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Ch01 - Lecture

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3 views12 pages

Ch01 - Lecture

Uploaded by

mhx243
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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1 Financial Reporting and

Accounting Standards

LEARNING OBJECTIVES
After studying this chapter, you should be able to:

1. Describe the growing importance of global 5. Identify the objective of financial reporting.
financial markets and its relation to financial 6. Identify the major policy-setting bodies and
reporting. their role in the standard-setting process.
2. Identify the major financial statements and 7. Explain the meaning of IFRS.
other means of financial reporting.
8. Describe the challenges facing financial
3. Explain how accounting assists in the efficient reporting.
use of scarce resources.
4. Explain the need for high-quality standards.

1-1
GLOBAL MARKETS

Financial Statements and Financial Reporting


Essential characteristics of accounting are:
1. the identification, measurement, and communication of
financial information about

2. economic entities to

3. interested parties.

1-2 LO 2
GLOBAL MARKETS

Economic Entity Financial Statements Additional Information

Financial Statement of President’s letter


Information Financial Position Prospectuses
Accounting? Income Statement Reports filed with
Identify or Statement of governmental
Comprehensive agencies
and Income
Measure News releases
Statement of Cash
and Flows Forecasts
Communicate Statement of Environmental
Changes in Equity impact statements
Note Disclosures
Etc.
1-3 LO 2
GLOBAL MARKETS

Accounting and Capital Allocation

Resources are limited. Efficient use of resources often


determines whether a business thrives.
ILLUSTRATION 1-3
Capital Allocation Process

1-4 LO 3
GLOBAL MARKETS

High Quality Standards


Globalization demands a single set of high-quality
international accounting standards. Some elements:
1. Single set of high-quality accounting standards established by
a single standard-setting body.
2. Consistency in application and interpretation.
3. Common disclosures.
4. Common high-quality auditing standards and practices.
5. Common approach to regulatory review and enforcement.
6. Education and training of market participants.
(Continued)

1-5 LO 4
GLOBAL MARKETS

High Quality Standards


Globalization demands a single set of high-quality
international accounting standards. Some elements:
7. Common delivery systems (e.g., eXtensible Business
Reporting Language—XBRL).
8. Common approach to corporate governance and legal
frameworks around the world.

1-6 LO 4
OBJECTIVE OF FINANCIAL ACCOUNTING

Objective: Provide financial information about the


reporting entity that is useful to
► present and potential equity investors,

► lenders, and

► other creditors

in making decisions about providing resources to the entity.

1-7 LO 5
OBJECTIVE OF FINANCIAL ACCOUNTING

General-Purpose Financial Statements


► Provide financial reporting information to a wide variety
of users.
► Provide the most useful information possible at the
least cost.

Equity Investors and Creditors


► Investors and creditors are the primary user group.

1-8 LO 5
STANDARD-SETTING ORGANIZATIONS

Main international standard-setting organization:


► International Accounting Standards Board (IASB)
● Issues International Financial Reporting Standards
(IFRS).
● Standards used on most foreign exchanges.
● IFRS used in over 115 countries.
● Organizations that have a role in international standard-
setting are the International Organization of Securities
Commissions (IOSCO) and the IASB.

1-9 LO 6
International Accounting Standards Board

Types of Pronouncements
► International Financial Reporting Standards.

► Conceptual Framework for Financial Reporting.

► International Financial Reporting Standards Interpretations.

1-10 LO 6
STANDARD-SETTING ORGANIZATIONS

Hierarchy of IFRS
Companies first look to:
1. International Financial Reporting Standards; International
Financial Reporting Standards, International Accounting
Standards (issued by the predecessor to the IASB), and IFRS
interpretations originated by the IFRS Interpretations
Committee (and its predecessor, the IAS Interpretations
Committee);
2. The Conceptual Framework for Financial Reporting; and
3. Pronouncements of other standard-setting bodies that use a
similar conceptual framework (e.g., U.S. GAAP).
1-11 LO 7
FINANCIAL REPORTING CHALLENGES

The Expectations Gap


What the public thinks accountants should do vs. what
accountants think they can do.

1-12 LO 8

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