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Acct 421 Week 1 Dq

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Week 1 DQ #1

What are the major objectives of financial reporting? Who are the users of financial reporting? What type of information will each user group need?
Response 1

Financial reporting establishes a foundation for financial accounting and reporting. The objectives of financial reporting provide information that is useful to creditors, investors, and any other external users in making rational decisions that involve investments, and credits.
Financial reporting helps present and potential investors, creditors, and any other external users to assess the amounts, timing, and uncertainty of prospective cash receipts from dividends, interest, proceeds from a sale, redemption, and maturity of securities and loans. Another objective of financial reporting is that enterprise resources are claims to resources and changes allocation is the process determining the cost money that is allocated among competing interest. A company will provide to managers information of financial statements such as the balance sheet, income statement, statement of cash flows, stockholders equity statements. These statements show how a company is in a financial status and allows a company to maintain stability. Today companies are practicing how they do business better in regard to the corporate scandals of Enron, WorldCom, and AIG. Companies are learning to think outside the box in how they conduct financial reporting such as adopting global standards of increasing fair value reporting. Accounting and capital allocation, meeting challenges, setting objectives, are three factors that that effect how financial reporting is practiced within an organization.

Response 2
Financial reports must be easy for others to understand, hence standard practices. The information must portray an accurate condition of the company for others, such as creditors and investors, to make sound decisions about where to put their money. The reports used by the creditors and investors would be mostly standard quarterly and annual reports (balance sheets, income statements), but good investors try to dig deeper to find any other public information that may affect the performance of a company or give it added value, such as brand imaging. The reports aid in cash flow decisions as well, increasing the need for accuracy. The information should aid in assessing the variables in the companies numbers, such as amount of possible uncollected receivables and investment returns. This information helps investors and creditors balance their risk. It also helps management make decisions with regards to cash flow. The forms used here would be the statement of cash flow and owners' or stockholders' equity. Accurate disclosure of debts and asset changes are important as well. Companies commonly transfer assets between divisions to manipulate the numbers. When investors and creditors are not able to properly balance their risk, they lose money. When they lose money, they are likely to be more reserved with their funds. If these objectives are not met, investors will not trust the reports and be weary of investing.

Week 1 DQ 2

What is the purpose of GAAP and the accounting cycle? Is it possible to deviate from GAAP and the accounting cycle and still prepare financial statements? Why or why not? What are some possible consequences of this course of action?

Response 1
GAAP is a codification of how accounting firms and CPAs prepare financial statements such as assets, liabilities, expenses, and income. GAAP consists of over 2,000 documents such as AICPA, FASB, APB Opinions and many more. Under Rule 203 of the Code it is prohibited to express an unqualified opinion when reporting financial statements that contain a departure from the GAAP. Under the Auditors and Managers Reports in chapter 1 of the text a qualified opinion is an exception to the standard opinion and under usual circumstances an auditor may deviate from a standard unqualified short-term report on statements such as, scope of examination that is limited and affected by conditions and restrictions. Statements may lack conformity with the rules of GAAP and may have inadequate disclosures. An unqualified report is a company’s desirable report but the auditor has the option to deviate from an opinion if the auditor cannot gather information of evidence that is in compliance with the principles of GAAP. The responsibility of the auditor is to remain independent of management when giving an opinion on financial statements. An independent auditor, CPA, and accountants should resist any pressure from clients to deviate from any laws and rules that is a violation of regulations.

Response 2

What is the purpose of GAAP and the accounting cycle?
The purpose of GAAP "Generally accepted accounting principles means either that an authoritative accounting rule-making body has established a principle of reporting in a given area or that over time a given practice has been accepted as appropriate because of its universal application.

Is it possible to deviate from GAAP and the accounting cycle and still prepare financial statements? Why or why not?
It is possible to deviate from GAAP and the accounting cycle and still prepare financial statements, however, that does not mean that it will be accepted. Generally accepted accounting principles gives the authorities for certain forms of financial reporting that can be useful and standard in each company in order for the information to be understood by everyone.

