1) Accounting Standards and Conceptual Frameworks

Question 1

Name the single source of authoritative nongovernmental U.S. GAAP.

Answer 1

The FASB “Accounting Standards Codification” (ASC).

Question 2

The term “International Financial Reporting Standards” includes what standards?

Answer 2

• International Accounting Standards (IAS)
• International Financial Reporting Standards (IFRS)
• IFRIC Interpretations
• SIC Interpretations

Question 3

What is the Private Company Council?

Answer 3

• The Financial Accounting Foundation (FAF) created the Private Company Council (PCC) to improve standard setting for privately held companies in the U.S.
• The goal of the PCC is to establish alternatives to the U.S. GAAP, where appropriate, to make private company financial statements more relevant, less complex, and cost-beneficial.
• Accounting alternatives for private companies are incorporated into the relevant sections of the ASC.

Question 4

Who are the primary users of general purpose financial reports?

Answer 4

Existing and potential:

• Investors
• Lenders
• Other creditors

Question 5

Name the pervasive constraint on the information provided in financial reporting?

Answer 5

Cost Constraint:
The benefits of reporting financial information must be greater than the costs of obtaining and presenting the information.

Question 6

Name the fundamental qualitative characteristics of useful financial information.

Answer 6

Relevance and Faithful Representation

Question 7

Name the three elements of RELEVANCE.

Answer 7

• Predictive value
• Confirming value
• Materiality

Question 8

Name the three elements of FAITHFUL REPRESENTATION.

Answer 8

• Neutrality
• Completeness
• Freedom from error

Question 9

Name the enhancing qualitative characteristics of financial information.

Answer 9

Comparability, Verifiability, Timeliness, and Understandability.

Question 10

According to SFAC No. 5, what should a full set of financial statements include?

Answer 10

• Statement of Financial Position (the balance sheet)
• Statement of Earnings (the income statement)
• Statement of Comprehensive Income
• Statement of Cash Flows
• Statement of Changes in Owners’ Equity

Question 11

What is the difference between REALIZATION and RECOGNITION?

Answer 11

Realization: When sold and converted to cash (or claims to cash)
Recognition: When recorded in the financial statements

Question 12

List the 10 elements of financial statements according to SFAC No. 6.

Hint: CREG and LALEID

Answer 12

Comprehensive Income
Revenues
Expenses
Gains
      and
Losses
Assets
Liabilities
Equity (of Net Assets)
Investments by Owners
Distributions to Owners

Question 13

List the six elements of financial statements according to the IASB Framework.

Answer 13

Assets
Liabilities
Equity
Income (revenues and gains)
Expenses (expenses and losses)
Capital maintenance adjustments

Question 14

Name the five elements of PRESENT VALUE MEASUREMENT per SFAC No. 7.

Hint: EVTUO

Answer 14

• ESTIMATE of future cash flow
• Expectations about time VARIATIONS of future cash flows
• TIME value of money (the risk-free rate of interest)
• The price of bearing UNCERTAINTY
• OTHER factors (e.g., liquidity issues and market imperfections)

Question 15

Describe the expected cash flow approach for present value computations.

Answer 15

Considers a range of possible cash flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted average, or “expected,” future cash flow.