standard it is refers as _________________________________to communicate changes to the FASB Codification. They are considered GAAP and must be followed in practice. o How the FASB has changed US GAAP, including each specific amendment to the FASB Codification o Why the FASB decided to change US GAAP and background information related to the change o When the changes will be effective and the transition method.

b. __________________________________ The SFACs represent an attempt to move away from the problem-by-problem approach to standard setting that has been characteristic of the accounting profession. The Concept Statements are intended to form a cohesive set of interrelated concepts, a conceptual framework that will serve as tools for solving existing and emerging problems in a consistent manner. Unlike FASB statements, the Concept Statements do not establish GAAP.

Prior to 2009 the FASB issued several type of pronouncements which had different levels of authority. The type of pronouncements are listed in descending order of relative weight of authority they had within GAAP

__________________________________

______________ : these pronouncements refined GAAP by clarifying conflicting or unclear issues relating to previously issued standards

______________ FASB staff issued pronouncements to provide more timely and consistent application guidance and to make narrow and limited revision of standards.

______________: FASB staff issue these pronouncements to clarify and explain, or elaborate on accounting and reporting problems.

__________________________________

The FASB board members were CPAs. GAAP The FASB developed the Financial Accounting Standards Board Accounting Standards Codification _____________________________ to provide in one place all the authoritative literature related to a particular topic._______________________________________________________________________ __________________________________________

Major sources of GAAP: _______________________________________ _______________________________________ _______________________________________

Most countries have recognized the need for more global standards. _____________________________________________ and U.S. rule-making bodies are working together to reconcile U.S. GAAP with the IASB _________________________________________

Major challenges in the financial reporting environment. ______________________________________________________________________ ______________________________________________________________________