Transcript ACCOUNTING THEORY: TEXT AND READINGS RICHARD G. SCHROEDER MYRTLE CLARK JACK CATHEY CHAPTER 1 THE DEVELOPMENT OF ACCOUNTING THEORY.

ACCOUNTING THEORY:
TEXT AND READINGS
RICHARD G. SCHROEDER
MYRTLE CLARK
JACK CATHEY
CHAPTER 1
THE
DEVELOPMENT OF
ACCOUNTING
THEORY
Introduction
What is theory?
Webster defines theory as:
“Systematically organized knowledge, applicable in a relatively
wide variety of circumstances, a system of assumptions,
accepted principles and rules of procedure to analyze, predict or
otherwise explain the nature of behavior of a specified set of
phenomena.”
Normative theory
Positive theory
Why is the development of a general theory
of accounting important?
What is the relationship of accounting
research to accounting theory?
THE EARLY HISTORY OF
ACCOUNTING
The Zenon Papyri
The impact of the Renaissance
Fra Luca Pacioli
The evolution of joint ventures into
ongoing businesses
The impact of the industrial revolution
and the progressive movement
The concept of capital maintenance
The accountant as a protector of
business interests
ACCOUNTING IN THE UNITED
STATES SINCE 1930
Meetings between NYSE and AIA
AAA
The SEC
Securities Act of 1933
Securities Exchange Act of 1934
The Committee on Accounting Procedure
The Accounting Principles Board
The Financial Accounting Standards
Board
THE ACCOUNTING
PRINCIPLES BOARD
Formation and structure
Types of pronouncements
APB Opinions
The flap over accounting for the
investment tax Credit
Rule 203
Criticism of the APB
THE FINANCIAL ACCOUNTING
STANDARDS BOARD
The Wheat Committee
The Trueblood Committee
The FASB was established
The structure of the FASB is illustrated
in the following diagram
Appoint and
fund
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Financial
Accounting
Foundation
Govern
Board of
Trustees
Appoint
Appoint and
fund
Financial
Accounting
Standards
Advisory
Committee
(approximately
20 members)
Financial
Accounting Appoint
Standards
Board
(7 members)
Administration
Staff
Research Staff
Task Forces
of the
Standards
Board
Electors
THE FINANCIAL ACCOUNTING
STANDARDS BOARD
The Mission of the FASB
Types of pronouncements
Statements of Financial Accounting Concepts
Statements of Financial Accounting Standards
Interpretations
Technical Bulletins
THE FINANCIAL ACCOUNTING
STANDARDS BOARD
Emerging Issues
Standards Overload
Standard setting as a political process
Economic Consequences
THE EVOLUTION OF THE PHRASE GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
Changed wording of auditor’s
certificate brought about by meetings
between NYSE and AIA
The APB’s definition
The Auditing Standards Executive
Committee’s definition
The Evolution of the Phrase Generally
Accepted Accounting Principles
The current sources of GAAP
consist of four levels described as
A, B, C, and D by Statement of
Auditing Standards No 69
GAAP Hierarchy
LEVEL A:
FASB Statements
FASB Interpretations
SEC Rules and Interpretive Releases
Accounting Principles Board Opinions (unless amended)
Account Research Bulletins (unless amended)
LEVEL B:
FASB Technical Bulletins
AICPA Industry Audit Guides that have been reviewed by the FASB
GAAP Hierarchy
LEVEL C:
AcSEC Practice Bulletins that have been reviewed by the FASB
Consensuses reached by the EITF
LEVEL D:
AICPA Accounting Interpretations (no longer issued)
FASB Implementation Guides
Other widely recognized or prevalent accounting practices
The Business Reporting Research
Project
Steering Committee
Working Groups
THE ROLE OF ETHICS IN
ACCOUNTING
The public accountant as a
watchdog
Accounting in Crisis – The
Events of the Early 2000s
Enron and the Accounting Scandals
Two major changes in the accounting
profession have taken place in the wake of
the accounting scandals:
1. Arthur Andersen, formerly one the Big 5 audit
firms has gone out of business
2. In July 2002, President Bush signed into law
the Sarbanes-Oxley Bill which imposes a
number of corporate governance rules on
publicly traded companies (Discussed in
Chapter 17).
International Accounting
Standards
The concept of harmonization
The IASB
The IASB’s objectives:
1. To formulate and publish in the public interest
accounting standards to be observed in the
presentation of financial statements and to
promote their worldwide acceptance and
observance
2. To work generally for the improvement and
harmonization of regulations, accounting
standards, and procedures relating to the
presentation of financial statements.
41 Statements of Accounting Standards
and 5 Statements of Financial Reporting
Standards to date