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单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,*,*,单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,Copyright 2009 by Pearson Education Canada,1 -,*,单击此处编辑母版标题样式,单击此处编辑母版文本样式,第二级,第三级,第四级,第五级,Copyright 2009 by Pearson Education Canada,1 -,*,Financial Accounting Theory,Fifth Edition,William R. Scott,Purpose: To create an awareness and understanding of the financial reporting environment in a market economy,Outlines,Some Historical Perspective,A Note on Ethical Behavior,The Role of Accounting Research,Organization of the Book,Information Asymmetry,Role of Financial Reporting,South Sea Company,The company, established in 1711 by the Lord Treasurer, Robert Harley,Slave trading,The share price,from 128 in January 1720, to 175 in February, 330 in March and, following the schemes acceptance, to 550 at the end of May.,The Bubble Act,1720,Copyright 2021 by Pearson Education Canada,1 -,4,Famous First Bubbles?,Copyright 2021 by Pearson Education Canada,1 -,5,South Sea Bubble,Hogarthian image of the South Sea Bubble, by Edward Matthew Ward, Tate Gallery,Copyright 2021 by Pearson Education Canada,1 -,6,Chapter 1 Introduction,Copyright 2021 by Pearson Education Canada,1 -,7,1.2 Some Historical Perspective,Paciolo, 1494,Paciolos work was translated into English, 1543,English Corporations Acts,1844,Compulsory audit, balance sheet,Voluntary provision of information,Reinstated after 1900s(compulsory audit),Copyright 2021 by Pearson Education Canada,1 -,8,Some Historical Perspective,Contd,Developments in the United States,Corporate income tax, 1909,provided a major impetus to income measurement, accepted amortization as a deduction from income,SEC, 1934,Great Depression,1929,Securities Act of 1934,The search for accounting principles,Sarbanes-Oxley,2002,Subprime Mortgage Crisis and Fair value measurement,Copyright 2021 by Pearson Education Canada,1 -,9,Some Historical Perspective,Contd,Great depression of 1930s reinforced historical cost accounting,Alternatives to historical cost,Cash basis accounting,Current value accounting,Value-in-use,Fair value (exit price),Mixed measurement model,Copyright 2021 by Pearson Education Canada,1 -,10,1.2 Financial Reporting Horror Stories,Enron,WorldCom,Effects on financial reporting,Sarbanes-Oxley Act,More conservative accounting?,Copyright 2021 by Pearson Education Canada,1 -,11,Hidden liabilities, the Case of Enron,$124.8,$124.8,$124.8,$124.8,$4.02,$115.2,$115.2,$115.2: 4th quarter of 2000, $53,1,st,quarter of 2001, $57.9,3,rd,quarter of 2001, reverse $53+$57.9 = 110.9 as losses,Copyright 2021 by Pearson Education Canada,1 -,12,ENRON CORP.,Special Purpose Entities Associated with Enron,On Enron Books,Dr . Note Receivable$1.1 (billion),Cr. Capital Stock$1.1,Capital stock issued to Special Purpose Entity (SPE),(a limited partnership),SPE owned by Enron officers,Copyright 2021 by Pearson Education Canada,1 -,13,Enron, Contd.,GAAP requires amounts due from shareholders be deducted from shareholders equity,Is a limited partnership, owned by Enron officers, a shareholder?,Copyright 2021 by Pearson Education Canada,1 -,14,ENRON, Contd.,Off-Balance Sheet Financing,On SPE books:,Cashxxx,Debtxxx,SPE borrows money, using Enron stock as security.,Note payable to Enronxxx,Cashxxx,Cash is paid to Enron to reduce its note receivable from SPE,Enron has the cash but debt does not appear on its books,Copyright 2021 by Pearson Education Canada,1 -,15,ENRON, Contd.,Enron Renders Services to the SPE,A/C receivable $628 (millions),Net income $628,Services rendered to SPE 1997-2000 incl.,If Ltd. partnership had been consolidated, revenue only recognized when earned outside the consolidated entity,.,Copyright 2021 by Pearson Education Canada,1 -,16,ENRON, Contd.,Enron records its share of SPE profits,Investment in SPExxx,Net incomexxx,SPE profits include increases in fair value of its holdings of Enron shares.,Result: Enron includes increases in the market value of its shares in its net income.,Copyright 2021 by Pearson Education Canada,1 -,17,ENRON, Contd.,In 3rd quarter, 2001, Enron Recognized that the SPE should be Consolidated:,Dr Shareholders equity$1.1,Cr Notes receivable$1.1,To deduct loan to SPE from shareholders equity,Also, restate previous 4 years earnings to reduce by $628 millions,Copyright 2021 by Pearson Education Canada,1 -,18,ENRON, Contd.,Impacts of the Writeoffs,No effect on operating cash flow,Debt/equity ratio, debt covenants affected,Loss of investor confidence,Share price falls from $90 to 66,bankruptcy protection 2 Dec/01,SEC, Dept of Justice, Congressional Investigations,Where were the auditors? The Board?,Copyright 2021 by Pearson Education Canada,1 -,19,ENRON, Contd.,Points to Think About,Crucial role of investor confidence in financial information,Role of auditor in adding credibility to financial information,Off-balance sheet financing,Earnings management,Copyright 2021 by Pearson Education Canada,1 -,20,Fraud and Abuse,WorldCom,2002,Overstated its earnings by about $11 billion,Capitalization of network maintenance,Reductions in the allowance for doubtful accounts,Qwest,2002,Share price fell by 32%,Separated long-term sales of equipment and services into two components,Recognize