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Intermediate accounting 1 > Ch 1 > Flashcards

Ch 1 Flashcards

1
Q

What are ways to improve financial reporting?

A

a. More detail information
b. Easy to follow SEC and GAAP’s guidelines other than complex bureaucracy
c. Develop comprehensive measurements of performance that examines financial and other business activities.
d. Timeliness

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2
Q

What are essential characteristics of accounting

A

a. Identification
b. Measurement
c. Communication
i. About economic entities
ii. To inform interested parties

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3
Q

Define Financial accounting

A

a. Process of preparing financial reports to inform investors and creditors

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4
Q

Define managerial accounting

A

a. The process analyzes financial reports in order to communicate to interested parties who make financial decisions.

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5
Q

What are examples of financial reporting

A

a. president’s letter or supplementary schedules in the corporate annual report
b. prospectuse
c. reports filed with government agencies
d. news release
e. management’s forecast
f. social or environmental impact statements.

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6
Q

Define Prospectuse

A

a. A formal legal document, which is required by and filed with the Securities and Exchange Commission that provides details about an investment offering for sale to the public.

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7
Q

Explain the process allocation of scarce resources

A

a. Proper financial statements and reports that are timely and effectively
b. If company performance has increased, capital investors are likely to invest into a company.

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8
Q

Define general purpose financial statements

A

a. Provide financial reporting information to a wide variety of users

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9
Q

If investors notice a company’s irregularity in their FS and other “accounting numbers”, how does the investors’ respond?

A

a. It affects a company’s stock prices

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10
Q

Define entity perspective

A

companies are separate from owners

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11
Q

Define proprietary perspective

A

a. Companies are only focused on the needs of share owners

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12
Q

Define decision usefulness

A

a. Financial reports are used to make decisions

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13
Q

How does an investor or creditor decide to invest into a company?

A

a. Determine a company’s cash flows ( allocation of resources)
b. Assess management’s ability to control and increase capital investments

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14
Q

Define accrual accounting

A

a. Recording events that change its financial statements in the periods in which the events occur, rather than only in the periods in which it receives or pays cash.

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15
Q

What are three institutions that follow GAAP?

A

a. Security exchange commission
b. American institute of certified public accounts
c. Financial Accounting Standards Board

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16
Q

What organization was created by US government to enforce GAAP

A

a. SEC

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17
Q

Name the organizations that were developed for the private sector

A

a. AICPA

b. FASB

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18
Q

1Which organization does SEC rely on improving accounting standards?

A

a. FASB

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19
Q

What is a deficiency letter mean to address with a company?

A

a. Irregular account numbers

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20
Q

Which private sector company improves GAAP standards?

A

a. AICPA

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21
Q

What committee was replaced with APB

A

a. CAP ( committee of accounting procedures)
i. Due to failure for lack of structure in accounting principles
ii. Ended on 1959

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22
Q

Define AICPA

A

a. American institute of certified public accountants

b. Important contributor to the development of GAAP

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23
Q

Define FASB

A

a. Financial accounting standards board

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24
Q

Define CAP

A

a. Committee on accounting procedure

b. Developed 51 accounting bulletins

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25
Q

Define APB

A

a. Accounting principles board

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26
Q

What is purpose of APB

A

i. Create accounting principles
ii. Determine appropriate accounting practices
iii. Narrow the areas of difference and inconsistency in practice

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27
Q

APB goal has been focused on development of a conceptual framework in accounting practice

A

a. Yes

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28
Q

What was CAP’s duties

A

a. Provide a bulletin of accounting problems

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29
Q

APB goal has been focused on development of a conceptual framework in accounting practice

A

yes

30
Q

What was APB’s board made of?

A

a. Public accountants

b. Academia reps

31
Q

When did APB “dissolve”

A

1973

32
Q

When APB had opposition from CPA firms and government, what committee oversee APB’s practices?

A

a. Wheat Committee

33
Q

When FASB replaced APB, what committee was established by AICPA?

A

a. Accounting standards executive committee ( ASEC)

34
Q

Define APB opinions

A

a. Declaring new accounting principles from APB’s analysis of research articles

35
Q

Define Wheat committee

A

a. A committee examines APB’s operations

36
Q

Was APB replaced by FASB?

A

yes

37
Q

What committee examined and “spoke for” AICPA?

A

a. Accounting standards executive committee ( AcSEC)

i. Examined financial accounting practices

38
Q

What are the standards that are oversee by AcSEC?

A

a. Audit and accounting guide
b. Statements of position
c. Practice bulletins
d. Grading CPA exams

39
Q

Define Audit and accounting guide

A

a. Summarized different accounting practices in different industries

40
Q

Define Statements of Position

A

a. Provide guidance on financial reporting topics until FASB set standards on question

41
Q

Define Practice bulletins

A

a. Indicate the ASEC’s views on narrow financial reporting issues not considered by FASB

42
Q

Based on Wheat committee’s recommendation, what are new organizations that oversee accounting standards

A

a. Financial accounting foundation (FAF)
b. Financial accounting standards board ( FASB)
c. Financial accounting standards advisory council ( FASAC)

43
Q

When PCAOSB took over audit regulation, what was result

A

a. AICPA and ASEC weren’t allow to set accounting standards

b. AICPA only grades CPA exams.

44
Q

What committee oversee FASB’s activities

A

Financial accounting foundation

45
Q

What are five structures of FASB?

