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FAR OVERALL > Conceptual Framework, standards, standard setting, and FS > Flashcards

Conceptual Framework, standards, standard setting, and FS Flashcards

1
Q

Goals of Convergence

A
  • To eliminate the diff in GAAP & IFRS

- Improve both GAAP & IFRS

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2
Q

SEC’s Rulemaking - steps

A
  1. Concept release
  2. Rule Proposal
  3. Rule Adoption
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3
Q

What is the SEC standard-setting authority?

A

is a governmental entity created to protect the interest of investors by ensuring full and adequate disclosure by publicly traded companies. Although the SEC has the authority to establish standards, it has generally deferred to the Financial Accounting Standards Board (FASB) or its predecessors to generate U.S. accounting standards.

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4
Q

Types of rules generally issued by SEC

A

Issues financial reporting releases that usually agree with GAAP

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5
Q

Operating Procedure for issuing FASB Accounting Standards update

A

Majority vote of FASB

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6
Q

Financial Reports serve as:

A

the primary source for financial information about the entity to the primary users since information cannot be provided directly to these users

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7
Q

Reporting Inventory at the lower of cost or market is a departure from the accounting principle of:

A

Historical Cost

-specifies that assets be recorded and carried at their historical acq. cost. Inventory is reported at the lower of cost or market

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8
Q

What are the FASB, SEC and IASB working towards

A

Convergence- Single set high-quality international standards

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9
Q

entity develops and distributes accounting standards for non-U.S. companies?

A

IASB - is an international organization organized to develop international financial reporting standards (IFRSs)

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10
Q

To determine the accounting treatment for a transaction, a governmental entity must first refer to

A

the Codification of Governmental Accounting and Financial Reporting Standards.

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11
Q

Recognition

A

is the process of formally recording or incorporating an item into the financial statements of an entity as an asset, liability revenue, expense or the like

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12
Q

Comprehensive Income

A

is the change in equity of a business during the period from transactions and other events and circumstances from nonowner sources.

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13
Q

For information to be relevant-

A

Predictive, Confirming, Materiality

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14
Q

Matching Principle

A

process of associating realized revenues with the expenses and expired costs that were necessary to generate the revenues

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15
Q

What are the Statements of Financial Accounting Concepts intended to establish

A

The objectives and fundamental concepts that will be the basis for development of financial accounting and reporting guidance.

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16
Q

According to the FASB’s conceptual framework, the objectives of financial reporting for business enterprises are based on:

A

the needs of the users of the information.

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17
Q

Articulation

A

the elements of financial statements are fundamentally interrelated in two ways: (1) beginning balance + changes = ending balance, and (2) assets = liabilities + equity. The concept of double-entry accounting (i.e., debits = credits) incorporates these relationships.

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18
Q

How does IFRS and GAAP differ with qualitative characteristics

A

They don’t. They are the same.

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19
Q

What is the difference between managerial and financial accounting?

A

Managerial does not follow GAAP

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20
Q

Objectivity?

A

Basic accounting principle that states that the economic activity that underlies FS must be substantive in fact and presented without bias is the principle of Objectivity.

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21
Q

According to the FASB’s conceptual framework, the usefulness of providing information in financial statements is subject to the constraint of:

A

cost-benefit.

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22
Q

What are the qualitative characteristics that enhance the usefulness of information that is relevant and faithfully represented?

A

Comparability, verifiability, timeliness, and understandability

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23
Q

In analyzing a company’s financial statements, which financial statement would a potential investor primarily use to assess the company’s liquidity and financial flexibility?

A

Balance Sheet

Liquidty- is the convertibility of an entity’s assets into ready cash to meet current obligations. Liquid assets are cash on hand and in banks and marketable securities readily convertible into cash.

24
Q

IFRS and GAAP - how do they stand on the objective of general purpose financial reporting

A

They same - Useful to the primary users

25
Q

What is GAAP?

A

are the basic concepts underlying financial accounting and reporting that have substantial authoritative support.

26
Q

What is continuity or going concern?

A

is that a business entity will continue to operate indefinitely.

27
Q

Economic Entity Assumption?

A

is the presumption that all economic events can be identified with a particular economic entity and that the activities of a company can be distinguished from those of its owners.

28
Q

Periodicity Assumption

A

relates to the ability to divide the “life” of a business into shorter, artificial time periods for financial reporting purposes.

29
Q

Monetary Unit Assumption

A

is that the monetary unit (dollars in the U.S.) is the most appropriate common denominator for measuring, reporting, and analyzing economic activity.

30
Q

Historical cost

A

Property, plant, and equipment and most inventories are reported at their historical cost, which is the amount of cash, or its equivalent, paid to acquire an asset, commonly adjusted after acquisition for amortization or other allocations.

31
Q

Current cost

A

Some inventories are reported at their current (replacement) cost, which is the amount of cash, or its equivalent, that would have to be paid if the same or an equivalent asset were acquired currently.

32
Q

Current market value

A

Some investments in marketable securities are reported at their current market value, which is the amount of cash, or its equivalent, that could be obtained by selling an asset in orderly liquidation.

