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Acct. 3610 > exam 1 > Flashcards

exam 1 Flashcards

1
Q

Who created the international accounting standards

A

IASB (international accounting standards board)

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2
Q

name of 4 financial statements

A

balance sheet, income statement, statement of cash flow, statement of SE,

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3
Q

what is the objective of financial accounting?

A

-provide useful information so that interested parties can make informed decisions

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4
Q

Who uses financial accounting and who are the primary users of financial statements?

A

-MICSG- managers, investors, creditors, suppliers, government.

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5
Q

what is the entity asumption perspective?

A

A company prepares financial statements separate from the owner’s financial statements. Assets and liabilities are seperate.

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6
Q

What is the GAAP and what does it stand for?

A

Generally Accepted Accounting principles. Set of standardized rules that PUBLIC companies following when preparing financial statements.

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7
Q

Why do we need GAAP?

A
  • Comparability of FS

- Increases the understandability of FS

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8
Q

Three parties involved in standard-setting?

A

SEC, AICPA, FASBY

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9
Q

What year was SEC established?

A

1934

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10
Q

Years of AICPA

A

1939-1973

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11
Q

Year FASB was created?

A

1973

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12
Q

What created SEC?

A

1934 securities exchange Act

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13
Q

How does SEC accomplish its mission/ undertake to maintain efficient markets?

A
  • Oversees the creation of accounting standards
  • enforcement of accounting standards
  • Requires all public companies to file financial statements w SEC
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14
Q

What are the two AICPA organizations that established GAAP?

A
  • Committee on Accounting Procedure

- Accounting Principles Board

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15
Q

What is the AICPA’s current role?

A
  • no longer establishes GAAP
  • Professional Organization
  • Develops and grades CPA exam
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16
Q

What types of pronouncements do FASB issue?

A
  • Update GAAP
    - Accounting standards updates
    - implement guidance through (EITF)
  • Not GAAP
    - financial accounting concepts that the board uses to develop standards
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17
Q

Where can you find all the authoritative literature on us GAAP?

A

FASB codification

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18
Q

What is the FASB codification?

A
  • +++synthesizes and integrates existing gap+++++
  • single place where all the authoritative literature related to a particular topic
  • established in 2009
  • simplifies access to all authoritative GAAP
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19
Q

What is included in the FASB codification

A
  • SABS, ARBs, APB opinions, FASB standards

- FASB staff positions and FASB interpretations

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20
Q

Challenges in financial reporting:

A

expectations gap, financial reporting issues, international financial accounting standards, ethics, political envirnment

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21
Q

what is the expectations gap?

A

what the public thinks the accountant SHOULD do is not always what accountants think they CAN do
ex. Fraud

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22
Q

What year was SOX passed?

A

2002

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23
Q

Why was SOX passed?

A

in response to a series of accounting scandals (Worldcom, enron)

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24
Q

What’re some of the changes (4) SOX made?

A
  • CEOs and CFOS personally certify the financial statement and disclosures are complete
  • Audit partners are required to rotate every 5 yrs
  • Creation of PCAOB (public company accounting oversight board)
  • Requires a code of ethics for senior financial advisors
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25
Q

What is SOX-section 404?

A

Public companies must attest to the effectiveness of their internal controls over financial accounting

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26
Q

Whatre internal controls?

A

System of checks and balances design to prevent fraud and errors

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27
Q

In what ways (4) is mandatory financial reporting deficient?

A
  • Lack of forward-looking info.
  • not timely
  • lack of understandability
  • lack of info on non financial measurements
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28
Q

How have companies attempted to overcome the deficiencies of financial reporting?

A
  • Companies voluntarily disclose info (conference calls)
  • Fair value accounting to make it more timely.
  • FASB is working on addressing the complexity and understandability of FS.
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29
Q

In what ways are the GAAP codification standards updated/ amended?

A

majority vote

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30
Q

Why do we need international financial recording/accounting standards?

A
  • costly for persons in one country to learn another countries standards.
  • costly for companies to prepare financial statements using different forms of GAAP.
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31
Q

What are the international accounting standards called?

A

IFRS- international financial recording standards

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32
Q

Who establishes IFRS?

A

IASB- international accounting standards board

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33
Q

Whatre the benefits of IFRS?

A
  • cuts costs for investors who want to invest outside of country
  • cuts costs for companies who provide info for international investors.
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34
Q

Whatre the negatives (4) of IFRS?

