Accounting Standard Setting Bodies & Processes

Question 1

Good financial info has several ENHANCING qualities

Answer 1

1. Comparability (allows users to compare info w/ other info to identify and understand similarities and diffs among items)
2. Verifiability (means independent ppl who are knowledgeable can reach consensus that info is faithfully rep’d)
3. Timeliness (means having info available at a time when it is useful in influencing decisions)
4. Understandability (indicates the info presented is clear and concise)

There is no order of importance to these qualities, they should be applied consistently and repetitively.

Question 2

Two fundamental qualities of useful accounting info are:

Answer 2

1. Relevance - capable of making a difference to financial users (also needs to be material, predictive and confirmatory)
2. Faithful representation - represents what it is intended to represent (also needs to have completeness, freedom of material error and neutrality)

Question 3

Most authoritative source of US GAAP (for nongovernmental)

Answer 3

FASB Accounting Standards Codification

Question 4

FASB basic standard setting process for new rules

Answer 4

1. The Board identifies issues based on requests/recommendations from stakeholders or other means
2. The FASB staff prepares analysis of issue and FASB decides whether to add a project to the technical agenda
3. The FASB Board holds public meetings (can issue Discussion Paper to obtain input in early stages of project)
4. The Board issues an Exposure Draft of proposed update for stakeholder input (must remain open for at least 30 days)
5. The FASB staff collects and analyzes info throughout the process and the Board redeliberates the proposal at public meetings
6. The Board issues an Accounting Standard Update (ASU) describing amendments that are then incorporated into the Codification

Question 5

SEC basic steps in rulemaking process

Answer 5

1. Concept Release
2. Rule Proposal
3. Rule Adoption

Question 6

Comprehensive Income

Answer 6

Change in equity from transactions and other events and circumstances from NONOWNER sources.

Question 7

Comparability

Answer 7

Allows users to compare information with other information to identify and understand similarities and differences among items.

Question 8

Verifiability

Answer 8

Means that independent observers who are knowledgeable can reach consensus, even if not in complete agreement, that the information is a faithfully represented.

Question 9

Timeliness

Answer 9

Means having information available at a time when it is useful in influencing decisions. In general, information becomes less useful as it ages.

Question 10

Understandability

Answer 10

The information presented is clear and concise.

Question 11

Multi-step income statement

Answer 11

Sales
-COGS
=Gross Profit
-Selling, general & admin exps
=Operating income
\+interest & dividend income
-interest expense
\+non-operating gain/losses
=Income from continuing ops before provision for inc tax
-inc tax
=Income from continuing ops
\+gain/-loss from discontinued operation
=Net Income

Question 12

Other comprehensive income

Answer 12

• Foreign currency translation adjustments
• G(L) on foreign currency transactions that are economic hedges
• Effective portion of G(L) on cash flow hedges
• Unrealized holding G(L) on available-for-sale debt securities

*if a derivative instrument is ineffective then the changes are always reported on the IS

Question 13

Other Comprehensive Income items:

Answer 13

ASC 220-10-45-10A lists the items to include in other comprehensive income:

• Foreign currency translation adjustments.
• Gains and losses on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity, commencing as of the designation date.
• Gains and losses on intra-entity foreign currency transactions that are of a long-term-investment nature (that is, settlement is not planned or anticipated in the foreseeable future), when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting entity’s financial statements
• Gains and losses (effective portion) on derivative instruments that are designated as, and qualify as, cash flow hedges.
• Unrealized holding gains and losses on available-for-sale securities.
• Unrealized holding gains and losses that result from a debt security being transferred into the available-for-sale category from the held-to-maturity category.
• Amounts recognized in other comprehensive income for debt securities classified as available-for-sale and held-to-maturity related to an other-than-temporary impairment recognized in accordance with Section 320-10-35 if a portion of the impairment was not recognized in earnings.
• Subsequent decreases (if not an other-than-temporary impairment) or increases in the fair value of available-for-sale securities previously written down as impaired.
• Gains or losses associated with pension or other post retirement benefits (that are not recognized immediately as a component of net periodic benefit cost).
• Prior service costs or credits associated with pension or other post retirement benefits.
• Transition assets or obligations associated with pension or other post retirement benefits (that are not recognized immediately as a component of net periodic benefit cost).

Question 14

Changes to Owners’ Equity

Answer 14

Beg Owners’ Equity Bal
+ Issuance of common stock
+ Issuance of preferred stock
+ Additional paid in capital
+/- Net income(loss)
- Repurchase of common stock (treasury stock)
- Dividends declared (if pd in current year, then net effect is zero)

Question 15

Calculation for income attributable to the controlling interest in a consolidated I/S

Answer 15

Consolidated net income
-NI attributable to non-controlling interest(s)
=NI attributable to parent company