FAR 1

Question 1

Past Orgs

Answer 1

Committee on Accounting Procedure (CAP) - 1939
51 research bulletins
Accounting Principles Board (APB) - 1959
31 opinions

Question 2

Three Prong: FASB, FAF, FASAC

Answer 2

FASB - standard setter
FAF 
   Financial Accounting Foundation
   appoints members
   oversight
   funding
FASAC 
   Financial Accounting Standards Advisory Council
   Guidance on major policy issues
   Sets priorities
   Foundation of task forces

Question 3

Standard Setting Process

Answer 3

1. ) Consider adding project to agenda
2. ) Researches, issues DM
3. ) Public hearings
4. ) Exposure Draft (ED)
5. ) Public input, ED modified
6. ) ASU issued

Question 4

External F/S

Answer 4

Income Statement
Statement of Comprehensive Income
Balance Sheet
 Statement of Changes in OE
Statement of Cash Flows
Footnote/Supplementary schedules
Auditor's opinion

Question 5

Not in Codification

Answer 5

OCBOA
Cash basis
Income tax basis
Regulatory accounting principles

Question 6

Nonauthoritative

Guidance

Answer 6

Widely recognized/industry guidance
FASB Concepts Statements
AICPA Issues Papers
IFRS

Question 7

SEC

Guidance

Answer 7

Includes relevant SEC rules/interpretative releases

Question 8

Convert to Cash Formula

Answer 8

Change in liabilities
Plus: Change in equity
Less: Change in other assets
Equals: Change in Cash

Question 9

Codification

Structure

Answer 9

Areas
     Topics
          Subtopics
               Sections
                    Subsections
                         Paragraphs

Question 10

Areas

Answer 10

100    General Principles
200   Presentation
300   Assets
400   Liabilities
500   Equity
600   Revenue
700   Expenses
800   Broad transactions
900   Industry practices

Question 11

Sections

Answer 11

00     Status
05     Overview & background
10      Objectives
15      Scope & scope exceptions
20     Glossary
25     Recognition
30     Initial measurement
35     Subsequent measurement
40     Derecognition
45     Other presentation matters
50     Disclosure
55     Implementation guidance/illustrations
60     Relationships
65     Transition & open effective date info
70     Grandfathered guidance
75     XBRL definitions

Question 12

Primary
Qualitative
Characteristics

Answer 12

Relevance
     Predictive value
     Confirmatory value
     Materiality
Faithful representation
     Completeness
     Neutrality
     Free from error

Question 13

Enhancing
Qualitative
Characteristics

Answer 13

Comparability
Understandability
Timeliness
Verifiability

Question 14

Accounting

Assumptions

Answer 14

1. ) Entity Assumption
2. ) Going Concern Assumption
3. ) Unit of Measure Assumption
4. ) Time Period Assumption

Question 15

Capital maintenance

Answer 15

maintained if positive earnings assuming no change in price level.

Question 16

Return of Capital

Answer 16

Replace all resources in generating income

Question 17

Return on Capital

Answer 17

Resources are left over after generating income

Question 18

Basis of GAAP

Answer 18

Financial capital maintenance

Question 19

Physical maintenance

Answer 19

Earnings aren’t recognized until firm has provided for physical count considering changes in price level

Question 20

Measurement Basis

Answer 20

Historic costs = actual price paid
Net Realizable Value (NRV)
Approximates liquidation value / selling pice
Current market value - (costs of sale)
Ex: LC-M
Current Replacement Cost
Cost to replace asset
Current market value from buyer’s perspective
Fair Value (FV)
aka current market value
Price to sell asset/settle liability
orderly transaction
market participant
at measurement date
Amortized Cost
historic cost - accumulated depreciation
Net Present Value (NPV)
Discounted expected cash flows
Used in capital budgeting decisions

Question 21

Revenue Recognition

Answer 21

Performance obligation is completed

Revenue is earned and realized (realizable)

Question 22

Revenue Recognition (5 Steps)

Answer 22

1. ) identify contract
2. ) identify PO
3. ) Determine transaction price
4. ) Allocate transaction price across PO
5. ) Recognize revenue when each PO is satisfied

Question 23

Expense Recognition Principle

Answer 23

“matching principle”
Recognize expenses only when expenditures help to
produce revenue
3 Ways:
Directly - COGS
Allocate - Depreciation/amortization
When incurred - no relationship to revenue

Question 24

Full Disclosure Principle

Answer 24

Presents all info needed to make economic decision

Question 25

Cost Constraint

Answer 25

Limits recognition/disclosure if cost > benefit. | May not omit disclosures if material & mandated by GAAP

Question 26

Conservatism

Answer 26

aka prudence Reporting of less optimistic amounts under conditions of uncertainty or when GAAP provides choice. If estimates not equally likely preferred approach = most likely

Question 27

Elements of F/S

Answer 27

``` Assets Liabilities Equity Investments by Owners Distributions to Owners Comprehensive Income Revenues Expenses Gains Losses ```

Question 28

Capture Economic Differences

Answer 28

- Estimate of future cash flows - Expectations about variations in amount or timing of those cash flows - Time value of money as measured by risk-free rate of interest - Price for bearing uncertainty inherent in asset/liability - Any other relevant factors