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Fundamental Financial Accounting

Dr. Alan T. Lord Professor of Accounting Bowling Green State University Bowling Green, Ohio USA 2009 Senior Fulbright Scholar The Academy of Economic Studies International Accounting and Financial Information Department alord@bgsu.edu

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Guidelines for the Course

This course will be taught in the English language. Therefore, only the English language will be spoken by faculty members and students in both the course sessions and the seminar sessions. You often will be expected to read or prepare materials in advance for both the course and seminar sessions. Failure to prepare your materials in advance or bring them to class will negatively affect your final grade assessment.

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Guidelines for the Course

As a student you will be expected to actively participate in the learning process. Attendance at course and seminar meetings will be recorded and will be a meaningful consideration in your course grade. Attendance at every class meeting is the expectation. Accountants are business professionals and business professionals arrive at meetings on time. We will be at class on time and we expect you to be at class on time.

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Guidelines for the Course

Mobile phones must be turned off at all times (not just turned onto silent) during the course and seminar classes. Expectations about your responsibilities to succeed in this course based upon success in prior university courses may not be accurate.

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PowerPoint Slides used in this course are based upon materials from Accounting: What the Numbers Mean 8th Edition by Marshall, McManus, and Viele

2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/Irwin

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CHAPTER 1

Accounting-Past and Present

McGraw-Hill/Irwin

2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

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What Should You Learn in Chapter 1?

1. The definition of accounting. 2. Who the users of accounting information are and why they find accounting information to be useful. 3. The variety of professional services that accountants provide. 4. The development of accounting from a broad historical perspective.

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What Should You Learn in Chapter 1?

5. The role that the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) play in the development of financial accounting standards. 6. How financial reporting standards evolve. 7. The key elements of ethical behavior for a professional accountant. 8. The FASB and IASB Conceptual Framework Projects. 9. The objectives of financial reporting for business enterprises.

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LO1

What is Accounting?

Accounting is the process of:

Identifying Measuring Communicating Economic For decisions

information about an entity

>

and informed judgments

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LO2

Users and Uses of Accounting Information

User Management Investors/Shareholders Decision/Informed Judgment Made Planning, directing and controlling Assessing amounts, timing, and uncertainty of future cash returns on their investment Creditors/Suppliers Assessing probability of collection and the risk of late (or non-) payment Employees Planning for retirement and future job prospects Securities and Reviewing for compliance of all required Exchange Commission information

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LO3

Financial Accounting
Financial accounting generally refers to the process that results in the preparation and reporting of financial statements for an entity. Financial accounting is primarily externally oriented and concerned with the historical results of an entitys performance.

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LO3

Managerial Accounting/Cost Accounting

Managerial accounting is concerned with the use of economic and financial information to plan and control many of the activities of the entity and to support the management decisionmaking process. Cost accounting relates to the determination and accumulation of product, process, or service costs.

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LO3

AuditingPublic Accounting
Public accounting firms and individual Certified or Chartered Accountants (CAs) provide auditing services and issue an independent auditors report. An independent auditors report states whether the financial statements are prepared in conformity with international financial reporting standards (IFRS) in most of the world. An auditors report can be unqualified (a clean opinion) or qualified.

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LO3

Internal Auditing
Internal auditors are professional accountants who perform functions much like those of an external auditor. However, internal auditors are employed in industry rather than public accounting.

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LO3

Governmental and Not-for-Profit Accounting

Governmental units (e.g., municipal, state, and federal agencies) and notfor-profit entities (e.g., universities, hospitals, and religious organizations) require the same accounting functions to be performed as do other accounting entities.

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LO3

Income Tax Accounting

Tax practitioners often develop specialties in the taxation of individuals, partnerships, corporations, trusts and estates, or international tax law issues.

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LO4

How Has Accounting Developed?

Mesopotamians record tax receipts on clay tablets.

3000 B.C.

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LO4

How Has Accounting Developed?

Luca Pacioli published first textbook describing a comprehensive doubleentry bookkeeping system.

3000 B.C. 1494

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LO4

How Has Accounting Developed?

The industrial revolution of the 19th century generated the need for large amounts of capital to finance the enterprises that supplanted individual craftsmen.

3000 B.C. 1494 1800s This need resulted in the corporate form of organization and the need to provide investors with reports showing the financial position and the results of operations.

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LO4

How Has Accounting Developed?

Accounting professionals in the USA and much of the world organized themselves in the early 1900s and worked hard to establish certification laws, standardized audit procedures, and other attributes of a profession.

3000 B.C. 1494 1800s

1900s

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LO4

How Has Accounting Developed?

Between 1932 and 1934 the American Institute of Accountants and the New York Stock Exchange agreed on five broad principles of accounting.

3000 B.C. 1494 1800s

1900s 1932 1933 to & 1934 1934

The Securities Act of 1933 and the Securities Exchange Act of 1934 gave the Securities and Exchange Commission (SEC) the authority to establish accounting principles for companies whose securities had to be registered with the SEC.

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LO4

How Has Accounting Developed?

Although the SEC has the authority in the USA to establish accounting principles, the standard-setting process has been delegated to other organizations over the years.

3000 B.C. 1494 1800s

1900s 1932 1933 1939 to to & 1934 1934 1959 The Committee on Accounting Procedure of the American Institute of Accountants issued 51 Accounting Research Bulletins that dealt with accounting principles.

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LO5

How Has Accounting Developed?

The Financial Accounting Foundation (FAF) was created and established the Financial Accounting Standards Board (FASB) as the authoritative standard-setting body within the accounting profession.

3000 B.C. 1494 1800s

1900s 1932 1933 1939 to to & 1934 1934 1959

1973

The FASB has issued 159 Statements of Financial Accounting Standards that have established standards of accounting and reporting for particular issues.

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LO6

How Has Accounting Developed?

The Sarbanes-Oxley Act of 2002 created a five-member Public Company Accounting Oversight Board (PCAOB), which has the authority to set and enforce auditing, attestation, quality control, and ethics standards for public companies.

3000 B.C. 1494 1800s

1900s 1932 1933 1939 to to & 1934 1934 1959

1973 2002

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LO6

International Accounting Standards

The International Accounting Standards Board (IASB) seeks methods of providing comparability between financial statements prepared according to the differing accounting standards of its member nations.

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LO6

The Evolution of IFRS

International Accounting Standards Committee 1973 (IASC) formed.

1999
April 2001 July 2002

IASC Board approves restructuring that results in International Accounting Standards Board (IASB) IASB assumed standard setting responsibility from the IASC EC required EU-listed companies to prepare their consolidated financial statements in accordance with IFRS as endorsed by the EC, generally from 2005 onward.

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LO7

Ethics and the Accounting Profession

Integrity
Objectivity Independence Competence

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LO8

The Conceptual Framework

Statements of Financial Accounting Concepts (SFACs) describe concepts and relationships that underlie financial accounting standards.

1. 2. 3. 4. 5. 6. 7.

Objectives of Financial Reporting of Business Enterprises Qualitative Characteristics of Accounting Information Elements of Financial Statements of Business Enterprises Objectives of Financial Reporting of Nonbusiness Organizations Recognition and Measurement in Financial Statements Elements of Financial Statements Using Cash Flow Information and Present Value in Accounting Measurement

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LO9

Concepts Statement No. 1

Objectives of Financial Reporting by Business Enterprises
Financial Reporting should provide useful information: For present and potential investors and creditors to make informed investment, credit, and similar decisions;

For present and potential investors and creditors to assess amounts, timing, and uncertainty of net cash flows; and
About the economic resources, claims to the resources, and changes in the economic resources and claims to the resources of a business entity.