Conceptual Framework

Question 1

Faithful Representation

Answer 1

Completeness (Are all necessary facts included in the information)
Neutral (The information is free from bias)
Free from error (Info doesn’t contain any material errors)

Question 2

Relevance

Answer 2

Predictive value (Does it help make predictions about future events)
Confirmatory value (Does it provide information about earlier expectations or predictions)
Material (Does the information matter to the user? From a size/scope standpoint)

Question 3

Four enhancing characteristics

Answer 3

Comparability
Verifiability
Timeliness
Understandability

Question 4

Comparability

Answer 4

Can the info be used to compare to other companies in the same industry (consistency)

Question 5

Verifiability

Answer 5

Independent observers would reach the same conclusion

Question 6

Timeliness

Answer 6

The info is recent enough to make a decision with

Question 7

Understandability

Answer 7

A user with a reasonable understanding of business can understand and draw conclusions from the information

Question 8

GAAP three main aspects of financial reporting

Answer 8

Recognition
Measurement
Disclosure

Question 9

Recognition

Answer 9

When an item is recorded on financial statements

Question 10

Measurement

Answer 10

How an item is recorded on financial statements

Question 11

Disclosure

Answer 11

Disclosing anything not on the financial statements

Question 12

Standard Setting Process

Answer 12

1. Project added to agenda
2. Conduct research and issues a discussion memo
3. Hold public hearings on the topic
4. Evaluate research and comments from interested parties and then issue an exposure draft, first version of new standard
5. Solicit additional comments and modify exposure draft if needed
6. Finalize new accounting guidance by a vote, need 4 out of 7 FASB members. If approved they issue the new standard as an Accounting Standard Update (ASU)