1 The Environment of
Financial Reporting
I
ntermediate
Accounting
中级会计学
Accounting School · Zhongnan
University of Economics & Law
Intermediate Accounting 1 The Environment of Financial Reporting
Forewords
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Course nature and objective
Teaching methods
Test requirements and form
Scoring system
Brief contents
Intermediate Accounting 1 The Environment of Financial Reporting
I.
Accounting information: users, uses,
and GAAP in U.S.A.
Companies may obtain capital by
issuing capital stock or by borrowing
from lenders
Bank
Stock Exchange
Intermediate Accounting 1 The Environment of Financial Reporting
“Accounting is a service activity. Its function is to
provide quantitative information, primarily
financial in nature, about economic entities
that is intended to be useful in making
economic decisions--in making reasoned
choices among alternative courses of action.”
(Statement of the Accounting Principles
Board No. 4, p. 40)
Intermediate Accounting 1 The Environment of Financial Reporting
Accounting Information Economic Activities
and Decision Making
Impact
External
User
Company’s
Economic
Activities
Accumulate
Accounting
Information
Communicate
Internal
User
Impact
External
Decisio
n
Making
Internal
Decisio
n
Making
Intermediate Accounting 1 The Environment of Financial Reporting
Major Internal and External Stakeholder
Groups
Government
Analysts
Investors
Community
Board of Directors
Management
Employees
Suppliers
Employees
Customers
Creditors
Intermediate Accounting 1 The Environment of Financial Reporting
Comparison of Financial and Managerial
Accounting
Could you illustrate
differences between
financial and
managerial
accounting?
Sources of
Authority;
Statement Format;
Decision Focus…
Intermediate Accounting 1 The Environment of Financial Reporting
Financial Reporting
Financial reporting is the process of communicating
financial accounting information about a company to
external users.
The balance sheet
reports, as of a certain
point in time, the
resources of a company
(the assets), the
company’s obligations
(the liabilities), and the
equity of the owners.
Intermediate Accounting 1 The Environment of Financial Reporting
Financial Reporting
Financial reporting is the process of communicating
financial accounting information about a company to
external users.
The income statement
reports, for a certain
interval, the net assets
generated through
business operations
(revenues), the net assets
consumed (the expenses),
and the net income.
Intermediate Accounting 1 The Environment of Financial Reporting
Financial Reporting
Financial reporting is the process of communicating
financial accounting information about a company to
external users.
The statement of cash
flows reports, for a certain
interval, the amount of cash
generated and consumed by
a company through
operating, financing, and
investing activities.
Intermediate Accounting 1 The Environment of Financial Reporting
Financial Reporting
 A statement of changes in stockholders’
equity also is included by many companies.
This statement summarizes the changes in
each item of stockholders’ equity for a period.
 Accounting estimates and judgments are
outlined in the notes to financial statements.
Intermediate Accounting 1 The Environment of Financial Reporting
Generally Accepted Accounting
Principles (GAAP)
GAAP are the guidelines, procedures, and
practices that a company is required to use
in recording and reporting the accounting
information
in
its
audited
financial
statements.
Intermediate Accounting 1 The Environment of Financial Reporting
Hierarchy of Sources of GAAP
• Level A
• Level C
– FASB Statements and
Interpretations
– APB Opinions
– CAP Accounting Research
Bulletins
– SEC Regulation S-X and
Financial Reporting Releases
– Consensus Positions of EITF
– AICPA Practice Bulletins
• Level D
– AICPA Accounting
Interpretations
– FASB “Question and Answer”
guides
– AICPA Accounting Trends and
Techniques
• Level B
– FASB Technical Bulletins
– AICPA Industry Audit and
Accounting Guides
– AICPA Statements of Position
A
Higher Authority
B
• Level E
– Other accounting literature
C
D
E
Lower Authority
Intermediate Accounting 1 The Environment of Financial Reporting
2. The development of accounting
standards in U.S. -CAP
Committee on
Accounting
Procedures
(CAP)
Born:
1939
Died:
1959
Pronouncements:
Accounting Research
Bulletins
Intermediate Accounting 1 The Environment of Financial Reporting
2. The development of accounting
standards in U.S. -APB
Accounting
Principles
Board
(APB)
Born:
1959
Died:
1973
Pronouncements:
APB Opinions
Intermediate Accounting 1 The Environment of Financial Reporting
2. The development of accounting
standards in U.S. -FASB
Financial
Accounting
Standards Board
(FASB)
Born:
1973
Died:
Pronouncements:
Statements of
Financial Accounting
Standards
Intermediate Accounting 1 The Environment of Financial Reporting
Structure of the FASB
Financial Accounting Foundation
(16-member board of trustees)
Appoint, fund, and oversee
Financial Accounting
Standards Advisory Council
(approximately 30
members)
Advise
Financial Accounting
Standards Board
(7 members)
Continued
Intermediate Accounting 1 The Environment of Financial Reporting
Structure of the FASB
Financial Accounting
Standards Board
(7 members)
Appoint
Consult
Task Forces of the
Standards Board
(including Emerging
Issues Task Force)
Support
Administrative
Staff
Research and
Technical Staff
Consult
Intermediate Accounting 1 The Environment of Financial Reporting
Types of Pronouncements Issued by the
FASB
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Statements of Financial Accounting Standards
Interpretations
Technical Bulletins
Statements of Financial Accounting Concepts
Other Pronouncements
Intermediate Accounting 1 The Environment of Financial Reporting
FASB Operating Procedures
Identify
Topic
Appoint
Task Force
Conduct
Research
Issue
Discussion
Memorandum
or Invitation to
Comment
Hold Public
Hearings
Deliberate
on Findings
Issue
Exposure
Draft
Continued
Intermediate Accounting 1 The Environment of Financial Reporting
FASB Operating Procedures
Hold Public
Hearings
Modify
Exposure
Drafts
From
previous
page
Issue
Exposure
Draft
Vote
(supermajority)
Issue
Statement
Intermediate Accounting 1 The Environment of Financial Reporting
FASB Authority Sources-- Overview
Gov’t Regulators
Instructors
• SEC
• State Boards
of Public Acct.
