acco 400 book condensed notes
ACCO 400
FINANCIAL ACCOUNTING
THEORY
WINTER 2013 - FINAL NOTES
Chapter 1: Introduction to Financial Accounting Theory
1.2 Some Historical Perspective
- first complete description of doubly entry bookkeeping system appeared in 1494 (developed over a long period of time before that)
- by the early 18th century the concept of a joint stock company had developed in England to include permanent existence, limited liability of shareholders, and transferability of shares
- transferability of shares let to the development of a stock market where shares could be bought and sold
- investors needed financial information about the firms whose shares they were trading
- this led to a long transition of financial accounting to a system to inform investors who were not involved in the day to day operations of the firm
- it was in the joint interests of the firm and investors that financial information was trustworthy --> development of an auditing profession and government regulation
- the introduction of a corporate income tax in the US in 1909 provided a major impetus to income measurement and was influential in persuading business managers to accept amortization as a deduction from income
- accounting in the US continued to be relatively unregulated with financial reporting and auditing largely voluntary
- stock market crash of 1929 led to major changes by the US government
- 1934 creation of the SEC with a focus on protecting investors by means of a disclosure based structure
- SEC has the responsibility to ensure that investors are supplied with adequate information
- before introduction of the SEC voluntary disclosure was widespread and motivated by bug business’s desire to avoid disclosure regulations that would reduce its monopoly power
- regulations to control disclosure would reduce monopoly power by better enabling potential entrants to identify high profit industries
- so informing investors was not the main motivation for disclosure
-
FINANCIAL ACCOUNTING
THEORY
WINTER 2013 - FINAL NOTES
Chapter 1: Introduction to Financial Accounting Theory
1.2 Some Historical Perspective
- first complete description of doubly entry bookkeeping system appeared in 1494 (developed over a long period of time before that)
- by the early 18th century the concept of a joint stock company had developed in England to include permanent existence, limited liability of shareholders, and transferability of shares
- transferability of shares let to the development of a stock market where shares could be bought and sold
- investors needed financial information about the firms whose shares they were trading
- this led to a long transition of financial accounting to a system to inform investors who were not involved in the day to day operations of the firm
- it was in the joint interests of the firm and investors that financial information was trustworthy --> development of an auditing profession and government regulation
- the introduction of a corporate income tax in the US in 1909 provided a major impetus to income measurement and was influential in persuading business managers to accept amortization as a deduction from income
- accounting in the US continued to be relatively unregulated with financial reporting and auditing largely voluntary
- stock market crash of 1929 led to major changes by the US government
- 1934 creation of the SEC with a focus on protecting investors by means of a disclosure based structure
- SEC has the responsibility to ensure that investors are supplied with adequate information
- before introduction of the SEC voluntary disclosure was widespread and motivated by bug business’s desire to avoid disclosure regulations that would reduce its monopoly power
- regulations to control disclosure would reduce monopoly power by better enabling potential entrants to identify high profit industries
- so informing investors was not the main motivation for disclosure
-