FAR 1 - CONCEPTUAL FRAMEWORK Flashcards
What are the 2 general purpose frameworks?
- GAAP
2. IFRS
What are the common special purpose frameworks and who can use them?
Nonpublic entities can use special purpose frameworks which include:
- cash basis
- modified cash basis
- tax basis
- contractual basis
- regulatory basis
What are the objectives of financial reporting?
To provide users with useful information to make decisions
Who are financial reporting users?
investors, lenders, creditors
What qualities does financial reporting information have to have in order to be considered useful?
it has to be relevant and faithfully represented
What qualities make information relevant?
- predictability
- confirmatory
- material
What qualities make information faithfully represented?
- complete
- neutral
- free from error
What qualities enhance useful information? What is the overriding constraint?
- comparability
- understandability
- timeliness
- verifiability
- overriding constraint is cost/benefit analysis. The benefit of having the information must exceed the cost to obtain or procure the information
- IFRS constraints: Cost/benefit & going concern
What statement are included in a full set of financials?
- statement of position
- state of earnings and comprehensive income
- statement of cash flows
- statement of changes in equity
The concept of “usefulness” applies to financial elements. What are the 10 financial elements (in accordance with GAAP)
- assets
- liabilities
- equity
- contributions by owners
- distributions to owners
- comprehensive income
- revenues
- expenses
- gains
- losses
The concept of “usefulness” applies to financial elements. What are the 10 financial elements (in accordance with IFRS)
- assets
- liabilities
- equity
- contributions by owners
- distributions to owners
- comprehensive income
- income
- expenses
What are the items that affect comprehensive income? (DENT)
- derivative cash flow hedges
- excess adjustments for pension plans
- net unrealized gains/losses for AFS securities (*unless fair value method is elected)
- translation gains/losses
What are the 8 rules of accounting?
- consistency
- conservatism
- cost/benefit
- matching
- allocation
- full disclosure
- recognition
- realization
What are the 3 levels of inputs?
- Level 1: most reliable, easy identifiable FMV on active markets for exactly the same assets/liabilities
- Level 2: second reliable, easily identifiable BUT not on active markets, and only on similar assets/liabilities
- Level 3: least reliable, unidentifiable, management judgement used
