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GLENCOE / McGraw-Hill

GLENCOE / McGraw-Hill. Accounting Principles and Reporting Standards. Generally Accepted Accounting Principles. Section Objective. 1. Describe the process used to develop generally accepted accounting principles. Page. 524. The Need for Generally Accepted Accounting Principles.

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GLENCOE / McGraw-Hill

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  1. GLENCOE / McGraw-Hill

  2. Accounting Principles and Reporting Standards

  3. Generally Accepted Accounting Principles Section Objective • 1. Describe the process used to develop generally accepted accounting principles.

  4. Page 524 The Need for Generally Accepted Accounting Principles

  5. Page 524 Generally Accepted Accounting Principles (GAAP) • Ensure that financial statements are meaningful and useful • Are used whether the business is large or small • Allow financial statements of different companies to be compared • Allow a company to compare its own financial statements from period to period

  6. Public sector government represented by SEC Private sector business represented by FASB Page 524 In the United States, accounting principles are developed through a cooperative effort between the public sectorand private sector.

  7. Page 524 Securities and Exchange Commission • Regulates all publicly held companies and all companies with more than a specified number of shareholders or owners • Determines the form and content of accounting reports filed by companies under its jurisdiction • Has authority to define accounting terms and to prescribe accounting principles • Lets the accounting profession develop principles and standards, but has the final authority

  8. Page 525 Financial Accounting Standards Board • Seven member board — each having distinguished accounting backgrounds — who are full-time employees • Responsible for developing financial accounting standards and principles • Develops and issues Statements of Financial Accounting Standards • Has issued about 140 Statements that the SEC recognizes as authoritative

  9. Page 526 Other Organizations • AICPA • AAA • NYSE • government agencies • IASC

  10. Page 524 American Institute of Certified Public Accountants (AICPA) • In the past, GAAP were developed by AICPA committees. • In 1972 the AICPA and other organizations formed the FASB. • The AICPA requires its members to confirm that audited companies follow the FASB Statements of Financial Accounting Standards.

  11. Page 526 American Accounting Association (AAA) • Has members who • teach accounting • write textbooks and articles • Stimulates the acceptance of accounting principles

  12. Page 526 New York Stock Exchange (NYSE) • Required corporations to publish annual reports as early as 1900 • Required independent audits for corporations since 1933

  13. Page 526 Government Agencies • Require detailed systems of accounting for public utilities • Issue income tax rules for companies Some companies adopt tax accounting rules for financial records, provided the rules don’t conflict with GAAP.

  14. Page 526 International Accounting Standards Committee (IASC) • Wants to develop standards that can be adopted throughout the world • Has issued about 40 international accounting standards The United States has been reluctant to adopt the International standards, but the SEC and the FASB are studying this issue.

  15. Page 527 Users and Uses of Financial Reports

  16. Page 527 The FASB has concluded that financial reporting rules should focus on providing information to investors and creditors. The focus is not on management regulatory agencies tax authorities

  17. QUESTION: Why does FASB focus on helping investors and creditors instead of other interested parties? ANSWER: The other interested parties — management, tax authorities, regulatory agencies — have access to specific information from the firm’s records not available to the public. Page 527

  18. Page 527 Investors and creditors expect to receive a cash flow directly or indirectly from the business entity: • directly from the distribution of the company’s earnings • indirectly through the disposal of their interests for cash

  19. Page 527 Financial report users need information about • Profits • Economic resources (assets) • Claims against assets (liabilities and owner’s equity) • Charges in assets and in claims against assets

  20. R E V I E W Complete the following sentences: public The ______ sector (government) is represented by the _____________ ____________________. Securities and Exchange Commission private The ______ sector (business) is represented by the _________________________________. Financial Accounting Standards Board The ______ requires its members to confirm that audited companies follow the Statements developed by the _____. AICPA FASB

  21. R E V I E W Complete the following sentences: The FASB has concluded that financial reporting rules should focus on providing information to ________ and ________. investors creditors directly Cash flows are received _______ from a company through the distribution of the company’s earnings. indirectly Cash flows are received ________ from a company through the sale of interest in the company for cash.

  22. Thank You for using College Accounting, Tenth Edition Price • Haddock • Brock

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