1A. Conceptual Framework, Standard-Setting and Financial Reporting Flashcards
1
Q
3 Basic Assumptions
- ?????
- Economic Entity
- Unit of Measure
A
Going Concern
2
Q
3 Basic Assumptions
- Going Concern
- ????
- Unit of Measure
A
Economic Entity
3
Q
3 Basic Assumptions
- Going Concern
- Economic Entity
- ?????
A
Unit of Measure
4
Q
Going Concern Assumption
A
A business that functions without the threat of it liquidating in the near future (usually within 12 months)
5
Q
Economic Entity Assumption
A
Pretty much any time of organization or unit in society can be an economic entity
Ex: Hospitals, companies, municipalities
6
Q
Unit of Measure Assumption
A
Information reported should be measured in the national monetary unit
Ex: the US Dollar
7
Q
What are the two Qualitative Characteristics at the top of the chart?
- ????
- Faithful Representation
A
Relevance
8
Q
What are the two Qualitative Characteristics at the top of the chart?
- Relevance
- ????
A
Faithful Representation
9
Q
What is the Relevance Qualitative Characteristic?
A
Capable of making a difference in the decisions made by users.
10
Q
3 Characteristics Relevance consists of
- ???
- Confirmatory Value
- Materiality
A
Predictive Value
11
Q
3 Characteristics Relevance consists of
- Predictive Value
- ???
- Materiality
A
Confirmatory Value
12
Q
3 Characteristics Relevance consists of
- Predictive Value
- Confirmatory Value
- ?????
A
Materiality
13
Q
What is Predictive Value
A
Information that helps users in predicting or anticipating future outcomes
14
Q
Is Predictive Value part of Relevance or Faithful Representation?
A
Relevance
15
Q
What is Confirmatory Value?
A
It enables users to check and confirm earlier predictions or evaluations
16
Q
Is Confirmatory Value part of Relevance or Faithful Representation?
A
Relevance
17
Q
What is Materiality?
A
Information is material if it is significant enough to influence the decision of users.
18
Q
Is Materiality part of Relevance or Faithful Representation
A
Relevance
19
Q
Faithful Representation
A
Information should actually represent what it’s claiming to represent
In other words, the information should show what is present and what really happened
20
Q
3 Characteristics Faithful Representation Consists of
- ????
- Neutrality
- Free from Error
A
Completeness
21
Q
3 Characteristics Faithful Representation Consists of
- Completeness
- ????
- Free from Error
A
Neutrality
22
Q
3 Characteristics Faithful Representation Consists of
- Completeness
- Neutrality
- ????
A
Free from error
23
Q
Can you name the 3 Characteristics of Faithful Representation without seeing the other 2?
A
Completness
Neutrality
Free From Error
24
Q
Can you name the 3 Characteristics of Relevance without seeing the other 2?
A
Predictive Value
Confirmatory Value
Materiality
25
Completeness
Adequate of full disclosure of necessary information in financial Statements
26
Is Completeness part of Relevance or Faithful Representation?
Faithful Representation
27
Neutrality
Fairness and freedom from bias
28
is Neutrality part or Relevance of Faithful Representation
Faithful Representation
29
Free from Error
No inaccuracies or omissions in financial statements
30
Is "Free from Error" part or Relevance of Faithful Representation
Faithful Representation
31
Enhancing Qualitative Characteristics
1. ?????
2. Verifiability
3. Timeliness
4. Understandability
Comparability
32
Enhancing Qualitative Characteristics
1. Comparability
2. ????
3. Timeliness
4. Understandability
Verifiability
33
Enhancing Qualitative Characteristics
1. Comparability
2. Verifiability
3. ?????
4. Understandability
Timeliness
34
Enhancing Qualitative Characteristics
1. Comparability
2. Verifiability
3. Timeliness
4. ?????
Understandability
35
Name all 4 Enhancing Qualitative Characteristics
Comparability
Verifiability
Timeliness
Understandability
36
Comparability
Comparable information enables comparisons within the entity (ex: from different periods) and across entities
37
Verifiability
helps to assure users that information represents faithfully what it purports to represent.
Financial information is supported by evidence and independent individuals can check them to see whether such information is faithfully represented. In other words, information is verifiable if it can be audited.
