Lecture Accounting: What the numbers mean (5/e) - Chapter 1: Accounting - Present and past

CHAPTER 1
ACCOUNTING PRESENT AND PAST

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Learning Objectives
1. What is the FASB?
2. Who uses accounting information
and why?
3. What is accounting?
4. What do accountants do?
5. Where did accounting come
from?
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Learning Objectives
6. Where did accounting standards
come from?
7. What are the accounting ethical
standards?
8. What is the Conceptual
Framework?
9. Why do businesses report
financial information?
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Learning Objective 1
• What is accounting?

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Accounting is the process of:
Identifying
Measuring
Communicating

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Economic
information
about an
entity

>

For
decisions
and
informed

judgments

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Learning Objective 2
• Who uses accounting information
and why?

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Users of Accounting
Information
• Management - planning, directing,
controlling
• Investors - return
• Creditors - probability of collection
• Employees - job prospects and
retirement benefits
• SEC - full disclosure of financial
information
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Learning Objective 3

• What do accountants do?

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Professional Services
Provided by Accountants
•
•
•
•
•

Financial Accounting
Managerial/Cost Accounting
Auditing - Public Accounting
Internal Auditing
Governmental and Not-for-Profit
Accounting
• Income Tax Accounting
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Learning Objective 4
• Where did accounting come
from?

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Early History of Accounting
• Found accounting records on
Mesopotamian clay tablets from 3000 BC
• Luca Pacioli published a description of
double-entry bookkeeping systems in 1494
• Industrial revolution led to non-owner
managers who needed to report financial
information to owners

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Accounting Profession in the
United States
• The Securities Act of 1933 and the Securities
Exchange Act of 1934 gave the SEC the
authority to establish accounting principles for
SEC firms
• The SEC delegated standard setting to other
organizations
– Committee on Accounting Procedure 1939 - 1959
– Accounting Principles Board 1959 -1973

– Financial Accounting Standards Board 1973 present
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Learning Objective 5
• What is the FASB?

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Financial Accounting
Standards Board
• Has issued seven concept statements
• Has issued over 140 standards
statements
• Uses due process is setting standards

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Learning Objective 6
• Where did accounting
standards come from?

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Other Accounting Standards
• Cost Accounting Standards Board government contracts, colleges and
universities that receive federal research
funds
• Governmental Accounting Standards Board state and local governments
• International Accounting Standards
Committee - seeks comparability of financial
statements across
nations
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Learning Objective 7
• What are the accounting
ethical standards?

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Ethics in the Accounting
Profession

• American Institute
of Certified Public
Accountants
• Institute of
Management
Accountants

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• Integrity - honest
and forthright
• Objectivity impartial and free
from conflicts of
interest

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Learning Objective 8
• What is the Conceptual
Framework?

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Conceptual Framework
• Standards are based on a foundation
provided by the Statements of

Financial Accounting Concepts:
– Objectives of financial reporting
– Qualitative characteristics of accounting
information
– Elements of financial statements
– Recognition and measurement in
financial statements
– Using cash flow information
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Learning Objective 9
• Why do businesses report
financial information?

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Concepts Statement No. 1:
Objectives of Financial
Reporting
• Intended for investors and creditors
• For assessing the amounts, timing,
and uncertainty of prospective cash
flows
• For providing information about

economic resources and claims to
those resources
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