Chapter 1 - Financial Accounting & Accounting Standards

Question 1

Major Financial Statements

Answer 1

Balance Sheet, Statement of Cash Flows, Income Statement, Statement of Stockholders’ Equity

Question 2

Objective of Financial Reporting

Answer 2

Provide reliable, relevant, and timely information to managers, investors, and creditors to allow resource allocation to the most efficient enterprises.

Question 3

SEC

Answer 3

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.

Question 4

FASB

Answer 4

Establishes and improves standards of financial accounting and reporting for the guidance and education of the public.

Question 5

GAAP

Answer 5

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

Question 6

Groups That Influence FASB

Answer 6

CPA’s/accounting firms; AICPA; Academicians; Investing Public, Business Entities; Financial Community; Preparers; Government; Industry Associations

Question 7

CRS

Answer 7

Codification Research System - online, real-time database that provides easy access to the Codification

Question 8

FASB Updates

Answer 8

Accounting Standards Updates; Financial Accounting Concepts

Question 9

Accounting Standards Updates

Answer 9

Updates amend the Codification

Question 10

Financial Accounting Concepts

Answer 10

Does not establish GAAP; develops the “conceptual framework”

Question 11

Primary users of financial reports

Answer 11

Investors & Creditors

Question 12

Decision usefulness for investors and creditors two primary assessments:

Answer 12

1) firms’ s ability to generate cash inflows

2) management’s ability to protect and infancy capital providers’ investments

Question 13

Committee on Accounting Procedure (1939 - 1959)

Answer 13

AICPA appointed board; issued 51 Accounting Research Bulletins; problem by problem approach failed to provide structured body of accounting principles

Question 14

Accounting Principles Board (APB) establishment & two purposes

Answer 14

(1959 -1973) 1) advance written expression of accounting principles; 2) determine appropriate practices; 3) narrow areas of difference and inconsistency in practice

Question 15

APB Opinions

Answer 15

Intended to be mainly based on research studies and be supported by reason and analysis; there are 31 APB Opinions

Question 16

APB Failure

Answer 16

Charged with lack of productivity and failure to act promptly to curb and correct abuses

Question 17

Wheat Committee

Answer 17

(1971) Examined APB and submitted recommendations to AICPA in 1972, leading to 1972 establishment of FASB

Question 18

Accounting Standards Executive Committee

Answer 18

(AcSEC) Committee authorized to speak for AICPA in the area of financial accounting and reporting

Question 19

AcSEC Main Written Communications (three)

Answer 19

Audit & Accounting Guides; Statements of Position (SOP); Practice Bulletins

Question 20

Audit & Accounting Guides

Answer 20

Summaries the accounting practices of specific industries and provide specific guidance on matters not addressed by the FASB

Question 21

Statements of Position

Answer 21

(SOP) Provide guidance on financial reporting topics until the FASB sets standards on the issue in question

Question 22

Practice Bulletins

Answer 22

Indicate the AcSEC’s views on narrow financial reporting issues not considered by the FASB

Question 23

Sabanes-Oxley Key Provisions

Answer 23

1) Stronger independence for auditors; 2) Codes of ethics for senior financial officers; CEO’s & CFO’s personally certify financial statements; 3) Establish PCAOB

Question 24

PCAOB

Answer 24

Public Company Accounting Oversight Board: oversight and enforcement authority and establishes auditing, quality control, and independence standards

Question 25

Form 10-K

Answer 25

Must be filed annually with SEC; gives comprehensive summary of company’s financial performance

Question 26

Form 10-Q

Answer 26

Form to be filed with SEC on a quarterly basis by publicly traded companies

Question 27

Off-Balance Sheet Financing

Answer 27

(Incognito Leverage) debt or financing activity that is not on a company’s balance sheet (operating leases)

Question 28

Operating Lease

Answer 28

A lease whose term is short compared to the useful life of their asset or piece of equipment

Question 29

Derivatives

Answer 29

A contract that derives its value from the performance of an underlying entity (asset, index, interest rate)

Question 30

Passage of Accounting Standards Update Takes __ out of ___ members

Answer 30

4 out of 7

Question 31

Due Process

Answer 31

1) entire economic community has stake, not just CPA’s 2) operate in full view of public and allow comment