38
Understandability
requires financial information to be understandable or comprehensible to users with reasonable knowledge of business and economic activities.
To be understandable, information should be presented clearly and concisely.
However, it is improper to exclude complex items just to make the reports simple and understandable.
39
Basic Accounting Principles
1. ?????
2. Consistency
3. Matching Principle
4. Conservatism
Substance over form
40
Basic Accounting Principles
1. Substance over Form
2. ?????
3. Matching Principle
4. Conservatism
Consistency
41
Basic Accounting Principles
1. Substance over Form
2. Consistency
3. ??????
4. Conservatism
Matching Principle
42
Basic Accounting Principles
1. Substance over Form
2. Consistency
3. Matching Principle
4. ??????
Conservatism
43
Substance over Form
- An accounting principle which recognizes that business transactions should be accounted in accordance with their (economic) substance instead of their (legal) form.
- An example of this is a sale leaseback in which Company A has a truck it sells to company B, then subsequently leases it from them.
○ Although the legal ownership of the assets has transferred but the underlying economics remains the same and hence under the substance over form principle the sale and subsequent leaseback are looked at as one transaction.
○ The company cannot just remove the fleet from its balance sheet because the legal ownership has changed. It will continue to recognize the fleet as an asset and shall also record a lease liability that arise out of the associated lease-back.
44
Consistency
once you adopt an accounting principle or method, you should continue to use it until a demonstrably better principle or method comes along.
Not following the consistency principle means that a business could continually jump between different accounting treatments of its transactions that makes its long-term financial results extremely difficult to discern
45
Matching Principle
The concept that, when you record revenue, you should record all related expenses at the same time. Thus, you charge inventory to the cost of goods sold at the same time that you record revenue from the sale of those inventory items. This is a cornerstone of the accrual basis of accounting. The cash basis of accounting does not use the matching the principle.
46
Conservatism
Record expenses as soon as possible
Record revenues and assets only when you are sure they will occur
This introduces a conservative slant to the financial statements that may yield lower reported profits, since revenue and asset recognition may be delayed for some time. Conversely, this principle tends to encourage the recordation of losses earlier, rather than later. This concept can be taken too far, where a business persistently misstates its results to be worse than is realistically the case.
47
Revised Uniform Partnership Act (RUPA)
The partnership agreement creates the rights and duties for partners, not partnership law
48
Which Partnerships does RUPA apply to?
Limited Liability Partnerships (LLP) and General Partnerships
49
Which Partnership does RUPA not apply to?
Limited Partnerships (LP)
50
In RUPA partners are free to include and exclude various rights in their agreements, but they are prohibited from doing the following...
1. ???????
2. Eliminating or unreasonably reducing the partners’ duty of care to one another
3. Eliminating the partners’ duty of loyalty or obligation of good faith and fair dealing
4. denying a partner the right to withdraw from the partnership
restricting a partner’s access to the books and records of the company
51
In RUPA partners are free to include and exclude various rights in their agreements, but they are prohibited from doing the following...
1. restricting a partner’s access to the books and records of the company
2. ??????
3. Eliminating the partners’ duty of loyalty or obligation of good faith and fair dealing
4. denying a partner the right to withdraw from the partnership
Eliminating or unreasonably reducing the partners’ duty of care to one another
52
In RUPA partners are free to include and exclude various rights in their agreements, but they are prohibited from doing the following...
1. restricting a partner’s access to the books and records of the company
2. Eliminating or unreasonably reducing the partners’ duty of care to one another
3. ????
4. denying a partner the right to withdraw from the partnership
Eliminating the partners’ duty of loyalty or obligation of good faith and fair dealing
53
In RUPA partners are free to include and exclude various rights in their agreements, but they are prohibited from doing the following...
1. restricting a partner’s access to the books and records of the company
2. Eliminating or unreasonably reducing the partners’ duty of care to one another
3. Eliminating the partners’ duty of loyalty or obligation of good faith and fair dealing
4. ???????
denying a partner the right to withdraw from the partnership
54
In RUPA partners are free to include and exclude various rights in their agreements, but they are prohibited from doing the following 4 things...
