Scribd Logo
Upload

Welcome to Scribd!

  • 37 views

    Chapter 2: The Financial Reporting Environment: by Lecturer: Ahmad Anabtawi

    Uploaded by

    mskskkd
    This document discusses the history and development of financial reporting and regulation. It covers the early history of accounting in northern Italy in the 13th-14th centuries. It then discusses the formation of professional accounting associations in the 19th century and the development of mandatory accounting standards in the UK and US in the 20th century. The document also summarizes arguments for and against financial reporting regulation, and theories that have been used to describe the benefits of regulation such as public interest theory, capture theory, and private interest theory.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Chapter 2: The Financial Reporting Environment: by Lecturer: Ahmad Anabtawi

    Uploaded by

    mskskkd
    37 views13 pages
    This document discusses the history and development of financial reporting and regulation. It covers the early history of accounting in northern Italy in the 13th-14th centuries. It then discusses the formation of professional accounting associations in the 19th century and the development of mandatory accounting standards in the UK and US in the 20th century. The document also summarizes arguments for and against financial reporting regulation, and theories that have been used to describe the benefits of regulation such as public interest theory, capture theory, and private interest theory.

    Original Description:

    accounting3

    Original Title

    ch3

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document discusses the history and development of financial reporting and regulation. It covers the early history of accounting in northern Italy in the 13th-14th centuries. It then discusses the formation of professional accounting associations in the 19th century and the development of mandatory accounting standards in the UK and US in the 20th century. The document also summarizes arguments for and against financial reporting regulation, and theories that have been used to describe the benefits of regulation such as public interest theory, capture theory, and private interest theory.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    37 views13 pages

    Chapter 2: The Financial Reporting Environment: by Lecturer: Ahmad Anabtawi

    Uploaded by

    mskskkd
    This document discusses the history and development of financial reporting and regulation. It covers the early history of accounting in northern Italy in the 13th-14th centuries. It then discusses the formation of professional accounting associations in the 19th century and the development of mandatory accounting standards in the UK and US in the 20th century. The document also summarizes arguments for and against financial reporting regulation, and theories that have been used to describe the benefits of regulation such as public interest theory, capture theory, and private interest theory.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    CHAPTER 2: THE

    FINANCIAL By Lecturer : Ahmad Anabtawi


    REPORTING
    ENVIRONMENT
    AHMAD ANABTAWI ACCOUNTING THEORY CH2 1
    • TABLE OF CONTENTS:
    In this chapter you will be introduced to:
     financial reporting and regulations

     The early history of accounting

     the history of the accounting profession and of regulation

     some of the arguments for and against the existence of accounting regulation

     some of the theoretical perspectives used to explain the existence of regulation

    • AHMAD ANABTAWI ACCOUNTING THEORY CH2 • 2


    FINANCIAL ACCOUNTING
    VERSUS MANAGEMENT
    ACCOUNTING
    Financial Accounting: Process of collection and processing of information of a
    financial nature for the purpose of assisting various decisions to be made by external
    parties to the organization.
    includes : Income statement, statement of change in equity, balance sheet and statement of
    cash flows.

    Management Accounting: provides information for decision making by parties


    within the organization (internal parties)
    Includes: cash flows projections, sales budgets, production and etc.

    AHMAD ANABTAWI ACCOUNTING THEORY CH2 3


    USERS OF FINANCIAL
    REPORTING
    users have different information needs so it is not possible to generate reports to
    meet individual needs

    ‘general purpose financial statements’

    users include:
     present and potential investors; lenders; suppliers; employees; customers; government and other
    parties performing a review or oversight function; media

    AHMAD ANABTAWI ACCOUNTING THEORY CH2 4


    ACCOUNTING KNOWLEDGE
    REQUIRED OR EXPECTED BY
    USERS
    changes to accounting standards or new standards affect the accounting numbers
    within financial reports (profits, net assets)

    users should ideally have sufficient knowledge to assess effect of changes to


    regulations

    Financial Reports are designed for users who have a reasonable knowledge of
    business and accounting and a willingness to study the information with reasonable
    diligence.
    AHMAD ANABTAWI ACCOUNTING THEORY CH2 5
    DEVELOPMENT OF
    ACCOUNTING PRACTICE:
    FIRST DOCUMENTED USE
    early systems of double entry accounting traced back to 13th and 14th century in
    Northern Italy
    Franciscan monk named Pacioli first to document double entry accounting practice
    (1494)
    included debits and credits and used ledgers and journals
    Debit means the left side of the account
    Credit means the right side of the account
    Luca Pacioli uses debit and credit because at that time their was no Minus (which
    found in 1700s)

