Ch01 Financial Reporting and Accounting Standards

PREVIEW OF CHAPTER

1

Intermediate Accounting IFRS 2nd Edition Kieso, Weygandt, and Warfield

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Financia! Reporting an# Acco*nting )tan#ar#s

$EAR%I%& O'(ECTIVE)  After studying this chapter, you should should be able to:

1. Describe the growing importance o g!oba! inancia! mar"ets an# its re!ation to inancia! reporting.

&. Identify the o'jecti(e of financial reporting.

2. Identify the major financial statements and other means of financial reporting.

*. E!plain the meaning of IFRS.

. E!plain ho" accounting assists in the efficient use of scarce resources. #. E!plain the need for high$%uality standards.

). Identify the major policy$setting 'odies and their role in the standard$setting process.

+. escri'e the challenges facing financial f inancial reporting.

&$O'A$ +AR,ET) World mar-ets are 'ecoming increasingly intert"ined. Top - lo'al /ompanies In 0erms of Sales

I$$/)TRATIO% 101

LO 1

&$O'A$ +AR,ET) Significant num'er of foreign companies are found on national e!changes.

I$$/)TRATIO% 10International E!change Statistics

&$O'A$ +AR,ET) Financia! )tatements an# Financia! Reporting Essentia! characteristics o acco*nting  are1 . the i#entiication, meas*rement , and comm*nication of financial information a'out 2. economic entities to . interested parties.

LO 2

&$O'A$ +AR,ET) Economic Economic Entit2 Entit2

Financia! )tatements

A##itiona! A##itiona! Inormation Inormation

Financia! Inormation

)tatement )tatement o o Financia! Financia! Position Position

Presi#ent5s Presi#ent5s !etter !etter

Acco*nting I#enti2 I#enti2 an#

Income Income )tatement )tatement or or )tatement )tatement o o Comprehensi3e Comprehensi3e Income Income

Reports Reports i!e# i!e# with with go3ernmenta! go3ernmenta! agencies agencies

+eas*re an#

)tatement )tatement o o Cash Cash F!ows F!ows

Forecasts Forecasts

 Comm*nicate

)tatement )tatement o o Changes Changes in in E4*it2 E4*it2 %ote %ote Disc!os*res Disc!os*res

Prospect*ses Prospect*ses

%ews %ews re!eases re!eases En3ironmenta! En3ironmenta! impact impact statements statements Etc. Etc.

&$O'A$ +AR,ET) Acco*nting an# Capita! A!!ocation Resources are are !imite# Efficient use of resources often !imite#. Efficient determines "hether a 'usiness thri(es. I$$/)TRATIO% 106 /apital Allocation 3rocess

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&$O'A$ +AR,ET) High 7*a!it2 )tan#ar#s lo'ali4ation demands a single set of high$%uality international accounting standards. Some elements1 .

Single set of high$%uality accounting standards esta'lished 'y a single standard$setting 'ody.

2. /onsistency in application and interpretation. .

/ommon disclosures.

#.

/ommon high$%uality auditing standards and practices.

&.

/ommon approach to regulatory re(ie" and enforcement.

). Education and training of mar-et participants. 5/ontinued6 LO 4

&$O'A$ +AR,ET) High 7*a!it2 )tan#ar#s lo'ali4ation demands a single set of high$%uality international accounting standards. Some elements1 *.

/ommon deli(ery systems 5e.g., e7tensi'le 8usiness Reporting 9anguage:78R96.

+. /ommon approach to corporate go(ernance and legal frame"or-s around the "orld.

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O'(ECTIVE OF FI%A%CIA$ ACCO/%TI%& Ob8ecti3e9 3ro(ide financial information a'out the reporting entity that is *se*! to ►

present and potential e%uity in(estors,

►

lenders, and

►

other creditors

in ma-ing decisions a'out pro(iding resources to the entity.

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O'(ECTIVE OF FI%A%CIA$ ACCO/%TI%& &enera!0P*rpose Financia! )tatements ►

3ro(ide financial reporting information to a "ide (ariety of users.

