Financial Accounting and Reporting

(ASB)- Accounting Standards Board

• 1.Financial  (FASB)
• 2.International (IASB)
• 3.Governmental (GASB)
• 4.Federal (FASAB) Advisory Board

• SEC
•  
• (The SEC has delegated the authority to FASB)

Oversees bodies involved in the establishment of GAAP for NON-Governmental entities.

• 1.Financial Accounting Standards Advisory Council (FASAC)
• 2.Private company Council (PCC)
• 3.Emerging Issues Task Force (EITF)
• 4.Financial Accounting Standards Board (FASB)- other 3 indirectly effect GAAP and advise or propose to FASB who directly effects GAAP

Advises FASB on standards and evaluates its performance.

proposes exceptions and modifications to GAAP for private companies and advises FASB on private company issues.

Addresses unusual accounting issues that require prompt action. 

(Was created by FASB)

Sarbanes oxley act authorized the SEC to recognize a standard setter for GAAP and (FASB) is the standard setter.

(includes cost benefit analysis)

• 1.Financial reporting issues are identified from stakeholders (investors, accountants, etc.)
• 2.Decision to add issue to agenda 
• 3.Discussion of the issues at public meeting
• 4.Exposure Draft issued to show stakeholder responses
• 5.public meeting for exposure draft if needed
• 6.Rediscussion of the proposals at public meeting
• 7.FASB votes on final draft if majority of the 7 board members approves AS updates become AS Codification and apart of GAAP.

1 of only 2 sources of authoritative financial accounting guidance for nongov entities.

Set of objectives, characteristics, elements, and fundamental concepts described in the Statements of Financial Accounting Concepts (SFAC)

• 1.Investors do not expect returns
• 2.Have operating purposes besides goods & services
• 3.Have no single performance measure
• 4.Lacks defined ownership
• 5.Reports net assets instead of equity

Current year taxes should fund current activities and not shift the tax burden to future citizens

The entity and its owners/Managers economic affairs are separated.

Ex. The entity can be sued or the owners themselves can be sued but separately.

• Assumes business operates indefinitely.
• Liquidation accounting is not used because it is assumed they will not liquidate.

Assumes accounting records are in terms of money and changes in purchasing power are insignificant.

Assumes economic activity can be divided into distinct time periods. Requires reporting in intervals (quarterly/annual).

• 1. Economic Entity
• 2. Going Concern
• 3. Monetary Unit
• 4. Periodicity

Guidelines for recording Financial Info.

• 1. Revenue Recognition
• 2. Matching
• 3. Historical cost
• 4. Full disclosure

Revenue is reported in the period earned.

Cost required to produce those revenues are matched with those revenues.

Transactions are recorded initially at cost because it is the most objective measurement of fair value.

Any and all information that could influence investor and creditor decisions should be disclosed in the financial statements.

• 1. cost constraint
• 2. industry practices constraint
• 3. conservatism constraint

Cost should be justified by benefits

GAAP can be modified in certain industries to avoid reporting misleading and unnecessary info.

Ex. Banks report securities of companies at fair value instead of at cost

When alternative methods are available the one with the least favorable outcome on assets and net income is used.

Relating to quality rather than quantity

Relating to quantity rather than quality