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Financial Acc Systems 1 > Ch 1 > Flashcards

Ch 1 Flashcards

0
Q

Financial accounting

A

Process that culminates to preparation of financial

Reports for internal and external party use

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1
Q

Essential characteristics of accounting?

A

Identification, measurement and communication of

Financial info about economic entities to interested parties

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2
Q

Managerial accounting

A

Process of identifying, measuring, analyzing and
communicating financial info needed by management to
Plan, control and evaluate company’s operations

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3
Q

How does accounting assist in scarce use of resources?

A

Helps inform parties on which businesses

Are most efficient with managing limited resources

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4
Q

Objective of financial reporting?

A

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

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5
Q

Primary users of general purpose financial statements?

A

Investors and creditors

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6
Q

Entity perspective

A

Companies are viewed as separate and distinct form

Their owners

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7
Q

Proprietary perspective

A

Financial reporting should only be focused on the needs of

The shareholders

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8
Q

Stewardship

A

Entity’s Performance in discharging its responsibilities

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9
Q

2 factors under the decision usefulness approach of investors?

A

Company’s ability to generate net cash inflows

Management’s ability to protect and enhance the capital providers’ investments

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10
Q

Accrual basis accounting

A

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

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11
Q

Expectations of general purpose financial statements?

A

Users expect statements presented fairly, clearly and

Completely cover the company’s financial operations

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12
Q

3 organizations essential in setting GAAP financial accounting standards?

A

Securities and Exchange Commission (SEC)

American Institute of Certified Public Accountants (AICPA)

Financial Accounting Standards Board (FASB)

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13
Q

FASB Main purpose?

A

Develop accounting standards

Improve guidance for financial reporting

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14
Q

International Organization of Securities Commissions (IOSCO)

A

Consists of over 100 securities regulatory agencies
Or securities exchanges throughout the world

Established 1987

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15
Q

Accounting Standards Executive Committee (AcSEC), 3 written ways the AcSEC communicates?

A

Committee authorized to speak for AICPA in area of
financial Accounting and reporting

Written communications: Audit and Accounting Guides,
Statements of Position, Practice Bulletins

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16
Q

Audit and Accounting Guides

A

Summarize accounting practices of specific industries

And provide guidelines for matters not addressed by the FASB

17
Q

Statements of Position (SOPs)

A

Provide guidance on financial reporting topics until
FASB sets standards for issue

SOPs may update, revise and clarify audit
and accounting guides

18
Q

Practice Bulletins

A

Indicate the AcSEC’s views on narrow financial reporting

Issues not considered by the FASB

19
Q

What did Sarbanes Oxley diminish the role of?

A

That the AICPA and AcSEC will no longer issue authoritative

Accounting guidance for public companies

20
Q

Financial Accounting Foundation (FAF)

A

Selects members of the FASB and Advisory Council,
Funds their activities and generally oversees FASB’s
Activities

21
Q

5 changes to the FASB under Sarbanes Oxley?

A

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

22
Q

Financial Accounting Standards Advisory Council (FASAC)

A

Consults on major policy issues, technical issues,
Project priorities and selection and organization
Of task forces

23
Q

2 types of FASB major pronouncements?

A

Accounting standards updates

Financial Accounting Concepts

24
Q

Accounting Standards Updates

A

These updates amend the Accounting Standards Codification
Which represents the source of authoritative
accounting standards issued by SEC

25
Q

Emerging Issues Task Force (EITF)

A

Task force purpose is to reach consensus on how to
Account for new and unusual financial transactions
That may potentially create differing financial reporting
Practices

26
Q

Statements Of Financial Accounting. Concepts

A

Series sets forth fundamental concepts and objectives
The Board uses in developing future standards in financial
Accounting

Does not establish GAAP

27
Q

What does GAAP include?

A

Mixture of 2000 documents from over 70 years including:

APB Opinions, FASB Standards and AICPA Research Bulletins

28
Q

Financial Accounting Standards Board Accounting Codification

A

Provides one place for all authoritative literature related

To particular topics

29
Q

Financial Accounting Standards Board Research System (CRS)

A

CRS is an online, real time database provides easy

Access to Codification

30
Q

Describe impact of rule making on GAAP?

A

GAAP is as much a product of political action

As it is careful logic and empirical findings

31
Q

Economic consequences

A

Impact of accounting reports on wealth positions

Of issuers and users of financial info and decisionmaking

32
Q

5 Changes under Sarbanes Oxley?

A

1 establish oversight board Public Company Accounting Oversight Board (PCAOB) for accounting practices

2 no company affiliation with auditors

3 CEOs and CFOs must certify on annual reports they are providing accurate info

4 auditors must rotate every 5 years

5 requires code of ethics of senior financial officers

33
Q

Internal controls

A

System of checks and balances designed to prevent

And detect fraud and errors

34
Q

Expectations gap

A

What the public thinks accountants should do and

What accountants think they can do

35
Q

What are 5 challenges to report with financial reporting?

A

Nonfinancial measurements

Forward looking information

Soft assets

Timeliness

Understandability

36
Q

4 Nonfinancial measurements?

A

Customer satisfaction indexes

Backlog info

Reject rates of goods purchased

Results of company’s sustainability efforts

37
Q

Soft assets problems reporting?

A

Financial reports fail to talk about company’s intangibles

38
Q

Timeliness

A

Companies only prepare quarterly and annual statements,

Little to no real time financial info is available

39
Q

3 fundamental considerations of FASB?

A

1 improvement of financial reporting

2 simplification of accounting literature and rule making process

3 international convergence

Financial Acc Systems 1 (22 decks)

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