...CHAPTER 1 Financial Accounting and Accounting Standards ASSIGNMENT CLASSIFICATION TABLE Topics 1. 2. 3. Subject matter of accounting. Environment of accounting. Role of principles, objectives, standards, and accounting theory. Historical development of accounting standards. Authoritative pronouncements and standards-setting bodies. Questions 1 2, 3, 4 5, 6, 7, 8 Cases 1 3, 4 2, 4 4. 8, 9, 10, 11, 12 5, 17 5. 13, 14, 15, 16, 17, 18, 19, 20, 21, 22 23, 24, 25, 26, 27 28 29 6, 7, 8, 10, 11, 12, 13, 15, 16 6. 7. 8. Role of pressure groups. International accounting. Ethical issues. 9, 18, 19 15 14 1-1 ASSIGNMENT CHARACTERISTICS TABLE Item C1-1 C1-2 C1-3 C1-4 C1-5 C1-6 C1-7 C1-8 C1-9 C1-10 C1-11 C1-12 C1-13 C1-14 C1-15 C1-16 C1-17 C1-18 C1-19 Description Financial accounting. Objectives of financial reporting. Accounting numbers and the environment. Need for accounting standards. AICPA’s role in standards setting. FASB role in standards setting. Government role in standards setting. Meaning of generally accepted accounting principles. Politicalization of standards setting. Models for setting accounting standards. Standards-setting terminology. Accounting organizations and documents issued. Accounting pronouncements. Issues involving standards setting. Securities and Exchange Commission. Standards-setting process. History of standards-setting organizations. Economic Consequences. Standards-setting process, economic consequences. Level of Difficulty...
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...Explaining Basic Accounting Concepts and Business Structures Generally Accepted Accounting Principles (GAAP) are guidelines for accounting that have either been specifically established by one of the governing bodies tasked with establishing and overseeing accounting practices or are “accepted” as a practice by having been time proven and having “universal” application (Kieso, Weygandt, and Warfield (2007). There are four main organizations that are “instrumental in the development of financial standards (GAAP) in the United States.” (Kieso, Weygandt, and Warfield (2007). These are the Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), and the Government Accounting Standards Board. (GASB) (Kieso, Weygandt, and Warfield (2007) The SEC is the sole body for enforcement, with the AICPA and the FASB having been created at the urging of the SEC for a private sector entity to use its resources to establish effective guidelines. The SEC continues to support the formation and improvement of accounting guidelines by the private sector as long as they are “subject to commission oversight” (Kieso, Weygandt, and Warfield (2007). The FASB uses “The Hierarchy of Generally Accepted Accounting Principles,” and they are listed as follows: FASB Standards, Interpretations, Staff Positions, APB (Accounting Principles Board), and AICPA Accounting Research Bulletins...
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...Explaining Basic Accounting Concepts and Business Structures The Hierarchy of Generally Accepted Accounting Principles identifies the sources for the accounting standards and principles. These sources include “FASB Standards, Interpretations, and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins” (Kieso, Weygandt, & Warfield, 2007, p. 12). When companies prepare financial statements in accordance with GAAP, they sometimes run into situations in which some standards do not address a certain situation or two standards may conflict. Because of this the Statement of Accounting Standard Number (SAS) 69 established a hierarchy to follow. The hierarchy forms a kind of order for GAAP rules and procedures used in preparing financial statements. The hierarchy is made up of four categories that have a descending level of authority. For example, “Category A consists of the following principles: FASB Statements of Financial Accounting Standards, FASB Interpretations, APB Opinions, and AICPA Accounting Research Bulletins” (eNotes, 2011, para. 5). Because the categories are in descending order, category A would take precedence over the other three categories. The FASB identified certain qualities of accounting information that make it effective for making decision. For accounting information to be considered effective it should possess these four qualities: relevance, reliability, comparability, and consistency. The information should be relevant enough to...
