FAR 1: Accounting Standards and Conceptual Framework

Question 1

Name the single source of authoritative nongovernmental US GAAP?

Answer 1

THE FASB “Accounting Standards Codification” (ASC)

Question 2

the term “International Financial Reporting Standards” include what standards?

Answer 2

1. international Accounting Standards (IAS)
2. International Financial Reporting Standards (IFRS)
3. IFRIC Interpretation
4. SIC Interpretations

Question 3

What is the Primary Company Council?

Answer 3

1. The Financial Accounting Foundation (FAF) created the Private Company Council (PCC) to improve standard setting for privately held companies in the US
2. The goal of the PCC is to establish alternative to US GAAP where appropriate, to make private company F/S more relevant, less complex, and cost-beneficial.
3. Accounting alternatives for private companies are incorporate into the relevant sections of the ASC

Question 4

Who are the primary users of general purpose financial reports?

Answer 4

Existing and potential:

1. Investors
2. lenders
3. Other creditors

Question 5

name the pervasive constraint of the information provided in financial reporting.

Answer 5

Cost Constraint:

1. The benefits of reporting financial information must be greater than the costs of obtaining and presenting the information.

Question 6

Name the fundamental qualitative characteristics of useful financial information.

Answer 6

Relevance and Faithful Representation

Question 7

Name the 3 elements of relevance.

Answer 7

1. Predictive value
2. Confirming value
3. Materiality

Question 8

Name the enhancing qualitative characteristics of financial information.

Answer 8

Comparability, Verifiability, Timeliness, and Understandability

Question 9

Name the 3 elements of faithful representation

Answer 9

1. Neutrality
2. Completeness
3. Freedom of error

Question 10

According to SFAC No. 5, what should a full set of financial statements include?

Answer 10

1. Stmt of Financial Position (B/S)
2. Stmt of Earnings (the I/S)
3. Stmt of Comprehensive Income
4. Stmt of Cash Flows
5. STMT of Change in Owners’ Equity

Question 11

What is the difference between realization and recognition?

Answer 11

Realization: When sold and converted to cash (or claims to cash)

Recognition: When recorded in the financial statement

Question 12

List the 10 elements of the F/S according to SFAC No. 6

CREG and LALEID

Answer 12

Comprehensive Income
Revenue
Expenses
Gains

and

Losses
Assets
Liabilities
Equity (of Net Assets)

Question 13

List the 6 elements of F/S according to the IASB Framework

Answer 13

Asset
Liability 
Equity
Income (Revenue and Gains)
Expenses (Expenses and Losses)
Capital maintenance adjustments

Question 14

Name the 5 elements of present value measurement per SFAC No. 7

EVTUO

Answer 14

Estimate of future cash flow
Expectations about timing Variations of future cash flows
Time value of money (the risk-free rate of interest)
The price for bearing Uncertainty
Other factors (e.g. liquidity issues and market imperfections)

Question 15

Describe the expected cash flow approach for Present Value computation.

Answer 15

Considers a range of possible cash flow and assigns a (subjective) probability to each cash flow in the range to determine, the weighted average, “or “expected,” future cash flow