ACCOUNTING THEORY: TEXT AND READINGS

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ACCOUNTING THEORY TEXT AND READINGS

• RICHARD G. SCHROEDER
• MYRTLE CLARK
• JACK CATHEY

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CHAPTER 1

• THE DEVELOPMENT OF ACCOUNTING THEORY

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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?

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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

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ACCOUNTING IN THE UNITED STATES SINCE 1930

• Meetings between NYSE and AIA
• AAA
• SEC
• Securities Act of 1933
• Securities Exchange Act of 1934
• Committee on Accounting Procedure
• Accounting Principles Board
• Financial Accounting Standards Board

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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

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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

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Structure of the FASB
Appoint
Govern
Appoint and fund
- - - - - - -

Appoint and fund
Appoint
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FASB

• Mission

• Types of pronouncements

• Statements of Financial Accounting Concepts
• Statements of Financial Accounting Standards
• Interpretations
• Technical Bulletins

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FASB

• Emerging Issues
• Standards Overload
• Standard setting as a political process
• Economic Consequences

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GAAP

• Evolution of phrase
• Changed wording of auditors certificate brought
  about by meetings between NYSE and AIA
• The APBs definition
• The Auditing Standards Executive Committees
  definition
• The current sources of GAAP consist of four
  levels described as A, B, C, and D by Statement
  of Auditing Standards No 69

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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
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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
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The Business Reporting Research Project

• Steering Committee
• Working Groups

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THE ROLE OF ETHICS IN ACCOUNTING

• The public accountant as a watchdog

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Accounting in Crisis The Events of the Early
2000s

• Enron and the Accounting Scandals

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Accounting in Crisis The Events of the Early
2000s

• Two major changes in the accounting profession
  have taken place in the wake of the accounting
  scandals
• Arthur Andersen

• formerly one the Big 5 audit firms
• has gone out of business
• Sarbanes-Oxley Act

• President Bush signed into law July 2002
• imposes a number of corporate governance rules on
  publicly traded companies (Discussed in Chapter
  17).

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International Accounting Standards

• The concept of harmonization
• The IASB
• The IASBs objectives
• 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
• 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

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End of Chapter 1