Intermediate Accounting 16th Edition

Book Preface

WE CAN DO BETTER

A recent report says it best: “Accounting information is central to the functioning of international capital markets and to managing small businesses, conducting effective government, understanding business processes, and . . . how economic decisions are made. . . . Across the globe, a common characteristic of economies that flourish is the presence of reliable accounting information.”

Many in the United States take pride in our system of financial reporting as being the most robust and transparent in the world. But most would also comment that we can do better, particularly in light of the many accounting scandals that have occurred at companies like AIG, WorldCom, and Lehman Brothers, and the financial crisis of 2008.

To better understand where we are today, the Center for Audit Quality conducts a yearly survey that measures investor confidence in such categories as U.S. capital markets, audited financial information, and U.S. publicly traded companies. As shown in the chart on the right, the results indicate that the 2008 financial crisis took a bite out of investor confidence. While investor confidence in U.S. markets has stabilized, it has not returned to pre-crisis levels. So the question is, how can we improve? Here are some possibilities on how we can enhance the existing system of financial reporting.

1. Today, equity securities are broadly held, with approximately half of American households investing in stocks. This presents a challenge—investors have expressed concerns that one-size-fi ts-all fi nancial reports do not meet the needs of the spectrum of investors who rely on those reports. While many individual investors are more interested in summarized, plain-English reports, market analysts and other investment professionals may desire information at a far more detailed level than is currently provided. Technology may help customize the information that the different types of investors desire.

2. Companies also express concerns with the complexity of the fi nancial reporting system. Companies assert that when preparing fi nancial reports, it is diffi cult to ensure compliance with the voluminous and complex requirements contained in U.S. GAAP and SEC reporting rules. This is a particularly heavy burden on smaller, non-public companies, which may have fewer resources to comply with the wide range of rules.

3. We also need to consider the broader array of information that investors need to make informed decisions. As some have noted, the percentage of a company’s market value that can be attributed to accounting book value has declined signifi cantly from the days of a bricks-and-mortar economy. Thus, we may want to consider a more comprehensive business reporting model, including both financial and nonfinancial key performance indicators.

4. Finally, we must also consider how to deliver all of this information in a timelier manner. In a world where messages can be sent across the world in a blink of an eye, it is ironic that the analysis of financial information is still subject to many manual processes, resulting in delays, increased costs, and errors.

Content

1 Financial Accounting and Accounting  Standards 2
2 Conceptual Framework for Financial Reporting 36
3 The Accounting Information System 78
4 Income Statement and Related Information 152
5 Balance Sheet and Statement of Cash Flows 200
6 Accounting and the Time Value of Money 266
7 Cash and Receivables 324
8 Valuation of Inventories: A Cost-Basis Approach 386
9 Inventories: Additional Valuation Issues 442
10 Acquisition and Disposition of Property, Plant, and Equipment 502
11 Depreciation, Impairments, and Depletion 552
12 Intangible Assets 610
13 Current Liabilities and Contingencies 658
14 Long-Term Liabilities 718
15 Stockholders’ Equity 774
16 Dilutive Securities and Earnings per Share 834
17 Investments 898
18 Revenue Recognition 978
19 Accounting for Income Taxes 1052
20 Accounting for Pensions and Postretirement Benefits 1116
21 Accounting for Leases 1194
22 Accounting Changes and Error Analysis 1266
23 Statement of Cash Flows 1330
24 Full Disclosure in Financial Reporting 1402
APPENDICES
A Private Company Accounting A-1
B Specimen Financial Statements: The Procter & Gamble Company B-1
C Specimen Financial Statements: The Coca-Cola Company C-1
D Specimen Financial Statements: PepsiCo, Inc. D-1
E Specimen Financial Statements: Marks and Spencer plc E-1