1. FASB Flashcards
What entity oversees FASB?
FAF financial accounting foundation
What does GAAP address?
Recognition, measurement, disclosure
What does FASB do?
The standard setting body. A private sector body. Establish GAAP for business entities.
What entity is the federal government agency that administers the securities laws?
SEC The securities and exchange commission
FASB predecessors
CAP Committee on Accounting Procedure in 1939
APB Accounting Principles Board in 1959
Wheat Committee in 1971
All appointed by AICPA (The American Institute of Certified Public Accountant)
How many board members does FASB have?
Seven
What entity provides guidance on major policy issues, project priorities, and formation of task forces?
FASAC the Financial Accounting Standards Advisory Council
What process does FASB use when issuing an Accounting Standard?
Consider whether to add a project to its agenda, conduct research and issue a Discussion Memorandum, hold public hearing, issue an Exposure Draft, solicit additional comments and modifies the Exposure Draft, finalize and approve with a majority vote, issue an Accounting Standards Update (ASU)
What entity acts as a filter for FASB and can establish ruling without FASB and consensus of how many members?
Emerging Issue Task Force (EITF). 15
What’s negative economic consequences?
The effect of a proposed standard on a firm’s financial stmt, which causes earnings to decline, thus reducing the firm’s ability to raise capital
What entity has the authority to penalize?
SEC
Major impacts by Sarbanes-Oxley Act of 2002?
All publicly held companies must establish internal controls, auditing firms must attest to the stmts, etc
What is included in general purpose financial report?
IS, stmt of comprehensive income, BS, stmt of changes in owner’s equity, stmt of cash flow, footnote disclosures and supplemental information, auditor’s opinion
What is the sole authoritative source for non-governmental entities except SEC guidance?
FASB codification
How many hierarchy does codification have?
None only one level
What’s not included in codification?
Other comprehensive basis of accounting, cash basis, income tax basis, regulatory accounting principles
Does Codification affect or replace SEC guidance?
No
Both US and IRFS use which basis of accounting?
Accrual
Accrual Accounting to Cash. Formula?
Cash = L + E - Other assets
Only to compute NI
All inclusive approach, what stmt?
IS
What does OCI include?
Unrealized G/L in securities available for sale, certain pension cost adjustments, foreign currency translation adjustments
Which BS format presents assets and liab in a single line?
Report format
Account format - left and right
BS assets are presented in which order? Liability?
In order of liquidity. In order of maturity
Cost basis for Property, plant, equip, intangibles?
Historical cost
Cost basis for receivables?
Net realizable value
Cost basis for inventory?
Lower of cost or market
Cost basis for investment in marketable securities?
Market value
Cost basis for liabilities?
Present value
What is cash equivalent?
Convertible to a known and fixed amount of cash, have an original maturity to the purchase of 3 mo or less
Two primary qualitative characteristics?
Relevance & Faithful presentation
What’s included in relevance?
Predictive value, confirmatory value, materiality
What’s included in faithful presentation?
Completeness, neutrality, free from error
4 enhancing qualitative characteristics?
Comparability, Verifiability, timeliness, understandability
What’s net realizable value?
Current MV - cost of sale
What’s current replacement costs?
Current MV (how much one must pay to replace today)
Definition of FV?
The price that would be rcvd to sell an asset or paid to transfer a liab in an ordinary transaction
What’s Net present value?
Values from discounting expected future cash flows
When is revenue recognized?
Earned and realizable
Expense - what principle?
Matching
What’s principal market?
Has greatest volume and most activity
What’s most advantageous market?
Can maximize sales
Does FV include cost to transfer the item to the market?
Yes
What’s the assumption for non financial assets?
The highest and best use. Physically possible, legally permissible, financially feasible
What situations FV does not apply to?
Share-base pmt transactions, vender specific objective evidence, inventory pricing
FV focus on exit price or entry price?
Exit price
What does market approach to compute FV?
Market value
What does income approach use to compute FV?
Discounted future cash flows
What does cost approach use to compute FV?
Replacement cost
Can FV be used for a single item wo using for other identical items?
Yes
FV is not applicable to what?
Investment in a subsidiary that is to consolidated, an interest in a variable interest entity, pension benefits, items under lease accounting, shareholders equity
What’s FV input hierarchy?
Level 1: quoted price in active markets for identical items (observable)
Level 2: for similar items (observable)
Level 3: entity’s assumptions, own data (unobservable)
When does going concern need to be evaluated?
Both annual and interim stmt
What are two areas FV option is not permitted?
Share-based pmt transactions and inventory valuation.
