Chapter 1:

• Expanded Chapter 1 coverage of the Sarbanes-Oxley Act.
• Added a section on the debate between principles- based and rules-based approaches to accounting standard setting.
• Revised discussion of accounting principles to include the new FASB standard addressing the hierarchy of GAAP.*
• The FedEx financial statements previously located in an appendix to Chapter 1 are now located in an appendix at the end of the text, making them easier to find.*

Chapter 2:

• Added additional end-of-chapter material on the conversion of cash to accrual income determination.*

Chapter 3:

• All real-world disclosure examples have been updated.*

Chapter 4:

• Part B of Chapter 4 provides an overview of the statement of cash flows.
• Discussion of the indirect method of presenting cash flows from operating activities has been expanded to add more depth of coverage, including a new illustration.
• The concept review exercise is revised to include the indirect method, and new end-of-chapter materials have been added.
• Chapter 4 has been rewritten to reflect the new standard on accounting changes. Financial statements no longer will report a “cumulative effect of a change in accounting principle.” Instead, most voluntary changes in accounting principle will be accounted for retrospectively. Changes in depreciation, depletion, and amortization methods are now accounted for in the same manner as a change in estimate.
• Discussion of comprehensive income is now expanded and reorganized to enhance students’ grasp of this difficult concept.*

Chapter 5:

• Expanded the discussion of SEC’s revenue recognition bulletin, SAB #101.*

Chapter 6

• The future and present value tables previously located in an appendix to Chapter 6 are now located in an appendix at the end of the text.*

Chapter 7

• Coverage of internal control has been expanded to include a discussion of the controversial Section 404 of Sarbanes-Oxley.
• Further material (including a real-world example) has been added to help students better understand accounting for sales returns.*

Chapter 8

• The learning objectives are expanded to better reflect the key issues discussed in the chapter.*

Chapter 9

• Coverage of changes in inventory methods is revised to reflect the new standard on accounting changes.

Chapter 10

• Chapter 10 is rewritten to reflect FASB Statement No. 153, Exchanges of Nonmonetary Assets— an amendment ofAPB Opinion No. 29. This represents a significant simplification in accounting for nonmonetary exchanges by eliminating a major exception to fair value accounting when the exchange involves similar assets.

Chapter 11

• The section on changes in depreciation, depletion, and amortization has been updated to reflect the new standard on accounting changes.
• New real-world examples of operational asset impairment, including goodwill, have been added.*

Chapter 12

• The discussion of fair value adjustments for available-for-sale securities uses a valuation account rather than the previous approach of increasing or decreasing the investment account directly. The primary advantage of this approach is its ability to deal with the situation when a bond is classified as available-for-sale to allow making a market adjustment separate from amortizing a discount or premium.*
• Coverage of comprehensive income has been significantly expanded within the context of the integrally-related discussions of reporting unrealized investment gains and losses and comprehensive income, including related discussion of difficult to convey, but essential,“reclassification adjustments.”*
• To assist students in understanding the − effects of fair value adjustments on financial statements, annotated T-account analysis sections accompanied by excerpted portions of financial statements affected have been added.*

Chapter 13

• Relocated discussions of paid future absences and bonuses from the previous Employee Benefits chapter to this chapter to provide a more meaningful perspective within the context of other accrued liabilities.*

Chapter 14

• Revised the discussion of liabilities to address the new way of reporting manditorily redeemable stock as a liability as called for by SFAS No. 150, Accounting for Financial Instruments with Characteristics of both Liabilities and Equity.*

Chapter 15

• Utilized the discussion of leasehold improvements in this chapter to provide a synopsis of one of the most widespread accounting correction events ever that took place in 2005, at the same time reinforcing students’ understanding of accounting for leasehold improvements.*

Chapter 16

• Expanded a Decision Makers’ Perspective section of this chapter to point out that recent empirical evidence indicates that some companies use the deferred tax asset valuation allowance account to manage earnings upward to meet analyst forecasts.*

Chapter 17

• Revised Chapter 17 to include new pension disclosures called for by SFAS No. 132 (revised 2003), Employers' Disclosures about Pensions and Other Postretirement Benefits—an amendment of FASB Statements Nos. 87, 88, and 106. Related to that pronouncement’s requirement that pensions and OPEB now are to be presented together, postretirement benefits other than pensions are now presented as Part E of this chapter rather than in the previous Employee Benefits chapter. Combining pensions and OPEB avoids separation of two integrally related topics that are accounted for almost identically.*

Chapter 18 (previously 19)

• Expanded coverage of comprehensive income to enhance students’ grasp of the concept, and particularly at this juncture the distinction between (a) comprehensive income created during the reporting period and (b) comprehensive income accumulated over the current and prior periods. The explanation of other comprehensive income is offered as a parallel concept with “traditional” net income.*
• Modified the discussion of hybrid securities and the debt versus equity issue to address the new way of reporting manditorily redeemable stock called for by SFAS No. 150, Accounting for Financial Instruments with Characteristics of both Liabilities and Equity.*

Chapter 19 (previously 20)

• Statement No. 123 (revised 2004), Share-Based Payment, requires fair value accounting for employee stock options, eliminating altogether the popular intrinsic value approach and reducing reported earnings for most companies. Coverage of share-based compensation has been rewritten and moved to the new Chapter 19, preceding discussions of earnings per share. This move strengthens the short EPS chapter and combines two fundamentally related topics.*

Chapter 20 (previously 21)

• Under Accounting Changes and Error Corrections— a replacement of APB Opinion No. 20 and FASB Statement No. 3 (Proposed Statement of Financial Accounting Standards), financial statements no longer will report a “cumulative effect of a change in accounting principle.” Instead, most voluntary changes in accounting principle will be accounted for retrospectively. To accommodate the new approach, major portions of this chapter as well as lesser portions of five other chapters (4, 9, 11, 16, and 19) affected by this change have been rewritten.

Chapter 21 (previously 22)

• This chapter continues to be devoted entirely to in-depth coverage of the statement of cash flows to complement and extend the more fundamental presentation of the statement in Chapter 4, which has been expanded in this edition.

* These items represent revisions to the 3e Update Edition.