Ch01 Financial Reporting and Accounting Standards

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PREVIEW OF CHAPTER

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1. Describe the growing importance oDescribe the growing importance o g!oba! inancia! mar"ets an# its

g!oba! inancia! mar"ets an# its re!ation to inancia! reporting. re!ation to inancia! reporting.

2.

2. Identify the major financial statements andIdentify the major financial statements and other means of financial reporting.

other means of financial reporting. .

. E!plain ho" accounting assists in the efficientE!plain ho" accounting assists in the efficient use of scarce resources.

use of scarce resources. #.

#. E!plain the need for high$%uality standards.E!plain the need for high$%uality standards.

$EAR%I%& O'(ECTIVE)

$EAR%I%& O'(ECTIVE)

&.

&. Identify the o'jecti(e of financial reporting.Identify the o'jecti(e of financial reporting. ).

). Identify the major policy$setting 'odies andIdentify the major policy$setting 'odies and their role in the standard$setting process. their role in the standard$setting process. *.

*. E!plain the meaning of IFRS.E!plain the meaning of IFRS. +.

+. escri'e the challenges facing fescri'e the challenges facing financialinancial reporting.

reporting.  After studying this chapter, you shou

 After studying this chapter, you should be able to:ld be able to:

Financia! Reporting an#

Financia! Reporting an#

Acco*nting )tan#ar#s

Acco*nting )tan#ar#s

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World mar-ets are 'ecoming increasingly intert"ined.

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Significant num'er of foreign companies are found on

national e!changes.

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10-International E!change Statistics

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Financia! )tatements an# Financia! Reporting

Essentia! characteristics o acco*nting are1

. the i#entiication, meas*rement, and comm*nication of financial information a'out

2. economic entities to . interested parties.

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Financia! Inormation Acco*nting I#enti2 an# +eas*re an#  Comm*nicate Financia! Inormation Acco*nting I#enti2 an# +eas*re an#  Comm*nicate )tatement o Financia! Position Income )tatement or )tatement o Comprehensi3e Income

)tatement o Cash F!ows )tatement o Changes in E4*it2 %ote Disc!os*res )tatement o Financia! Position Income )tatement or )tatement o Comprehensi3e Income

)tatement o Cash F!ows )tatement o Changes in E4*it2 %ote Disc!os*res Presi#ent5s !etter Prospect*ses

Reports i!e# with go3ernmenta! agencies %ews re!eases Forecasts En3ironmenta! impact statements Etc. Presi#ent5s !etter Prospect*ses

Reports i!e# with go3ernmenta! agencies %ews re!eases Forecasts En3ironmenta! impact statements Etc. Financia! )tatements

Financia! )tatements A##itiona! InormationA##itiona! Inormation Economic Entit2

Economic Entit2

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Resources are !imite#. Efficient use of resources often determines "hether a 'usiness thri(es.

Resources are !imite#. Efficient use of resources often determines "hether a 'usiness thri(es.

I$$/)TRATIO% 106 /apital Allocation 3rocess

Acco*nting an# Capita! A!!ocation

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High 7*a!it2 )tan#ar#s

lo'ali4ation demands a single set of high$%uality international accounting standards. Some elements1

. Single set of high$%uality accounting standards esta'lished 'y a single standard$setting 'ody.

2. /onsistency in application and interpretation.

. /ommon disclosures.

#. /ommon high$%uality auditing standards and practices. &. /ommon approach to regulatory re(ie" and enforcement. ). Education and training of mar-et participants.

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lo'ali4ation demands a single set of high$%uality international accounting standards. Some elements1

*. /ommon deli(ery systems 5e.g., e7tensi'le 8usiness Reporting 9anguage:78R96.

+. /ommon approach to corporate go(ernance and legal frame"or-s around the "orld.

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Ob8ecti3e

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3ro(ide financial information a'out the reporting entity that is *se*! to

present and potential e%uity in(estors,lenders, and

other creditors

in ma-ing decisions a'out pro(iding resources to the entity.

LO 5 

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E4*it2 In3estors an# Cre#itors

In(estors and creditors are the primary user group.

&enera!0P*rpose Financia! )tatements

3ro(ide financial reporting information to a "ide (ariety

of users.

3ro(ide the most useful information possi'le at the

least cost.

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Decision0/se*!ness

In(estors are interested in assessing

. the company;s a'ility to generate net cash inflo"s and 2. management;s a'ility to protect and enhance the capital

pro(iders; in(estments.

Entit2 Perspecti3e

/ompanies (ie"ed as separate and distinct from their

o"ners 5shareholders6.

O'(ECTIVE OF FI%A%CIA$ ACCO/%TI%&

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0he o'jecti(e of financial reporting places most emphasis on1 a. reporting to capital pro(iders.

