1 FAR Flashcards
New GAAP should be neutral and not favor any particular reporting objective.
One of the objectives of the FASB in setting standards is to develop rules that are unbiased. FASB statements generally do not reflect any reporting bias.
For example, the requirement to expense all research and development costs is uniform across all firms and does not favor one firm over another.
In reference to proposed accounting standards, the term “negative economic consequences” includes
The inability to raise capital.
A proposed standard may cause firm earnings to fall, for example when they are adopted. Firms will be concerned that lower earnings may make it more difficult to sell stock or to secure loans.
As a result, negative economic consequences become a focal point for arguments against the proposed standard.
What are the 7 key components of the general purpose external financial reports
1-Income Statement 2-Balance Sheet 3-Cash Flow Statement 4-Retained earnings Statement 5-Statement of Comprehensive Income 6-Footnote Disclosures 7-Auditor's Opinion
What are the major areas in the Financial Accounting Standards Board (FASB) Accounting Standards Codification
General principles 100; Presentation 200; Assets 300; Liabilities 400; Equity 500; Revenue 600; Expenses 700; Broad transactions 800; Industry 900.
What is the purpose of the SEC?
To promote efficient allocation of capital by maintaining orderly, open and fair allocation of assets.
What topics does the Financial Accounting Standards Board (FASB) Accounting Standards Codification not include?
- Other comprehensive basis of accounting;
- Cash basis;
- Income tax basis;
- Regulatory accounting principles.
What does Generally Accepted Accounting Principles (GAAP) address?
Recognition, measurement, and disclosure.
When is revenue recognized under accrual accounting?
Revenues are recognized when earned and collection is reasonably assured, regardless of the period of cash collection.
What purpose does the Financial Accounting Standards Board (FASB) Accounting Standards Codification serve?
The FASB Accounting Standards Codification is the sole source of authoritative U.S. Generally Accepted Accounting Principles for nongovernmental entities, except for the Securities Exchange Commission guidance.
What is the role of the Financial Accounting Advisory Council (FASAC)?
The FASAC provides guidance on major policy issues, project priorities, and the formation of task forces.
What are the final three steps in the standard setting process?
- Evaluate research and comments from interested parties and issue an exposure draft;
- Solicit additional comments;
- Finalize new accounting guidance and issue Accounting Standards Update (ASU).
What are the first three steps the Financial Accounting Standards Board (FASB) uses when issuing a new accounting standard?
- Considers whether to add a project to its agenda in consultation with the Financial Accounting Foundation (FAF);
- Conducts research;
- Holds a public hearing on the topic
What are the items in other comprehensive income?
Unrealized gains and losses on investments in securities available for sale, certain pension cost adjustments, foreign currency translation adjustments, and unrealized gains and losses on certain hedging activities.
What are the Primary Qualitative Characteristics of Financial Information?
Faithful representation and Relevance (FARR).
What are the ingredients of Faithful representation?
Completeness,
Free from material error,
Neutrality.
