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ACTG 3110

ACTG 3110. Chapter 1 - Financial Accounting and Accounting Standards. Overview. What is accounting? Financial versus Managerial accounting Importance of financial accounting Who provides it Who uses it Financial Statements Balance Sheet Income Statement Statement of Cash Flows

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ACTG 3110

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  1. ACTG 3110 Chapter 1 - Financial Accounting and Accounting Standards

  2. Overview • What is accounting? • Financial versus Managerial accounting • Importance of financial accounting • Who provides it • Who uses it • Financial Statements • Balance Sheet • Income Statement • Statement of Cash Flows • Statement of Owner’s Equity

  3. Challenges Facing Financial Accounting • Nonfinancial Measurements • Forward-looking Information • Soft Assets • Timeliness

  4. Overview • Economic Environment and Financial Reporting • Capital markets • Corporate form of business • Secondary versus primary market • Cash versus accrual accounting • Need for GAAP • Generally Accepted Accounting Principles (GAAP)

  5. Parties Involved in Standard Setting • Securities and Exchange Commission (SEC) • 1933 and 1934 Acts • Oversight role • Enforcement • American Institute of CPAs (AICPA) • Committee of Accounting Procedure (CAP) • 1938 - 1959 • Formed by AICPA • Issued 51 Accounting Research Bulletins

  6. Parties Involved in Standard Setting • AICPA • Accounting Principles Board (APB) • 1959-1973 • Formed by AICPA • Issued 31 APB Opinions & 4 statements • Financial Accounting Standards Board (FASB) • 1973 – Present • Established Due Process

  7. Parties Involved in Standard Setting • Accounting Standards Executive Committee (AcSEC) • Committee of the AICPA to respond to FASB • Emerging Issues Task Force (EITF) • Set up by the FASB • Deals with immediate problems

  8. FASB • Supported by the Financial Accounting Foundation • 7 voting members are full time employees • Members must not retain investments in companies • Includes CPAs, Business people, and Academicians • More influential than CAP or APB

  9. House of GAAP • Most Authoritative • CAP’s Accounting Research Bulletins (ARBs) • APB Opinions • FASB’s Statements of Financial Accounting Concepts (SFAC) • FASB’s Statements of Financial Accounting Standards (SFAS)

  10. House of GAAP • Second most authoritative: • FASB Technical Bulletins • AICPA Statements of Positions (SOP) • AICPA Industry Audit and Accounting Guides • Third most authoritative: • EITF Statements • AICPA AcSEC Practice Bulletins

  11. House of GAAP • Least authoritative • AICPA Accounting Interpretations • FASB Implementation Guides • Widely recognized and prevalent industry practices • HOWEVER, SEC is overall ruler on GAAP; may override private sector FASB

  12. Enforcement of Standards • SEC • AICPA code of Ethics • State Boards of Accountancy • Courts • Bankers

  13. Issues in Financial Reporting • Standard Setting in a Political Environment • Expectations Gap • Sarbanes-Oxley Act of 2002 (SOX) • Public Oversight Board of Accountancy (PCBOA) • International Accounting Standards Board (IASB) • Rules-based versus Principles-based approaches to GAAP

  14. Ethics in Accounting • AICPA Code of Ethics • IMA Code of Ethics • IIA Code of Ethics • Company’s Codes of Ethics • Basic morals

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