1 - Intro - FASB, SEC, Gaap, Etc

Question 1

The rules of financial reporting for business enterprises. AKA accounting standards - Tells the companies what type of accounting they need to do

Answer 1

Generally Accepted Accounting Principles (GAAP)

Question 2

set of reporting rules to address three aspects of financial reporting

Answer 2

GAAP

Question 3

GAAP addresses the three aspects of financial reporting

Answer 3

Recognition, Measurement, Disclosure

Question 4

Concerns the dollar amount assigned to an item on the financial stmt

Answer 4

Measurement

Question 5

Many unrecognized amounts are reported in the footnotes to complete the portrayal of the firm’s financial position and performance on the financial stmt

Answer 5

Disclosure

Question 6

When item is recorded in an account and ultimately affects the financial statements.

Answer 6

Recognition

Question 7

currently the standard-setting body in the United States

Answer 7

Financial Accounting Standards Board (FASB)

Question 8

Formed by congress in 1933 after 1929 market crash. federal government agency that administers the securities laws of the United States. These laws affect firms that issue debt and equity securities to the public. Authority to est GAAP but gives it to FASB. Enforcment authority

Answer 8

Securities and Exchange Commission (SEC)

Question 9

national professional organization for practicing CPAs and has had a great impact on accounting principles over the years. provide its members with resources, information, and leadership so that they may in turn provide valuable services for the benefit of their clients, employers, and the general public.

Answer 9

American Institute of Certified Public Accountants (AICPA)

Question 10

three parts of the current accounting standard-setting mechanism in the United States

Answer 10

FASB, Financial Accounting Foundation (FAF)—the parent body, and the Financial Accounting Standards Advisory Council (FASAC):

Question 11

Appoints the members of the FASB and its advisory councils, ensures adequate funding for the FASB, and exercises oversight over the FASB. Funding sources include fees levied on publicly traded firms under the Sarbanes-Oxley Act, contributions, and publication sales

Answer 11

Financial Accounting Foundation (FAF)

Question 12

Private sector that Establishes financial accounting standards (GAAP) for business entities. is an independent body, subject only to the FAF.

Answer 12

FASB

Question 13

Provides FASB guidance on major policy issues, project priorities, and the formation of task forces.

Answer 13

FASAC

Question 14

The FASB is the current private-sector body that establishes GAAP for business entities.The mission of the FASB (in brief) is to:

Answer 14

Improve the usefulness of financial reporting
Maintain current accounting standards
Promptly address deficiencies in accounting standards
Promote international convergence of accounting standards
Improve the common understanding of the nature and purposes of information in financial reports.

Question 15

Seven full-time members with renewable (for one additional term) and staggered 5-year terms.
Subject to FAF policies and oversight.
Members cannot have employment or investment ties with other entities.
Members need not be CPAs although typically the public accounting profession is represented; also the preparer (reporting firm) and investor communities are represented.

Answer 15

Facts in Brief about the FASB

Question 16

Standard Setting Process o FASB when setting an accounting standard for GAAP

Answer 16

1. Add project to agenda
2. Conducts research & issues Discussion Memo (DM)
3. Public hearing is held and discusses and debated
4. Issued Exposure Draft (ED)
5. Modifies ED with addition comments
6. Finalized w/ majority vote, 4/7 votes
7. Issues Acct std update (ASU) In FASB codification

Question 17

This group was formed to consider emerging reporting issues and to accelerate the process of establishing rulings on such issues. Implementation guidance within GAAP

Answer 17

FASB’s Emerging Issues Task Force (EITF)

Question 18

acts as a “filter“ for the FASB, enabling the FASB to focus on more pervasive issues. When a consensus of the 15 members is reached on an issue, no further action by the FASB is required.

Answer 18

FASB’s Emerging Issues Task Force (EITF)

Question 19

is concerned with providing relevant information to all users of the financial statements: investors, creditors, competitors, employees, and regulatory bodies. Financial statement information is used to make informed decisions regarding allocation of resources. A common use is whether to invest in a firm or to lend money to it.

Answer 19

Financial accounting and reporting (FAR)

Question 20

Accounting standards are not laws; they are not determined by legislatures but rather by private sector bodies. They are generally accepted. GAAP are a type of regulation, imposed on the economic system by its constituents. Without GAAP, the economy and capital markets as we know them would not work. Investors need to have confidence in the numbers they receive. Without some kind of common language, the system could not function. Corruption would become much more prevalent than it is today.

