...contemporaneous returns-earnings association set by previous empirical researches may be explained by lack of timeliness of accounting numbers. It hypothesises that if the criteria for accounting recognition yield a multi-period lag in earnings recognitions of economic events and if these events affect an informed market immediately when they occur, then future periods’ earnings would have explanatory for current returns as well as current earnings. To assess the significance of future earnings as an explanatory variable for stock returns we regress at first step annual returns on current earnings and at second step, annual returns on current earnings and successively next period and next two periods’ earnings. Results show that future earnings continue to explain current returns. The evidence is characteristic of a substantial recognition lag in earnings that extends to the immediate next period. However, over one year, earnings do not seem reflecting any relevant economic event impounded in security prices at previous period. The earnings recognition lag seems to decrease after one year. Keywords: Value-relevance, Accounting earnings, Lack of timeliness. INTRODUCTION Accounting recognition is “the process of formally recording or incorporating an item in the accounts and financial statements of an entity” (FASB 1980, SFAC N°. 3 par. 83)1. Most accounting standards have strict requirements regarding “recognition and...
Words: 5865 - Pages: 24
...Current Liabilities and Contingencies The International Accounting Standards board (IASB) issues the International Financial reporting standards (IFRS) to over one hundred ten countries. The United States is excluded from this group but primarily follows the standards of Financial Accounting Standards Board (FASB) and General Accepted Accounting Principles (GAAP). While both accounting standards have some differences, 2016 will be the year the U.S. will make the switch and unite with the IFRS. Current liabilities and contingencies are one of the many areas that standard setters continue to work on financial reporting and the major changes in how to recognize and measure contingent liabilities. The Statement of Financial Accounting Standards Board defines current liabilities as, “obligations whose liquidation is reasonably expected to require use of existing resources properly classified as current assets, or the creation of other current liabilities.” In addition, Statement of Financial Statement Standards indicates, “Current liabilities should include obligations that are due on demand or that will become due on demand within one year from the balance sheet date” (SFAS No.78). Operating Cycle is the time between the purchase of an asset and its sale, and the sale of product/good from the asset. Some examples of conventional current liabilities are Accounts payable, Notes Payable, unearned revenues, and employee related liabilities. One of the most popular current liabilities...
Words: 1349 - Pages: 6
...2014-17 November 2014 Business Combinations (Topic 805) Pushdown Accounting a consensus of the FASB Emerging Issues Task Force An Amendment of the FASB Accounting Standards Codification® The FASB Accounting Standards Codification® is the source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. An Accounting Standards Update is not authoritative; rather, it is a document that communicates how the Accounting Standards Codification is being amended. It also provides other information to help a user of GAAP understand how and why GAAP is changing and when the changes will be effective. For additional copies of this Accounting Standards Update and information on applicable prices and discount rates contact: Order Department Financial Accounting Standards Board 401 Merritt 7 PO Box 5116 Norwalk, CT 06856-5116 Please ask for our Product Code No. ASU2014-17. FINANCIAL ACCOUNTING SERIES (ISSN 0885-9051) is published quarterly by the Financial Accounting Foundation. Periodicals postage paid at Norwalk, CT and at additional mailing offices. The full subscription rate is $242 per year. POSTMASTER: Send address changes to Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. | No. 406 Copyright © 2014 by Financial Accounting Foundation. All rights reserved. Content copyrighted by Financial Accounting Foundation may not be reproduced, stored in a retrieval system, or...
Words: 10543 - Pages: 43
...Accounting theory and conceptual frameworks After studying this chapter you should be able to: & explain what accounting theory is & describe the main attempts at constructing an accounting theory & appraise current developments in the area & describe and discuss the contents of the IASB Framework & appraise the quality and usefulness of the IASB Framework in the context of its self-declared purposes & describe and discuss the parts of IAS 1 relating to accounting concepts and policies & appraise the overall effect of the Framework and comparable parts of IAS 1. Introduction This chapter is about to deal with something that many people believe does not exist – a single generally accepted accounting theory. There is no generally accepted accounting theory at this time even though many attempts have been made to formulate one. According to Eldon S. Hendriksen in Accounting Theory (1977), Theory as it applies to accounting is the coherent set of hypothetical, conceptual and pragmatic principles forming the general frame of reference for a field of inquiry. Thus accounting theory may be defined as logical reasoning in the form of a set of broad principles that 1 Provide a general frame of reference by which accounting practices can be evaluated and 2 Guide the development of new practices and procedures. Accounting theory may also be used to explain existing practices to obtain a better understanding of them. But the most important goal of accounting theory should be to provide...
