CH1 Financial Accounting and Accounting Standards

Question 1

Financial Accounting

Answer 1

the process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties.

Question 2

Financial Statements

Answer 2

the principal means through which a company communicates its financial information to those outside of it.

Question 3

Types of Financial Statements

Answer 3

balance sheet, the income statement, the statement of cash flows, the statement of owners or stockholders’ equity.

Question 4

Objective of General-Purpose Financial Reporting

Answer 4

provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors.

Question 5

Objective of Decsion-Making

Answer 5

investors are interested in:

• assessing the company’s ability to regenerate net cash inflows
• and management’s ability to protect and enhance the capital providers’ investments

Question 6

G.A.A.P.

Answer 6

the generally accepted accounting principles serve as a common set of standards and procedures adopted by the accounting profession (internal controls-a system of checks and balances designed to prevent and detect fraud and errors).

Question 7

S.E.C.

Answer 7

the Securities and Exchange Commission was established by the federal government to help develop and standardize financial information presented to stockholders (administer the Securities Exchange Act of 1934).

Question 8

A.I.C.P.A.

Answer 8

the American Institute of Certified Public Accountants was a professional organization of practicing CPAs (developed within the private sector).

Question 9

F.A.S.B.

Answer 9

the Financial Accounting Standards Board was a seven-member board created in 1973 that currently establishes and improves standards of financial accounting and reporting for the guidance and education of the public.

Question 10

C.A.P.

Answer 10

the Committee on Accounting Procedure was an organization composed of practicing CPAs which issued 51 Accounting Research Bulletins (ARBs) dealing with a variety of accounting problems from 1939-1959.

Question 11

A.R.B.

Answer 11

the Accounting Research Bulletins were pronouncements issued by CAP dealing with a variety of timely accounting problems during 1939-1959.

Question 12

A.P.B.

Answer 12

the Accounting Principles Board was created by the AICPA, which provided official pronouncements (APB Opinions) from 1959-1973.

Question 13

Goals of the A.P.B.

Answer 13

the Accounting Principles Board was intended to:

• advance written expression of accounting principles
• determining appropriate practices
• narrow the areas of difference and inconsistency in practice

Question 14

A.P.B. Opinions

Answer 14

the Accounting Principles Board Opinions were intended to be based mainly on research studies and be supported by reason and analysis.

Question 15

Study Group on Establishment of Accounting Principles (Wheat Committee)

Answer 15

the group was established to study the APB and recommend changes in its structure and operations (this eventually lead to the creation of the FASB).

Question 16

Sarbanes-Oxley Act of 2002

Answer 16

passed by Congress in response to accounting scandals like Enron, Cendant, Sunbeam, Rite-Aid, and WorldCom.

Question 17

Accounting Standards Updates

Answer 17

these updates amend the Accounting Standards Codifications which represent the source of authoritative accounting standards issued by the SEC.

Question 18

E.I.T.F.

Answer 18

the Emerging Issues Task Force created in 1984 by the FASB, identifies controversial accounting problems as they arise.

Question 19

Financial Accounting Concepts

Answer 19

a series of pronouncements issued by the FASB with the purpose of setting forth fundamental objectives and concepts that the FASB will use in developing future standards of financial accounting and reporting.

Question 20

C.R.S.

Answer 20

the Financial Accounting Standards Board Codification Research System is an online real-time database that provides easy access to the codification.

Question 21

“The Codification”

Answer 21

created by the FASB and provides in one place all the authoritative literature to a particular topic of GAAP.

Question 22

Issues facing financial reporting in the future

Answer 22

• nonfinancial measurements…
• forward-looking information
• soft assets
• timeliness
• understandability

Question 23

I.A.S.B.

Answer 23

the International Accounting Standards Board, based in London, produces the IFRS.

Question 24

I.F.R.S.

Answer 24

the standards created by the London-based IASB that along with GAAP are accepted for international use.

Question 25

Differences between G.A.A.P. and I.F.R.S.

Answer 25

-GAAP is more detailed or rule-based (IFRS is simpler/flexible)