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Learning Objective 4
Describe the role that financial accounting plays in
the decision-making process
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Illustration 1.10—Use of Financial Accounting
Information in Investing and Lending
Decisions
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Learning Objective 5
Explain the term generally accepted accounting
principles (GAAP) and describe the role of GAAP in
financial accounting
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Rules of Financial Accounting
Investors &
Creditors
make their decisions
based on
Financial Accounting
Information
Should be based
on formal
standards
Generally Accepted Accounting Principles
(GAAP)
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Current Standard Setting
United States
Global
Financial Accounting
Standards Board (FASB)
International Accounting
Standards Board (IASB)
Governed by
Securities and Exchange
Commission (SEC)
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Role of Auditors
Trained individuals hired by a company as an
independent party to verify accuracy of that
company’s financial statements
Role of auditors
Help ensure that
management has in fact
appropriately applied GAAP
in preparing the company’s
financial statements
Help investors and
creditors in their decisions
by adding credibility to the
financial statements.
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Learning Objective 6
Identify career opportunities in accounting
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Illustration 1.14—Some Career
Options
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Illustration 1.14—Some Career
Options
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Learning Objective 7
Explain the nature of the conceptual framework
used to develop generally accepted accounting
principles
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Conceptual Framework
Appendix
•
•
•
•
Qualitative characteristics
Enhancing qualitative characteristics
Cost effectiveness constraint
Underlying assumptions
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Illustration 1.15—Qualitative Characteristics
of Useful Financial Information
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Cost Effectiveness Constraint
• Cost constraint suggests that:
• Financial accounting information is provided only
when the benefits of doing so exceed the costs
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Underlying Assumptions
Economic Entity
Assumption
Monetary Unit
Assumption
Identify all economic events
with a particular economic
entity
Need a unit or scale of
measurement
Periodicity
Assumption
Going Concern
Assumption
Provide information of an
enterprise at regular time
periods
Business entity will continue
to operate indefinitely
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End of Chapter 1
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