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									                            6-1




 Chapter F6

Full and Fair
 Reporting
  Electronic Presentation
   by Douglas Cloud
    Pepperdine University
                                             6-2


               Objectives

                Once you accounting
1. Explain the purpose of have
   regulation.
            completed this chapter,
             how accounting standards are
2. Describe you should be able to:
   established in the United States.
3. Explain the purpose of the Financial
   Accounting Standards Board’s conceptual
   framework.

                  Continued
                                                  6-3


                Objectives
4. Identify supplementary information to the
   financial statements in a corporate annual
   report.
5. Describe the purpose of internal controls
   and types of controls that should be evident
   in business organizations.
                          6-4




     Objective



1
    Explain the purpose
    of accounting
    regulation.
                                             6-5



     Accounting regulations protect the
  interests of external decision makers by
  ensuring that information for evaluating
the performance and financial condition of
     a business is available and that the
    information is prepared according to
             specific guidelines.
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What specific
 guidelines?
                              6-7




  Specific guidelines that
provide assurance that the
information is reliable and
comparable over time and
    across companies.
                                         6-8




The purchaser of a corporation’s stock
 needs assurance that the shares are
  reasonably priced and represent a
        legitimate business.
                                           6-9




Accounting regulations attempt to ensure
  that corporations prepare accounting
information in conformity with generally
accepted accounting principles (GAAP).
                                    6-10


Sources of Accounting Regulations

 The Securities Act of
  1933 requires most
  corporations to file
      registration
   statements before
    selling stock to
       investors.
                                    6-11


Sources of Accounting Regulations

    The Securities
   Exchange Act of
     1934 requires
    corporations to
    provide annual
  financial reports to
     stockholders.
                                                 6-12


Sources of Accounting Regulations

The 1934 act also created the
 Securities and Exchange
  Commission (SEC). The
   SEC is responsible for
overseeing external financial
reporting for publicly traded
                                Securities and
                                Securities and
        corporations.             Exchange
                                  Exchange
                                 Commission
                                 Commission
                                               6-13


 The failure of a corporation to report
fairly their activities to stockholders is a
major concern in a capitalistic economy.
                             6-14




    Objective
    Describe how


2   accounting standards
    are established in the
    United States.
                                       6-15


Standard Setting Organizations

                  The Financial
                    Accounting
                 Standards Board
               (FASB) has been the
              primary organization
              for setting accounting
                   standards for
              businesses in the U.S.
                    since 1973.
                                         6-16


Standard Setting Organizations

                 The Governmental
                     Accounting
                  Standards Board
                 (GASB) is a private
                organization that sets
               standards for state and
                 local governmental
                        units.
                                   6-17


Standard Setting Organizations


                The General
            Accounting Office is
             the primary federal
            government agency
                that oversees
              accounting in the
            federal government.
                                   6-18


  Standard Setting Organizations

     The International
  Accounting Standards
Board (IASB) recommends
accounting standards that it
believes are appropriate for
  a broad range of global
    activities involving
companies in many nations.
                                                        6-19


       The Standard-Setting Process
1. Accounting issues are identified and evaluated for
   consideration.
2. A discussion memorandum is issued and responses
   are solicited.
                                                        6-20


       The Standard-Setting Process
1. Accounting issues are identified and evaluated for
   consideration.
2. A discussion memorandum is issued and responses
   are solicited.

       A discussion memorandum is a
           document that identifies
      accounting issues and alternative
      approaches to resolving the issue.
                                                        6-21


       The Standard-Setting Process
1. Accounting issues are identified and evaluated for
   consideration.
2. A discussion memorandum is issued and responses
   are solicited.
3. Public hearings are held.
                                                        6-22


       The Standard-Setting Process
1. Accounting issues are identified and evaluated for
   consideration.
2. A discussion memorandum is issued and responses
   are solicited.
3. Public hearings are held.
4. An exposure draft is issued and responses are
   solicited.
                                                        6-23


       The Standard-Setting Process
1. Accounting issues are identified and evaluated for
   consideration.
2. A discussion memorandum is issued and responses
   are solicited.
3. Public hearings are held.
4. An exposure draft is issued and responses are
   solicited.