33
Q

Net realizable (settlement) value

A

Short-term receivables and some inventories are reported at their net realizable value, which is the nondiscounted amount of cash, or its equivalent, into which an asset is expected to be converted in due course of business less direct costs, if any, necessary to make that conversion.

34
Q

Present (or discounted) value of future cash flows

A

Long-term receivables are reported at their present value (discounted at the implicit or historical rate), which is the present or discounted value of future cash inflows into which an asset is expected to be converted in due course of business less present values of cash outflows necessary to obtain those inflows.

35
Q

What is the purpose of SFAC 4 as stated in that concepts statement?

A

To provide a basis for establishing detailed accounting and reporting standards for nonbusiness entities

36
Q

SFAC 4 suggests what performance indicators for nonbusiness organizations?

A

Information about both the nature and relationship between inflows and outflows and service efforts and accomplishments

37
Q

Paramount objective of fin reporting by state and local govts

A

Accountability

38
Q

GASB 1600.103 requires governmental entities to issue which two sets of financial statements?

A

The statement of net position and the statement of activities (or statement of rev and exp)

39
Q

What are the subobjectives of accountability in GASB?

A
  1. Interperiod Equity - provide info to determine whether current year revs were sufficient to pay for current year services
  2. Budgetary and fiscal compliance - demonstrate whether resources were obtained and used in accordance with the entity’s legal adopted budget
  3. Service Efforts Costs and Accomplishments - Provide info to assist users in assessing the service efforts, costs, and accomplishments of the govt’l entity
40
Q

GASB Concept Statement 1, the primary characteristics of govt’l structure

A

(1) The representative form of government and the separation of powers
(2) The federal system of government and the prevalence of intergovernmental revenues
(3) The relationship of taxpayers to services received

41
Q

The asset/liability method of accounting for income taxes requires that deferred income taxes be:

A

based on the tax rates currently enacted for the future periods in which the temporary differences are expected to reverse.

42
Q

Where are estimated income taxes presented in the Personal FS?

A

Between liabilities and net worth in the statement of financial conditions

43
Q

What are the 3 acceptable methods to report taxable income?

A
  • Cash basis
  • Accrual Basis
  • Hybrid Method
44
Q

How to account for life insurance policies on personal FS

A

Cash Surrender Value - any loans against it

45
Q

In the FS of employee benefit pension plans and trusts, the plan investments are reported at:

A

FV

46
Q

What is the purpose of consolidated statements?

A

To present…the results of operations and the financial position of a parent and all its subsidiaries essentially as if the consolidated group were a single economic entity

47
Q

What is a hybrid method of determining taxable income?

A

Is a combination of the cash and accrual methods. Generally, a company using the cash method must use the accrual method for the accounts involved in computing COGS and GP if inventory is a material income-producing factor. The cash method can be used for all other accounts.

48
Q

Income is constructively received, if:

A
  • it is readily available to the taxpayer and

- actual receipt is not subject to substantial limitations or restrictions

49
Q

The Statement of Changes in Net Assets (For Benefits of a Defined Benefit Pension plan)

A
  • Change in FV of each significant type of investment
  • Investment Income
  • Contributions from employers and participants
  • Benefits paid to participants
  • Payments to insurance entities to purchase contracts
  • Admin Expenses
50
Q

How does personal financial statements account for assets and liabilities

A

FV - Therefore artwork would be accounted for at the appraised value

51
Q

Info on Cash Basis

A

The cash basis method of accounting is not an allowable method under GAAP unless there is no material difference from the accrual method. However, cash basis financial statements are sometimes provided for investors or creditors. Cash basis accounting results in a measure similar to net income called net operating cash flow. Net operating cash flow is the difference between cash receipts and cash disbursements.

The cash basis is an acceptable method for the preparation of tax returns

52
Q

When must a large accelerated filer file its Form 10-Q?

A

40 days after the end of the quarter

53
Q

Formula for total assets

A

Total Assets = Total Liabilities + Stockholders Equity

54
Q

Investing CF Notes

A

Cash inflows from investing activities include receipts from sales of property, plan and equipment. These receipts include directly related proceeds of insurance payments

55
Q

Disclosures in the Statement of CF

A

(1) Amount of income taxes paid during the period
(2) Amount of interest paid during the period
(3) Reconciliation of NI and net CF from operating activities (if the direct method is used, this is ordinarily done in a related note; if the indirect method is used, this is ordinarily part of the SCF section on operations

56
Q

Steps to SCF

A
  1. Determine the change in cash for the period, noting not only the amount of change but also the direction of change
  2. Analyze the trail bal or BS accts to determine CF in operating, investing, financing categories
  3. Determine the amts of Oper, Invest, Financing CF reconcile the change in cash for the period. If they do not , reconsider changes in BS accts to identify incorrect or omitted items. Continue until the reconciliation can be made
  4. Prepare the statement of CF, applying the form and content principles, including supp disclosures
57
Q

IFRS differences in CF to GAAP

A
  • bank overdrafts are presented as operating activities under IFRS and financing under GAAP
  • Interest and dividends received are presented as oper or invest under IFRS - only oper under GAAP
  • CF from extraordinary items are required to be disclosed separately under the categories of GAAP - IFRS does not use extraordinary items

FAR OVERALL (18 decks)

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