Accounting Standards and Conceptual Framework

Question 1

What is included in the FASB Accounting Standards Codification?
(FEDPRIA)

Answer 1

1. Financial Accounting Standards Board (SFAS, Interpretations, Technical Bulletins, etc.)
2. Emerging Issues Task Force (EITF) Abstracts and Topic D
3. Derivative Implementation Group Issues
4. Accounting Principles Board Opinions
5. Accounting Research Bullletins
6. Accounting Interpretations
7. AICPA (Statements of position, auditing/acct guides, etc.)

Question 2

What SEC standards are included in the Codification?

Regulation For Accounting IS Emerging

Answer 2

1. Regulation S-X
2. Financial Reporting Releases (FRR)
3. Accounting Series Releases (ASR)
4. Interpretative Releases (IR)
5. Staff Accounting Bulletins (SAB)
6. EITF Topic D and SEC Staff Observer Comments

Question 3

Private Company Council (PCC)

Answer 3

Created by the Financial Acct Foundation

Goal: establish alternatives to US GAAP to make private company FS more relevant, less complex, and cost-beneficial

Question 4

What is included in the International Financial Reporting Standards?

Answer 4

IFRS
IASs
Interpretations developed by the IFRIC and former SIC

Question 5

Under the FASB conceptual FW, what is the objective of general purpose financial reporting?

Answer 5

To provide financial info about the reporting entity that is useful to the primary users in making decisions

Question 6

Primary users (external)

Answer 6

Existing/potential investors
Lenders
Creditors

Question 7

Fundamental qualitative characteristics of useful financial info

Answer 7

1. Relevance

2. Faithful representation

Question 8

Relevance

Passing Confirms Money

Answer 8

• Predictive value
• Confirming value
• Materiality

Question 9

Faithful Representation [Reliable]

Completely Neutral is Free from Error

Answer 9

• Completeness
• Neutrality
• Freedom from error

Question 10

Enhancing Qualitative Characteristics

Compare and Verify in Time to Understand

Answer 10

• Comparability (consistency)
• Verifiability
• Timeliness
• Understandability

Question 11

Characteristics of nonbusiness orgs

Answer 11

1. Resources from contributions/grants
2. Operating purposes are other than to provide goods/services for profit
3. Lack of ownership interests that can be sold, transferred, or redeemed

Question 12

Objectives of FR of nonbusiness orgs

Answer 12

Provide information:

1. useful in making resource allocation decisions
2. useful in assessing services/ability to provide services
3. useful in assessing mgmt. stewardship/performance
4. about economic resources, obligations, and net resources, org performance, nature/relationship b/w inflows/outfows

Question 13

Fundamental assumptions of US GAAP

Answer 13

1. Entity assumption
2. Going concern assumption
3. Monetary unit assumption
4. Periodicity assumption
5. Historical cost principle
6. Revenue recognition principle
7. Matching principle
8. Accrual accounting
9. Full disclosure principle
10. Conservatism principle

Question 14

Elements of FS

REGL ALE needs ID

Answer 14

Revenue
Expenses
Gains
Losses

Assets
Liabilities
Equity

Investments by owners
Distributions to owners

Question 15

Capital maintenance adjustments

Answer 15

Increases/decreases in equity that arise from the revaluation/restatement of assets/liabilities

Marked to market value

Question 16

Five elements of present value measurement of FCF

Answer 16

1. Estimate of future cash flow
2. Expectations about timing variations of FCF
3. Time value of money
4. Price for bearing uncertainty
5. Other factors (i.e. liquidity risk)

Question 17

Two approaches to determine PV

Answer 17

1. Traditional approach (PV bonds - scheduled known pymts)

2. Expected CF approach (PV warranties - uncertain future pymts)

Question 18

According to the FASB and IASB conceptual FW, what is the objective of general purpose financial reporting?

Answer 18

To provide financial info that is useful to primary users

Question 19

What is conservatism?

Answer 19

A prudent reaction to uncertainty to try to ensure that uncertainty and risks inherent in business situations are adequately considered

Question 20

What underlying concept supports the immediate recognition of a contingent loss?

Answer 20

Conservatism (it is the recording of an amount representing uncertainty and risk)

Question 21

Recognition

Answer 21

The process of recording an item in the FS of an entity

Question 22

Allocation

Answer 22

Process of assigning/distributing an amount according to a plan or a formula

Question 23

Matching

Answer 23

Simultaneous or combined recognition of revenues and expenses that result directly and jointly from the same transactions or other events

Question 24

Realization

Answer 24

Process of converting noncash resources and rights into money

Question 25

If an entity makes a decision to end operations and quickly dispose of assets, what is the appropriate measurement basis for the equipment?

Answer 25

Net realizable value

Question 26

What is the single source of US GAAP?

Answer 26

FASB Accounting Standards Codification

Question 27

What are the five elements of present value (economic value) measurements used to establish the value of assets or liabilities using cash flow info? (U-VOTE)

Answer 27

``` U - The price for bearing Uncertainty V - Expectations about timing Variations of future cash flows O - Other factors T - Time value of money E - Estimate of future cash flows ```

Question 28

Does the rule of conservatism require the accrual of losses that are probable or reasonably possible?

Answer 28

Probable

Question 29

What assumptions means that money is the common denominator of economic activity and provides an appropriate basis fro accounting measurement and analysis?

Answer 29

Monetary assumption

Question 30

Replacement cost

Answer 30

The amount of cash or its equivalent that would be paid to acquire or replace an asset currently (acquisition cost)

Question 31

Net realizable value

Answer 31

Selling price of an asset less any disposal costs

Question 32

What is the only underlying assumption of financial statement preparation and presentation under the IASB conceptual FW?

Answer 32

Going concern

Question 33

How many members of the IASB must approve an exposure draft?

Answer 33

Nine members

Question 34

According to the FASB conceptual FW, for financial reporting to be useful, it should be understandable by whom?

Answer 34

Those who have a reasonable knowledge of business and economic activities and who are willing to study the info carefully