《中级财务会计》

,Financial Accounting and Accounting Standards,Chapter 1,What is accounting?Why should we study accounting?,Accounting: The Language of Business,Why?,Start case: Helping Hands,Lee Ho (Janets sister) used her $500 to start a coaching business named “Helping Hands”.She spent $200 for advertising $180 on software and $120 for six months internet .access.,Helping Hands,The first two months she earned and collected $3,000 which she used to buy a new computer with DVD.During the summer she earned $4,000 a month for a total of $12,000 cash receipts and paid business expenses of $2,000.She kept $4,000 and used the rest of the money to pay off her car.,How well did Helping Hands perform?How much cash did she use to pay off her car? Would it be more financially rewarding to seek summer work with a Chartered Accounting firm?This course will help in the understanding of how accounting works and how accounting information determines the success or failure of a business.,Accounting is.,an information system that.measures business activities.,an information system that. processes information into reports.,Accounting is.,Accounting.,communicates financial information through reports about an identifiable economic entity.These financial statements report on a business in monetary amounts.,Accounting.,is often called the language of business.,Accounting is the System that.,measures business cesses information into municates findings to decision makers.,Accounting - a process of identifying, recording, summarizing, and reporting economic information to decision makers in the form of financial statements.,LO 1 Identify the major financial statements and other means of financial reporting.,Characteristics of Accounting,Essential characteristics of accounting are:the identification, measurement, and communication of financial information about economic entities to interested parties.,Users of Accounting Information:Decision Makers,Accounting information is useful to anyone who makes decisions that have economic results.Managers want to know if a new product will be profitable.Owners want to know which employees are productive.Investors want to know if a company is a good investment.Legislators want to know how a proposed law will affect budgets.Creditors want to know if they should extend credit, how much to extend, and for how long.,Users of Accounting Information,Accounting helps in decision making by showing where and when money has been spent, by evaluating performance, and by showing the implications of choosing one plan instead of another.Fundamental relationships in the decision-making process:,Event,Accountantsanalysis andrecording,Financialstatements,Users,Users of Accounting Information,External users are those outside the organization.Those who make decisions about the organization.Internal users are those inside the organization.Those who make decisions for the organization.,There are two groups of users of accounting information:,Fields of Accounting,1、Financial Accounting： focuses on information for external users (creditors and outside investors).2、Managerial and Cost Accounting：focuses on information for internal decision makers (management).3、Tax Accounting ： -Accounting standards v.s tax law -Timing differences v.s permanent differences -Two key issues of Tax Accounting in China8 provisions for impairment of assets (8项资产减值准备）Taxable wages and salaries (计税工资）4、Auditing -External Audit v.s Internal Audit,Key Differences between FA and MAInformation UsersRegulationSources of dataNature of reportsMeasurementAttributes,Interested partiesOutside the organization,ManagersWithin the organization,Required and must conformTo GAAP.Regulated by Standards setting bodies,Not required and unregulated,Almost exclusively fromBasic accounting system,From basic accounting systemAnd other resources,Reports focus on subunitsWithin organization,Reports focus on theEnterprise in its entirety,Mainly historical costBackward looking,A combination of HC and FVForwarding looking,FinancialAccounting,ManagerialAccounting,The Accounting Profession,The most common way to classify accountants is to divide them into public accountants and private accountants.Public accountants - accountants whose services are offered to the general public on a fee basisPrivate accountants - all other accountants, including those who work for businesses, government agencies, and other not-for-profit organizations,The Accounting Profession,Public Accounting Firms:Services offered include auditing, preparing income tax returns, and management consulting.Firms vary in size and services offered.Small proprietorships perform mostly income tax returns and monthly “write-up” work (bookkeeping).Large partnerships perform many different types of accounting and consulting services. Some of these firms have thousands of partners and offices in many different countries.,Big - Five?,The Accounting Profession,The “Big-Four” accounting firms:PricewaterhouseCoopers普华永道（PWC）KPMG Peat Marwick毕马威Deloitte & Touche德勤（DTT）Ernst & Young安永（EY） Andersen安达信,The Accounting Profession,Certified Public Accountants (CPAs)Certificate in Management Accounting (CMA)Certificate in Internal Auditing (CIA),Objective for Us,Apply accounting concepts and principles to business situations.,Financial statement and financial reporting,Financial statements:The balance sheet The income statementThe statement of cash flowsThe statement of shareholders equityOther means of financial reporting:presidents letter supplementary schedules in the corporate annual reportprospectuses,reports filed with government agenciesnews releasesmanagements