1.1 FAR overview Flashcards
What are the FAR overview topics ?
Standard setting bodies and hierarchy of us gaap
accounting standards codification
accounting cycle and preparation of fs
primary objectives of financial reporting
presentation of fs and notes to fs
SEC rules and regulations apply to which companies ?
all companies that issue securities in the us “issuers”
standard setting bodies in a nutshell
securities exchange commission (SEC) to financial accounting standards board (FASB) to statements of financial accounting standards (SFAS) accounting standards codification (ASC) to authoritative and non authoritative
What are the levels of GAAP hierarchy ? What is the source ?
Accounting Standards Codification (ASC) is the source.
Reorganized GAAP into 2 levels.
Authoritative GAAP
Non authoritative GAAP
Is authoritative gaap included in the ASC
yes
what is included in the authoritative gaap
FASB
statements of financial accounting standards (SFAS)
APB opinions
CAP accounting research bulletins
are non authoritative gaap included in the asc ?
no
what are the non authoritative gaap
statement of financial accounting concepts (SFAC)
what is the statement of financial accounting concepts (SFAC)
it is the non authoritative gaap
it is the FASB theoretical framework which are the rules for the rule makers.
Are the entities allowed to apply SFAC
no. they are only meant as rules for the rule makers
are SEC pronouncements part of the ASC
only relevant portions included in the ASC
What are the ASC categories
General principles
presentation
assets
liabilities
equity
revenue
expenses
broad transactions
industry
fasb and iasb
financial accounting standards board and international accounting standards board
fasb = us gaap
iasb = ifrs international financial reporting standards
what is FAR
Financial Accounting + Reporting
What is financial accounting
journal entries to general ledger to trial balance
What is financial reporting?
what is a full set of f/s?
+ what is the general purpose financial reporting?
full set of 5 f/s balance sheet, statement of earnings income statement, statement of comprehensive income, statement of shareholder equity, statement of cash flows.
+ notes to the f/s, any required supplementary info
What is the primary objective of general purpose financial reporting ?
focus on the informational needs of external users
existing and potential investors, lenders and creditors
what are the 2 types of information that f/s provide?
Direct information and indirect information
what is direct information
information on the entities financial position, financial performance and cash flows
what is indirect information
managements performance
what are the notes to the f/s
primary purpose is to supplement meaning provide further explanation to the information in the f/s
ASC 320-10-45-11 specifies how the sale of available for sale securities should be disclosed in the statement of cash flows. Which of the following is a correctly formatted reference to the specific rule in the FASB accounting standard codification?
The Accounting standard codification (ASC) uses the ‘’main menu’’ as categories (example: presentation, assets, liabilities, equity…etc).
Under this main menu – there are ‘’Topics’’
The topics are further divided into - subtopics > sections > subsections.
Here, ASC 320-10-45-11 indicates,
320 – Topic.
10 – Subtopic.
45 – Section.
11 – Subsection.
What is the breakdown of the following : ASC 320-10-45-11
Here, ASC 320-10-45-11 indicates,
320 – Topic.
10 – Subtopic.
45 – Section.
11 – Subsection.
The FASB amends the Accounting Standards Codification through the issuance of ?
Accounting Standards Updates
FASB amends the ASC through issuance of Accounting Standards Updates (ASU) which describes the amendment to the ASC and a date from when the amendment will be effective.
What are Statements of Financial Accounting Standards ?
the Statements of Financial Accounting Standards (SFAS) are standards for professional accounting practices and procedures.
SFAS are superseded by ASC.
contains other FASB pronouncements like interpretations of accounting standards, technical bulletins, staff positions, staff implementation guides etc. in order to enable companies to understand the objective and fundamental concept of GAAP pronouncements and adhere to them. It is not used by FASB to amend the ASC.
What are Technical Bulletins
technical bulletins are issued to provide guidance on certain financial accounting and reporting problems and not to amend the ASC
What are Staff Accounting Bulletins
SAB provides a summary of the views of the Securities and Exchange Commission’s staff regarding the manner and application of GAAP. The SAB bulletins are more restrictive than GAAP from where they derive their interpretation. the FASB does not amend the ASC through the issuance of Staff Accounting Bulletin (SAB)
According to the FASB conceptual framework, for financial reporting to be useful, it must
Provide information useful for making business and investment decisions.
