CHAPTER 1

2. CHAPTER 1 Accounting—Present and Past

3. Identifying Measuring Communicating Economic information about an entity For decisions and informed judgments > What is Accounting? Accounting is the process of:

4. Users and Uses of Accounting Information

5. Financial Accounting Financial accounting generally refers to the process that results in the preparation and reporting of financial statements for an entity. Financial accounting is primarily externally oriented and concerned with the historical results of an entity’s performance.

6. Managerial Accounting/Cost Accounting Managerial accounting is concerned with the use of economic and financial information to plan and control many of the activities of the entity and to support the management decision-making process. Cost accounting relates to the determination and accumulation of product, process, or service costs.

7. Auditing—Public Accounting Public accounting firms and individual Certified Public Accountants (CPAs) provide auditing services and issue an independent auditor’s report. An independent auditor’s report usually contains three brief paragraphs and states whether the financial statements are prepared in conformity with generally accepted accounting principles. An auditor’s report can be unqualified (a “clean” opinion) or qualified.

8. Internal Auditing Internal auditors are professional accountants who perform functions much like those of an external auditor. However, internal auditors are employed in industry rather than public accounting.

9. Governmental and Not-for-Profit Accounting Governmental units (e.g., municipal, state, and federal agencies) and not-for-profit entities (e.g., universities, hospitals, and religious organizations) require the same accounting functions to be performed as do other accounting entities.

10. Income Tax Accounting Tax practitioners often develop specialties in the taxation of individuals, partnerships, corporations, trusts and estates, or international tax law issues.

11. How Has Accounting Developed? Mesopotamians record tax receipts on clay tablets. 3000 B.C.

12. How Has Accounting Developed? Luca Pacioli published first textbook describing a comprehensive double-entry bookkeeping system. 3000 B.C. 1494

13. How Has Accounting Developed? The industrial revolution of the 19th century generated the need for large amounts of capital to finance the enterprises that supplanted individual craftsmen. 3000 B.C. 1494 1800’s This need resulted in the corporate form of organization and the need to provide investors with reports showing the financial position and the results of operations.

14. How Has Accounting Developed? Accounting professionals in this country organized themselves in the early 1900’s and worked hard to establish certification laws, standardized audit procedures, and other attributes of a profession. 3000 B.C. 1494 1800’s 1900’s

15. How Has Accounting Developed? Between 1932 to 1934 the American Institute Accountants and the New York Stock Exchange agreed on five broad principles of accounting. 3000 B.C. 1494 1800’s 1900’s 1932to1934 1933&1934 The Securities Act of 1933 and the Securities Exchange Act of 1934 gave the Securities and Exchange Commission (SEC) the authority to establish accounting principles for companies whose securities had to be registered with the SEC.

16. How Has Accounting Developed? Although the SEC has the authority to establish accounting principles, the standard-setting process has been delegated to other organizations over the years. 3000 B.C. 1494 1800’s 1900’s 1932to1934 1939to1959 1933&1934 The Committee on Accounting Procedure of the American Institute of Accountants issued 51 Accounting Research Bulletins that dealt with accounting principles.

17. How Has Accounting Developed? In 1959, the Accounting Principles Board (APB) replaced the Committee on Accounting Procedure as the standard-setting body. 3000 B.C. 1494 1800’s 1900’s 1932to1934 1939to1959 1959 1933&1934 The APB ultimately issued 39 Opinions on serious accounting issues, but it failed to develop a conceptual underpinning for accounting.

18. How Has Accounting Developed? The Financial Accounting Foundation (FAF) was created and established the Financial Accounting Standards Board (FASB) as the authoritative standard-setting body within the accounting profession. 3000 B.C. 1494 1800’s 1900’s 1932to1934 1939to1959 1959 1973 1933&1934 The FASB has issued 145 Statements of Financial Accounting Standards that have established standards of accounting and reporting for particular issues.

19. How Has Accounting Developed? The Sarbanes-Oxley Act of 2002 creates a five-member Public Company Accounting Oversight Board (PCAOB) which has the authority to set and enforce auditing, attestation, quality control, and ethics standards for public companies. 3000 B.C. 1494 1800’s 1900’s 1932to1934 1939to1959 1959 1973 1933&1934 2002

20. Managerial/Cost Accounting Cost Accounting Standards Board (CASB) Auditing/Public Accounting Auditing Standards Board (part of AICPA) Governmental Accounting Standards Board (GASB) Government and Not-for-Profit Standards for Other Types of Accounting

21. International Accounting Standards The International Accounting Standards Committee (IASC) seeks methods of providing comparability between financial statements prepared according to the differing accounting standards of its member nations.

22. Ethics and the Accounting Profession Integrity Objectivity Independence Competence

23. Statements of Financial Accounting Concepts (SFACs) describe concepts and relationships that underlie financial accounting standards. • Objectives of Financial Reporting of Business Enterprises • Qualitative Characteristics of Accounting Information • Elements of Financial Statements of Business Enterprises • Objectives of Financial Reporting of Nonbusiness Organizations • Recognition and Measurement in Financial Statements • Elements of Financial Statements • Using Cash Flow Information and Present Value in Accounting Measurement The Conceptual Framework

24. End of Chapter 1