16: Financial reporting standards Flashcards
Objectives of financial reporting: provide information about the firm to current and potential ____ and ____that is useful for making their decisions about _____ or _____ to the firm
investors and lenders
investing or lending
What is the importance of the conceptual framework for financial reporting?
provide consistency, by narrowing the range of acceptable financial reports
private sector, professional organizations of accountants and auditors that establish financial reporting standards
standard setting bodies
For standard setting bodies to have authority, they must be ____?
recognized by regulatory authorities
what are the two primary standard setting bodies and what do they each set?
FASB sets GAAP
IASB sets IFRS
government agencies that have the legal authority to enforce compliance with financial reporting standards
regulatory authorities
What regulatory authority does the US use? And what does it oversee?
SEC oversees the public companies accounting oversight board
The SEC enforces ______?
Sarbanes Oxley
Many national ______ belong to the International Organization of Securities Commissions (IOSCO)
regulatory authorities
The objective of the IOSCO is to ensure markets are ____?
fair, efficient, transparent
IOSCO Role: promoting cross-border ______ and _____ in securities regulation
cooperation; uniformity
The conceptual framework for financial reporting details _______ and specifies ______?
qualitative characteristics of financial statements;
specifies the required reporting elements
The objective of the conceptual framework for financial reporting: provide financial information that is useful in making decisions about ______? Based on ______ , ______, _______ of the firm?
providing resources to an entity
financial position
financial performance
cash flows
What are the two qualitative characteristics of the conceptual framework for financial reporting?
relevance;
faithful representation
Financial statements are ______ if information can influence user’s economic decisions or affect evaluations of past events or forecast of future events
relevance (qualitative characteristic)
Financial statements have faithful representation if information is …..?
complete
neutral
free from error
What are the 4 enhancing characteristics for the qualitative characteristics of the conceptual framework?
comparability
verifiability
timeliness
understandability
What are the required reporting elements for IASB conceptual framework?
assets
liabilities
equity
income
expense
Resources controlled as a result of past transactions that are expected to provide future economic benefits
assets
Obligations as a result of past events that are expected to require an outflow of economic resources
liabilities
The owners’ residual interest in the assets after deducting the liabilities
equity
An increase in economic benefits
Enhancement of assets
Decrease of liabilities
Revenue and gains
income
Decreases in economic benefits
Outflow/depletion of assets
Increase in liabilities
Expenses and losses
expenses
Balance sheet measures ____?
a company’s financial position
Income statement measures____?
a company’s financial performance
When recognizing reporting elements, what two parameters are necessary?
probable flows of benefit
items value can be measured reliably
Items should be recognized in its financial statement element if a future economic benefit from the item is probable
probable flows of benefit
the amount originally paid for the asset
historical cost
the amount the firm would have to pay today for the sam asset
current cost
the estimated selling price of the asset in the normal course of business minus the selling cost
* Amount received in an orderly disposal
net realizable value
discounted value of the asset’s expected future cash flows
present value
the price at which the asset can be sold, or liability transferred in an orderly transaction between willing parties
fair value
What are the two constraints of financial statement preparation?
benefit of info > cost of presenting info
non-quantifiable info (company reputation)
What are the two assumptions of financial statements?
accrual basis
going concern
Accrual basis: that the financial statements should reflect transactions when ______ , not when _____
they actually occur;
cash is paid
Distinguishes between short term and long term components
going concern
What are the required financial statements under IFRS (IASB)?
- Balance sheet
- Statement of comprehensive income
- Cash flow statement
- Statements of changes in owner’s equity
- Explanatory notes (including a summary of accounting policies)
The following are ….?
fair representation
going concern basis
accrual basis of accounting
consistency
materiality
features/fundamental principles of the required financial statements
The following are…?
aggregation where appropriate
no offsetting
reporting frequency
comparative info
classified balance sheet
specific minimum info
Presentation requirements of financial statements:
Reporting frequency of financial statements must be ____?
annually
A classified balance sheet shows?
current and noncurrent liabilities
To evaluate the potential effect of an innovative and unique type of business transaction on financial statements, an analyst should gain an understanding of the transactions ______?
economic purpose
