1-2 Key Organizations That Determine GAAP

Question 1

GAAP

Answer 1

Procedures intended to ensure that external financial statements are relevant and faithfully representational

Question 2

Who are the drivers of GAAP?

Answer 2

AICPA
SEC
FASB

Question 3

“Generally Accepted”

Answer 3

Principle was established by a designated rule making body (FASB or AICPA) or achieved through practice

Question 4

Where has most of the development of GAAP taken place?

Answer 4

In the private sector

Question 5

Securities and Exchange Commission (SEC)

Answer 5

The governmental entity established in 1934 that has regulatory power over the accounting standards process

Question 6

What were two outcomes of the 1929 stock market crash?

Answer 6

The Securities Act of 1933

The Securities Exchange Act of 1934

Question 7

Securities Act of 1933

Answer 7

Requires that investors receive financial information about securities held for sale in the public

Question 8

Securities Act of 1934

Answer 8

The SEC was created

Question 9

Form S-1

Answer 9

Registration statement filed when securities are initially issued

Question 10

Form 10-K

Answer 10

Annual audited report

Question 11

Form 10-Q

Answer 11

Unaudited quarterly report

Question 12

Form 8-K

Answer 12

Reported following the occurrence of a major event such as changing the company’s auditor

Question 13

What is the objective of the SEC?

Answer 13

To ensure that the investor community has adequate information to make investment decisions

Question 14

What makes the FASB more effective than its predecessors?

Answer 14

Small size, financial independence, reporting autonomy, board representation, staff support, service continuity

Question 15

How many voting members does the FASB have?

Answer 15

7

Question 16

How is the FASB financed?

Answer 16

Fees paid by publicly traded companies

Question 17

Can FASB members work somewhere else?

Answer 17

No

Question 18

Are members of the FASB required to be CPAs?

Answer 18

No

Question 19

What was the major event that caused the Sarbanes-Oxley Act to be passed?

Answer 19

Enron and Arthur Andersen collapsed

Question 20

What did SOX enforce?

Answer 20

PCAOB
Executives must certify that the financial statements are reported fairly
Auditors cannot do non-audit services for the same firm
Internal controls/assessments
Audit committee on the Board of Directors cannot be affiliated with the company
SEC performs periodic checks of public companies

Question 21

AICPA

Answer 21

No longer develops GAAP (since 1973)
Establishes standards for audits of private companies, enforces code of ethics, provides educational guidance, makes/grades the CPA Exam

Question 22

Due Process for New Standards (FASB)

Answer 22

1. Identify Topic
2. Make Agenda Decision
3. Deliberate at Public Meeting
4. Issue Document for Public Comment
5. Host Public Hearings ZXCVBNgdsfaERTWYQ3d on Comments
6. Issue Final Standard

Question 23

Why is the development of GAAP a complex and difficult task?

Answer 23

Differing perspectives/ friction between the preparers and users

Question 24

International Accounting Standards Board (IASB)

Answer 24

Independent, private-sector organization (established in 2001)
Develops IFRS

Question 25

International Financial Reporting Standards (IFRS)

Answer 25

Set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles (157 countries are under their jurisdiction)

Question 26

What is one of the major differences between GAAP and IFRS?

Answer 26

GAAP is more rules based (materiality: 20%)

IFRS is more principles based (materiality: no specific threshold)

Question 27

As early as 2002, the FASB and the IASB expressed a commitment to….

Answer 27

Converge, or remove differences, IFRS and GAAP to allow comparability of companies across regions

Question 28

What is one of the convergence success stories?

Answer 28

The adoption of the revenue recognition standards

Question 29

In a report issued in July 2003, as a result of the SOX Act, the SEC recommended that the FASB follow…

Answer 29

An objectives-oriented approach

Question 30

Objectives-Oriented Approach

Answer 30

More in line with a principles-based system
Improved conceptual framework that guides FASB, explain objective of each standard, sufficient detail/consistent application, minimize exceptions, avoid concrete tests

Question 31

What is one application of the move towards objective-oriented standards?

Answer 31

Development of a revised revenue recognition standard by the FASB, new single revenue standard replaced multitude of industry specific revenue standards disbursed across the codification

Question 32

Relationship of Preparers, Auditors, and Users

Answer 32

Preparers (companies) are responsible for developing their financial reports. These reports are audited by the auditor to provide a reliability check to the user.

Question 33

To be useful, financial information must be…

Answer 33

Objective and Reliable

Question 34

Complexity creates…

Answer 34

Dilemmas

Question 35

Professional organizations such as the AICPA and IMA maintain a…

Answer 35

Code of Ethics (that offer guidance for members facing ethical dilemmas)

Question 36

What is an accountant’s ultimate responsibility?

Answer 36

To the public

Question 37

What are the responsibilities of an accountant in an ethical dilemma?

Answer 37

1. Recognize the ethical issue present
2. Try to identify costs/alternatives
3. Reflect and evaluate

Question 38

Recognition assumes…

Answer 38

A sensitivity that is developed from experience