forecastssocial or environmental impact statements,Note disclosure are important part of each statement,LO 1 Identify the major financial statements and other means of financial reporting.,What is the purpose of information presented in notes to the financial statements?,a.To provide disclosure required by generally accepted accounting principles.b.To correct improper presentation in the financial statements.c.To provide recognition of amounts not included in the totals of the financial statements.d.To present managements responses to auditor comments.,Review,Characteristics of Accounting,Accounting and Capital Allocation,Resources are limited. Efficient use of resources often determines whether a business thrives.Measure performance accurately and fairlyInvestors can compare different companies,Financial Reporting,Information to help users with capital allocation decisions.,Users,Investors, creditors, and other users,Capital Allocation,The process of determining how and at what cost money is allocated among competing interests.,LO 2 Explain how accounting assists in the efficient use of scare resources.,Illustration 1-1 Capital Allocation Process,What does the accounting numbers mean?,An effective process of capital allocation is critical to a healthy economy, which,motes productivity.b.encourages vides an efficient and liquid market for buying and selling securities.d.All of the above.,Accounting and Capital Allocation,LO 2 Explain how accounting assists in the efficient use of scare resources.,Review,What Challenges are Financial Accounting facing?,Thinking Outside the Box,Challenges Facing Financial Accounting,Non-financial Measurements key performance measures: customer satisfaction indexes, backlog information, reject rates on goods purchased.Forward-looking Information “Once upon a time,” of historical cost and accumulation of past events.Soft Assets The best assets are often intangible.Timeliness Statements- quarterly, audited financials- annually, real-time information was available.,LO 3 Describe some of the challenges facing accounting.,Challenges Facing Financial Accounting,We believe each of these challenges must be met for the accounting profession to provide the type of information needed for an efficient capital allocation process. Positive signs:Voluntarily disclosurePublish annual reports in several formats on the Web, such as Excel, XBRL (extensible business reporting language)Fair value information,LO 3 Describe some of the challenges facing accounting.,Financial reporting should provide information:,(a) that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions.,(b) to help present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts.,(c) about the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events, and circumstances that change its resources and claims to those resources.,Objectives of Financial Accounting,LO 4 List the objectives of financial reporting.,All of the following are objectives of financial reporting except to provide information,a.About enterprise resources, claims to those resources, and changes in them.b.That is useful in investment and credit decisions.c.About the management and major shareholders of an enterprise.d.That is useful in assessing cash flow prospects.,Objectives of Financial Accounting,LO 4 List the objectives of financial reporting.,Review,Whose rules should we play by, and what should they be? The answer is not immediately clear.Users expect these statements to present fairly, clearly, completely and comparably. Accounting standard is needed. Otherwise,each enterprise would have to develop its own standards. Readers have to face peculiar accounting and reporting practices, and incomparable statements .,Need to Develop Standards,Need to Develop Standards,Various users need financial information,The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced.,Financial StatementsBalance SheetIncome StatementStatement of Stockholders EquityStatement of Cash FlowsNote Disclosure,Generally Accepted Accounting Principles (GAAP),LO 5 Explain the need for accounting standards.,Parties Involved in Standard Setting,Four organizations are instrumental in the development of financial accounting standards (GAAP) in the United States:Securities and Exchange Commission (SEC)American Institute of Certified Public Accountants (AICPA)Financial Accounting Standards Board (FASB)Government Accounting Standards Board (GASB),LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.,Administered Securities Act of 1934,Securities and Exchange Commission,Established by federal governmentAccounting and reporting for public companies,Encouraged private standard-setting body (FASB,AICPA)SEC requires public companies to adhere to GAAPSEC OversightEnforcement Authority,LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.,SEC has broad powers to prescribe the accounting practices and standards to be employed by listed companies.Listed Companies are required to file audited financial statements with the SEC.,SEC encouraged the creation of a private standard-setting body because it believed that they had appropriate resources and talent to achieve this daunting task. As a result, accounting standards have developed in the private sector either through AICPA or FASB.,SEC relies on the FASB to develop accounting standards. The SECs involvement in the development of accounting standards varies: rejects a standard proposed by the private sector. prods the private sector into taking quicker action on certain reporting problems communicates problems to the FASB, responds to FASB exposure drafts, and provides the FASB with