THE DEVELOPMENT OF ACCOUNTING THEORY ch01.ppt

ACCOUNTING THEORY

1. ACCOUNTING THEORY:
TEXT AND READINGS
RICHARD G. SCHROEDER
MYRTLE CLARK
JACK CATHEY

2. CHAPTER 1
THE DEVELOPMENT OF
ACCOUNTING THEORY

3. 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?

4. 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

5. 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

6. 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

7. 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

8. Structure of the FASB
Financial
Accounting
Foundation
Board of
Trustees
Appoint
Electors
GovernAppoint and
fund
Financial
Accounting
Standards
Advisory
Committee
(approx.
20 members)
Financial
Accounting
Standards
Board
(7 members)
Task Forces
of the
Standards
Board
Appointt
Admin.
Staff
Research Staff
||
||
||
- - - - - - -- - - - - - -
Appoint and
fund

9. FASB
Mission
Types of pronouncements
Statements of Financial Accounting Concepts
Statements of Financial Accounting Standards
Interpretations
Technical Bulletins

10. FASB
Emerging Issues

Standards Overload

Standard setting as a political process
Economic Consequences

11. GAAP
Evolution of phrase:

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 current sources of GAAP consist of four levels
described as A, B, C, and D by Statement of Auditing
Standards No 69

12. 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

13. 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

14. The Business Reporting Research Project
Steering Committee
Working Groups

15. THE ROLE OF ETHICS IN
ACCOUNTING
The public accountant as a
watchdog

16. Accounting in Crisis – The Events of
the Early 2000s
Enron and the Accounting Scandals

17. 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:
1.Arthur Andersen
 formerly one the Big 5 audit firms
 has gone out of business
2.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).

18. 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