1. restricting a partner’s access to the books and records of the company
2. Eliminating or unreasonably reducing the partners’ duty of care to one another
3. Eliminating the partners’ duty of loyalty or obligation of good faith and fair dealing
4. denying a partner the right to withdraw from the partnership
55
How does RUPA Require Profit & losses to be treated in a partnership if there is no sharing agreement specified in the partnership agreement
profit and losses to be shared equally if it is not specified in partnership agreement
56
Currency Transaction Report (CTR)
- a report that U.S. financial institutions are required to file with FinCEN for each deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to the financial institution which involves a transaction in currency of more than $10,000.
57
GASB Concept Statements NO 2 - Measures on Service Accomplishments
Focus on outputs and outcomes
58
What is an Asset Valuation Account
A separate item that increase or reduced the carrying amount of an asset
It is neither an asset of liability itself
Ex: Uncollectible Accounts reduces receivables amount expected to be collected
Ex: Premium on bond receivable increases the receivable to its cost or PV
59
In the IFRS Hierarchy of Guidance - What is the first step when selecting an accounting policy in a particular situation
To determine if there's an IFRS that applies to that transaction or event
60
Realization
Converting a non Cash resource into cash
Ex: Depreciated Equipment was sold in exchange for a note receivable
- Equipment (non cash resource) sold for note (claim to cash)
Not an example: Collecting Cash on A/R
Because A/R is a claim to cash so it's cash to cash
61
Why is Selling Depreciated Equipment in exchange of a note receivable an example of Realization?
Because it is an exchange of a non cash resource for a claim to cash (note receivable)
62
Why is Collecting Cash from an A/R not an example of realization?
Because A/R is a claim to cash so it's cash to cash
Realization should be non cash to cash
63
Objective of SFAC (Statements of Financial Accounting Concepts)
Objectives are designed to constitute a foundation of financial accounting standards
The framework is designated to prescribe the nature, function and limits of financial accounting and to be used as guideline that will lead to consistent standards
64
IFRS non-cash investing and financing activities - Where is that reported
Reported in notes to financial statements
65
When converting Accrual Basis to cash basis - How is an increase in A/R treated
Subtract increase in A/R
66
Why is A/R subtracted from Accrual Basis to convert to cash basis
Because it means that sales have been recorded but cash has not been collected
67
3 Primary User Groups of External Financial Reports of State Government
1. ?????
2. Legislative & Oversight who represent the citizenry
3. Investors & Creditors who lend or participate in the lending process
Citizenry to which government is accountable
68
3 Primary User Groups of External Financial Reports of State Government
1. Citizenry to which government is accountable
2. ???????
3. Investors & Creditors who lend or participate in the lending process
Legislative & Oversight who represent the citizenry
69
3 Primary User Groups of External Financial Reports of State Government
1. Citizenry to which government is accountable
2. Legislative & Oversight who represent the citizenry
3. ???????
Investors & Creditors who lend or participate in the lending process
70
Name all 3 Primary User Groups of External Financial Reports of State Government
1. Citizenry to which government is accountable
2. Legislative & Oversight who represent the citizenry
3. Investors & Creditors who lend or participate in the lending process
71
Purpose of IASB Conceptual Framework
1. ??????
2. Assist preparers of F/S in applying IFRS
3. Assist auditors in forming opinions on whether F/S comply with IFRS
Assist board in development of future IFRS
72
Purpose of IASB Conceptual Framework
1. Assist board in development of future IFRS
2. ?????
3. Assist auditors in forming opinions on whether F/S comply with IFRS
Assist preparers of F/S in applying IFRS
73
Purpose of IASB Conceptual Framework
1. Assist board in development of future IFRS
2. Assist preparers of F/S in applying IFRS
3. ???????
Assist auditors in forming opinions on whether F/S comply with IFRS
74
Name all 3 purposes of IASB Conceptual Framework
1. Assist board in development of future IFRS
2. Assist preparers of F/S in applying IFRS
3. Assist auditors in forming opinions on whether F/S comply with IFRS
75
3 Tiers of IASB Hierarchy
1. ?????
2. Standards from predecessor to IASB (IASC, for example)
3. Interpretations issued by peripheral organization to IASB
IFRS standards
76
3 Tiers of IASB Hierarchy
1. IFRS standards
2 ????