►

3ro(ide the most useful information possi'le at the least cost.

E4*it2 In3estors an# Cre#itors ►

In(estors and creditors are the primary user group.

LO 5 

O'(ECTIVE OF FI%A%CIA$ ACCO/%TI%& Entit2 Perspecti3e ►

/ompanies (ie"ed as separate and distinct from their o"ners 5shareholders6.

Decision0/se*!ness ►

In(estors are interested in assessing . the company;s a'ility to generate net cash inflo"s and 2. management;s a'ility to protect and enhance the capital pro(iders; in(estments.

LO 5 

O'(ECTIVE OF FI%A%CIA$ ACCO/%TI%& 7*estion 0he o'jecti(e of financial reporting places most emphasis on1 a. reporting to capital pro(iders. '. reporting on ste"ardship. c. pro(iding specific guidance related to specific needs. d. pro(iding information to indi(iduals "ho are e!perts in the field.

LO 5 

O'(ECTIVE OF FI%A%CIA$ ACCO/%TI%& 7*estion eneral$purpose financial statements are prepared primarily for1 a. internal users. '. e!ternal users. c. auditors. d. go(ernment regulators.

LO 5 

)TA%DARD0)ETTI%& OR&A%I=ATIO%) +ain internationa! stan#ar#0setting organi:ation9 ►

Internationa! Acco*nting )tan#ar#s 'oar# ;IA)'< ●

Issues Internationa! Financia! Reporting )tan#ar#s

;IFR).S. AA36.

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)TA%DARD0)ETTI%& OR&A%I=ATIO%) 7*estion IFRS is comprised of1 a. International Financial Reporting Standards and FAS8 financial reporting standards. '. International Financial Reporting Standards, International Accounting Standards, and International Accounting Standards Interpretations. c. International Accounting Standards and International Accounting Standards Interpretations. d. FAS8 financial reporting standards and International Accounting Standards. LO 7 

FI%A%CIA$ REPORTI%& CHA$$E%&E) IFR) in a Po!itica! En3ironment

I$$/)TRATIO% 10? /ser &ro*ps that In!*ence the Form*!ation o Acco*nting )tan#ar#s

LO 

FI%A%CIA$ REPORTI%& CHA$$E%&E) The E@pectations &ap What the pu'lic thin-s accountants should do (s. "hat accountants thin- they can do.

)igniicant Financia! Reporting Iss*es ►

?on$financial measurements

►

For"ard$loo-ing information

►

Soft assets

►

0imeliness

LO 

FI%A%CIA$ REPORTI%& CHA$$E%&E) Ethics in the En3ironment o Financia! Acco*nting ►

/ompanies that concentrate on @ma!imi4ing the 'ottom line, @facing the challenges of competition, and @stressing short$term results place accountants in an en(ironment of conflict and pressure.

►

IFRS do not al"ays pro(ide an ans"er.

►

0echnical competence is not enough "hen encountering ethical decisions.

LO 

FI%A%CIA$ REPORTI%& CHA$$E%&E) Internationa! Con3ergence E!amples of ho" con(ergence is occurring1 .

/hina;s goal is to eliminate differences 'et"een its standards and IFRS.

2.

Bapan no" permits the use of IFRS for domestic companies.

.

0he IAS8 and the FAS8 ha(e spent the last 2 years "or-ing to con(erge their standards.

#.

Calaysia helped amend the accounting for agricultural assets.

&.

Italy pro(ided ad(ice and counsel on the accounting for 'usiness com'inations under common control.

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FI%A%CIA$ REPORTI%& CHA$$E%&E) 7*estion 0he e!pectations gap is1 a. "hat financial information management pro(ides and  "hat users "ant. '. "hat the pu'lic thin-s accountants should do and "hat accountants thin- they can do. c. "hat the go(ernmental agencies "ant from standard$ setting and "hat the standard$setters pro(ide. d. "hat the users of financial statements "ant from the go(ernment and "hat is pro(ided. LO 