A
  • too much wiggle room
  • enforcement varies across countries
  • switching to IFRS can be costly for companies who arent looking to raise international capital
  • countries have the ability to ajust IFRS to fit country specific needs
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35
Q

Where do we stand today with IFRS?

A
  • us companies thatre listen on the US stock exchange file using the US GAPP
  • International companies thatre listed on the US stock exchange may file using IFRS
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36
Q

Challenges of international financial accounting standards?

A
  • enforcement is still a crucial element to the investors’ decision
  • even if financial statements are prepared using the same standards, investors may not rely on them if they do not trust them
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37
Q

Whatre some ethical challenges in financial reporting??

A
  • difficult to know what to do in specific circumstances
  • sometimes there is no specific guidance for the situation you have encountered
  • If you’re uncomfortable with an accounting position, it is best you advise the interested parties not to take it
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38
Q

When did the FASB start the conceptual framework?

A

1976

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39
Q

What is the 1st level of conceptual framework?

A

The objective (why) of financial accounting

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40
Q

What is the 2nd level (2 parts) of the conceptual framework?

A

Qualitative characteristics of accounting info. and Elements of FS

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41
Q

What is the 3rd level (3 parts) of the conceptual framework?

A

Assumptions (4), Principles (4), Constraints– the HOW of FS

42
Q

What are the two qualitative characteristics in the conceptual framework?

A
  1. Fundamental Qualities

2. Enhancing Qualities

43
Q

What are the fundamental qualities identified by the FASB?

A

(RR)

  1. Relevance
  2. Faithful representation
44
Q

What are the enhancing qualities identified by the FASB?

A

VCUT

  • verifiability
  • comparability
  • understandability
  • timeliness
45
Q

What are characteristics of relevant info?

A

CPM
-confirmatory value

  • predictive value
  • materiality
46
Q

What does ~~predictive value~~ mean and what characteristic does it fall under?

A

Means info has value as an input to the predictive processes used by investors to form their own expectations about the future
-relevance under fundamental qual.

47
Q

What does ~~confirmative value~~ mean and what characteristic does it fall under?

A

means info. helps users confirm or correct prior expectations

-relevance under fundamental qual.

48
Q

What does ~~materiality~~ mean and what characteristic does it fall under?

A

means: does the info. have an impact on a decision-maker?

- relevance under fundamental qual.

49
Q

What is faithful representation with financial statements?

What qual. characteristic does it fall under?

A

The numbers and descriptions match what really existed or happened
-Fundamental

50
Q

What are the characteristics of faithful representation?

A

CNF

  • completeness
  • neutrality
  • free from error
51
Q

Enhancing qualities are (def):

A
  • complementary to the fundamental characteristics

- distinguished more useful info. from less useful info.

52
Q

What makes information comparable?

A

-info is measured and reported in a similar manner for different companies

53
Q

What makes information verifiable?

A

-independent measurers, using the same methods, obtain similar results

54
Q

What makes information timely?

A

-info is available to decision-makers before it loses it capacity to influence decisions

55
Q

What makes information understandable?

A

-the quality of info. allows reasonably informed users to see signficance

56
Q

What elements are associated with the income statement?

A

-revenues, expenses, gains, losses

57
Q

What elements are associated with the balance sheet?

A

assets, liabilities, equity

  • investments by owners
  • distribution to owners
  • comprehensive income
58
Q

TRUEor FALSE? Statements of Financial Accounting Concepts establish GAAP?

A

F

59
Q

Fill in the blank. ______________________ are a system of checks and balances designed to prevent and detect fraud and errors.

A

internal controls

60
Q

What are the two general classifications of expenses discussed in class and the book?

A

period and product

61
Q

A company has a factory building that originally cost the company $250,000. The current fair value of the factory building is $3 million. The president would like to report the differenceas a gain. The write-up would represent a violation of which accounting assumption or principle?

A

historical cost principle

62
Q

TRUE or FALSE? The economic entity assumption means that economic activity can be identified with a particular legal entity.

A

F

63
Q

TRUEor FALSE? Timeliness and neutrality are two ingredients of relevance

A

F

64
Q

Liabilities are listed on the balance sheet in order of _______________________________.

A

maturity

65
Q

The passage of a new FASB Accounting Standards Update requires the support of how many FASB members?

