Environ - 1 The Environment of Accounting. Environ - 2 NATURE OF ACCOUNTING An information system...
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Transcript of Environ - 1 The Environment of Accounting. Environ - 2 NATURE OF ACCOUNTING An information system...
Environ - 1
The Environment of Accounting
Environ - 2
NATURE OF ACCOUNTING An information system designed to . . .
Identify Collect Measure Process Communicate,
economic data to interested parties to assist decision-making.
“Accounting is the language of business”
Environ - 3
Accounting Environment
Accounting information helps decision makers evaluate
economic opportunities for gain and the related inherent risks of providing capital to a particular
venture.“Resource Allocation”
Environ - 4
Financial Accounting External Users
For those who lackdirect access to the
information generatedby the internal operations of a
company.
Concepts, principles, andprocedures known as
Generally Accepted AccountingPrinciples (GAAP) weredeveloped to meet the
needs of external users.
GAAP
Environ - 5
Management Accounting Internal Users
Developed tomeet the needsof management.
Information thataids planning and
control.
Much of theinformation isconfidential.
Environ - 6
The Interaction of Financial Accounting with Its Environment
FinancialAccounting
Determineregulatory
tax payments.
Establish theattractivenessof a company
as an acquisition.
Evaluate theeffectiveness of
individual managers.
Determinewhether bond
and other contractprovisions are
satisfied.
Help lendersevaluate risk ofa potential loan.
Serve as input tolocal, state, and
federal regulators.
Fin Acctg Concepts - 7
GENERALLY ACCEPTEDACCOUNTING PRINCIPLES
Reasons for Generally Accepted Accounting Principles (GAAP)
Entities influencing GAAPGAAP
Fin Acctg Concepts - 8
GAAP
Generally Accepted Accounting Principles (GAAP)– The guidance U.S. companies currently use to
measure and report performance– Is very flexible
•Allows management judgment•Different methods of measurement allowed
@Cambridge Business Publishers, 2009
Who prepares a company’s
financial statements?
Management
Fin Acctg Concepts - 9
GAAP FAQs
Why did GAAP arise?– To mutually benefit the capital market
participants who use financial statements– To help evaluate risk and return– To give confidence to users that information
helps make better decisions Created by Financial Accounting Standards Board
(FASB)• Overseen by the Securities and Exchange
Commission (SEC)SEC has the ultimate power to set accounting
standards@Cambridge Business Publishers, 2009
Fin Acctg Concepts - 10
International Accounting Standards
Attempt to harmonize accounting standards through creation of International Financial Reporting Standards (IFRS)
Some countries are using IFRS– European Union converted in 2005
Recent impact on U.S.– Late 2007, U. S. SEC voted to allow foreign
registrants to file financial statements with the U.S. using IFRS•Previously required to use or reconcile to
U.S. GAAP
@Cambridge Business Publishers, 2009
10
Fin Acctg Concepts - 11
Proposed SEC Roadmap for IFRS
#-Staggered adoption possible based on earliest adoption in 2015 or 2016.
11
Environ - 12
FASBFinancial
Independence
Smaller Size
ReportingAutonomy
BroadRepresentation
IncreasedStaff
F FASB
Environ - 13
Impact of Other Organizations on GAAP
GAAP
Internal RevenueService
American Instituteof CPAs
Securities andExchange
Commission
AmericanAccountingAssociation
GovernmentalAccounting
Standards Board
Financial ExecutivesInstitute
Institute ofManagement Accountants
Environ - 14
“FINANCIAL STATEMENT PACKAGE”
Formal financial statements
Footnotes
Supplementary information
Attestation reports
Environ - 15
FINANCIAL STATEMENTS
Statement of Financial Position (Balance Sheet)
Income Statement (Earnings Statement)– Statement of Comprehensive Income
Statement of Retained Earnings (Stockholders’ Equity)
Statement of Cash Flows
Environ - 16
ATTESTATION REPORTS
Management Report
Audit Committee Report
Independent Auditor’s Report