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...function and primary focus of financial accounting. Level of Learning: Easy 28. The primary focus for financial accounting information is to provide information useful for: A. Option A B. Option B C. Option C D. Option D AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Easy 29. Which of the following is not true about net operating cash flow? A. It is the difference between cash receipts and cash disbursements from providing goods and services. B. It is a measure used in accrual accounting and is recognized as the best predictor of future operating cash flows. C. Over short periods of time, it may not be indicative of long-run cash-generating ability. D. It is easy to understand and all information required to measure it is factual. AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Medium 30. Which of the following groups is not among financial intermediaries? A. Mutual fund managers B. Financial analysts C. CPAs D. Credit rating organizations AACSB: Reflective thinking Bloom's: Knowledge Learning Objective: 01-01 Describe the function and primary focus of financial accounting. Level of Learning: Medium 31. Which of the following was the first private sector entity that set accounting standards in the United...
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...The standard setting process The recent, high profile accounting scandals shook the foundations of the capital markets. Financial reporting furnishes investors and other stakeholders with reliable and relevant information. In the short term unethical financial reporting resulted in loss of billion dollars, but in the long term the impact was even more severe: loss of confidence in financial reporting as reliable source of information. The following reforms aimed to restore investor confidence in financial reporting and accounting profession. They reinforced the importance of ethics in financial reporting and provided recommendation on accounting standard setting process. The following paper provides a brief discussion on standard setting organizations and process and the authoritative sources of accounting. This study also covers the objectives of financial reporting and its role in today’s economy and concludes that ethics will remain cornerstone of the accounting profession. Table of Contents Abstract 2 The standard setting process 4 Standard setting process and authoritative sources of accounting information 5 Objectives of financial reporting 6 Ethics’ role in financial reporting 6 Conclusion 7 References 10 The standard setting process The dawn of the new century brought an economic downturn. The tragic events of 9/11 and the burst of the dot.com bubble accelerated the general decline. Investors kept corporate managements under constant pressure...
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...ACCT 495 Section 2: CASE STUDIES IN ACCOUNTING Research Assignment One Erin M. Bordwell September 29, 2012 Dr. Hossain Fall Quarter 2012 CALIFORNIA STATE UNIVERSITY, LOS ANGELES ACCT 495: Bordwell RESEARCH: Accounting Standard Codification (ASC) 1. FASB had four primary goals in developing the codification. List these four goals: 1) Simplify user access by codifying all authoritative U.S. GAAP 2) Ensure that the codification content accurately represented authoritative US GAAP 3) Mitigate the risk of noncompliance with standards through improved usability of the literature 4) Provide codification research system that is accurate with real-time updates as new standards are released 2. List three SEC authoritative guidance, standard and interpretations included in the codification: 1) Regulation S-X (SX) 2) Financial Reporting Releases (FRR)/Accounting Series Releases (ASR) 3) Interpretive Releases (IR) 3. The accounting literature replaced by the FASB Codification includes (list five): 1) Accounting Research Bulletins (ARB) 2) Accounting Principles Board Opinions (APB) 3) AICPA Accounting Interpretations (AIN) 4) Statements of Financial Accounting Standards (SFAS) 5) FASB Interpretations (FIN) 4. For the following five FASB standards (FAS), provide the corresponding ASC Topic#: FAS 141(R): FAS 52: FAS 13: FAS 133: FAS 115: ! ASC 805 ASC 830 ASC 840 ASC 815 ASC 320 1 ACCT 495: Bordwell 5. Explain the following ASC references: FASB ASC 310-10-05-2: The Overall...
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...The Financial Accounting Standards Board Accounting Standards Codification (also known as “the Codification”) was created by the Financial Accounting Standards Board (FASB) to provide users of U.S. generally accepted accounting principles (GAAP) one place to access authoritative literature on GAAP. The FASB also developed the Financial Accounting Standards Board Codification Research System (CRS). “CRS is an online real-time database that provides easy access to the Codification. The Codification and the related CRS provide a topically organized structure, subdivided into topic, subtopics, sections, and paragraphs, using a numerical index system.” (Kieso, Weygandt, & Warfield, 2010, p 14) CRS can be used to research GAAP information such as accounting policies, comprehensive income, net income, other comprehensive income, and reclassification adjustments. Definitions of accounting policies can be found in two ways on CRS website, asc.fasb.org/home. Definitions can be found in the Master Glossary. The link to the Master Glossary is the last entry in the far left column. Definitions can also be found in the Glossary link under each specific topic. For example, comprehensive income is defined as: The change in equity (net assets) of a business entity during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. CRS...