A

4 or majority

66
Q

____________________ means that a company cannot select information to favor one set of interested parties over another.

A

neutrality

67
Q

The _______________________ assumption suggests that the company will have asufficiently long life to fulfill their objectives and commitments.

A

going concern

68
Q

The _______________________ assumption suggests that the company can divide its economic activities into artificial time periods.

A

periodicity

69
Q

Whatre the 4 basic assumptions that underlie the financial accounting structure?

A

Economic entity assumption
going concern assumption
monetary unit assumption
periodicity assumption

70
Q

What is the going concern assumption?

A

company will have a sufficiently long life to fulfill their objectives and commitments.

71
Q

What is the periodicity assumption?

A

company can divide its economic activities into artificial time periods.

72
Q

What is the monetary unit assumption?

A

Money is the common denominator of economic activity and provides an appropriate basis for accounting measurement

73
Q

Why doesn’t inflation violate the monetary unit assumption?

A

-US economy is stable and if there were periods of high inflation the FASBY would consider inflation accounting

74
Q

4 underlying accounting principles:

A
  • measurement principle (historical cost/FV)
  • revenue recog.
  • expense recog.
  • full disclosure
75
Q

What is the historical cost principle?

A

Assets and liabilities recorded at aquisition price

76
Q

What assets are accounted for using historical cost?

A
  • Plant, property, equipment
  • inventory
  • notes receivable
  • all assets but financial assets
77
Q

What is the fair value principle?

A

-assets and liabilities are accounted for and recorded based on current fair market value

level 1: observable inputs– least subjective (stock)
level 2: inputs other than quotes prices (bonds)
level 3: unobservable inputs– most subjective (private equity investments)

78
Q

What assets are reported using fair market value?

A
  • financial assets ( ba)nk deposits, stocks, bonds, and loans
  • stocks or bonds (investments)
79
Q

Example of product costs:

A

material, labor, oH

80
Q

Example of period costs:

A

salaries, administrative costs

81
Q

What is the revenue recognition principle?

A

that one should only record revenue when it has been earned, not when the related cash is collected

82
Q

What is the expense recognition principle

A

recognize the expense when work or product is actually contributing to revenue

83
Q

What is the full disclosure principle?

A

sufficient info. is provided to appropriately influence the judgement and decision making of an informed used

84
Q

The nature and amount of info. included in financial statement mist have…

A
  • sufficient detail into the companies activities to make a difference to users
  • sufficiently concise to make the info understandable
85
Q

Where can users find info. about the financial position, income, cash flows, and investments of the company

A
  • financial statements
  • notes to FS
  • supplementary info.
86
Q

What is the cost constraint?

A

benefits > costs

87
Q

Whatre come costs of discosure?

A
  • disclosure to competition
  • litigation
  • collecting and processing info.
88
Q

Whatre some benefits of disclosure?

A
  • managers have access to capital at a lower cost

- users receive better info. for resource allocation

89
Q

What’re the 4 principles of accounting?

A

Measurement Principle
•Historical cost •Fair value
Revenue recognition•Expense recognition
Full Disclosure

90
Q

What is an account?

A

Are an organized format used by companies to accumulate the dollar effects of transactions on each financial statement

-Belong to one the following: assets, liabilities, stockholders’ equity, revenues, expenses, gains, and losses

91
Q

Whatre the two T accounts inside of Stockholders’ Equity?

A
  • Common Stock and Additional Paid in Capital

- Retained Earnings

92
Q

Whatre the two T accounts inside of RE?

A

REV and expenses

93
Q

What is recorded in the Additional Paid-in Capital account?

A

The amount of capital contributed by the shareholders less the par value of the stock

94
Q

The equation for common stock?

A

shares x par value

95
Q

Dividends increase/decrease Retained Earnings?

A

Decrease so its on left side (debited)

96
Q

Net income increases/decreases Retained Earnings?

A

Increases so its credited (+)

97
Q

RE (end) =

A

RE (beg) + NI - div.

98
Q

What is the general journal?

A

Compilation of individ. journal entries in chronological order

99
Q

What is a general ledger?

A

All journal entries are posted to the t-accounts in the general ledger.

100
Q

What is a contra-account?

A

An account that is an offset to, or reduction of, the primary (companion) account

101
Q

What is the quality of information that enables users to confirm or correct prior expectations?

A

confirmability

Acct. 3610 (3 decks)

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