According to Financial Accounting Standards Board (FASB), the primary objective of financial reporting is to provide useful information to existing and potential investors, lenders and creditors to enable them to make decisions about providing resources to the entity.
WRONG ANS : Be in accordance with generally accepted accounting principles. GAAP has nothing directly to do with the utility of the financial reporting
During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about?
Enterprise performance but not directly provide information about management performance.
During a period when an enterprise is under the direction of a particular management, its financial statements will “directly” provide information about the entity’s financial position, performance and cash flows. The financial statements will also provide “indirect” information about management’s performance.
General purpose external financial reporting of a corporation focuses primarily on the needs of which of the following users?
Investors and creditors and their advisors.
Primary objectives of general purpose financial reporting focuses on “users”, to provide information to existing and potential investors, lenders and creditors to enable them to make decisions about providing resources to the entity.
According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on
The needs of the users of the information.
The focus on the users. The primary objective of financial reporting is to provide information to existing and potential investors, lenders and creditors to enable them to make decisions about providing resources to the entity.
GAAP and conservatism are not the objectives of financial reporting rather reporting is done on the basis of these.
GAAP is a set of rules and principles set out by a convention such as US GAAP etc., based on their local laws, rules and practices. It is not an objective, rather, it guides how accounting is done in a country or its jurisdiction.
Conservatism is a universal principle in accounting profession, irrespective of local GAAP or rules and practices. It allows accountants to be aware of the pitfalls of being aggressive in making estimates and projections in the financial statements.
Is the financial reporting based on us gaap
gaap is not the objective of financial reporting rather reporting is done on the basis of gaap
the “objectives” of the FR of BE are based on “the needs of the user of the information”, “to make an informed decision about the company”.
According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on
The needs of the users of the information.
The focus on the users. The primary objective of financial reporting is to provide information to existing and potential investors, lenders and creditors to enable them to make decisions about providing resources to the entity.
Option (a) and (c) are incorrect because GAAP and conservatism are not the objectives of financial reporting rather reporting is done on the basis of these
Arpco Inc., a for-profit provider of the healthcare services, recently purchased two smaller companies and is researching accounting issues arising from the two business combinations. Which of the following accounting pronouncements are the most authoritative?
AICPA Statements of Positions.
AICPA Industry and Audit Guides.
FASB Statements of Financial Accounting Concepts.
FASB Statements of Financial Accounting Standards.
FASB Statements of Financial Accounting Standards.
In the hierarchy of authoritative Generally Accepted Accounting Principles (GAAP), the FASB Statements of Financial Accounting Standards (SFAS) has the highest authority.
Options (a) and (b) are incorrect because the AICPA Statements of Positions and the Industry and Audit guides are the second level of GAAP pronouncements.
Option (c) is incorrect because FASB Statements of Financial Accounting Concepts do not come under authoritative GAAP
Which of the following accounting pronouncements is the most authoritative?
FASB Statement of Financial Accounting Concepts.
FASB Technical Bulletin.
FASB Statements of Financial Accounting Standards.
AICPA Statement of Position.
FASB Statements of Financial Accounting Standards.
FASB Statements of Financial Accounting Standards is the most authoritative. The order of authority from most to least is as under:-
FASB Statements of Financial Accounting Standards (SFAS), FASB Technical Bulletin, AICPA Statement of Position and FASB Statement of Financial Accounting Concepts.
what is the order of authority for pronouncements
FASB Statements of Financial Accounting Standards (SFAS),
FASB Technical Bulletin,
AICPA Statement of Position and
FASB Statement of Financial Accounting Concepts.
What is the primary objective of financial reporting?
To provide information that is useful for economic decision making.
not economic information
Which of the following is not included in the FASB Accounting Standard Codification (ASC):
Statement of Financial Accounting Concepts.
The Statement of Financial Accounting Concepts (SFAC) which is a FASB theoretical framework is a non-authoritative GAAP literature and is excluded from the Accounting Standard Codification (ASC).
Accounting Research Bulletins, AICPA Statement of Positions, Interpretations, Staff positions, APB Opinions these are all authoritative GAAP pronouncements and are reorganized into the ‘’ASC’’.
