CH 01
CH 01
1-2
PREVIEW OF CHAPTER 1
Intermediate Accounting
IFRS 3rd Edition
Kieso ● Weygandt ● Warfield
1-3
LEARNING OBJECTIVE 1
Global Markets Describe the growing importance
of global financial markets and its
relation to financial reporting.
ILLUSTRATION 1.1
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LEARNING OBJECTIVE 1
Global Markets Describe the growing importance
of global financial markets and its
relation to financial reporting.
ILLUSTRATION 1.1
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Global Markets
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Global Markets
2. economic entities to
3. interested parties.
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Global Markets
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Global Markets
ILLUSTRATION 1.3
Capital Allocation Process
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Global Markets
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Global Markets
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Objective of Financial LEARNING OBJECTIVE 2
Explain the objective of
Reporting financial reporting.
► lenders, and
► other creditors
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Objective of Financial Reporting
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Objective of Financial Reporting
Entity Perspective
► Companies viewed as separate and distinct from their
owners (shareholders).
Decision-Usefulness
► Investors are interested in assessing
1. the company’s ability to generate net cash inflows and
2. management’s ability to protect and enhance the
capital providers’ investments.
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Objective of Financial Reporting
Question
The objective of financial reporting places most emphasis on:
a. reporting to capital providers.
b. reporting on stewardship.
c. providing specific guidance related to specific needs.
d. providing information to individuals who are experts in
the field.
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Objective of Financial Reporting
Question
General-purpose financial statements are prepared primarily
for:
a. internal users.
b. external users.
c. auditors.
d. government regulators.
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LEARNING OBJECTIVE 3
Standard-Setting Identify the major policy-setting
bodies and their role in the
Organizations standard-setting process.
http://www.iosco.org/
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Standard-Setting Organizations
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International Accounting Standards Board
ILLUSTRATION 1.4
International Standard-Setting Structure
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Standard-Setting Organizations
Question
IFRS stands for:
a. International Federation of Reporting Services.
b. Independent Financial Reporting Standards.
c. International Financial Reporting Standards.
d. Integrated Financial Reporting Services.
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Standard-Setting Organizations
Question
The major key players on the international side are the:
a. IASB and IFRS Advisory Council.
b. IOSCO and the U.S. SEC.
c. London Stock Exchange and International
Securities Exchange.
d. IASB and IOSCO.
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International Accounting Standards Board
Due 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.
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ILLUSTRATION 1.5
International Standard-Setting Structure
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International Accounting Standards Board
Question
Accounting standard-setters use the following process in
establishing international standards:
a. Research, exposure draft, discussion paper, standard.
b. Discussion paper, research, exposure draft, standard.
c. Research, preliminary views, discussion paper,
standard.
d. Research, discussion paper, exposure draft, standard.
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International Accounting Standards Board
Types of Pronouncements
► International Financial Reporting Standards.
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Standard-Setting Organizations
Hierarchy of IFRS
Companies first look to:
1. International Financial Reporting Standards; International
Financial Reporting Standards, International Accounting
Standards (issued by the predecessor to the IASB), and IFRS
interpretations originated by the IFRS Interpretations
Committee (and its predecessor, the IAS Interpretations
Committee);
2. The Conceptual Framework for Financial Reporting; and
3. Pronouncements of other standard-setting bodies that use a
similar conceptual framework (e.g., U.S. GAAP).
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Standard-Setting Organizations
Question
IFRS is comprised of:
a. International Financial Reporting Standards and FASB
financial reporting standards.
b. International Financial Reporting Standards,
International Accounting Standards, and International
Accounting Standards Interpretations.
c. International Accounting Standards and International
Accounting Standards Interpretations.
d. FASB financial reporting standards and International
Accounting Standards.
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Financial Reporting LEARNING OBJECTIVE 4
Discuss the challenges
Challenges facing financial reporting.
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IFRS in a Political Environment
ILLUSTRATION 1.6
User Groups that Influence the Formulation of Accounting Standards
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Financial Reporting Challenges
► Forward-looking information
► Soft assets
► Timeliness
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Financial Reporting Challenges
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Financial Reporting Challenges
International Convergence
Examples of how convergence is occurring:
1. China’s goal is to eliminate differences between its standards and
IFRS.
2. Japan now permits the use of IFRS for domestic companies.
3. The IASB and the FASB have spent the last 12 years working to
converge their standards.
4. Malaysia helped amend the accounting for agricultural assets.
5. Italy provided advice and counsel on the accounting for business
combinations under common control.
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Financial Reporting Challenges
Question
The expectations gap is:
a. what financial information management provides and
what users want.
b. what the public thinks accountants should do and what
accountants think they can do.
c. what the governmental agencies want from standard-
setting and what the standard-setters provide.
d. what the users of financial statements want from the
government and what is provided.
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GLOBAL ACCOUNTING INSIGHTS
LEARNING OBJECTIVE 5
Compare IFRS and U.S. GAAP and their standard-setting processes.
Most agree that there is a need for one set of international accounting
standards. Here is why:
• Multinational corporations
• Mergers and acquisitions
• Information technology
• Financial markets
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GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Following are the key similarities and differences between U.S. GAAP and
IFRS related to the financial reporting environment.
Similarities
• Generally accepted accounting principles (GAAP) for U.S. companies are
developed by the Financial Accounting Standards Board (FASB). The FASB
is a private organization. The U.S. Securities and Exchange Commission
(SEC) exercises oversight over the actions of the FASB. The IASB is also a
private organization. Oversight over the actions of the IASB is regulated by
IOSCO.
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GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Similarities
• Both the IASB and the FASB have essentially the same governance
structure, that is, a Foundation that provides oversight, a Board, an
Advisory Council, and an Interpretations Committee. In addition, a general
body that involves the public interest is part of the governance structure.
• The FASB relies on the U.S. SEC for regulation and enforcement of its
standards. The IASB relies primarily on IOSCO for regulation and
enforcement of its standards.
• Both the IASB and the FASB are working together to find common ground
wherever possible.
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GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Differences
• U.S. GAAP is more detailed or rules-based. IFRS tends to simpler and
more flexible in the accounting and disclosure requirements. The difference
in approach has resulted in a debate about the merits of principles-based
versus rules-based standards.
• Differences between U.S. GAAP and IFRS should not be surprising
because standard-setters have developed standards in response to
different user needs. In some countries, the primary users of financial
statements are private investors. In others, the primary users are tax
authorities or central government planners. In the United States, investors
and creditors have driven accounting-standard formulation.
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GLOBAL ACCOUNTING INSIGHTS
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GLOBAL ACCOUNTING INSIGHTS
On the Horizon
Both the IASB and the FASB are hard at work developing standards that will
lead to the elimination of major differences in the way certain transactions are
accounted for and reported. In fact, beginning in 2010, the IASB (and the
FASB on its joint projects with the IASB) started its policy of phasing in
adoption of new major standards over several years. The major reason for this
policy is to provide companies time to translate and implement international
standards into practice.
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