Conceptual Framework (Part I) Flashcards
Name the two general purpose frameworks of accounting
IFRS and GAAP
Name the four special purpose frameworks of accounting referenced in the text
Cash, (and modified cash) tax, contractual and regulatory
Name the simplified form of GAAP for non publicly traded companies
PCC- Private Company Council
Name the six main objectives of financial reporting
- To provide information useful to investors, lenders and creditors.
- To provide information about an entity’s economic resources and claims against those resources.
- To report changes in economic resources and claims.
- To report financial performance reflected by accrual accounting.
- To report financial performance reflected by past cash flow.
- To report changes in resources and claims that do not result from financial performance.
Name the two primary qualitative characteristics
Relevance and faithful representation
Name the two components of relevance
Predictive value and confirmatory value (subject to materiality constraints. (PC)
Name the components of faithful representation
Free from error, neutral, and complete (FeNCe)
Name the enhancing qualitative characteristics
Comparability, understandable, timely and verifiable.
Name the four primary financial statements
Income statement, balance sheet, cash flows and statement of changes in owners equity.
What is the physical capital maintenance concept?
Measures changes when the asset is sold or liability is settled. Usually applied to fixed assets.
What is the capital maintenance concept?
Measures changes when the value of the asset or liability changes. Usually applied to marketable securities.
What are the four elements of comprehensive income?
Revenues, expenses, gains and losses
How are fixed assets reported?
At historical cost (depreciation aside)
How is inventory reported?
At the lower of cost or market
How are receivables reported?
At net realizable value (gross less allowance for uncollectibles)
How are receivables written down as a result of impairment?
Receivables are written down to fair value or the present value of the expected future cash flows. In certain circumstances they are written down to the NRV of collateral.
How often are Goodwill and intangibles tested for impairment?
At least annually
Under the fair value option, which items are not reported at fair value?
Leases, pension plans, equity components and share based payments/stock options.
When the fair value option is elected, where are unrealized gains/losses reported?
In income, regardless of whether or not they would otherwise be reported in OCI.
What are the three valuation techniques to determine the FMV of an asset
The Market Approach (using info from transactions involving similar or identical assets) the income approach (analyzes future revenues, cost savings etc) and the cost approach (based on the cost of replacement)
What are the three levels of input?
Level 1- Uses observable data for an identical asset in an active market.
Level 2- Uses observable data for an identical asset sold outside of an active market or a similar asset sold in an active market.
Level 3- Largely based on managements judgement.
What are the required disclosures for asset/liability valuation?
- Identification of items reported at FMV
- The level of input
- The valuation technique applied
- The change in FV
What are the methods of recognizing expenses?
Cause and effect (can be matched to revenues) systematic and rational allocation (i.e, depreciation) and immediate recognition.