• American Acct.
Association
FASB
Statement Preparers
• Financial Executives
Institute
• IMA
• Individual Corps
Auditors
• AICPA
• State societies of
CPAs
• Major audit firms
Intermediate Accounting 1 The Environment of Financial Reporting
3.
Other organizations currently
influencing GAAP in U.S.
 Securities and Exchange Commission (SEC)
 American Institute of Certified Public Accountants
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(AICPA)
FASB Emerging Issues Task Force (EITF)
Cost Accounting Standards Board (CASB)
Internal Revenue Service (IRS)
American Accounting Association (AAA)
Continued
Intermediate Accounting 1 The Environment of Financial Reporting
 International Accounting Standards Committee
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(IASC)/International Accounting Standards Board
(IASB)
Governmental Accounting Standards Board (GASB)
Financial Executives International (FEI)
Institution of Management Accountants (IMA)
Association for Investment Management and
Research (AIMR)/ Chartered Financial Analyst
Institute (CFAI)
Intermediate Accounting 1 The Environment of Financial Reporting
Securities Exchange Commission (1933present)
 1929 stock market crash blamed on nonstandard
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accounting.
1933 Securities Act established SEC to standardize
accounting.
Created to protect the interests of investors by
ensuring full and fair disclosure.
Granted legal authority to dictate GAAP.
Has tended to defer setting GAAP to the accounting
profession.
Intermediate Accounting 1 The Environment of Financial Reporting
American Institute of Certified Public
Accountants
The American
Institute of Certified
Public Accountants
(AICPA) is the
professional
organization of
practicing CPAs in the
United States.
Intermediate Accounting 1 The Environment of Financial Reporting
American Accounting Association
The American
Accounting
Association (AAA)
is primarily an
organization for
accounting
professors.
Intermediate Accounting 1 The Environment of Financial Reporting
Internal Revenue Service
The Internal Revenue
Service (IRS) has the
primary goal of
equitable collecting
revenue.
Intermediate Accounting 1 The Environment of Financial Reporting
4.
Ethics in the accounting
environment
Accountants are often faced with
ethical dilemmas (ethical conflicts) in
their professional roles.
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code
of Professional Conduct
Responsibilities
In carrying out their
responsibilities as
professionals, members
should exercise sensitive
professional judgment in all
their activities.
Continued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code
of Professional Conduct
The Public Interest
Members should accept the
obligation to act in a way that
will serve the public interest,
honor the public trust, and
demonstrate commitment to
professionalism.
Continued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code
of Professional Conduct
Integrity
To maintain and broaden
public confidence,
members should perform
all professional
responsibilities with the
highest sense of integrity.
Continued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code
of Professional Conduct
Objectivity and Independence
A member should maintain
objectivity and be free from
conflicts of interest in discharging
professional responsibilities. A
member in public practice should
be independent in fact and
appearance.
Continued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code
of Professional Conduct
Due Care
A member should observe the
profession’s technical and ethical
standards, strive continually to improve
competence and the quality of services,
and discharge the professional
responsibility to the best of the
member’s ability.
Continued
Intermediate Accounting 1 The Environment of Financial Reporting
Principles of the AICPA Code
of Professional Conduct
Scope and Nature of Service
A member in public practice
should observe the Principles
of the CPC in determining the
scope and nature of services
to be provided.
Intermediate Accounting 1 The Environment of Financial Reporting
5. Comparison of the development of
accounting standards in China and in U.S.
Could you compare the development
of accounting standards in China and
in U.S.?
The End