Laporan Keuangan dan Standar Akuntansi (1)

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C H A P T E R

1

FINANCIAL REPORTING AND

ACCOUNTING STANDARDS

Intermediate Accounting

IFRS Edition

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1. Identify the major financial statements and other means of

financial reporting.

2. Explain how accounting assists in the efficient use of scarce

resources.

3. Explain the need for high-quality standards. 4. Identify the objective of financial reporting.

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

standard-setting process.

Explain the meaning of IFRS.

Learning Objectives

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Slide

General-purpose

financial statements

Capital providers

Objective of

Financial

statements and statements and financial reporting financial reporting

Accounting and Accounting and capital allocation

Hierarchy of IFRS Hierarchy of IFRS

Political

Significant financial Significant financial reporting issues

Financial Reporting and Accounting Standards

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Global Markets

World markets are becoming increasingly intertwined.

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Global Markets

Significant number of foreign companies are found on

national exchanges.

Illustration 1-2

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Global Markets

Financial Statements and Financial Reporting

Characteristics of accounting

are:

(1) the identification, measurement, and communication

of financial information about

(2) economic entities to

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Slide

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

President’s letter

Prospectuses

Reports filed with governmental

Financial Statements Additional InformationAdditional Information Economic Entity

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

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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.

Illustration 1-3 Capital Allocation Process

Accounting and Capital Allocation

Global Markets

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Slide _{LO 3 Explain the need for high-quality standards.}_{LO 3 Explain the need for high-quality standards.}

High Quality Standards

Global 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.

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High Quality Standards

Global 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).

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Objective of Financial Accounting

Objective:

Provide financial information about the reporting

entity that is useful to

present and potential equity investors,

lenders, and

other creditors

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Capital Providers (Investors)

Investors are the primary user group.

Objective 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.

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Decision-Usefulness

Objective of Financial Accounting

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

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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.

Review Question

Objective of Financial Accounting

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General-purpose financial statements are prepared

primarily for:

a. internal users.

b. external users.

c. auditors.

d. government regulators.

Review Question

Objective of Financial Accounting

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Slide 1-18

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 Organizations

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Two Major Organizations:

Financial Accounting Standards Board (FASB)

 _Issues_{Statements of Financial Accounting}

Standards (SFAS).

 _{Required for all U.S.-based companies.}

Standard-Setting Organizations

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Slide 1-20

Standard-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.

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Standard-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}

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Slide 1-22

Standard-Setting Organizations

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IFRS stands for:

a. International Federation of Reporting Services.

b. Independent Financial Reporting Standards.

c. International Financial Reporting Standards.

d. Integrated Financial Reporting Services.

Review Question

Standard-Setting Organizations

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Slide 1-24

The major key players on the international side are

the:

a. IASB and FASB.

b. SEC and FASB.

c. IOSCO and the SEC.

d. IASB and IOSCO.

Review Question

Standard-Setting Organizations

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Which body from the U.S. side is similar to the IASB?

a. SEC.

b. FASB.

c. FASC.

d. FAF.

Review Question

Standard-Setting Organizations

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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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Due Process

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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.

Review Question

Due Process

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Issued by the IASB:

Types of Pronouncements

International Financial Reporting Standards. Framework for financial reporting.

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Types of Pronouncements

Hierarchy of IFRS

Companies first look to:

1. International Financial Reporting Standards;

2. International Accounting Standards; and

3. Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the

former Standing Interpretations Committee (SIC).

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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

interpretations.

c. International Accounting Standards and international accounting interpretations.

Review Question

Types of Pronouncements

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Financial Reporting Challenges

LO 7 Describe the challenges facing financial reporting. LO 7 Describe the challenges facing financial reporting.

IFRS in a Political Environment

User Groups that Influence the

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What the public thinks accountants should do

vs.

what

accountants think they can do.

Financial Reporting Challenges

The Expectations Gap

Significant Financial Reporting Issues

 _{Non-financial measurements}

 _{Forward-looking information}

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Ethics in the Environment of Financial Accounting

Companies that concentrate on “maximizing the bottom line,” “facing the challenges of competition,” and

“stressing short-term results” place accountants in an environment of conflict and pressure.

IFRS does not always provide an answer.

Doing the right thing is not always easy or obvious.

Financial Reporting Challenges

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International Convergence

In 2002 the IASB and the FASB formalized their commitment to the convergence of U.S. GAAP and international

standards. The Boards agreed to:

1. Make their existing financial reporting standards fully converged as soon as practicable, and

2. Coordinate their future work programs to ensure that once achieved, convergence is maintained.

Financial Reporting Challenges

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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.

Review Question

Financial Reporting Challenges

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 _{The fact that there are differences between IFRS and U.S. GAAP} should not be surprising because standard-setters have developed standards in response to different user needs.

 _{IFRS tends to be simpler and more flexible in its accounting and} disclosure requirements.

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Appendix

1A

THE U.S. STANDARD-SETTING ENVIRONMENT

Organizations responsible for developing financial

accounting standards (GAAP) in the United States:

1. Securities and Exchange

Commission (SEC).

2. Financial Accounting

Standards Board (FASB).

http://www.sec.gov/

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Securities Act

of 1933

Securities Act

of 1933

Securities Act

_{of 1934}

Securities Act

of 1934

Securities and Exchange Commission

Established by federal government

Accounting and reporting for public companies

Encouraged private standard-setting body

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Financial Accounting Standards Board

Wheat Committee’s recommendations resulted in the creation of a the

Financial Accounting Standards Board (FASB)

Financial Accounting Standards Board (FASB) in 1973.

Financial

Selects members of the FASB Funds their activities

Exercises general oversight.

Financial

Financial Accounting

Standards Advisory

Council

Financial Accounting

Standards Advisory

Council

Mission to establish and improve standards of financial accounting and reporting.

Consult on major policy issues.

LO 8 Identify the major policy-setting bodies and their LO 8 Identify the major policy-setting bodies and their

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Missions is to establish and improve standards of financial

accounting and reporting. Differences between FASB and

APB include:

Financial Accounting Standards Board

Smaller Membership

Full-time, Remunerated Membership Greater Autonomy

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FASB relies on two basic premises:

(1) Responsive to entire economic community

(2) Operate in full view of the public

Financial Accounting Standards Board

Step 1 = Topic placed on agenda

Step 2 = Research conducted and Discussion Memorandum issued.

Step 3 = Public hearing

Step 4 = Board evaluates research, public response and issues

Exposure Draft

Step 5 = Board evaluates responses and issues final Statement of Financial Accounting Standard

role in the standard-setting process. role in the standard-setting process.

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Financial Accounting Standards Board

Standards, Interpretations, and Staff Positions. Financial Accounting Concepts

Emerging Issues Task Force Statements

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Principles that have

substantial authoritative support

.

Major sources of GAAP:

FASB Standards, Interpretations, and Staff Positions

APB Opinions

AICPA Accounting Research Bulletins

U.S. Generally Accepted Accounting Principles

Financial Accounting Standards Board

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Financial Accounting Standards Board

Illustration 1A-2

The

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Slide 1-46

IASB and FASB have set up an extensive work plan to achieve one set of international standards.

Improvements in Accounting Standards

International Accounting Convergence

Illustration 1A-3

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SEC Work Plan

International Accounting Convergence

Sufficient development and application of IFRS.

Independent standard-setting for the benefit of investors.

Investor understanding and education.

Regulatory environment.

Impact on large and small financial statement preparers.

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