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Intermediate Accounting 10th edition
Nikolai Bazley Jones
An electronic presentation by Norman Sunderman
Angelo State University
COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation.
Thomson, the Star logo, and South-Western are trademarks used herein under license.

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More Accountants Needed
New accounting rules pose challenges for financial accounting and projections point to increased hiring of accounting graduates.
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Estimated Hiring Increase
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Accounting firms of all sizes plan to increase future hiring.

Companies need large amounts of capital for operations
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Companies may obtain capital by issuing capital stock...
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Stock Exchange

…or by borrowing from lenders
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Bank

Sell stocks and bonds
Primary Market
(e.g., individuals,
Investors banks)
Buy and sell stocks and bonds
Secondary
Market (e.g., New
York Stock
Investors
Exchange)
Capital Markets
Corporations
Borrow money
Buy and sell stocks and bonds
Financial Institutions
Buy and sell stocks and bonds
Investors
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Company’s
Economic
Activities
Accounting Information
Economic Activities and
Decision Making
Impact
External
User
Externa l
Decisio n
Making
Accumulate
Accounting
Information
Communicate
Internal
User
Internal
Decisio n
Making
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Impact

External and Internal Users
1. Buy.
A potential investor decides to purchase a particular security on the basis of communicated accounting information.
2. Hold.
An actual investor decides to retain a particular security on the basis of communicated accounting information.
3. Sell.
An actual investor decides to dispose of a particular security on the basis of communicated accounting information.
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Comparison of Financial and
Managerial Accounting
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Sources of Authority
Financial Accounting Managerial Accounting
Internal needs
GAAP

Comparison of Financial and
Managerial Accounting
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Time Frame of Reported Information
Financial Accounting Managerial Accounting
Primarily historical Present and future

Comparison of Financial and
Managerial Accounting
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Financial Accounting
Scope
Managerial Accounting
Total company
&
Segment reporting
Individual departments, divisions, and total company

Comparison of Financial and
Managerial Accounting
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Type of Information
Financial Accounting Managerial Accounting
Primarily quantitative Qualitative as well as quantitative

Comparison of Financial and
Managerial Accounting
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Statement Format
Financial Accounting Managerial Accounting
Prescribed by GAAP; oriented toward investment and credit decisions
Determined by company; focused upon specific decisions being made

Comparison of Financial and
Managerial Accounting
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Decision Focus
Financial Accounting Managerial Accounting
External Internal

The company’s accountants prepare both the financial and the managerial accounting reports…
…and the information comes from the same information system.
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Financial Reporting
Financial reporting is the process of communicating financial accounting information about a company to external users.
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Financial Reporting
A statement of changes in stockholders’ equity also is included by many companies.
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Financial Reporting
This statement summarizes the changes in each item of stockholders’ equity for a period.
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Generally Accepted
Accounting Principles (GAAP)
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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.

Hierarchy of Sources of
GAAP
Categories Authoritative Sources
A.
FASB Statements of Financial Accounting
Standards and Interpretations, FASB Staff
Positions, FASB Statement 133
Implementation Issues, APB Opinions, and
CAP (AICPA) A ccounting R esearch B ulletins,
(as well as SEC releases such as regulation S-
X, Financial Reporting releases, and S taff
A ccounting B ulletins for companies that file with the SEC)
Continued
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Hierarchy of Sources of
GAAP
Categories Authoritative Sources
B.
FASB Technical Bulletins, and, if cleared by the FASB, AICPA Industry Audit and
Accounting Guides, and AICPA S tatements o f
P osition
C.
FASB E merging I ssues T ask F orce Consensus
Positions and if cleared by the FASB, AICPA
Practice Bulletins
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Continued

Hierarchy of Sources of
GAAP
Categories Authoritative Sources
D.
FASB Q’s and A’s (Implementation Guides),
AICPA Accounting Interpretations, and practices that are widely recognized and prevalent either generally or in the industry (e.g., AICPA
Accounting Trends and Techniques)
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There are electronic databases such as the FASB
Financial Accounting Research System (FARS) that include most accounting standards

History of GAAP in Private
Sector
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1938 1959 1973 Present
CAP formed
CAP issued
51 ARBs
APB formed
APB issued 31
Opinions
FASB formed FASB issued 154
Statements of Standards as of 10/05

Committee on Accounting
Procedure (CAP)
In 1938, the AICPA formed the Committee on
Accounting Procedure. This group issued pronouncements known as Accounting Research
Bulletins (ARB), but the CAP did not have authority to enforce its pronouncements and application was optional. The CAP was criticized because its members were all CPAs and application was optional, so the AICPA formed the
Accounting Principles Board in 1959 to replace the Committee on Accounting Procedure.
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Reasons for Forming APB
1.
To alleviate criticism about the process of formulating accounting principles, which included wider representation.
2.
To create a policy-making body whose rules would be binding on companies rather than optional.
The APB was comprised 17 to 21 members, selected primarily from the accounting profession.
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Structure of 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)
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Continued

Structure of the FASB
Financial Accounting
Standards Board
(7 members)
Appoint
Consult
Task Forces of the
Standards Board
(including E merging
I ssues T ask F orce)
Support
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Administrative
Staff
Research and
Technical Staff Consult

Types of Pronouncements
Issued by the FASB

Statements of Financial Accounting
Standards

Interpretations

Technical Bulletins

Statements of Financial Accounting
Concepts

Other Pronouncements
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FASB Operating Procedures
Identify
Topic
Appoint
Task Force
Conduct
Research
Issue
Discussion
Memorandum or Invitation to
Comment
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Hold Public
Hearings
Deliberate on Findings
Issue
Exposure
Draft
Continued

FASB Operating Procedures
From previous page
Issue
Exposure
Draft
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Hold
Public
Hearings
Modify
Exposure
Drafts
Vote
(simple majority)
Issue
Statement

Principles of the AICPA Code of Professional Conduct
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Responsibilities
In carrying out their responsibilities as professionals, members should exercise sensitive professional judgment in all their activities.

Principles of the AICPA Code of Professional Conduct
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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.

Principles of the AICPA Code of
Professional Conduct
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Integrity
To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

Principles of the AICPA Code of Professional Conduct
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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.

Principles of the AICPA Code of Professional Conduct
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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.

Principles of the AICPA Code of Professional Conduct
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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.

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Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc.
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