F1_Module 1 Standards and Conceptual Framework

Question 1

Which organization has the legal authority to establish US GAAP, when was it established, and how many other different bodies of the accounting profession have helped it determine GAAP since?

Answer 1

The Securities and Exchange Commission (SEC) and was established by the Securities Exchange act of 1934. The SEC and three other bodies of the Accounting profession have helped determine GAAP.

Question 2

Which part-time and full time non-SEC organizations helped establish GAAP since 1934?

Answer 2

Committee on Accounting Procedures (CAP): As part of the AICPA from 1939 to 1959.
Accounting Principles Board (APB): As part of the AICPA from 1959-1973
Financial Accounting Standards Board (FASB): 7 full-time members who serve five-year terms and may be appointed for one-additional 5 year term. 1973-Present.

Question 3

When did the FASB Accounting Standards Codification become the single source of authoritative non-governmental U.S. GAAP?

Answer 3

Effective July 1, 2009.

Question 4

Which council created by the FInancial Accounting Foundation (FAF) improves standard setting for privately held companies in the U.S. and of which the accounting alternatives are incorporated into the relevant sections of the ASC (Accounting Standards Codification)?

Answer 4

Private Company Council (PCC)

Question 5

How does the FASB update the accounting standards codification (ASC)? Are they authoritative literature?

Answer 5

FASB uses Accounting Standards Updates (ASU) to update the ASC and amend the SEC content. ASUs are not authoritative.

Question 6

What is the objective of General purpose Financial reporting and which SFAC (Statements of Financial Accounting Concepts) is it under?

Answer 6

SFAC 8_Chapter 1: The objective is to provide useful information in making decisions about resources and claims, any changes, and how efficiently and effectively the management and governing board have discharged their responsibilities.

Question 7

Who are the primary users of General Purpose Financial Reports?

Answer 7

The primary users are existing and potential investors, lenders, and other creditors (regulators and other members of the public are not considered primary users,.

Question 8

What are the fundamental qualitative characteristics of useful financial information?

Answer 8

SFAC 8_Chapter 3: Relevance (Passing confirms money) and Faithful representation (Completely Neutral is free from error).

Question 9

What are the enhancing qualitative characteristics of useful financial information?

Answer 9

Compare and Understand in time to vErify.

Question 10

What are the fundamental assumptions and principles?

Answer 10

Entity Assumption:
Going concern Assumption:
Monetary Unit Assumptions:
Periodicity Assumption:
Measurement Principle:

Question 11

What are the 5 elements of Present Value Measurement (SFAC 07).

Answer 11

1. Estimate of the future cash flows ($).
2. Expectations about timing variations of future cash flows.
3. Time value of money (the risk-free rate of interest).
4. The price for bearing uncertainty.
5. Other factors (e.g. liquidity issues and market imperfections).