intermediate accounting essay examples

intermediate accounting essay examples

The Importance of Intermediate Accounting in Financial Reporting

1. Introduction

Information intermediaries are users other than management that rely on boundary information prepared by management. Boundary information is management’s self-prepared information used for control, feedback, or motivational purposes. Without accurate intermediary prepared financial information, these intermediaries would be unable to create boundary information to effectively monitor, control, provide feedback, and motivate management’s decisions. If management prepares their own information, the result will be in their favor.

Intermediate accounting serves as a foundation for those with a need to gain an understanding of financial accounting and reporting. Conventional knowledge says to become a professional accountant, the aspiring accountant should become proficient in intermediate accounting. Financial reporting provides valuable financial information to a wide variety of users. This module will provide a review of the current financial reporting environment and the role of intermediate accounting.

2. The Role of Intermediate Accounting

The role of financial accounting has changed consistently. At a point, the model of financial accounting was to satisfy compliance with legal and tax entities, owners and investors, shareholders, and government and regulatory payees. With changes in the capital markets, financial reporting has evolved from a historical money measurement to a present value model. While various ways have been proposed to assist in resolving this issue, financial accounting retains the traditional role of historical cost in spite of alternative models. As a result, the traditional role of historical cost may no longer meet the demands placed upon it. Unease about historical costs remains, which has prompted some to continue discussing its effect. Consequently, there might be confusion amongst the goals of financial accounting, providing the demand for a hybrid model.

Intermediate accounting is an integral aspect of the accounting curriculum as students invest time in understanding the importance of financial information. Both instructors and students might question the necessity of studying intermediate accounting. So, it is essential to reinforce the importance of the course content and remind students they are spending time on this information and it is not a random act on the part of instructors to increase student workload. Once these curiosities are addressed, the obvious question is how should it be studied. While there might be numerous answers for this question, one consensus could be to understand how the current financial reporting model has shaped the requirements to study financial accounting. This document seeks to address both questions by discussing the history of financial accounting standard setting and guidance to formulate some ideas to consider as students work throughout the semester of intermediate accounting.

3. Key Principles and Concepts in Intermediate Accounting

In order to assess the quality and relevance of accounting standards, such as the GAAP Selections, focus on considerations of cost and the importance of a specific accounting standard on a yearly basis in providing us with information that is useful in the overall decision-making process. Officially, reporting that is based on U.S. GAAP for public entities also serves a support role in providing protection for our capital markets. However, relating GAAP’s standards to the information we seek to understand and evaluate in our decision-making process seems at the same time obscure and not well-articulated.

It is commonly observed that accountants spend far more time studying how to record transactions in prescribed forms than they do in studying why thought should be given to the appropriate method of accounting for those transactions. For the most part, the method we choose to determine the accounting for a transaction is guided by the decision-making process that best leads to a useful or informed decision.

The third part highlights the concepts of materiality and relevance and identifies several of the threshold or cutoff constraints on the preparation of accounting standards. Constraints are those factors that preclude the use of valuable information in the decision-making process. Constraints may act singly or in combination to limit the usefulness of various accounting standards or other types of mandatory reporting.

The second section focuses on the due process that should be employed by standard setters, in this case, the FASB and the IASB, when preparing an accounting standard or related accounting requirements.

The chapter briefly covers the key principles and concepts in accounting and the structure of the financial reporting system for those entities that are required to prepare financial statements in compliance with U.S. GAAP, including the third requirement for other comprehensive income reporting as of January 2012. It also shows that financial accounting for reporting is a subset of accounting in general and assists users in making informed investment and credit decisions.

4. Challenges and Controversies in Intermediate Accounting

Consider, for example, the development about thirty years ago of complex “joint venture” accounting required for the petroleum industry. Since oil was an alternative to coal, and each was an alternative to the other as a means of power generation, the FASB saw the wisdom of mandating an accounting format that was more valuable to users than the traditional balance sheet, income statement, and notes thereto. This regulation therefore is interesting because supply and demand curves controlled the effects of two economic events: the Saudi and Kuwaiti takeovers of the petroleum reserves of an associated company; and trust-busting efforts in the coal industry. First, when the companies first learned of the Arab concerns about reduced demand for coal, the stock market lowered each coal-producing company’s market capitalization, relative to the book value of its equity.

This article has outlined the important role of intermediate accounting, as well as some challenges for the course. To that information, I will add some discussion of controversial matters in the area. This should help students to understand why there are so few firm answers in accounting, and it should alert them to discussions that they will encounter in the course. In the academic study of accounting, the primary focus is on accountability to those outside the firm, including to current and potential investors, to creditors, to employees, to customers, and to government reporting agencies. Therefore, the controversy in any given accounting choice is essentially a debate about (1) what accounting information will be most useful to these users in their respective decisions and (2) how producers should furnish it. This leads us to the major concentration in accounting, which is financial reporting and its words and standard setting.

5. Conclusion

In consideration of this whole body of research, it is our overwhelming finding that intermediate accounting continues to be an area of vibrant research activity that can lead to a better understanding of both the accounting process that leads to results within organizations and the role of financial accounting information in decisions made inside and outside the organization. Therefore, we believe that the multitude of research perspectives presented in this special issue stand as evidence not only to the vitality of intermediate accounting as an academic research discipline, but also to the increased student demand to study this vital accounting area that helps to ground the accounting education curriculum in the structure with which accounting is practiced.

Having accurate financial information can allow an organization to more accurately allocate resources as well as manage and estimate the size of reinvestment needed to properly grow businesses. Additionally, the economy as a whole can benefit from having confidence in the accuracy of publicly reported financial results. For all of these reasons, the field of intermediate accounting continues to be an area of great interest to a wide variety of accounting and finance professionals. The need for a financial reporting framework that helps structure regulatory approaches, develops accounting policy, generates practical accounting solutions, and guides analyst interest in accounting issues shows no sign of abating. Accounting educators are also finding it increasingly difficult to cope with the multitude of topics in a typical intermediate accounting course. As a result, the authors of this paper find that there is an increasingly growing role for the academic research process in the advanced study of problems related to intermediate accounting and financial reporting.