Download
environment and theoretical structure of financial accounting n.
Skip this Video
Loading SlideShow in 5 Seconds..
Environment and Theoretical Structure of Financial Accounting PowerPoint Presentation
Download Presentation
Environment and Theoretical Structure of Financial Accounting

Environment and Theoretical Structure of Financial Accounting

214 Views Download Presentation
Download Presentation

Environment and Theoretical Structure of Financial Accounting

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

  1. Environment and Theoretical Structure of Financial Accounting Sid Glandon, DBA, CPA Associate Professor of Accounting

  2. Financial Accounting • Financial reporting is the process of providing relevant financial information to third-party users • Investors • Creditors • Financial intermediaries

  3. Capital Markets • Primary markets • Debt and equity instruments are sold based on anticipated cash flows • Interest • Dividends • Capital gains • Secondary market • Investors trade

  4. Accrual vs. Cash Accounting • Accrual accounting provides a more realistic representation of periodic financial results

  5. Financial Statements • Balance Sheet • Statement of Income • Statement of Cash Flows • Statement of Shareholders’ Equity • Notes to the Financial Statements

  6. Standards • Establishment of accounting standards is a political process • Standards setting bodies • Committee on Accounting Procedures • Accounting Principles Board • Financial Accounting Standards Board

  7. Financial Accounting and Reporting Standards • Securities and Exchange Commission • American Institute of Certified Public Accountants (AICPA) • Committee on Accounting Procedures (CAP) • Accounting Principles Board (APB) • Financial Accounting Standards Board (FASB)

  8. Financial Reporting Reform • Public Company Accounting Reform and Investor Protection Act of 2002 Sarbanes-Oxley (SOX) • Public Company Accounting Oversight Board (PCAOB) • Standards setting body for publicly traded companies and their auditors

  9. Conceptual Framework • Statements of Financial Accounting Concepts • #1 Objectives of Financial Reporting • #2 Qualitative Characteristics of Accounting Information • #6 Elements of Financial Statements • #5 Recognition and Measurement in Financial Statements

  10. Objectives of Financial Reporting • Provide information: • Useful for decision making • Helps in predicting cash flows • About economic resources, claims to resources and changes in resources and claims

  11. Qualitative Characteristics • Understandability (user-specific quality) • Decision Usefulness (overriding objective) • Primary qualities • Relevance • Predictive value • Feedback value • Timeliness • Reliability • Verifiability • Neutrality • Representational faithfulness • Secondary • Comparability • Consistency • Materiality

  12. Constraints • Cost effectiveness • Materiality • Conservatism

  13. Elements of Financial Statements • Assets • Liabilities • Equity • Investments by owners • Revenues • Gains • Expenses • Losses • Comprehensive income

  14. Recognition and Measurement • Recognition • Item is an element that is measurable, relevant and reliable • Measurement • Unit of measurement • Attribute to be measured • Historical cost • Net realizable value • Present value of future cash flows

  15. Recognition and Measurement Concepts • Assumptions • Economic entity • Going concern • Perodicity • Monetary unit • Principles • Historical cost • Realization • Matching • Full disclosure

  16. AICPA Code of Ethics • Preamble, self-discipline • Responsibilities, sensitive professional and moral judgments • Public Trust, serve the public interest • Integrity, highest sense of integrity • Objectivity and Independence, objective and independent in fact and appearance • Due Care, professional’s technical and ethical standards • Scope and Nature of Services, qualified to provide

  17. Model for Ethical Decisions • Step 1, Determine the facts of the situation • Step 2, Identify the ethical issue and the stakeholders • Step 3, Identify the values related to the situation • Step 4, Specify the alternative courses of action • Step 5, Evaluate the courses of action in terms of their consistency with the values identified • Step 6, Identify the consequences of each possible course of action • Step 7, Make your decision and take any indicated action