Ebook Intermediate Accounting Chapter 1

C H A P T E R

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FI NANC IAL R EPORTI NG A N D ACCO U NTI NG STAN DAR DS

LEARNING OBJECTIVES

After studying this chapter, you should be able to:

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Identify the major financial statements and other means of financial reporting. Explain how accounting assists in the efficient use of scarce resources. Explain the need for high-quality standards.

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Identify the objective of financial reporting. Identify the major policy-setting bodies and their role in the standard-setting process. Explain the meaning of IFRS. Describe the challenges facing financial reporting.

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•6 •7

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Revolution in International Financial Reporting

The age of free trade and the interdependence of national economies is now with us. Many of the largest companies in the world often do more of their business in foreign lands than in their home country. Companies now access not only their home capital markets for financing but others as well. As this globalization takes place, companies are recognizing the need to have one set of financial reporting standards. For globalization to be efficient, what is reported for a transaction in Beijing should be reported the same way in Paris, New York, or London. A revolution is therefore occurring in financial reporting. In the past, many countries used their own set of standards or followed standards set by larger countries, such as those in Europe or in the United States. However, that situation is changing rapidly. A single set of rules, called International Financial Reporting Standards (IFRS), is now being used by over 115 countries. And in the United States, which is the last major holdout, IFRS adoption is gaining widespread support. Here is what some are saying about IFRS. • “Large multi-national companies stand to realize great benefits from a move to a single set of standards. Companies will have more streamlined IT, easier training, and there will be better communication with outside parties. In fact, the move to...