counsel and advice upon request.The private sector must listen carefully to the views of SEC,listed companies submit financial statements to SEC. If accounting or disclosure irregularity exists, SEC sends a deficiency letter to the company.Companies resolve these deficiency letters quickly. If disagreement continues, SEC may issue a “stop order,” which prevents the registrant from issuing or trading securities on the exchanges. The Department of Justice may also file criminal charges for violations of certain laws. The SEC process, private sector initiatives, and civil and criminal litigation help to ensure the integrity of financial reporting for public companies.,American Institute of CPAs (AICPA),National professional organizationEstablished the following:,LO 6,Committee on Accounting Procedures (CAP),Accounting Principles Board(APB),1939 to 1959Composed of practicing CPAsIssued 51 Accounting Research Bulletins (ARBs)Problem-by-problem approach failed,1959 to 197318 to 21 membersIssued 31 Accounting Principle Board Opinions (APBOs)InefficientWheat Committee recommendations adopted in 1973,/,Financial Accounting Standards Board,Wheat Committees recommendations resulted in the creation of a the Financial Accounting Standards Board in 1973.,Financial Accounting Foundation,Selects members of the FASB Funds their activities Exercises general oversight.,Financial Accounting Standards Board,Financial Accounting Standards Advisory Council,Mission to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors and users of financial information.,Consult on major policy issues.,LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.,1.Smaller Membership (7),2. Full-time, Remunerated Membership.,3. Greater Autonomy.,4. Increased Independence.,5. Broader Representation.,Relies on the expertise of various task force groups formed for various projects and on the FASAC,FASBs differences to its predecessor APB,FASB relies on two basic premises:1. Responsive to entire economic community not just the public accounting profession.2. Operate in full view of the public through a “due process” system that gives interested persons ample opportunity to make their views known.To ensure the achievement of these goals, the FASB follows specific steps to develop a typical FASB Statement of FinancialAccounting Standards:,Due Process,LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.,The Due Process System of the FASB,LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.,The first step taken in the establishment of a typical FASB statement is,a.The board conducts research and analysis and a discussion memorandum is issued.b.A public hearing on the proposed standard is held.c.The board evaluates the research and public response and issues an exposure draft.d.Topics are identified and placed on the boards agenda.,Financial Accounting Standards Board,Review,LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.,The passage of a new FASB Standards Statement requires the support of 4 of the 7 Board members. FASB Statements are considered GAAP and thereby binding in practice. All ARBs and APB Opinions implemented by 1973 (when the FASB formed) continue to be effective until amended or superseded by FASB pronouncements. In recognition of possible misconceptions of the term “principles,” the FASB uses the term financial accounting standards in its pronouncements.,Due Process,LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.,Issued by the FASB:,Types of Pronouncements,Standards, Interpretations, and Staff Positions.Financial Accounting ConceptsEmerging Issues Task Force Statements,LO 6 Identify the major policy-setting bodies and their role in the standard-setting process.,Financial accounting standards issued by the FASB are considered generally accepted accounting principles.,Modify or extend existing standards. have the same authority, and require the same votes for passage as standards.,Provide interpretive guidance and also minor amendments to standards and interpretations. These staff positions have the same authority as standards and interpretations.,Financial Accounting Concepts,To move away from the problem-by-problem approach, FASB in 1978.11 issued the first in a series of Statements of Financial Accounting Concepts as part of its conceptual framework project. Sets forth fundamental objectives and concepts in developing future standards of financial accounting and reporting. The Board intends to form a cohesive set of interrelated concepts a conceptual frameworkthat will serve as tools for solving existing and emerging problems in a consistent manner. Unlike a Statement of Financial Accounting Standards, a Statement of Financial Accounting Concepts does not establish GAAP, BUT pass through the same due process system as do standards statements.,Emerging Issues Task Force Statements,Emerging issues often attract public attention. If not resolved quickly: Lead to financial crises and scandal; Undercut public confidence in current reporting practices; Governmental intervention, would threaten the continuance of standard-setting in the private sector. In 1984 the FASB created the Emerging Issues Task Force (EITF).Representatives from CPA firms and financial statement preparers. Observers from the SEC and AICPA.,Emerging Issues Task Force Statements,The purpose is to reach a consensus on how to account for new and unusual financial transactions that may potentially create differing financial reporting practices. Identifies controversial accounting problems Determines whether it can quickly resolve them, or whether to involve the FASB in solving them. Provided timely