Ch 1 Flashcards
Financial accounting
Process that culminates to preparation of financial
Reports for internal and external party use
Essential characteristics of accounting?
Identification, measurement and communication of
Financial info about economic entities to interested parties
Managerial accounting
Process of identifying, measuring, analyzing and
communicating financial info needed by management to
Plan, control and evaluate company’s operations
How does accounting assist in scarce use of resources?
Helps inform parties on which businesses
Are most efficient with managing limited resources
Objective of financial reporting?
Provide financial information about the reporting entity
That is useful to present and potential equity investors,
Lenders and other creditors in decisions to that entity
Primary users of general purpose financial statements?
Investors and creditors
Entity perspective
Companies are viewed as separate and distinct form
Their owners
Proprietary perspective
Financial reporting should only be focused on the needs of
The shareholders
Stewardship
Entity’s Performance in discharging its responsibilities
2 factors under the decision usefulness approach of investors?
Company’s ability to generate net cash inflows
Management’s ability to protect and enhance the capital providers’ investments
Accrual basis accounting
Ensures that company records events that change it’s
Financial statements in periods when events occur
Rather than only when it receives or pays cash
Expectations of general purpose financial statements?
Users expect statements presented fairly, clearly and
Completely cover the company’s financial operations
3 organizations essential in setting GAAP financial accounting standards?
Securities and Exchange Commission (SEC)
American Institute of Certified Public Accountants (AICPA)
Financial Accounting Standards Board (FASB)
FASB Main purpose?
Develop accounting standards
Improve guidance for financial reporting
International Organization of Securities Commissions (IOSCO)
Consists of over 100 securities regulatory agencies
Or securities exchanges throughout the world
Established 1987
Accounting Standards Executive Committee (AcSEC), 3 written ways the AcSEC communicates?
Committee authorized to speak for AICPA in area of
financial Accounting and reporting
Written communications: Audit and Accounting Guides,
Statements of Position, Practice Bulletins
Audit and Accounting Guides
Summarize accounting practices of specific industries
And provide guidelines for matters not addressed by the FASB
Statements of Position (SOPs)
Provide guidance on financial reporting topics until
FASB sets standards for issue
SOPs may update, revise and clarify audit
and accounting guides
Practice Bulletins
Indicate the AcSEC’s views on narrow financial reporting
Issues not considered by the FASB
What did Sarbanes Oxley diminish the role of?
That the AICPA and AcSEC will no longer issue authoritative
Accounting guidance for public companies
Financial Accounting Foundation (FAF)
Selects members of the FASB and Advisory Council,
Funds their activities and generally oversees FASB’s
Activities
5 changes to the FASB under Sarbanes Oxley?
1 Smaller membership, 7 members
2 Full time remunerated membership: 5 yr. terms well paid
3 Greater Autonomy: answers only to Financial Accounting Foundation
4 increased independence: FASB members must sever ties from private positions at firms
5 Broader representation: not required to be a CPA. To
Be member of FASB
Financial Accounting Standards Advisory Council (FASAC)
Consults on major policy issues, technical issues,
Project priorities and selection and organization
Of task forces
2 types of FASB major pronouncements?
Accounting standards updates
Financial Accounting Concepts