3. Interpretations issued by peripheral organization to IASB
Standards from predecessor to IASB (IASC, for example)
77
3 Tiers of IASB Hierarchy
1. IFRS standards
2. Standards from predecessor to IASB (IASC, for example)
3. ?????
Interpretations issued by peripheral organization to IASB
78
What are the 3 Tiers of the IASB Hierarchy?
1. IFRS standards
2. Standards from predecessor to IASB (IASC, for example)
3. Interpretations issued by peripheral organization to IASB
79
What is the 1st tier of the IASB Hierarchy?
IFRS standards
80
What is the 2nd tier of the IASB Hierarchy?
Standards from predecessor to IASB (IASC for example)
81
What is the 3rd tier of the IASB Hierarchy?
Interpretations issued by peripheral organization to IASB
82
What was the predecessor to the IASB?
IASC
83
What was the predecessor to the IASB?
IASC
84
How does FASB's ASCs differs to IASB's IFRS and its hierarchy?
No hierarchy with FASB, if it's in the ASC it's part of GAAP
If it's not in the ASC it's not part of GAAP, you don't go looking at standards of FASB predecessors
85
How many Board members does FASB have?
7 members
86
How many Board members does IASB have compared to FASB?
Nearly double (FASB has 7)
87
IASB's 3 Tier Governance Structure
1. IFRS Foundation Monitoring Board
2. ????
3. IASB
IFRS Foundation Trustees
88
IASB's 3 Tier Governance Structure
1. ?????
2. IFRS Foundation Trustees
3. IASB
IFRS Foundation Monitoring Board
89
IASB's 3 Tier Governance Structure
1. IFRS Foundation Monitoring Board
2. IFRS Foundation Trustees
3. ?????
IASB
90
What are the 3 Tiers of IASB Governance Structure
1. IFRS Foundation Monitoring Board
2. IFRS Foundation Trustees
3. IASB
91
What is the 1st tier of iASB governance structure
IFRS Foundation Monitoring Board
92
IFRS Foundation Monitoring Board is the first tier of the IASB Governance Structure - What do they do?
They oversee the IFRS Foundation trustees- the second tier
93
IFRS Foundation Trustees is the 2nd tier of the IASB Governance Structure - What do they do?
Select the board members and provide oversight for IASB
94
IASB is the 3rd tier of the IASB Governance Structure - What do they do?
Issue IFRS
95
In the IASB Governance Structure - what 2 departments are to the left and right of IASB on the chart?
1. ?????
2. IFRS Interpretations Committee
IFRS Advisory Council
96
In the IASB Governance Structure - what 2 departments are to the left and right of IASB on the chart?
1. IFRS Advisory Council
2. ?????
IFRS Interpretations Committee
97
In the IASB Governance Structure - what 2 departments are to the left and right of IASB on the chart?
1. IFRS Advisory Council
| 2. IFRS Interpretations Committee
98
What does the IFRS advisory council do to assist IASB in IASB Governance Structure?
Provides advice to IASB about which projects to add ot agenda
99
What does the IFRS Interpretations Committee do to assist IASB in IASB Governance Structure?
Look at different issues coming in international accounting
For example: they see 2 companies accounting the same transaction in different ways and don't think it's consistent with IFRS
They look at the existing IFRS and try to find a consensus on the way it should be accounted for so the IASB doesn't have to get involved and issue a new IFRS
100
FASB tiers of Governance Structure
1. ????
2. FASB
3. ASC
FAF
101
FASB tiers of Governance Structure
1. FAF
2. ????
3. ASC
FASB
102
FASB tiers of Governance Structure
1. FAF
2. FASB
3. ????
ASC
103
FASB tiers of Governance Structure
1. FAF
2. FASB
3. ASC
104
What does FAF stand for?
Financial Accounting Foundation
105
The FAF is the 1st tier to FASB governance structure - What do they do?
Select the board members of FASB
106
The FASB is the 2nd tier to FASB governance structure - What do they do?
Create ASC
107
Whats the FASB counterpart to issuing IFRS like the IASB?
