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Chapter 1
Accounting-Present and Past
Chapter 1
Accounting-Present and Past
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What is Accounting?
LO1
Accounting is the process of:
Identifying
Measuring
Communicating
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Economic
information
about an entity
For decisions
and informed
judgments
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LO2
Users and Uses of Accounting
Information
User
Management
Investors/Shareholders
Creditors/Suppliers
Employees
Securities and Exchange
Commission
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Decision/Informed Judgment
Made
Planning, directing and controlling
Assessing amounts, timing, and
uncertainty of future cash returns on
their investment
Assessing probability of collection and
the risk of late (or non-) payment
Planning for retirement and future job
prospects
Reviewing for compliance of all
required information
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LO3
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.
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LO3
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 decisionmaking process.
Cost accounting relates to the
determination and
accumulation of product,
process, or service costs.
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LO3
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 four 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.
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LO3
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.
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LO3
Governmental and Not-for-Profit
Accounting
Governmental units (e.g.,
municipal, state, and
federal agencies) and notfor-profit entities (e.g.,
universities, hospitals, and
religious organizations)
require the same
accounting functions to be
performed as do other
accounting entities.
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LO3
Income Tax Accounting
Tax practitioners often
develop specialties in the
taxation of individuals,
partnerships, corporations,
trusts and estates, or
international tax law
issues.
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LO5
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 1932 1933 1939
to
to
&
1934 1934 1959
1973
The FASB has issued 164 Statements of Financial Accounting
Standards that have established standards of accounting and
reporting for particular issues.
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LO6
How Has Accounting
Developed?
3000 B.C. 1494 1800’s
1900’s 1932 1933 1939 1973 2002
to
to
&
1934 1934 1959
The Sarbanes-Oxley Act of 2002 created the 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.
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Standards for Other Types of
Accounting
LO6
Managerial/Cost
Accounting
Cost Accounting
Standards Board (CASB)
for government contracts
Auditing/Public
Accounting
Auditing Standards
Board (part of AICPA)
State and Local
Governments
Governmental
Accounting Standards
Board (GASB)
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LO6
International Accounting
Standards
The International
Accounting Standards
Board (IASB) seeks
methods of providing
comparability between
financial statements
prepared according to
the differing accounting
standards of its member
nations.
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LO7
Ethics and the
Accounting Profession
Integrity
Objectivity
Independence
Competence
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LO8
The Conceptual Framework
Statements of Financial Accounting Concepts
(SFACs) describe concepts and relationships
that underlie financial accounting standards.
1.
2.
3.
4.
5.
6.
7.
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
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LO9
Concepts Statement No. 1
Objectives of Financial Reporting by Business Enterprises
Financial reporting
information:
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should
provide
useful

For present and potential investors and creditors to
make informed investment, credit, and similar
decisions;

For present and potential investors and creditors to
assess amounts, timing, and uncertainty of net cash
flows; and

About the economic resources, claims to the
resources, and changes in the economic resources
and claims to the resources of a business entity.
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