Words: 14565 - Pages: 59
...8 Accounting theory and conceptual frameworks After studying this chapter you should be able to: & explain what accounting theory is & describe the main attempts at constructing an accounting theory & appraise current developments in the area & describe and discuss the contents of the IASB Framework & appraise the quality and usefulness of the IASB Framework in the context of its self-declared purposes & describe and discuss the parts of IAS 1 relating to accounting concepts and policies & appraise the overall effect of the Framework and comparable parts of IAS 1. Introduction This chapter is about to deal with something that many people believe does not exist – a single generally accepted accounting theory. There is no generally accepted accounting theory at this time even though many attempts have been made to formulate one. According to Eldon S. Hendriksen in Accounting Theory (1977), Theory as it applies to accounting is the coherent set of hypothetical, conceptual and pragmatic principles forming the general frame of reference for a field of inquiry. Thus accounting theory may be defined as logical reasoning in the form of a set of broad principles that 1 Provide a general frame of reference by which accounting practices can be evaluated and 2 Guide the development of new practices and procedures. Accounting theory may also be used to explain existing practices to obtain a better understanding of them. But the most important goal of accounting theory should be to provide...
Words: 14566 - Pages: 59
...8 Accounting theory and conceptual frameworks After studying this chapter you should be able to: & explain what accounting theory is & describe the main attempts at constructing an accounting theory & appraise current developments in the area & describe and discuss the contents of the IASB Framework & appraise the quality and usefulness of the IASB Framework in the context of its self-declared purposes & describe and discuss the parts of IAS 1 relating to accounting concepts and policies & appraise the overall effect of the Framework and comparable parts of IAS 1. Introduction This chapter is about to deal with something that many people believe does not exist – a single generally accepted accounting theory. There is no generally accepted accounting theory at this time even though many attempts have been made to formulate one. According to Eldon S. Hendriksen in Accounting Theory (1977), Theory as it applies to accounting is the coherent set of hypothetical, conceptual and pragmatic principles forming the general frame of reference for a field of inquiry. Thus accounting theory may be defined as logical reasoning in the form of a set of broad principles that 1 Provide a general frame of reference by which accounting practices can be evaluated and 2 Guide the development of new practices and procedures. Accounting theory may also be used to explain existing practices to obtain a better understanding of them. But the most important goal of accounting theory should be to provide a...
Words: 14566 - Pages: 59
...WAlmart | Accounting Cycle Paper | Accounting Cycle of Walmart | | Melanie Bartholomew | September 2, 2012 | When a company, like Walmart, begins to prepare financial statements and reports at the end of an accounting cycle they generally use Generally Accepted Accounting Principles and “the collective process of recording and processing the accounting events” (Definition of ‘Accounting Cycle’, 2012), known as the accounting cycle. There are nine steps involved in the accounting cycle. Walmart would begin the process by collecting and analyzing data from their events and transactions. Next, the company puts those transactions into a general journal. After journalizing their transactions the company posts these entries to the general ledger. The next step in the accounting cycle is to prepare an unadjusted trial balance. Once the unadjusted trial balance is completed the company makes the appropriate adjustments and then prepares an adjusted trial balance. Adjustment entries are made to ensure the company follows revenue recognition and the matching principle and report appropriate assets, liabilities, and owner’s equity at the statement date; and ensure proper reporting of revenues and expenses for the accounting period. This is an important step in the accounting process because the data in the unadjusted trial balance may not be up-to-date and complete. This happens because not all events require daily journalizing and because the company may have some costs that...
Words: 935 - Pages: 4
...disclosures and the balance sheet are closely related. Common financial disclosures are allowance for uncollectable accounts, information about common stock, summary of significant accounting policies, descriptions of subsequent events and related third-party transactions. The balance sheet includes the entity’s assets, liabilities and shareholders’ equity. The balance sheet has many components and is used to help portray the company’s financial position. ”Of all the financial statements issued by companies, the balance sheet is one of the most effective tools in evaluating financial health at a specific point in time.” (Schmidt, 2013) The balance sheet is also called the statement of financial position. It includes the assets, liabilities and shareholders’ equity for the entity. “A company’s balance sheet provides a snapshot of the assets it owns, liabilities it is responsible for, and whatever might be left over when subtracting assets from liabilities that represents owners' capital or shareholders’ equity.” (Fuhrmann, 2013) It is useful in providing information to assess the entity’s financial future. Though it is helpful in assessing the company’s future, it does not depict the market value of the entity. It does provide valuable information that can be used to judge the entity’s ability to pay its current obligations and judge its market value. “Financial position, as it is reflected by the records and accounts from which the statement is prepared, is revealed in a presentation...
