1.1 FAR overview

Question 1

What are the FAR overview topics ?

Answer 1

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

Question 2

SEC rules and regulations apply to which companies ?

Answer 2

all companies that issue securities in the us “issuers”

Question 3

standard setting bodies in a nutshell

Answer 3

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

Question 4

What are the levels of GAAP hierarchy ? What is the source ?

Answer 4

Accounting Standards Codification (ASC) is the source.
Reorganized GAAP into 2 levels.
Authoritative GAAP
Non authoritative GAAP

Question 5

Is authoritative gaap included in the ASC

Answer 5

yes

Question 6

what is included in the authoritative gaap

Answer 6

FASB
statements of financial accounting standards (SFAS)
APB opinions
CAP accounting research bulletins

Question 7

are non authoritative gaap included in the asc ?

Answer 7

no

Question 8

what are the non authoritative gaap

Answer 8

statement of financial accounting concepts (SFAC)

Question 9

what is the statement of financial accounting concepts (SFAC)

Answer 9

it is the non authoritative gaap
it is the FASB theoretical framework which are the rules for the rule makers.

Question 10

Are the entities allowed to apply SFAC

Answer 10

no. they are only meant as rules for the rule makers

Question 11

are SEC pronouncements part of the ASC

Answer 11

only relevant portions included in the ASC

Question 12

What are the ASC categories

Answer 12

General principles
presentation
assets
liabilities
equity
revenue
expenses
broad transactions
industry

Question 13

fasb and iasb
financial accounting standards board and international accounting standards board

Answer 13

fasb = us gaap
iasb = ifrs international financial reporting standards

Question 14

what is FAR

Answer 14

Financial Accounting + Reporting

Question 15

What is financial accounting

Answer 15

journal entries to general ledger to trial balance

Question 16

What is financial reporting?
what is a full set of f/s?
+ what is the general purpose financial reporting?

Answer 16

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

Question 17

What is the primary objective of general purpose financial reporting ?

Answer 17

focus on the informational needs of external users
existing and potential investors, lenders and creditors

Question 18

what are the 2 types of information that f/s provide?

Answer 18

Direct information and indirect information

Question 19

what is direct information

Answer 19

information on the entities financial position, financial performance and cash flows

Question 20

what is indirect information

Answer 20

managements performance

Question 21

what are the notes to the f/s

Answer 21

primary purpose is to supplement meaning provide further explanation to the information in the f/s

Question 22

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?

Answer 22

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.

Question 23

What is the breakdown of the following : ASC 320-10-45-11

Answer 23

Here, ASC 320-10-45-11 indicates,
320 – Topic.
10 – Subtopic.
45 – Section.
11 – Subsection.

Question 24

The FASB amends the Accounting Standards Codification through the issuance of ?

Answer 24

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.

Question 25

What are Statements of Financial Accounting Standards ?

Answer 25

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.

Question 26

What are Technical Bulletins

Answer 26

technical bulletins are issued to provide guidance on certain financial accounting and reporting problems and not to amend the ASC

Question 27

What are Staff Accounting Bulletins

Answer 27

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)

Question 28

According to the FASB conceptual framework, for financial reporting to be useful, it must

Answer 28

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

Question 29

During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about?

Answer 29

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.

Question 30

General purpose external financial reporting of a corporation focuses primarily on the needs of which of the following users?

Answer 30

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.

Question 31

According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on

Answer 31

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.

Question 32

Is the financial reporting based on us gaap

Answer 32

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”.

Question 33

According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on

Answer 33

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

Question 34

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.

Answer 34

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

Question 35

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.

Answer 35

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.

Question 36

what is the order of authority for pronouncements

Answer 36

FASB Statements of Financial Accounting Standards (SFAS),

FASB Technical Bulletin,

AICPA Statement of Position and

FASB Statement of Financial Accounting Concepts.

Question 37

What is the primary objective of financial reporting?

Answer 37

To provide information that is useful for economic decision making.
not economic information

Question 38

Which of the following is not included in the FASB Accounting Standard Codification (ASC):

Answer 38

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’’.