What are some possible consequences of this course of action?
Some possible consequences of this course of action is deficiency or stop order. If a disclosure irregularity exists regarding the form or content of the financial statements, it sends a deficiency letter to the company. If disagreement continues the SEC may issue a stop order which prevents the registrant from issuing or trading securities on the exchanges. The department of justice may also file criminal charges for violation of certain laws. ?

Week 1 DQ 3

What organizations are responsible for governing financial reporting? What are their roles? How have the roles changed in the last 20 years? How will their roles change in the next 20 years?

Response 1
The SEC has mandated the delivery of financial reports using Extensible Business Reporting Language (XBRL)." Reporting through XBRL allows timelier reporting via the internet and allows statement users to transform accounting reports to meet their specific needs. "However, when the stock market crashed in 1929 and the nation's economy plunged into the Great Depression, there were calls for increased government regulation of business generally, and especially financial institutions and the stock market." "As a result of the events, the federal government established the Securities and Exchange Commission (Sec) t help develop and standardize financial information presented to stockholders" (Kieso, Weygandt & Warfield, 2010). p.7. There are three other organizations are instrumental in the development of financial accounting standards (GAAP) in the United States:

1. Securities & Exchange Commission (SEC)
2. American Institute of Certified Public Accountants (AICPA)
3. Financial Accounting Standards Board (FASB).

The SEC is a federal agency that administers the Security Exchange Act of 1934 along with several other acts. "The Securities and Exchange Commission (SEC) is a federal agency that has the broad powers to prescribe, in whatever detail it desires, the accounting standards to be employed by companies that fall within its jurisdiction." "The American Institute of Certified Public Accountants (AICPA) issued standards through its Committee on Accounting Procedure and accounting Principles Board." "The Financial Accounting Standards Board (FASB) establishes and improves standards of financial accounting and reporting for the guidance and education of the public" (Kieso, Weygandt & Warfield, 2010). p. 21
"At the urging of the SEC, the AICPA appointed the committee on Accounting Procedure in 1939. "The Committee on Accounting Procedure (Cap),composed of practicing CPAs, issued 51 Accounting Research Bulletins during the years 1939 to 1959." "These bulletins dealt with a variety of accounting problems." "But this problem-by-problem approach failed to provide the needed structured body of accounting principles." "In response, in 1959 the AICPA created the Accounting Principles Board" (Kieso, Weygandt & Warfield, 2010). p. 9

"For several decades the AICPA provided leadership in developing accounting principles and rules." It also regulated the accounting profession, as well as developed, and enforced accounting practice more then any other organization. The AICPA established the Accounting Standards Executive Committee (AcSEC) as the committee authorized to speak for the AICPA in the area of financial accounting and reporting." "This accurred when the FASB replaced the Accounting Principles Board." "It does so through various written communications." "The role of the AICPA instandard-setting has dimshed.' "The FASB and the AICPA agree that the AICPA and AcSEC no longer will issue authoritative accounting guidance for public companies" (Kieso, Weygandt & Warfield, 2010). p. 12-13

Kieso, D.E., Weygandt, J.J., & Warfield, T.D. (2010). Intermediate accounting (13th ed.). Hoboken, NJ: Wiley.

Response 2
The three organizations of parties involved in standard setting are the Securities and Exchange Commission (SEC), the American institute of Certified Public Accountants (AICPA) and the Financial Accounting Standards board (FASB). These three organizations are financial accounting standards developed by GAAP in the United States Hunt, M. F., Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2010). The SEC relies on the development of accounting standards by the FASB. The SEC reports problems to the FASB, responds to exposure drafts and provides the FASB counsel and advice. The United States legal system is base on common law and professionals. These professional private sectors make the rules. Codified law is used by some countries with government – run accounting systems.

I believe within the next 20 years we will see more universalism in international accounting standards. Currently we have U.S. GAAP and foreign countries use iGAAP both are very similar. However, it is known that global markets would be better served if only one set of GAAP was used. If the U.S. decides to adopt the iGAAP it would make it easier for the U.S. and foreign countries to raise capital in foreign country's markets.…...

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