    AHMAD ANABTAWI ACCOUNTING THEORY CH2 6


    FORMATION OF
    PROFESSIONAL
    ASSOCIATIONS
     1854: Society of Accountants (Edinburgh)

     1880: Institute of Chartered Accountants in England and Wales

     1887: American Association of Public Accountants

    although members required to prepare and audit reports pursuant to company laws and
    stock exchange requirements, no regulation about content of reports and how numbers
    compiled existed, that is there was effectively a ‘free market’ approach to accounting
    regulation
    AHMAD ANABTAWI ACCOUNTING THEORY CH2 7
    HISTORY OF ACCOUNTING
    REGULATION
    1920s: there was a limited work to codify accounting principles and rules (like:
    conservatism, Materiality, consistency and matching principle)
    1930: US profession and New York Stock Exchange (NYSE) developed a list of
    broadly used accounting principles.
    1934: US security exchange act by (SEC) required a specific disclosure of firms
    seeking to trade securities.
    1938: SEC just accepted financial statements prepared in accordance with GAAP.
    This gave a great power of accounting profession.
    1939: Committee on accounting procedures commenced issuing statements on
    accounting principles: issue 12 accounting research bulletins during 1939.

    AHMAD ANABTAWI ACCOUNTING THEORY CH2 8


    DEVELOPMENT OF
    MANDATORY ACCOUNTING
    STANDARDS
    Accounting Standards Steering Committee established in UK
    in 1970 (later Accounting Standards Committee) that
    mandatory standards developed

    US Financial Accounting Standards Board (FASB) formed in


    1973
     later produced mandatory standards
     from 1965 departures from principles had to be disclosed in footnotes

    AHMAD ANABTAWI ACCOUNTING THEORY CH2 9


    ARGUMENTS IN FAVOUR OF
    REGULATION
    1- markets for information not efficient
    2- ‘on average’ market efficiency arguments ignore the rights of individuals
    3- those able to demand information can often do so as a result of power over scarce
    resources, while those with limited power are generally unable to secure information
    without regulation (even though the organisation may impact their existence)
    4- investors need protection from fraudulent organisations producing misleading
    information
    5- regulation leads to uniform methods thus enhancing comparability

    AHMAD ANABTAWI ACCOUNTING THEORY CH2 10


    ARGUMENTS AGAINST
    REGULATION
    1- people will be prepared to pay for information to the extent that it has use
    2- capital markets act to punish organisations that fail to provide information
     no news deemed to imply bad news

    3- regulation will lead to oversupply of information as users who do not bear the cost
    of supply tend to overstate their needs
    4- regulation restricts the accounting methods able to be used so organisations may
    be prohibited from using methods which most efficiently reflect their particular
    performance and position

    AHMAD ANABTAWI ACCOUNTING THEORY CH2 11


    THEORIES USED TO DESCRIBE
    BENEFITS OF REGULATION
    public-interest theory of regulation
     regulation introduced to protect the public as a result of inefficient
    markets.

    capture theory of regulation


     although regulation introduced to protect the public, regulatory
    mechanisms often controlled by groups most affected by regulation

    private interest theory of regulation


     government not neutral arbiter and will regulate based upon impacts to
    key voters and campaign finances
    AHMAD ANABTAWI ACCOUNTING THEORY CH2 12
    PRIVATE VERSUS PUBLIC
    SECTOR REGULATION
    private sector regulation
     accounting profession best able to develop accounting standards because of expertise and greater
    likelihood rules will be accepted by business

    public sector regulation


     government has greater enforcement powers, hence rules more likely to be followed, may be less
    responsive to pressure from business and more likely to consider public interest

    AHMAD ANABTAWI ACCOUNTING THEORY CH2 13

    You might also like