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...Revision for Revenue Recognition Xin Yan Introduction Since 2002, the International Accounting Standard Board (IASB or collectively the boards) and the Financial Accounting Standards Board of US (FASB or collectively the boards) have been working together on a project to revise and converge IFRS and US GAAP on revenue. Consequently, the Boards have jointly issued two exposure drafts outlining proposed changes. The latest one was published in November 2011 with public comments received in March 2012. If adopted, it will substitute all revenue standards prescribed by IFRS including IAS 11 Construction Contracts and IAS 18 Revenue and relevant interpretations and most of the revenue recognition requirements and related guidance in US GAAP. This paper, first of all, will provide a brief background of the joint project. Then it will highlight proposed changes and its implications in key areas. Finally, it will discuss effective date, early adoption and transition of the new standards and offer some alternative view. Background While the definition of revenue in IFRS seems clear, revenue requirements in IAS 11 and IAS 18 actually could be problematic to be applied to complicated transactions. Additionally, some application guidance on critical issues such as revenue for multiple element agreements is quite limited. Therefore a number of entities have established their IFRS accounting guidelines by resorting to parts of US GAAP. However, US GAAP consists of broad concepts...
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...Nick O'Brien started to work in the accounting department at his aunt's software company. While going over some financial statements Nick notices what he believes are revenue recognition issues. Since Nick believes that Lee Marchetti the Chief Financial Officer (CFO) of O'Brien Software is an honest man, he decides to have a discussion with him about what he believes are revenue recognition issues. Mr. Marchetti explains to Nick that accounting is not an exact science and that it involves a lot of judgment calls and that O'Brien Software's "deferrals and estimates are well documented and in accordance with the Securities and Exchange Commission (SEC) rules" (Conservative Recognition or Cookie Jar Reserves, Carpenter p. 3). After speaking with Mr. Marchetti, Nick decided to still speak with his aunt Amelia about his concerns. Amelia expressed to Nick that she was not very good when it came to accounting matters but she was educated when it came to recognizing revenue and that she believed being conservative was better than overstating. However, she asked Nick if he thought she should mention what he found to the audit committee. Issues/Questions One question that should be addressed surrounds why the CEO Amelia is not aware of certain financial aspects of her business. The Sarbanes-Oxley Act requires the chief executive officer (CEO) and the chief financial officer (CFO) of public companies to certify the quarterly and annual financial statements submitted to the SEC (Arens...
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...Basic Accounting Concepts Vai Ma’ake University of Idaho Financial Accounting ACCP/537 March 19, 2011 Introduction To identify and describe the sources of generally accepted accounting principles (GAAP). Also identify the source hierarchy and explain why the hierarchy is important. Describe effective accounting information using the qualities of accounting information and how an accrual basis of accounting system is different from a cash basis of accounting. Finally, describing the different types of business structures and the defining features of each structure (University of Phoenix Syllabus, 2011). Basic accounting concepts In successfully running and operating a business, business structure and basic accounting concepts must be present to operate well. The generally accepted accounting principles also known as the (GAAP) set standards to the financial statements. The standards set by the GAAP must also include effective accounting information. Companies do have the option either to use accrual basis of accounting or cash basis of accounting. However, under the GAAP it does accept cash basis accounting. Companies will determine the type of business to do business in. However, these decisions do makes the difference in how successful a company is. [pic]GAAP The GAAP are standards, which are universally practiced and generally accepted in accounting. These standards and rules are for accountants to use in compiling...
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...past five years, Chevron has been continuously ranked as one of America’s five largest corporations. Chevron’s headquarters is in San Ramon, California (Fox, 2012). It is engaged in every aspect of the oil, gas, and geothermal energy industries, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. Chevron was originally known as Pacific Coast Oil Company in 1979, where they made their oil discovery in Pico Canyon north of Los Angeles, California (2012). Since its origination, it has blossomed and generated large amounts of revenue ever since. The International Financial Reporting Standards would be beneficial for Chevron. However, since this company has been in existence for a decade and have foundational methods and ways of their accounting and financial systems such as GAAP already implemented, it is hard for Chevron to adjust and...