Words: 1532 - Pages: 7
...Accounting Terms Chapter 1 Accounting- Information and measurement system that identifies records and communicates relevant information about a company’s business activities Accounting equation- equality involving a company’s assets liabilities and equity, assets equal liability plus equity/ aka balance sheet equation Assets- resources a business owns or controls that are expected to provide current and future benefits to the business Auditors- An individual who checks the accuracy, fairness, and general acceptability of accounting records, an external auditor would attest to those checks Balance sheet- Financial statement that lists types and dollar amounts of assets, liabilities, and equity at a specific date Bookkeeping- part of accounting that involves recording transactions and events. Either manually or electronically(record keeping) Business entity assumption- Principle that requires a business to be accounted for separately from its owners and from any other entity Common stock- Corporations basic ownership share aka capital stock Conceptual framework- system of interrelated objectives and fundamentals, disseminated by accounting regulators such as the FASB or IASB intended to guide consistent standard setting ad aid accounting practitioners Contributed capital- Total amount of cash and other assets received from stockholders in exchange for stock aka paid in capital Corporation- Business that is a separate legal entity under state or federal laws with owners...
Words: 2015 - Pages: 9
...directors is what doesn't appear in the newspaper headlines – issues such as: * do directors have to be accounting standard gurus? * how do directors spot the ticking bomb buried deep in a massive board pack? Background ASIC argued that Centro's directors had breached their duties under sections 180 and 344 of the Corporations Act, because its 2007 annual accounts had not complied with the Corporations Act and the accounting standards: * the accounts had misclassified a number of borrowings as non-current liabilities when they were actually current; * just after the end of the 2007 financial year, Centro had given some guarantees as part of a transaction. ASIC argued that this was a material post balance date event and so should have been disclosed in the annual report; and * the board had not ensured that the CEO and CFO had provided the declaration of compliance required by section 295A. Misclassification of current liabilities as non-current Centro's 2007 annual accounts had misclassified a number of borrowings as non-current liabilities when they were actually current. The directors argued that they could not be expected to know that the liabilities in question were current liabilities within the meaning of the relevant accounting standards. Among other things, they pointed out that: * there had just been a change in the relevant accounting standard and some greyness in its interpretation; and * the documentation relating to the borrowings...
Words: 1597 - Pages: 7
...shares of stock outstanding. 19. The change in equity of an entity during a period from transactions and other events from non-owner sources is known as comprehensive income. 20. The basic accounting equation may be expressed as assets = liabilities – owners’ equity. 21. 22. count. 23. uity. Debit means increase. A contra account is an account that is subtracted from a related acRevenues increase owners’ equity and expenses decrease owners’ eq- Income Determination True-False 1. To measure earnings under accrual accounting, revenues are recognized when they are received. 2. Revenues are earned when the seller substantially completes performance required by an agreement. 3. The matching principle requires that expenses be recognized in the same period in which the revenues are recognized that were produced by the expenses. 4. Recognition of revenue under the cash basis occurs when the revenue is received. 5. Under the cash basis, expenses are recognized when the costs expire or assets are used. 6. Cash-basis accounting provides the most useful measure of future operating performance. 7. Accrual accounting recognition rules for revenues and expenses are designed to alleviate mismatching problems that exist under cash basis accounting. 8. According to generally accepted accounting principles, revenue should be recognized at the earliest time that the “critical event” has taken place and the proceeds are collected. 9. A ship building company is likely to recognize revenue at the...