Issuing ASU - an accounting standards update
108
What do ASUs do to ASCs
they amend them
109
In the FASB governance structure - what are the 2 departments to the left and right of FASB
1. ????
2. Emerging Issues Task Force (EITF)
Financial Accounting Standards Advisory Committee (FASAC)
110
In the FASB governance structure - what are the 2 departments to the left and right of FASB
1. Financial Accounting Standards Advisory Committee (FASAC)
2. ?????
Emerging Issues Task Force (EITF)
111
In the FASB governance structure - what are the 2 departments to the left and right of FASB
1. Financial Accounting Standards Advisory Committee (FASAC)
2. Emerging Issues Task Force (EITF)
112
What does the FASAC do to assist FASB in Governance Structure?
Provides advice to FASB about which projects to add to agenda
113
What does the EITF do to assist FASB in Governance Structure?
Take current issues in account and see if it can be dealt with current ASC and reach a consensus so FASB doesn't have to get involved
114
What is FinCEN
Financial Crimes Enforcement Network
115
Service Efforts and Accomplishments (SEA) helps bring ____ information to citizens to help with their assessment, program selection and implementation
performance results
116
Things within the scope of the GASB standard setting mission
- ??????
- External financial reporting
- Assisting users in assessing the level of service that can be provided by governmental entities
Conceptual Framework for accounting and reporting standards
117
Things within the scope of the GASB standard setting mission
- Conceptual Framework for accounting and reporting standards
- ??????
- Assisting users in assessing the level of service that can be provided by governmental entities
External financial reporting
118
Things within the scope of the GASB standard setting mission
- Conceptual Framework for accounting and reporting standards
- External financial reporting
- ??????
Assisting users in assessing the level of service that can be provided by governmental entities
119
Things within the scope of the GASB standard setting mission
- Conceptual Framework for accounting and reporting standards
- External financial reporting
- Assisting users in assessing the level of service that can be provided by governmental entities
120
Does GASB establish the goals and objective of state and local governmental services?
No
121
Who establishes the goals and objectives of state and local governmental services?
Management, elected officials governmental stakeholders,
122
Under 1st time adoption of IFRS, an entity may elect to use fair value as deemed cost for....
Assets carried at cost (Ex: PPE)
123
Objectives of Financial Reporting Stem from ....
The needs of external users of information
124
Why are Note Disclosures considered essential for governmental financial reporting - according to GASB Concepts Statement No. 3
Notes add descriptions and detail that have a clear and demonstrable relationship to the financial statements
125
GASB concept Statement No. 4 - Definition of Assets
Assets, per GASB Concept statements No 4 must provide service capacity and be controlled by the government
126
GASB concept Statement No. 4 - Definition of Liabilities
Present obligations to sacrifice resources that the government has little or no discretion to avoid
127
A full set of Financial Statements includes...
Statement of comprehensive income
Statement of changes of owners equity
Also the obvious 3 (balance, income, Cash Flow)
128
Comprehensive income includes all changes in equity during a period except those resulting from ______ and ______
Investments by owners
Distributions to owners
129
When Converting from Accrual Basis to Cash Basis Net Income - How is change in accounts payable treated?
Added to Accrual basis to get to cash basis
130
When Converting from Accrual Basis to Cash Basis Net Income - Why is a decrease in A/P subtracted.
Because a decrease in a/p means the cash payments exceed the current periods accrual bais expenses.
131
The SFAC objectives are designed to ….
Constitute a foundation for financial accounting standards.
132
The SFACS do/are NOT…
- ????
- Enforceable under the Rules of Conduct of the Code of Professional Ethics
- Considered authoritative pronouncements
Establish accounting standards and disclosure practices for particular items
133
The SFACS do/are NOT…
- Establish accounting standards and disclosure practices for particular items
- ??????
- Considered authoritative pronouncements
Enforceable under the Rules of Conduct of the Code of Professional Ethics
134
The SFACS do/are NOT…
- Establish accounting standards and disclosure practices for particular items
- Enforceable under the Rules of Conduct of the Code of Professional Ethics
- ?????