    An exposure draft is a document that
  describes a proposed accounting standard.
                                                        6-24


       The Standard-Setting Process
1. Accounting issues are identified and evaluated for
   consideration.
2. A discussion memorandum is issued and responses
   are solicited.
3. Public hearings are held.
4. An exposure draft is issued and responses are
   solicited.
5. Additional public hearings are held as needed.
                                                          6-25


         The Standard-Setting Process
  1. Accounting issues are identified and evaluated for
     consideration.
  2. A discussion memorandum is issued and responses
     are solicited.
  3. Public hearings are held.
  4. An exposure draft is issued and responses are
     solicited.
  5. Additional public hearings are held as needed.
  6. A standard is issued.
      An accounting standard is an official
pronouncement establishing acceptable accounting
     procedures or financial report content.
                                                        6-26


       The Standard-Setting Process
1. Accounting issues are identified and evaluated for
   consideration.
2. A discussion memorandum is issued and responses
   are solicited.
3. Public hearings are held.
4. An exposure draft is issued and responses are
   solicited.
5. Additional public hearings are held as needed.
6. A standard is issued.
7. Existing standards are reviewed and modified as
   needed.
                          6-27




    Objective
    Explain the purpose


3   of the Financial
    Accounting
    Standards Board’s
    conceptual
    framework.
                                          6-28



The FASB’s Conceptual Framework

    The FASB conceptual framework is a
        set of objectives, principles, and
    definitions to guide the development of
           new accounting standards.
                                                6-29



 The FASB’s Conceptual Framework
The FASB conceptual framework includes
four major components:
 1. Objectives of financial reporting
 2. Qualitative characteristics of accounting
    information
 3. Elements of financial statements
 4. Recognition and measurement in financial
    statements
                                  6-30



The FASB’s Conceptual Framework


              To be relevant,
               information
             should be timely
                 and have
               predictive or
             feedback value.
                                  6-31



The FASB’s Conceptual Framework


   To be reliable,
 information should
 faithfully represent
economic events and
 should be verifiable
     and neutral.
                              6-32




     Objective
    Identify supplementary


4   information to the
    financial statements in
    a corporate annual
    report.
                                         6-33


  Corporate annual reports
      usually include:
 A letter from the president or chief
  executive officer of the company
                                     6-34


  Corporate annual reports
      usually include:
 A description of the company’s
  products and business activities
                                        6-35


   Corporate annual reports
       usually include:
 A summary of selected business data
    Financial data,
   such as financial An example of
   statements for a such data is
   number of years shown in the
                     next slide.
              6-36



  Exhibit 1

 Summary
 Business
Data from a
Corporate
  Report
                                            6-37


   Corporate annual reports
       usually include:
 A discussion by management of the
  company’s performance (MD&A)
                This section explains
                 important events and
               changes in performance
             during the years presented
             in the financial statements.
                                       6-38


  Corporate annual reports
      usually include:
 Notes to the financial statements
           Notes to financial statements
             describe how some of the
           numbers were computed and
                 provide additional
              information about items
            reported on the statements.
                                                  6-39


       Corporate annual reports
           usually include:
 A statement of management responsibilities
  for the financial statements
                  Management is responsible
                    for preparing statements
                  and related information that
                   fairly reports the business
                   activities of a corporation.
                                    6-40


         Corporate annual reports
             usually include:
       An audit report
 An audit involves a detailed,
 systematic investigation of a
company’s accounting records
and procedures for the purpose
of determining the reliability of
       financial reports.
                                   6-41


       Corporate annual reports
           usually include:
      An audit report
    An unqualified opinion
states that the auditor believes
 that the financial statements
 fairly present the company’s
  actual economic events for
   the period covered by the
      audited statements.
                                6-42




      Objective
    Describe the purpose


5   of internal controls that
    should be evident in
    business organizations.
                           6-43



   Management Philosophy

Top management
 should develop
   and enforce
policies to ensure
   an effective
system of internal
     controls.
                                    6-44



    Business Ethics

    C      Management should
C   o
o   n
    d
          create a code of ethics
d
e   u
    c
           and other documents
    t    that establish company
            policy and inform
        employees of acceptable
         and expected behavior.
                                                  6-45



     Computer System Controls

Internal controls should be built into computer
 information systems to protect a company’s
   information resources from unauthorized
     access, improper use, and destruction.
                                             6-46



   Human Resources Controls
 Hiring qualified employees who have the
  appropriate skills for a particular job.
 Conducting background checks to identify
  employees who have a history of improper
  behavior.
 Maintaining a good training program to
  ensure employee development and
  maintenance of skills.
                                               6-47



          Physical Controls
 Merchandise and materials can be secured
  in warehouses or display cases.
 Merchandise can be tagged electronically
  to make shoplifting or theft difficult.
 Surveillance equipment can monitor
  important resources.
 Cash registers, vaults, and safety deposit
  boxes can be used to secure financial
  resources
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CHAPTER F6

      THE END
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