Conceptual Framework of Financial Reporting and Business Enterprises Flashcards

1
Q

What is the purpose of the Conceptual Framework?

A

To guide the standard setting process so that GAAP is cohesive & internally consistent
Ultimate goal, financial reporting to be decision useful

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the two primary qualitative characteristics of the conceptual framework?

A

1) Faithful representation: ie can you depend on it?

2) Relevance: does it relate to my decision?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What comprises “faithful representation” characteristic?

A

a) completeness
b) neutrality (free from bias)
c) free from error

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What comprises the “relevance” characteristic?

A

a) predictive value: helps predict future trends, based on past trends
b) confirmatory value: helps understand past actions
c) materiality: influence upon decision

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the 4 Enhancing Characteristics?

A

1) Comparability: between companies
2) Verifiability: independent observers would reach similar conclusion
3) Timeliness: Recent enough to make a difference
4) Understandability: a user w/ reasonable understanding of business can comprehend

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the 4 assumptions in the Conceptual Framework?

A
"Entirely from the gut"
Entity
Going Concern
Unit of Measurement
Time Period
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the “Entity” assumption?

A

Entity is separate & distinct from owners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the “Going Concern” assumption?

A

Company has indefinite life that extends beyond life of owners
Absent evidence to contrary a business will continue on

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the “Unit of Measurement” assumption?

A

Everything is measured in terms of a stable monetary unit of measure
ie. values not adjusted for in inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the “Time Period” assumption?

A

Break indefinite life into quarters, months & years for better evaluation of corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the 4 Accounting principles in Conceptual Framework?

A

“He ran miles further”

1) Historical Cost
2) Revenue Recognition
3) Matching
4) Full Disclosure

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the “Historical Cost” principle?

A

Assets & Liabilities are recorded at the cash equivalent at time of origin

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the “Revenue Recognition” principle?

A
Revenue recognized (ie recorded on F/S) when realized & earned
realized = cash or A/R received
earned = good or service has been delivered
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the “Matching” principle?

A

Expenses matched w/ revenues generated w/in time period entity received benefit from those expenses
ie recognize expenses when they produce revenues

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the “Full Disclosure” principle?

A

Not all information can be recognized on F/S

Those items that cannot are disclosed in the footnotes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the main constraint to Financial Reporting per the Conceptual Framework?

A

Cost-Benefit: cost to the preparer of providing the information should not outweigh the benefit to the user