revenue from the sale of fibre-optic cable despite an ability of the purchaser to exchange the cable at a later date,Copyright 2021 by Pearson Education Canada,1 -,21,1.3 Ethical Behaviour by Accountants/Auditors,Was accountant/auditor behaviour leading up to Enron & WorldCom reporting disasters ethical?,Serve the client or serve society?,Why would you behave ethically in similar circumstances?,Ethical principles to do the right thing?,Yours and the professions long run interests?,Note each reason produces similar behaviour,But mindset differs,Copyright 2021 by Pearson Education Canada,1 -,22,1.5 The Role of Accounting Research,To consider its effects on accounting practice,To improve our understanding of the accounting environment,Copyright 2021 by Pearson Education Canada,1 -,23,The Positive Accounting Theory,Property rights, transition economy,role of government in economy,Ownership and organization structures of SOE,Stock market infrastructure, law, regulations, standards,Accounting and auditing issues,Copyright 2021 by Pearson Education Canada,1 -,24,Top-down approach,Country Institutions,The legal system (the court and the law),The government (regulations, public sector governance),The society (religion, ideology, custom, social norm),Markets,Product, labor, manager, raw material, financial capital,Firms,Firm boundary (vertical integration, diversification),Ownership and control structures,Governance structures and accounting,Copyright 2021 by Pearson Education Canada,1 -,25,1.6 Role of Information in a Market Economy,To improve operation of capital markets,Adverse selection problem,To improve operation of managerial labour markets,Moral hazard problem,Both roles crucial,Results of Enron collapse show importance,Recession in U.S. economy, 2001,Increased regulation (SOX),Copyright 2021 by Pearson Education Canada,1 -,26,1.6 Role of Financial Reporting in a Market Economy,Control adverse selection,Convert inside information into outside,Supply useful information to investors,Control moral hazard,Control manager shirking,Improve corporate governance,Copyright 2021 by Pearson Education Canada,1 -,27,1.7 The Fundamental Problem Of Financial Accounting Theory,The best measure of net income to control adverse selection not the same as the best measure to motivate manager performance,Investors want information about future firm performance,Current value accounting?,Good corporate governance requires that managers “work hard,Do historical cost accounting, conservatism better reflect manager effort?,Copyright 2021 by Pearson Education Canada,1 -,28,Financial Statement Presentation,Copyright 2021 by Pearson Education Canada,1 -,29,1.8 Role of Standard Setting,Is standard setting needed?,Market forces motivate firms to produce information,But market forces subject to failure,Adverse selection,Moral hazard,Regulation steps in to try to correct market failures,Regulation is costly,Continued,Copyright 2021 by Pearson Education Canada,1 -,30,1.8 Role of Standard Setting,(continued),Standard setting mediates between conflicting interests of investors and managers,Investors want lots of useful information,Managers may object to releasing all the information that investors desire,Copyright 2021 by Pearson Education Canada,1 -,31,1.9.5 Ways to Mediate Between Conflicting Interests,Due process in standard setting,Representation of diverse constituencies,Super-majority voting,Exposure drafts,Copyright 2021 by Pearson Education Canada,1 -,32,1.9.5 Structure of Standard Setting Bodies,IASB,International standards,FASB,United States standards,AcSB,Canadian standards,Securities commissions,Role in enforcing firms to follow standards,May set standards themselves,Why do they delegate most standard setting?,Copyright 2021 by Pearson Education Canada,1 -,33,FASB,FASB Pronouncements and EITF Abstracts,Statements of Financial Accounting Standards (168),Statements of Financial Accounting Concepts (7),FASB Interpretations (48),FASB Staff Positions,FASB Technical Bulletins,EITF Abstracts,Copyright 2021 by Pearson Education Canada,1 -,34,GAAP,CAP (Committee on Accounting Procedure),1936-1959, ARBs (51),APB (Accounting Principles Board ),1959-1973, APB Opinions (38),FASB (Financial Accounting Standards Board ),1973-,Statements and Interpretations,Copyright 2021 by Pearson Education Canada,1 -,35,IFRS2021,Copyright 2021 by Pearson Education Canada,1 -,36,Theories Relevant to Financial Accounting,The rational investor,A model of how an investor may use new information to revise beliefs about future firm performance,Rationality holds,on average, not necessarily for each individual,Efficient securities markets,Share prices fully reflect all publicly available information,Efficiency is relative to a stock of information,Role of financial reporting in improving/expanding the stock of information,Continued,Copyright 2021 by Pearson Education Canada,1 -,37,Theories Relevant to Financial Accounting,(continued),Behavioural theories,Investors do not use all the information in financial statements securities markets not fully efficient,Agency theory,Efficient contracts to motivate manager performance and achieve good corporate governance,The End Thank you,
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