Words: 3567 - Pages: 15
...2001 the International Accounting Standards Board adopted IAS 12. IAS 12 has to do with the accounting treatment for Income Taxes. There have been many amendments and changes over the years with the last one being in 2010. The objective of International Accounting Standard 12 is to advise on the accounting treatment for income taxes. The main issue in accounting for income taxes is how to account for the current and future tax consequences of certain items. One item it advises on is the future recovery or settlement of the carrying amount of assets or liabilities that are recognized in an entity’s statement of financial position. The second main item the standard covers is transactions and other events of the current period that are recognized in an entity’s financial statements. It is essential in the recognition of an asset or liability that the reporting entity expects to recover or settle the carrying amount of that asset or liability. If it is probable that the recovery or settlement of that carrying amount will make future tax payments increase or decrease, this standard requires an entity to recognize a deferred tax asset or deferred tax liability with certain limited exceptions. Tax consequences of transactions and events are accounted for in the same way they transactions and events are accounted for. This means that if an event or transaction affects profit or loss then the tax consequence will also affect profit or loss. If an event or transaction affects...
Words: 4042 - Pages: 17
...the current situation, but also to predict the company’s ability to continue as a going concern or functioning as a business entity in the future. The balance sheet and the valuations for assets and liabilities are a reflection of the company’s financial position for the next 12 months. If there are uncertainties or contingencies that occur they must be disclosed in the footnotes section of the statement and in some circumstances reflected in the actual reporting (Schroeder, Clark, & Cathey, 2005). Pending Lawsuit A contingency is a possible event that will have some effect on the company. Pending lawsuits are considered a contingency because of possible outcomes that will impact the company’s financials. Litigation is a costly and length process that can work against a company’s good reputation regardless of the outcome. The future financial position may be affected by the information presented regarding the potential litigation outcome and therefore disclosure is required. Because of the high probability of losing the lawsuit it should be reported on the balance sheet as a liability instead of notification in the footnotes (Schroeder, Clark, & Cathey, 2005). This disclosure provides users with relevant information, but may be used against the company by the plaintiff to assist in proving their case. The Financial Accounting Standards Board (FASB) reviews the nature of contingencies in the Statement of Financial Accounting Standards (SFAS) No. 5 “Accounting for...
Words: 1078 - Pages: 5
... The current ratio, quick ratio, profit margin, asset utilization, DuPont ratio and financial leverage will be computed. How differences in industries and different measurement convention (IASB and FASB) affect presentations and the difference between cash and accrual basis of accounting will be addressed . Financial Statement Analysis of Dillard’s, Hyundai and Nationwide Insurance Dillard According to marketintellisearch.com and msn.com, Dillards is a retail company opened in 1938 in Nashville Arkansas, which sells a wide variety of items, such as clothing, jewelry, electronics, home furnishings, etc. and their mission statement is "The Company focuses on delivering maximum fashion and value to its shoppers by offering compelling apparel and home selections complemented by exceptional customer care" (Dillard’s Inc). Dillard’s current ratio is 2.275 million (current assets/current liabilities) that means that the company’s current asset should be able to satisfy near-term obligations. Asset utilization is 1.3518 million (net sales 6,226.63 (revenue)/total assets 4,606.33. Financial Leverage is 0.4225 million, which is total debts (973.50) /shareholders equity (2,304.10). This provides an indication of the long term solvency of the firm. Profit Margin is 0.0183 million, which is net income (68.53) / net sales (3,749.6). Quick Ratio is 0.5268 million, which is cash (341.69) + accounts receivable (63.44) + short-term or marketable securities (0) /current liabilities...
Words: 1688 - Pages: 7
...schools. But apparently, there are still things that PLP is lacking of and PLP authorities should pay attention to it for the better. Some of the Current systems in PLP that receives numerous complaints from students in different colleges are the Manual Enrollment System and the Insufficiency and out datedness of the books in the library especially accounting books. They complain about the inaccuracy, delays, inadequateness and inefficiency of these. As a student in PLP, we are eager to help and contribute in the progressiveness and prosperity of our University. That is the reason why we formulated recommendations through the help of PLP students for the improvement and betterment of our university. These recommendations are the implementation of Online Enrollment System which was being favored by most of the students in PLP; The Making of PLP Official Website which has a vital role because it is the main source of information about our university ; Implementation of Public Address System which involve installation of speakers along the corridors and in each classroom that are used in announcing important events and for emergency purposes; Online Accounting Library for those students that is having difficulties in understanding the principles of accounting; Additional and updated accounting books in the library because accounting principles are dynamic specifically taxation which are being revised yearly. And last we also recommend additional language subject in learning mandarin...
Words: 4859 - Pages: 20
