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CPA - FARE > F1 - FASB / IASB > Flashcards

F1 - FASB / IASB Flashcards

1
Q

When was the FASB established and what does it determine?

A

1973 and it determines US GAAP

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2
Q

What is the SINGLE SOURCE of authoritative NON-GOVERNMENTAL US GAAP, when did it become effective and what is the rule?

A

FASB Accounting Standards Codification (ASC)

It became effective on July 1, 2009

Rule: Accounting and financial reporting practices NOT included in the Codification are NOT US GAAP (it’s the all-in BIBLE)

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3
Q

List the various STANDARD SETTERS that issue AUTHORITATIVE LITERATURE that is INCLUDED in the CODIFICATION?

Hint: F.E.D.P.R.I.A.

A

Financial Accounting Standards Board (FASB) (through
SFAS, Interpretations, Technical Bulletins, Staff Implementation Guides and Statement No. 138 Examples)

Emerging Issues Task Force (EITF) Abstracts & Topic D

Derivative Implementation Group (DIG) Issues

Accounting Principles Board Opinions (APBO)

Accounting Research Bulletins (ARB)

Accounting Interpretations (AI)

American Institute of Certified Public Accountants (AICPA) (through Statements of Position, Auditing and Accounting Guides (incremental accounting guidance only), Practice Bulletins, Technical Inquiry Service (software recognition)

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4
Q

How does the FASB make UPDATES to the ACCOUNTING STANDARDS CODIFICATION for NEW GAAP and SEC updates?

A

first EXPOSURE DRAFTS are proposed and ultimately approved, then ACCOUNTING STANDARD UPDATES (ASU) are prepared and approved

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5
Q

What is the KEY thing to remember concerning ACCOUNTING STANDARD UPDATES (ASU)?

A

ASUs are NOT AUTHORITATIVE LITERATURE, rather they provide BACKGROUND INFORMATION, UPDATE the CODIFICATION, DESCRIBE BASIS for CONCLUSIONS on CHANGES to CODIFICATION

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6
Q

New GAAP and SEC Amendments are ___________ into the existing structure of the Codification

A

FULLY INTEGRATED

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7
Q

What is the PURPOSE of the International Accounting Standards Board (IASB)?

What is the goal between IASB and FASB?

A

to DEVELOP a SINGLE-SET of HIGH-QUALITY, GLOBAL accounting standards

to DEVELOP a SINGLE-SET of HIGH-QUALITY, GLOBAL accounting standards that companies can use for BOTH their DOMESTIC and CROSS-BORDER financial reporting (INTERNATIONAL CONVERGENCE of accounting standard)

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8
Q

What is the PURPOSE of the International Financial Reporting Interpretations Committee (IFRIC)?

What committee did it REPLACE?

A

to PROVIDE GUIDANCE on NEWLY identified financial reporting ISSUES that are NOT addressed in the IFRS

to ASSIST the IASB in ESTABLISHING and IMPROVING the standards of financial accounting and reporting

it REPLACED the Standing Interpretations Committee (SIC)

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9
Q

When the IASB was created in 2001 as part of the IFRS Foundation , what did it ADOPT?

A

International Accounting Standards (IAS)

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10
Q

What does the IASB issue?

How many members of the IASB must approve EXPOSURE DRAFTS as well as IFRS for issuance?

A

International Financial Reporting Standards (IFRS)

Conceptual Framework for Financial Reporting

AT LEAST NINE members

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11
Q

What does the term IFRS include?

A

International Financial Reporting Standards (IFRS)

International Accounting Standards (IAS)

Interpretations developed by (IFRIC)

Interpretations developed by the former (SIC)

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12
Q

What does the IASB Conceptual Framework for Financial Reporting describe?

What is the IASB Conceptual Framework for Financial Reporting designed to accomplish?

Is the Conceptual Framework for Financial Reporting an IFRS?

A

the BASIC CONCEPTS that underlie the PREPARATION and PRESENTATION of financial statements for EXTERNAL USERS (reasoning why we use Accrual instead of Cash basis; why sometimes we use Historical Cost and sometimes we use Fair Market Value)

develop future IFRS, evaluate existing IFRS and reduce the number of alternative accounting treatments permitted by IFRS

NO

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13
Q

Describe the DIFFERENCE as it relates to the Conceptual Frameworks of IFRS and US GAAP?

A

Under IFRS, Conceptual Framework CAN be APPLIED TO SPECIFIC ISSUES (directed to REFER TO and CONSIDER the APPLICABILITY of the CONCEPTS in the FRAMEWORK when developing new accounting policies)

Under US GAAP, Conceptual Framework CANNOT be APPLIED TO SPECIFIC ISSUES

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14
Q

What PRONOUNCEMENTS set forth the Conceptual Framework of US GAAP?

What do they serve as the BASIS for?

Are or are they not US GAAP?

What do they provide a BASIS for?