Considered authoritative pronouncements
135
The SFACS do/are NOT…
- Establish accounting standards and disclosure practices for particular items
- Enforceable under the Rules of Conduct of the Code of Professional Ethics
- Considered authoritative pronouncements
136
____- Defines income as change in net resources other than from owner transactions
Financial Capital Maintenance Concept
137
______ is the concept used in present financial statement and comprehensive income
Financial capital maintenance concept
138
____ has less perspective standard layouts than ______ in that it doesn't prescribe a standard layout, but includes a list of minimum items
IFRS
US GAAP
139
What is the Date of Transition for a company adopting IFRS for the 1st time?
Earliest period for which comparative information is presented
140
How is recognition defined?
The process of formally recording or incorporating an item in the financial statements
141
What is the cost benefit constraint?
In determining the kind and amount of information to be provided in the financial statements, the cost of obtaining the information must be considered
142
IASB Conceptual Framework addresses which of the following concepts of capital?
Financial and Physical
143
FASB Process for Creating Standards
1. ?????
2. Hold Public Meetings
3. Issue Exposure Draft.
4. Comment Letters
5. Another public meeting (maybe)
5. Issue ASU (Maybe)
Add to agenda
144
FASB Process for Creating Standards
1. Add to agenda
2. ???????
3. Issue Exposure Draft.
4. Comment Letters
5. Another public meeting (maybe)
5. Issue ASU (Maybe)
Hold Public Meetings
145
FASB Process for Creating Standards
1. Add to agenda
2. Hold Public Meetings
3. ??????
4. Comment Letters
5. Another public meeting (maybe)
5. Issue ASU (Maybe)
Issue Exposure Draft.
146
FASB Process for Creating Standards
1. Add to agenda
2. Hold Public Meetings
3. Issue Exposure Draft.
4. ???????
5. Another public meeting (maybe)
5. Issue ASU (Maybe)
Comment Letters
147
FASB Process for Creating Standards
1. Add to agenda
2. Hold Public Meetings
3. Issue Exposure Draft.
4. Comment Letters
5. ??????
5. Issue ASU (Maybe)
Another public meeting (maybe)
148
FASB Process for Creating Standards
1. Add to agenda
2. Hold Public Meetings
3. Issue Exposure Draft.
4. Comment Letters
5. Another public meeting (maybe)
5. ????
Issue ASU (Maybe)
149
FASB Process for Creating Standards
1. Add to agenda
2. Hold Public Meetings
3. Issue Exposure Draft.
4. Comment Letters
5. Another public meeting (maybe)
5. Issue ASU (Maybe)
150
Where should all the adjustments - from applying IFRS 1 - first time adaption of IFRS - be recognized
Directly min Retained Earnings or, if appropriate, in another category of equity
151
What is the overriding principle of IFRS - First time adoption of IFRS
Full retrospective application of all IFRS Standards.
152
According to GASB Concepts Statement No. 2, measures of service accomplishments focus on _______ and ______
Outputs and Outcomes
153
According to the FASB conceptual framework, the objective of general purpose financial reporting is based on
The needs of the users of information
154
Under IFRS, what is considered investment property
An asset held to earn rent or for capital appreciations (or both)
Part of a building held to earn rentals is considered investment property
155
Accounting Treatment for impairment of long lived assets, good will and intangibles under GAAP and IFRS
1. GW and intangible assets with indefinites lives to be reviewed at least annually for impairment and more frequently if impairment indicators are present
2. Require that an asset found to be impaired be written down and an impairment loss recognized
3. ????
Prohibit reversal of the impairment of goodwill
156
Accounting Treatment for impairment of long lived assets, good will and intangibles under GAAP and IFRS
1. ?????
2. Require that an asset found to be impaired be written down and an impairment loss recognized
3. Prohibit reversal of the impairment of goodwill
GW and intangible assets with indefinites lives to be reviewed at least annually for impairment and more frequently if impairment indicators are present
157
Accounting Treatment for impairment of long lived assets, good will and intangibles under GAAP and IFRS
1. GW and intangible assets with indefinites lives to be reviewed at least annually for impairment and more frequently if impairment indicators are present
2. ?????
3. Prohibit reversal of the impairment of goodwill
Require that an asset found to be impaired be written down and an impairment loss recognized
158
The reversal of loss of long lived assets held and used is allowed under ____ but not under _____
IFRS
US GAAP