'. reporting on ste"ardship.

c. pro(iding specific guidance related to specific needs. d. pro(iding information to indi(iduals "ho are e!perts in

the field.

7*estion

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eneral$purpose financial statements are prepared primarily for1 a. internal users. '. e!ternal users. c. auditors. d. go(ernment regulators.

O'(ECTIVE OF FI%A%CIA$ ACCO/%TI%&

7*estion

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+ain internationa! stan#ar#0setting organi:ation9

Internationa! Acco*nting )tan#ar#s 'oar# ;IA)'<

Issues Internationa! Financia! Reporting )tan#ar#s

;IFR)<.

Standards used on most stoc- e!changes around the

 "orld.

IFRS used in o(er & countries.

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IFRS stands for1

a. International Federation of Reporting Ser(ices. '. Independent Financial Reporting Standards. c. International Financial Reporting Standards. d. Integrated Financial Reporting Ser(ices.

)TA%DARD0)ETTI%& OR&A%I=ATIO%)

7*estion

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D*e Process

0he IA)' #*e process has the follo"ing elements1

. Independent standard$setting 'oard=

2. 0horough and systematic process for de(eloping standards=

. Engagement "ith in(estors, regulators, 'usiness leaders, and the glo'al accountancy profession at e(ery stage of the process= and

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Internationa! Acco*nting )tan#ar#s 'oar#

I$$/)TRATIO% 10> Internationa!

)tan#ar#0)etting )tr*ct*re

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Accounting standard$setters use the follo"ing process in esta'lishing international standards1

a. Research, e!posure draft, discussion paper, standard. '. iscussion paper, research, e!posure draft, standard. c. Research, preliminary (ie"s, discussion paper,

standard.

d. Research, discussion paper, e!posure draft, standard.

Internationa! Acco*nting )tan#ar#s 'oar#

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T2pes o Prono*ncements

International Financial Reporting Standards./onceptual Frame"or- for Financial Reporting.

International Financial Reporting Standards Interpretations.

Internationa! Acco*nting )tan#ar#s 'oar#

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/ompanies first loo- to1

. International Financial Reporting Standards, International Accounting Standards 5issued 'y the predecessor to the IAS86, and IFRS interpretations originated 'y the IFRS Interpretations /ommittee 5and its predecessor, the IAS Interpretations /ommittee6=

2. 0he /onceptual Frame"or- for Financial Reporting= and

. 3ronouncements of other standard$setting 'odies that use a

Hierarch2 o IFR)

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IFRS is comprised of1

a. International Financial Reporting Standards and FAS8 financial reporting standards.

'. International Financial Reporting Standards,

International Accounting Standards, and International Accounting Standards Interpretations.

c. International Accounting Standards and International Accounting Standards Interpretations.

d. FAS8 financial reporting standards and International Accounting Standards.

)TA%DARD0)ETTI%& OR&A%I=ATIO%)

7*estion

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FI%A%CIA$ REPORTI%& CHA$$E%&E)

IFR) in a Po!itica! En3ironment

I$$/)TRATIO% 10?

/ser &ro*ps that In!*ence the Form*!ation o

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What the pu'lic thin-s accountants should do (s. "hat accountants thin- they can do.

The E@pectations &ap

)igniicant Financia! Reporting Iss*es

?on$financial measurementsFor"ard$loo-ing informationSoft assets

0imeliness

FI%A%CIA$ REPORTI%& CHA$$E%&E)

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Ethics in the En3ironment o Financia!

Acco*nting

/ompanies that concentrate on @ma!imi4ing the 'ottom

line, @facing the challenges of competition, and

@stressing short$term results place accountants in an en(ironment of conflict and pressure.

IFRS do not al"ays pro(ide an ans"er.

0echnical competence is not enough "hen encountering

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Internationa! Con3ergence

E!amples of ho" con(ergence is occurring1

. /hina;s goal is to eliminate differences 'et"een its standards and IFRS.

2. Bapan no" permits the use of IFRS for domestic companies. . 0he IAS8 and the FAS8 ha(e spent the last 2 years "or-ing to

con(erge their standards.

#. Calaysia helped amend the accounting for agricultural assets. &. Italy pro(ided ad(ice and counsel on the accounting for 'usiness

com'inations under common control.

FI%A%CIA$ REPORTI%& CHA$$E%&E)

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0he e!pectations gap is1

a. "hat financial information management pro(ides and  "hat users "ant.

'. "hat the pu'lic thin-s accountants should do and "hat accountants thin- they can do.

c. "hat the go(ernmental agencies "ant from standard$ setting and "hat the standard$setters pro(ide.

FI%A%CIA$ REPORTI%& CHA$$E%&E)

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References

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