A

a. Smaller membership ( seven members)
b. Full time remunerated membership ( changes membership every five years)
c. Greater autonomy ( yet only answers to FAF)
d. Increased independence ( server ties with other companies)
e. Broader representation ( must be APB member and/or CPA)

46
Q

Define FASAC

A

a. Financial accounting standards advisory council

b. Helps FASB with policies of accounting practices

47
Q

Does FASAC enforce their objectives

A

a. Providing help to FASB by researching technical problems and providing solutions

48
Q

What is purpose of FAF to develop new policies for accounting

A

a. Select members: FASB, GASB, and other advisory boards
b. Fund their activities
c. Monitor activities

49
Q

What is purpose of FASB to develop new policy

A

a. Establish and improve standards of financial accounting and reporting
b. Submit changes to general public or parties of interests

50
Q

What is purpose of FASAC to develop new policy

A

a. Consult other parties on components

51
Q

What are FASB’s pronouncements called?

A

a. Accounting standards updates

b. Financial accounting standards

52
Q

What are the two updates of accounting standards

A

a. Emerging issues task force

b. Accounting standards updates

53
Q

How are accounting standard updates distributed

A

a. Accounting Standards Codification (includes prior APB opinions)

54
Q

Define EITF

A

a. Emerging issues task force

b. Task force has to reach a consensus on accounting practices that result from abnormal financial numbers.

55
Q

What are responsibilities of EITF

A

a. Through consensus and different financial problems, they develop new financial accounting recording method(s).

56
Q

Does EITF solve problems in the long term?

A

No, short term and with or without FASB approval

57
Q

Define Financial accounting concepts

A

a. A form that outlines future standards of financial accounting and reporting
b. Helpful for development of conceptual framework for accounting professionals

58
Q

True or false: statements of financial accounting concepts are established by GAAP

A

a. False, they aren’t established by GAAP. Only through FASB’s approval.

59
Q

Does US and Europe rely on fair market value?

A

a. Yes, it is present cost other than historical.

60
Q

What are the problems with internal controls

A

a. Closing the books
b. Revenue recognition deficiencies
c. Reconciling accounts
d. Deal with inventory

61
Q

What are accounting standards that internal countries adhere to?

A

a. GAAP
b. International financial report standards (IFRS)
c. London based, International Accounting Standards Board(IASB)

62
Q

Are foreign countries who are listed in US exchanges use GAAP?

A

a. Nope, IFRS

63
Q

Identify the major financial statements and other means of financial reporting

A

a. Companies most frequently provide (1) the balance sheet, (2) the income statement, (3) the statement of cash flows, and (4) the statement of owners’ or stockholders’ equity.
b. Financial reporting other than financial statements may take various forms. Examples include the president’s letter and supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management’s forecasts, and descriptions of a company’s social or environmental impact.

64
Q

Explain how accounting assists in the efficient use of scarce resources

A

a. Accounting provides reliable, relevant, and timely information to managers, investors, and creditors to allow resource allocation to the most efficient enterprises. Accounting also provides measurements of efficiency (profitability) and financial soundness.

65
Q

Identify the objective of financial reporting

A

a. The objective of general-purpose financial reporting is to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity through equity investments and loans or other forms of credit. Information that is decision-useful to investors may also be helpful to other users of financial reporting who are not investors.

66
Q

Explain the need for accounting standards

A

a. The accounting profession has attempted to develop a set of standards that is generally accepted and universally practiced. Without this set of standards, each company would have to develop its own standards. Readers of financial statements would have to familiarize themselves with every company’s peculiar accounting and reporting practices. As a result, it would be almost impossible to prepare statements that could be compared..

67
Q

Identify the major policy setting bodies and the role in the standards-setting process

A

The Securities and Exchange Commission (SEC) is a federal agency that has the broad powers to prescribe, in whatever detail it desires, the accounting standards to be employed by companies that fall within its jurisdiction. The American Institute of Certified Public Accountants (AICPA) issued standards through its Committee on Accounting Procedure and Accounting Principles Board. The Financial Accounting Standards Board (FASB) establishes and improves standards of financial accounting and reporting for the guidance and education of the public.

68
Q

Explain the meaning of generally accepted accounting principles (GAAP) and the role of the codification for GAAP

A

a. Generally accepted accounting principles (GAAP) are those principles that have substantial authoritative support, such as FASB standards, interpretations, and Staff Positions, APB Opinions and interpretations, AICPA Accounting Research Bulletins, and other authoritative pronouncements. All these documents and others are now classified in one document referred to as the Codification. The purpose of the Codification is to simplify user access to all authoritative U.S. GAAP. The Codification changes the way GAAP is documented, presented, and updated.

69
Q

Describe the impact of user groups on the rule making process

A

a. User groups may want particular economic events accounted for or reported in a particular way, and they fight hard to get what they want. They especially target the FASB to influence changes in existing GAAP and in the development of new rules. Because of the accelerated rate of change and the increased complexity of our economy, these pressures have been multiplying. GAAP is as much a product of political action as it is of careful logic or empirical findings. The IASB is working with the FASB toward international convergence of GAAP.

70
Q

Describe some of the challenges facing financial reporting

A

a. Financial reports fail to provide (1) some key performance measures widely used by management, (2) forward-looking information needed by investors and creditors, (3) sufficient information on a company’s soft assets (intangibles), (4) real-time financial information, and (5) easy-to-comprehend information.

71
Q

Define users

A

a. Creditor using financial reports to determine if they should lend a company money.

72
Q

Define capital allocation

A

a. The process of determining how and at what cost money is allocated among competing interests.

Intermediate accounting 1 (10 decks)

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