A

Statement of Financial Accounting Concepts (SFAC)

ALL of the FASB pronouncements

They are NOT considered US GAAP

Financial accounting concepts for business and non-business enterprises (BASIC REASONING)

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15
Q

What is the OBJECTIVE of GENERAL PURPOSE FINANCIAL REPORTING (SFAC No. 8)?

A

provide USEFUL financial information of the reporting entity to the PRIMARY USERS of general purpose financial reports

to DISCLOSE the PERFORMANCE of the ENTITY

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16
Q

Who are the PRIMARY USERS of GENERAL PURPOSE FINANCIAL REPORTING (SFAC No. 8 – Chapter 1)?

A

the PRMARY USERS are “EXTERNAL” USERS which are INVESTORS, CREDITORS and LENDERS

The following are NOT considered PRIMARY USERS:
REGULATORS / PUBLIC MEMBERS / INSIDERS

17
Q

What do PRIMARY USERS use the financial information to assess?

A

prospects of FUTURE CASH INFLOWS and estimate the VALUE of the reporting entity

18
Q

What are the FUNDAMENTAL QUALITATIVE CHARACTERISTICS of “USEFUL” INFORMATION (SFAC No. 8 – Chapter 3)?

A

RELEVANCE – AND – FAITHFUL REPRESENTATION

Most USEFUL for MAKING DECISIONS about a reporting entity based on financial information

19
Q

Define RELEVANCE and PROVIDE the THREE characteristics of RELEVANT information

Hint: P.C.M.

A

financial information is relevant if it is capable of making a difference in the decisions made by users

-PREDICTIVE VALUE (can be used to predict future outcomes) AND/OR
-CONFIRMING VALUE (provides feedback about evaluations previously made by users)
AND
-MATERIALITY (entity specific)

20
Q

Define FAITHFUL REPRESENTATION and PROVIDE the THREE characteristics of FAITHFUL REPRESENTATION

Hint: C. N.E.

A

must faithfully represent the reported economic phenomena (RELIABLE)

COMPLETELY NEUTRAL IS FREE FROM ERROR

  • COMPLETENESS (ALL information; including descriptions and explanations – ie Primary F/S and Footnotes)
  • NEUTRALITY (free from bias in selection and presentation)
  • FREEDOM FROM ERROR (no ERRORS or OMISSIONS that are MATERIAL – NOT perfect as it is difficult to determine accuracy of estimates)
21
Q

If information is not useful, relevant and faithfully represented, then

A

REPEAT information gathering process with the NEXT type of information that is MOST RELEVANT

22
Q

What are the ENHANCING (4) QUALITATIVE CHARACTERISTICS

Hint: C.V.T.U.

A

COMPARE AND VERIFY IN TIME TO UNDERSTAND

  • COMPARABILITY (CONSISTENCY helps to achieve)
  • VERIFIABILITY (COMPLETE AGREEMENT is NOT required)
  • TIMELINESS
  • UNDERSTANDABILITY (classified, characterized and presented in a CLEAR and CONCISE manner)
23
Q

What is the PERVASIVE CONSTRAINT on the information provided in financial reporting?

How does the FASB/IASB view and consider this constraint?

A

COST vs BENEFIT

FASB/IASB considers this constraint IN GENERAL and NOT at the INDIVIDUAL REPORTING ENTITY LEVEL

24
Q

RECOGNITION & MEASUREMENT in the financial statements (SFAC No. 5)

What does it set forth?

What comprises a FULL SET of FINANCIAL STATEMENTS (Hint: there are 5)?

A

recognition criteria and guidance on what and when information should be incorporated in the financial statements

(1) Statement of Position (Balance Sheet)
(2) Statement of Earnings (Income Statement)
(3) Statement of Comprehensive Income
(4) Statement of Changes in Owner’s Equity
(5) Statement of Cash Flows

25
Q

RECOGNITION & MEASUREMENT in the financial statements (SFAC No. 5)

What are the FOUR FUNDAMENTAL RECOGNITION (RECORD) CRITERIA?

Hint: D.M.R.R.

A

(1) Definitions
(2) Measurability
(3) Relevance
(4) Reliability

26
Q

RECOGNITION & MEASUREMENT in the financial statements (SFAC No. 5)

What are FIVE MEASUREMENT ATTRIBUTES of Assets and Liabilities?

Hint: H.C.N.C.P.

A

there are a VARIETY of WAYS to MEASURE the ASSETS & LIABILITIES

(1) Historical Cost (PP&E / Land)
(2) Current Cost (Inventory)
(3) Net Realizable Value (A/R and N/R)
(4) Current Market Value (Marketable Securities)
(5) Present value of future cash flows (L/T Debt - “Bonds”)

27
Q

RECOGNITION & MEASUREMENT in the financial statements (SFAC No. 5)

What are SIX FUNDAMENTAL ASSUMPTIONS of US GAAP conceptual framework?

Hint: P.H.A.R.M.G.M.C.F.E.

