The Environment of Accounting Research The accounting environment Accounting standards are influenced by Federal bodies Tax laws Specialized industries Inconsistencies in practice Disagreements among constituents ID: 231144
Download Presentation The PPT/PDF document "Chapter 3" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Chapter 3
The Environment of Accounting ResearchSlide2
The accounting environment
Accounting standards are influenced by:
Federal bodies
Tax laws
Specialized industries
Inconsistencies in practice
Disagreements among constituents
Professional organizations
International influences
Litigation concerns
Public concernsSlide3
The Securities and Exchange Commission (SEC)
Established by the Securities and Exchange Act of 1934
Ensure public companies fully and fairly disclose all material facts
SEC has statutory authority to issue rules and regulation
SEC’s Office of the Chief Accountant (OCA) establishes accounting policies followed by the SEC and is divided into three groups.
Accounting
Professional Practice
International AffairsSlide4
The SEC - continued
Five SEC divisions consulted by the OCA groups:
Corporate finance
Trading and markets
Enforcement
Investment management
Risk, Strategy, and Financial InnovationSlide5
The SEC - continued
SEC delegated accounting standard setting to the FASB, but has an oversight function
SEC rules and regulations
Definitions
Regulations – compilations of rules – solicitation of proxies
Procedural matters- proceedingsSlide6
The Financial Accounting Standards Board (FASB)
Develop high quality financial reporting standards (GAAP)
Many entities involved:
Financial Accounting Foundation (FAF)
FASB – members from CPA firms, corporations, academia, and industry.
FASB staff- approximately 70 professionals with various backgrounds.
Emerging Issue Task Force (EITF)
Financial Accounting Standards Advisory Council (FASAC) – guides FASB on which projects to pursue and on task forces to be organizedSlide7
The FASB - continued
Pronouncements:
Statement of Financial Accounting Standards (SFAS’s)
A summary, a table of contents, introduction, the standard, the list of members voting, basis for decision or dissention, appendices.
Interpretations of Financial Accounting Standards – interpret SFAS’s and AICPA Accounting Research Bulletins (ARB’s) and APB Opinions.Slide8
The FASB- continued
Technical Bulletins – provide timely guidance on implementation issues
Emerging Issues Task Force – established in 1984 – addresses issues not covered in pronouncements
Usually involve industry specific issues
FASB Staff Positions (FSP) – application guidance – posted on the website and remain until incorporated into Staff Implementation GuidesSlide9
FASB Due Process
1. identify problem while considering legal pressures
2. consider interested party input to determine if issue is worthy of consideration
3. establish a task force
4. have research staff investigate issue
5. issue discussion memo
6. hold public hearings
7. analyze results of investigation, communicate responses and conduct additional public hearings
8. if appropriate, issue an exposure draft
9. request additional comments and hold additional public hearings.
10. issue final SFAS after analyzing comments.Slide10
Conceptual Framework
Statements of Financial Accounting Concepts (SFAC’s) – describe concepts and relationships that underlie financial accounting standards
Elements of financial statements – measurement, recognition, display
Capital maintenance
Unit of measure
Criteria for measurement
Qualitative characteristicsSlide11
Concept Statements
Have not gone through due process
SFAC1 – Objectives of financial reporting (
Chpt
1 of SFAC 8 – Conceptual Framework for Financial Reporting)
SFAC 2 – qualitative characteristics (
Chpt
3 of SFAC 8)
SFAC 3 – replaced by 6
SFAC 4 – objectives of financial reporting of nonbusiness organizations
SFAC 5 – recognition and measurement in financial statements
SFAC 6 – elements of financial statements
SFAC 7 – using cash flow information and present value in accounting measurementSlide12
American Institute of Certified Public Accountants (AICPA)
Was the standard setting body before the FASB
AICPA’s Committee on Accounting Procedures issued ARB’s (Accounting Research Bulletins) from 1939 to 1959 – some still apply
The Accounting Principles Board (APB) issued APB’s from 1959 until 1973.
The Accounting Standards Division previously through the Accounting Standards Executive Committee (
AcSEC
), now known as the Financial Reporting Executive Committee (
FinREC
) influences standard setting through comment letters and Issue papers
Statement of Positions were previously issued by AICPA, but currently are issued by the FASB.
Other publications – Accounting Research Monographs, US GAAP Financial Statements Best Practices and DisclosureSlide13
The Governmental Accounting Standards Board (GASB)
Sets financial and reporting standards for the public sector
Established in 1984 by the Financial Accounting Foundation (FAF), seven members
Created the Government Finance Officers Association (GFOA) and the National Association of State Auditors, Comptrollers, and TreasurersSlide14
The GASB - continued
Due process similar to the FASB
Advisory council is the Governmental Accounting Standards Advisory Council (GASAC)
Publications – GASB Codification of Government Accounting & Financial Reporting Studies, the US Comptroller General’s “Yellow Book” (codification of audit standards for government organizations), US Congress’s “Single Audit Actof 1984” Slide15
Other organizations influencing accounting standard setting
Cost Accounting Standards Board (CASB)
Income tax laws
Securities Industry Associates (SIA)- represents investment bankers and financial analysts
National Association of State Auditors, Controllers, and Treasurers
Financial Executives Institute (FEI) – active committees, research, conferences
Institute of Management Accountants (IMA) – committees, foundation, research
American Accounting Association (AAA) – theoretical research, publications
Institute of Internal Auditors (IIA)- research, committeesSlide16
Generally accepted accounting principles (GAAP)
The conventions, rules, and procedures necessary to define accounting practice at a particular time.
Two functions
Measurement
Disclosure
Financial statements must be in conformity with GAAP in order for CPA’s to express an opinion on themSlide17
Pre-Codification Hierarchy of GAAP
Level
A
FASB statements, APBs, ARBs, SEC Rules (10K, 8K)
Level B
AICPA Industry guides, SOPs, FASB technical bulletins
Level C
AcSEC practice bulletins, EITFs, SEC speeches
Level D
AICPA interpretations, FASB implementation guides, industry practices, uncleared SOPs
Level E
APB statements, AICPA issue papers, FASB concepts statements, IASB statements, journal articles, textbooksSlide18
Post-Codification GAAP
Two levels (Figure 3-5)
Authoritative
Most prior levels A-D, some level E
Non-authoritative
Most level E and some level D
If a non-governmental source is not found in the Codification, it is not GAAPSlide19
Accounting Authoritative Support- Figure 3-7
Primary Support
General Application and Special Application (FASB standards, AICPA SOPs)
Secondary Support
Official publications of bodies and other sources (SEC staff bulletins, FASB technical bulletins)Slide20
Reading a pronouncement
Introduction
Background
Board’s conclusion
Opinion or statement
Effective date
Illustrations
Required disclosures