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“Who makes the rules and what is the conceptual framework used as a guide?”

Intermediate Chapter 1. “Who makes the rules and what is the conceptual framework used as a guide?”. Financial Statement Relationships. Statement of Cash Flows. Cash From Op $ 973,000 Cash From Inv (1,188,000) Cash From Fin 245,000 Net Increase $ 30,000

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“Who makes the rules and what is the conceptual framework used as a guide?”

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  1. Intermediate Chapter 1 “Who makes the rules and what is the conceptual framework used as a guide?”

  2. Financial Statement Relationships Statement of Cash Flows Cash From Op $ 973,000 Cash From Inv (1,188,000) Cash From Fin 245,000 Net Increase $ 30,000 Beg. Cash 80,000 End. Cash $ 110,000 ========= Balance Sheet 12/31/X1 Balance Sheet 12/31/X0 Income Statement Cash $ 80,000 Other 4,550,000 Total $4,630,000 Liabilities $2,970,000 Stock 900,000 R/E 760,000 Total $4,630,000 Cash $ 110,000 Other 4,975,000 Total $5,085,000 Liabilities $2,860,400 Stock 1,000,000 R/E 1,224,600 Total $5,085,000 Revenues $12,443,000 Expenses 11,578,400 Net Income $ 864,600 ========= ========= ========== Statement of Retained Earnings R/E 12/31/X0 $ 760,000 Net Income 864,600 Dividends (400,000) R/E 12/31/X1 $1,224,600 ========= ========= =========

  3. Accounting Standard-Setting Organizations FAF SEC AICPA Other GASAC GASB FASAC FASB AcSEC U.S. Gov't IAPC Consult IASC FASB EITF Appoint

  4. Securities Exchange Commission (1933-present) • 1920s accounting practices not standard. • 1929 stock market crash blamed on nonstandard accounting. • 1933 Securities Act established SEC to standardize accounting. • Granted legal authority to dictate GAAP. • Has tended to defer setting GAAP to the accounting profession.

  5. Financial AccountingStandards Board (1973-present) • Independent body. • Issues Statements of Financial Accounting Standards. • Determines GAAP by “due process.” • Works within the Conceptual Framework.

  6. Instructors Association FASB Authority Sources --Overview Gov’t Regulators • SEC • American Acct. • State Boards of Public Acct. FASB Statement Preparers Auditors • Financial Executives • AICPA • State societies of Institute CPAs • IMA • Major audit firms • Individual Corps

  7. Conceptual Framework Overview Objectives of Financial Reporting Qualitative Characteristics of Information Accounting Elements of Financial Statements Recognition and Measurement Concepts Assumptions Principles Constraints

  8. Objectives of Financial Reporting Provide Information: 1. Useful in investment and credit decisions. 2. Useful in assessing future cash flows. 3. About enterprise resources, claims to resources, and changes in them.

  9. Qualitative Characteristics Primary Qualities A. Relevance 1. Predictive Value 2. Feedback Value 3. Timeliness B. Reliability 1. Verifiability 2. Representational Faithfulness 3. Neutrality Secondary Qualities A. Comparability B. Consistency

  10. Elements • Assets • Liabilities • Equity • Investment • Distribution • Comprehensive Income • Revenues • Expenses • Gains • Losses

  11. Recognition andMeasurement Concepts Assumptions Principles Constraints • Economic Entity • Going Concern • Arm’s-length transactions • Monetary Unit • Periodicity • Historical Cost • Revenue Recognition • Matching • Full Disclosure • Cost-benefit • Materiality • Industry Practice • Conservatism

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