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... ➢ Introduction ➢ Changes in Leasing accounting ➢ Effect of the changes on the industry ➢ Conclusion A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset for a certain time. Leasing is a common activity and agreement, which appears on company’s financial statement all the time, no matter fortune 500 companies or startup firms. Most of the companies will rent tangible property including office and machines that is called rental agreement. When it comes to accounting, leasing becomes one of the most important sources of the financial statement. Since 1977, Financial Accounting Standards Board (FASB) set accounting standards to regulate leases that show on financial statement. However, current accounting rules for leases unable to meet the needs of users of financial statements because they do not provide a truthful representation of leasing transaction (Financial Accounting Standards Board). As a result, Financial Accounting Standards Board (FASB) and International Financial Reporting Standards (IFRS) decided to create joint project to redefine the accounting rules for leases (IFRS 1). Therefore, the draft of new accounting standard were made in 2010 and expected to be applied in 2013. The FASB and IFRS have proposed various changes, which should be implemented within leasing accounting. In accordance to resolutions made by the boards...
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...CHAPTER 1 Governmental and Nonprofit Accounting: ENVIRONMENT AND CHARACTERISTICS ANSWERS TO QUESTIONS QUESTION 1-1 a. The similarities of accounting for profit-seeking and G&NP organizations include: 1. Double-entry system of accounts. 2. Most accounting mechanics, e.g., basic transaction documents, journals, ledgers, charts of accounts. 3. Where a G&NP organization has a business-type activity, e.g., a municipal electric utility, the accounting largely parallels that for a similar private business (e.g., electric utility). b. Among the unique aspects of G&NP organization accounting are: 1. Fund accounting—designed to separate resources according to the purposes for which they may be used and to account for their uses and balances. 2. Budgetary control techniques—to help assure appropriations are not overexpended and all resources due the G&NP organization are received by it. Question 1-2 a. A fund of a government organization is an independent fiscal and accounting entity. Each fund has a separate self-balancing set of accounts in which are recorded the resources segregated for specific purposes, the related liabilities and residual equity (fund balance or net assets), and the changes therein. Financial statements typically must be presented to report the financial position and operating activities of a fund of a government. b. As the term is generally used in commercial accounting, a "fund" merely indicates that a portion...
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...determination of pension plan qualifications and even related activities (www.irs.gov). Another is the Securities and Exchange Commission known as the SEC; this is an independent federal agency which is responsible for regulating securities markets where stocks and bonds of major companies are traded. There is also the Financial Accounting Standards Board the FASB that is the largest independent US body that is responsible for establishing and interpreting the accounting standards and practices that are known as the Generally Accepted Accounting Principles (GAAP). The American Institute of Certified Public Accountants (AICPA) is a regulatory body that develops standards for auditing and other services performed by certified public accountants. The Governmental Accounting Standards Board (GASB) is the entity which is responsible for setting the generally acceptable accounting principles used by state and local governments and just like the aforementioned Securities and Exchange Commission; the GASB is a non-governmental, private organization. One regulatory body has a name that is sometimes jokingly referred to and pronounced “Peek-a-boo” that is the Public Company Accounting Oversight Board (PCAOB). It is surprisingly a private sector, non-profit organization that is responsible for overseeing the auditors of public companies. Its stated purpose is to protect the interest of investors and further the public interest in the preparation of informative, fair, and independent audit...
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...1161-4470 07/14/12 Article Analysis #2- "Delay Seen (Again) For New Rules on Accounting" by Michael Rappoport and "Accounting Panel Expresses 'Regret' Over U.S. Stance" by Michael Rapoport. This week’s article is about the additional delays in the SEC’s report and decision on converting to International Financial Reporting Standards (IFRS). The SEC began looking into switching in 2010 when the formed a committee to look into the matter and now, two years later, they are still weeks away from issuing report and possibly an additional year away from presenting a formal recommendation. This has led to some frustration from accounting firms, business and stakeholders around the world as they wait for final word. The frustration of IASB is noted in the second follow up article. The decision has wide ranging effects which is what has everyone waiting, some impatiently, for a decision. The US currently adheres to Generally Accepted Accounting Principles, GAAP, which have a few fundamental differences from IFRS and is generally more restrictive than IFRS. Because of the differences, a change to IFRS would result in changes to how companies record financial information as well as how it is reported. This would necessitate not only practicing companies making changes, but how accounting firms audit and in the US as well as how institutions educate future accounting students. The International Accounting Standards Board, which oversees IFRS, is growing impatient as it awaits the...
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