financial accounting theoryfifth editionwilliam r scott：财务会计theoryfifth editionwilliam r史葛

Financial Accounting TheoryFifth EditionWilliam R. Scott,Purpose: To create an awareness and understanding of the financial reporting environment in a market economy,Outlines,Some Historical PerspectiveA Note on Ethical BehaviorThe Role of Accounting ResearchOrganization of the BookInformation AsymmetryRole 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 2009 by Pearson Education Canada,1 - 4,Famous First Bubbles?,Copyright 2009 by Pearson Education Canada,1 - 5,South Sea Bubble,Hogarthian image of the South Sea Bubble, by Edward Matthew Ward, Tate Gallery,Copyright 2009 by Pearson Education Canada,1 - 6,Chapter 1 Introduction,Copyright 2009 by Pearson Education Canada,1 - 7,1.2 Some Historical Perspective,Paciolo, 1494Paciolos work was translated into English, 1543English Corporations Acts,1844Compulsory audit, balance sheet Voluntary provision of informationReinstated after 1900s(compulsory audit),Copyright 2009 by Pearson Education Canada,1 - 8,Some Historical Perspective , Contd,Developments in the United StatesCorporate income tax, 1909 provided a major impetus to income measurement, accepted amortization as a deduction from incomeSEC, 1934Great Depression,1929Securities Act of 1934The search for accounting principlesSarbanes-Oxley,2002Subprime Mortgage Crisis and Fair value measurement,Copyright 2009 by Pearson Education Canada,1 - 9,Some Historical Perspective , Contd,Great depression of 1930s reinforced historical cost accountingAlternatives to historical costCash basis accountingCurrent value accountingValue-in-useFair value (exit price)Mixed measurement model,Copyright 2009 by Pearson Education Canada,1 - 10,1.2 Financial Reporting Horror Stories,EnronWorldComEffects on financial reportingSarbanes-Oxley ActMore conservative accounting?,Copyright 2009 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, $531st quarter of 2001, $57.93rd quarter of 2001, reverse $53+$57.9 = 110.9 as losses,Copyright 2009 by Pearson Education Canada,1 - 12,ENRON CORP.,Special Purpose Entities Associated with EnronOn Enron BooksDr . 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 2009 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 2009 by Pearson Education Canada,1 - 14,ENRON, Contd.,Off-Balance Sheet FinancingOn SPE books: Cashxxx DebtxxxSPE borrows money, using Enron stock as security. Note payable to EnronxxxCashxxxCash is paid to Enron to reduce its note receivable from SPEEnron has the cash but debt does not appear on its books,Copyright 2009 by Pearson Education Canada,1 - 15,ENRON, Contd.,Enron Renders Services to the SPEA/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 2009 by Pearson Education Canada,1 - 16,ENRON, Contd.,Enron records its share of SPE profitsInvestment in SPExxxNet incomexxxSPE 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 2009 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 2009 by Pearson Education Canada,1 - 18,ENRON, Contd.,Impacts of the WriteoffsNo effect on operating cash flowDebt/equity ratio, debt covenants affectedLoss of investor confidenceShare price falls from $90 to 66bankruptcy protection 2 Dec/01SEC, Dept of Justice, Congressional InvestigationsWhere were the auditors? The Board?,Copyright 2009 by Pearson Education Canada,1 - 19,ENRON, Contd.,Points to Think AboutCrucial role of investor confidence in financial informationRole of auditor in adding credibility to financial informationOff-balance sheet financingEarnings management,Copyright 2009 by Pearson Education Canada,1 - 20,Fraud and Abuse,WorldCom,2002Overstated its earnings by about $11 billionCapitalization of network maintenanceReductions in the allowance for doubtful accounts Qwest,2002Share price fell by 32%Separated long-term sales of equipment and services into two componentsRecognize revenue from the sale of fibre-optic cable despite an ability of the purchaser to exchange the cable at a later date,Copyright 2009 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 behaviourBut mindset differs,Copyright 2009 by Pearson Education Canada,1 - 22,1.5 The Role of Accounting Research,To consider its effects on accounting practiceTo improve our understanding of the accounting environment,Copyright 2009 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 2009 by Pearson Education Canada,1 - 24,Top-down approach,Copyright 2009 by Pearson Education Canada,1 - 25,1.6 Role of Information in a Market Economy,To improve operation of capital marketsAdverse selection problemTo improve operation of managerial labour marketsMoral hazard problemBoth roles crucialResults of Enron collapse show importance Recession in U.S. economy, 2001 Increased regulation (SOX),Copyright 2009 by Pearson Education Canada,1 - 26,1.6 Role of Financial Reporting in a Market Economy,Control adverse selectionConvert inside information into outsideSupply useful information to investors Control moral hazardControl manager shirkingImprove corporate governance,Copyright 2009 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 performanceInvestors want information about future firm performanceCurrent value accounting?Good corporate governance requires that managers “work hard”Do historical cost accounting, conservatism better reflect manager effort?,Copyright 2009 by Pearson Education Canada,1 - 28,Financial Statement Presentation,Copyright 2009 by Pearson Education Canada,1 - 29,1.8 Role of Standard Setting,Is standard setting needed? Market forces motivate firms to produce informationBut market forces subject to failureAdverse selectionMoral hazardRegulation steps in to try to correct market failuresRegulation is costlyContinued,Copyright 2009 by Pearson Education Canada,1 - 30,1.8 Role of Standard Setting (continued),Standard setting mediates between conflicting interests of investors and managersInvestors want lots of useful informationManagers may object to releasing all the information that investors desire,Copyright 2009 by Pearson Education Canada,1 - 31,1.9.5 Ways to Mediate Between Conflicting Interests,Due process in standard settingRepresentation of diverse constituenciesSuper-majority votingExposure drafts,Copyright 2009 by Pearson Education Canada,1 - 32,1.9.5 Structure of Standard Setting Bodies,IASBInternational standardsFASBUnited States standardsAcSBCanadian standardsSecurities commissionsRole in enforcing firms to follow standardsMay set standards themselvesWhy do they delegate most standard setting?,Copyright 2009 by Pearson Education Canada,1 - 33,FASB,FASB Pronouncements and EITF AbstractsStatements of Financial Accounting Standards (168)Statements of Financial Accounting Concepts (7) FASB Interpretations (48) FASB Staff Positions FASB Technical Bulletins EITF Abstracts,Copyright 2009 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 Bo