slide 1-1 financial reporting and accounting standards

Slide 1-1

FINANCIAL REPORTING AND FINANCIAL REPORTING AND ACCOUNTING STANDARDSACCOUNTING STANDARDS

Slide 1-2

General-purpose General-purpose

financial financial

statements statements

Capital providersCapital providers

Entity perspectiveEntity perspective

Decision-Decision-

usefulnessusefulness

Global MarketsObjective of Objective of

Financial Financial ReportingReporting

Standard-Setting Standard-Setting OrganizationsOrganizations

Financial Financial Reporting Reporting

ChallengesChallenges

Financial Financial

statements and statements and

financial reportingfinancial reporting

Accounting and Accounting and

capital allocationcapital allocation

High-quality High-quality

standardsstandards

IOSCOIOSCO

IASBIASB

Hierarchy of IFRSHierarchy of IFRS

Political Political

environmentenvironment

Expectations gapExpectations gap

Significant financial Significant financial

reporting issuesreporting issues

EthicsEthics

International International

convergenceconvergence

Financial Reporting and Accounting StandardsFinancial Reporting and Accounting StandardsFinancial Reporting and Accounting StandardsFinancial Reporting and Accounting Standards

Slide 1-3

Global MarketsGlobal MarketsGlobal MarketsGlobal Markets

World markets are becoming increasingly intertwined.

Top 20 Global Companies In Terms Of Sales

Slide 1-4

Global MarketsGlobal MarketsGlobal MarketsGlobal Markets

Significant number of foreign companies are found on

national exchanges.Illustration 1-2International ExchangeStatistics

Slide 1-5 LO 1 Identify the major financial statements and other means of financial reporting.LO 1 Identify the major financial statements and other means of financial reporting.

Global MarketsGlobal MarketsGlobal MarketsGlobal Markets

Financial Statements and Financial Reporting

Characteristics of accounting are:

(1) the identification, measurement, and communication of financial information about

(2) economic entities to

(3) interested parties.

Slide 1-6

Financial Information

Accounting?

Identify

and

Measure

and

Communicate

Financial Information

Accounting?

Identify

and

Measure

and

Communicate

Statement of Financial Position

Income Statement or Statement of Comprehensive

Income

Statement of Cash Flows

Statement of Changes in Equity

Note Disclosures

Statement of Financial Position

Income Statement or Statement of Comprehensive

Income

Statement of Cash Flows

Statement of Changes in Equity

Note Disclosures

President’s letter

Prospectuses

Reports filed with governmental

agencies

News releases

Forecasts

Environmental impact statements

Etc.

President’s letter

Prospectuses

Reports filed with governmental

agencies

News releases

Forecasts

Environmental impact statements

Etc.

Financial StatementsFinancial Statements Additional InformationAdditional InformationEconomic EntityEconomic Entity

Global MarketsGlobal MarketsGlobal MarketsGlobal Markets

LO 1 Identify the major financial statements and other means of financial reporting.LO 1 Identify the major financial statements and other means of financial reporting.

Slide 1-7

Resources are limited. Efficient use of resources often determines whether a business thrives.Resources are limited. Efficient use of resources often determines whether a business thrives.

LO 2 Explain how accounting assists in the efficient use of scare resources.LO 2 Explain how accounting assists in the efficient use of scare resources.

Illustration 1-3 Capital Allocation Process

Accounting and Capital Allocation

Global MarketsGlobal MarketsGlobal MarketsGlobal Markets

Slide 1-8 LO 3 Explain the need for high-quality standards.LO 3 Explain the need for high-quality standards.

High Quality Standards

Global MarketsGlobal MarketsGlobal MarketsGlobal Markets

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)

Slide 1-9 LO 3 Explain the need for high-quality standards.LO 3 Explain the need for high-quality standards.

High Quality Standards

Global MarketsGlobal MarketsGlobal MarketsGlobal Markets

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

Slide 1-10 LO 3 Explain the need for high-quality standards.LO 3 Explain the need for high-quality standards.

Slide 1-11

Objective of Financial AccountingObjective of Financial AccountingObjective of Financial AccountingObjective of Financial Accounting

LO 4 Identify the objectives of financial reporting.LO 4 Identify the objectives of financial reporting.

Objective: Provide financial information about the reporting

entity that is useful to

present and potential equity investors,

lenders, and

other creditors

in making decisions in their capacity as capital providers.

Slide 1-12

Capital Providers (Investors)

Investors are the primary user group.

Objective of Financial AccountingObjective of Financial AccountingObjective of Financial AccountingObjective of Financial Accounting

LO 4 Identify the objectives of financial reporting.LO 4 Identify the objectives of financial reporting.

General-Purpose Financial Statements

Provide financial reporting information to a wide variety

of users.

Provide the most useful information possible at the

least cost.

Slide 1-13

Decision-Usefulness

Objective of Financial AccountingObjective of Financial AccountingObjective of Financial AccountingObjective of Financial Accounting

LO 4 Identify the objectives of financial reporting.LO 4 Identify the objectives of financial reporting.

Investors are interested in assessing the company’s

1. ability to generate net cash inflows and

2. management’s ability to protect and enhance the

capital providers’ investments.

Entity Perspective

Companies viewed as separate and distinct from their owners.

Slide 1-14

Two Major Organizations:

International Accounting Standards Board (IASB)

Issues International Financial Reporting Standards

(IFRS).

Standards used on most foreign exchanges.

Standards used by foreign companies listing on U.S.

securities exchanges.

IFRS used in over 115 countries.

LO 5 Identify the major policy-setting bodies and LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.their role in the standard-setting process.

Standard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting Organizations

Slide 1-15

Two Major Organizations:

Financial Accounting Standards Board (FASB)

Issues Statements of Financial Accounting

Standards (SFAS).

Required for all U.S.-based companies.

LO 5 Identify the major policy-setting bodies and LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.their role in the standard-setting process.

Standard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting Organizations

Slide 1-16

LO 5 Identify the major policy-setting bodies and LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.their role in the standard-setting process.

Standard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting Organizations

International Organization of Securities Commissions (IOSCO)

Does not set accounting standards.

Dedicated to ensuring that global

markets can operate in an efficient

and effective basis.

http://www.iosco.org/

Slide 1-17

LO 5 Identify the major policy-setting bodies and LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.their role in the standard-setting process.

Standard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting Organizations

International Accounting Standards Board (IASB)

Composed of four organizations—

International Accounting Standards

Committee Foundation (IASCF)

International Accounting Standards

Board (IASB)

Standards Advisory Council

International Financial Reporting

Interpretations Committee (IFRIC)

http://www.iasb.org

Slide 1-18

LO 5 Identify the major policy-setting bodies and LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.their role in the standard-setting process.

Standard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting OrganizationsStandard-Setting Organizations

Illustration 1-4International Standard-Setting Structure

Slide 1-19

Due ProcessDue ProcessDue ProcessDue Process

The IASB due process has the following elements:

1. Independent standard-setting board;

2. Thorough and systematic process for developing

standards;

3. Engagement with investors, regulators, business leaders,

and the global accountancy profession at every stage of

the process; and

4. Collaborative efforts with the worldwide standard-setting

community.

LO 5 Identify the major policy-setting bodies and LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.their role in the standard-setting process.

Slide 1-20

Due ProcessDue ProcessDue ProcessDue Process

Illustration 1-4International Standard-Setting Structure

LO 5 Identify the major policy-setting bodies and LO 5 Identify the major policy-setting bodies and their role in the standard-setting process.their role in the standard-setting process.