A

(1) Periodicity assumption (divided into meaningful periods)
(2) Historical Cost Principle (GR: fin. Info acct’d for on cost, not current market value)
(3) Accrual Accounting (revenues recognized when they are earned / expenses when incurred)

(4) Revenue Recognition Principle (GR: revenue recognized when it is earned AND when it is realized or realizable)
a. Earned: earnings process is SUBSTANTIALLY COMPLETE
b. Realized: cash received
c. Realizable: cash to be received (claims to cash)

(5) Matching Principle (governs REVENUES and EXPENSES – not GAINS and LOSSES)
(6) Going Concern Assumption (entity will continue to operate)
(7) Monetary Unit Assumption (assumes no change over time – not inflation adjusted)

(8) Conservatism Principle (least likely to overstate assets, revenues, gains and understate liabilities, expenses and losses)
a. Recognize Revenues :
i. earnings process is COMPLETE or VIRTUALLY COMPLETED
b. Recognize Expenses / Losses:
i. IMMEDIATELY

(9) Full Disclosure Principle (“completeness” of financial statement footnotes)
(10) Entity Assumption (separate entity for identifying a set of activities)

28
Q

What is the ONLY FUNDAMENTAL ASSUMPTION of IASB Framework?

Hint: “G”

A

(1) Going Concern Assumption (entity will continue to operate)

29
Q

ELEMENTS of the financial statements (SFAC No. 6)
What is the definition of ELEMENTS and what criteria must ELEMENTS meet?

What are the (10) ELEMENTS of financial statements (US GAAP)?

Hint: R.E.G.L. A.L.E. I.D.C.

A

ELEMENTS are the COMPONENTS of the financial statements and they MUST be MEASUREABLE + meet the RECOGNITION REQUIREMENTS

(1) Revenues (Operating)
(2) Expenses (Operating)
(3) Gains (Non-Operating)
(4) Losses (Non-Operating)
(5) Assets (Balance Sheet)
(6) Liabilities (Balance Sheet)
(7) Equity (Balance Sheet)
(8) Investments by Owners (EXCLUDED from Comprehensive Income)
(9) Distributions to Owners (EXCLUDED from Comprehensive Income)
(10) Comprehensive Income (Net Income + OCI … EXCLUDES owner transactions)

30
Q

What are the (10) ELEMENTS of financial statements (IASB)?

Hint: A.L.E. I.E. C.

A

(1) Assets (Balance Sheet)
(2) Liabilities (Balance Sheet)
(3) Equity (Balance Sheet)
(4) Income (includes Revenues and Gains)
(5) Expenses (includes Expenses and Losses)
(6) Capital Maintenance Adjustments (increases/decreases in equity due to revaluation of Assets & Liabilities)

31
Q

Using FUTURE CASH FLOW INFORMATION and PRESENT VALUE in Accounting Measurements (SFAC No. 7)

What are the (5) ELEMENTS of PRESENT VALUE MEASUREMENT?

Hint: E.V.T.U.O.

A

(1) Estimate Future Cash Flow
(2) Expectations on Variations on Timing of Future Cash Flows
(3) Time Value of Money (risk free rate of interest) — CREDIT RISK (impacts discount rate &/or Future Cash Flow)
(4) Price for bearing Uncertainty (incl Revenues and Gains) — CREDIT RISK (impacts discount rate &/or Future Cash Flow)
(5) Other factors(liquidity issues and market imperfections) — CREDIT RISK (impacts discount rate &/or Future Cash Flow)

32
Q

Using FUTURE CASH FLOW INFORMATION and PRESENT VALUE in Accounting Measurements (SFAC No. 7)

List and discuss the (2) approaches to PRESENT VALUE calculation?

Hint: T. & E.

A

(1) Traditional Approach (PV of Contractual Obligations (Bonds) – fixed/known future pymts)
a. Uses only ONE DISCOUNT RATE to take present value of a future cash flow stream

(2) Expected Cash Flow Approach (PV of Warranties – uncertain future payments)
a. Uses only the RISK-FREE RATE of RETURN as the DISCOUNT RATE then turns attention to EXPECTED FUTURE CASH FLOWS, considering UNCERTAINTIES (default risk) as ADJUSTMENTS to future cash flows
i. considers a range of possible cash flows
ii. assigns a (subjective) probability to each cash flow in range
iii. determines the weighted-average or “expected” future cash flow

33
Q

Using FUTURE CASH FLOW INFORMATION and PRESENT VALUE in Accounting Measurements (SFAC No. 7)

What are the OTHER FACTOR considerations when FAIR VALUING a LIABILITY?

Hint: C.T.S & C.S.

A

(1) Costs to Settle

(2) Credit Standing of the company

34
Q

Using FUTURE CASH FLOW INFORMATION and PRESENT VALUE in Accounting Measurements (SFAC No. 7)

What is the CATCH-UP approach?

A

ADJUST the CARRYING AMOUNT of the ASSET/LIABILITY to the PRESENT VALUE determined using REVISED ESTIMATES and DISCOUNT using the ORIGINAL EFFECTIVE INTEREST RATE

CPA - FARE (3 decks)

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