Answer 20

However, the private-sector bodies that contribute to the formulation of GAAP have no enforcement authority. Rather, there are economic sanctions for firms not complying with GAAP. These sanctions include increased difficulty in raising debt and equity capital.

Question 21

The SEC, however, does have the authority to penalize firms and managers subject to its jurisdiction when financial statements do not comply with GAAP. Public companies are violating the securities laws if they publish financial statements that materially depart from GAAP.
The SEC sends a deficiency letter to a registrant when an accounting irregularity is found. If the firm disagrees, the SEC may issue a “stop order“ preventing trading in the firm’s securities until the disagreement is resolved. Outright violations of the securities laws may result in criminal sanctions against managers, or fines against the company.

Answer 21

The enactment of the Sarbanes-Oxley Act of 2002 significantly affects the enforcement procedures relating to audits of public companies, and penalties for noncompliance with GAAP. The Auditing section of CPAexcel covers the implications of this Act in depth.

Question 22

Which of the following statements best describes the operating procedure for issuing a new Financial Accounting Standards Board (FASB) statement?

Answer 22

A new statement is issued only after a majority vote by the members of the FASB.

Question 23

The purpose of financial accounting is to provide information primarily for which of the following groups?

Answer 23

Investors and creditors.

Question 24

Which of the following will best protect investors against fraudulent financial reporting by corporations?

Answer 24

The requirement that financial statements be audited.

Question 25

What group currently writes the Generally Accepted Accounting Principles?

Answer 25

Financial Accounting Standards Board.

Question 26

In reference to proposed accounting standards, the term "negative economic consequences" includes:

Answer 26

The inability to raise capital.

Question 27

The FASB is a(n):

Answer 27

Private sector body.

Question 28

Issues Standards for Private Companies (AKA Little GAAP)

Answer 28

Private Company Council (PCC)

Question 29

FASB Accounting Standards Codification (ASC) Compilation of pronouncements issued by FASB, APB, CAP

Answer 29

Authoritative GAAP

Question 30

FASB Concepts, AICPA Issues Papers, IFRS | SEC Guidance - Considered Authoritative for PUBLIC Companies

Answer 30

Non-Authoritative GAAP

Question 31

User groups (e.g., industry associations, financial institutions) influence the outcome of FASB standards by:

Answer 31

Making their views public through the financial press Providing input during the due process procedure Putting pressure on the SEC directly to change a proposed standard, or through the U.S. Congress

Question 32

Formed in 2012 as advisory body to FASB on private company acct concerns & helps identify possible GAAP alternatives and still be in compliance.

Answer 32

Public Company Council (PCC)

Question 33

T/F: FASB develops principles & attributes that allow orgs to understand the necessary elements to ensure a robust system of internal control.

Answer 33

False (nothing to do with internal control)

Question 34

T/F: "Economic consequences" is a concept used by the FASB to gain acceptance of its proposed standards.

Answer 34

False (economic consequences refers to the inability to raise capital)

Question 35

T/F: The Conceptual Framework is not GAAP.

Answer 35

True (FASB's conceptual framework plays a role in this process by providing a theoretical structure for guiding the development of a specific standard)

Question 36

T/F: FASB members serve four-year terms.

Answer 36

False (staggered 5 year terms) renewable for 1 additional term

Question 37

T/F: The Accounting Principles Board was the standard-setting body that immediately preceded the FASB.

Answer 37

True

Question 38

T/F: The SEC has the ability to force the FASB to modify an accounting standard.

Answer 38

True

Question 39

T/F: The FASB decides accounting standards independent of outside input or influence.

Answer 39

False (they have open discussions)

Question 40

T/F: When the FASB's Emerging Issues Task Force reaches a consensus on a particular reporting issue, generally the FASB does not address it further.

Answer 40

True (they act as a filter so FASB can move on to more pressing issues)

Question 41

T/F: One of the principles used by the FASB in developing accounting standards is that the cost of complying with GAAP should be less than the benefit of those standards.

Answer 41

True

Question 42

T/F: The process of developing accounting standards is essentially a closed process.

Answer 42

False (they have open forums)

Question 43

T/F: The AICPA currently sets accounting standards.

Answer 43

False (FASB sets the accounting standards)

Question 44

T/F: All members of the FASB must be CPAs.

Answer 44

False

Question 45

T/F: Recognition in accounting refers to the process of recording a measurable attribute such that it affects one or more of the financial statements.

Answer 45

True