FAR 1 - Conceptual Framework & IFRS Flashcards
What are the two general purpose frameworks?
- GAAP
- IFRS
What is a special purpose frame work?
Defined as a set of criteria, other than GAAP or IFRS. Also known as, OCBOA - Other Comprehensive Basis of Accounting.
Includes:
Cash Basis
Modified Cash Basis
Tax Basis
Contractual Basis
Regulatory Basis
What are the OBJECTIVES of Financial Reporting?
(which focuses on the USERS of F/S)
- Information to investors, lenders & other creditors
- Information on entity’s economic resources (B/S)
- Changes in economic resources & claims
- Financial performance reflected by accrual accounting (I/S)
- Financial performance reflected by Cash Flows
- Changes in resources NOT resulting from financial performance (Issuance of Stocks or Bonds)
Primary Qualitative Characteristics (2)
(that makes information USEFUL)
- Relevance
- Faithful Representation
Relevance
(Roger is PC)
Relevance - Capable of making a difference in the User’s decision making.
The 2 Ingredients are:
- Predictive Value - helps predict or forecast future result
- Confirmatory Value (Feedback) - confirm or correct prior predictions
Faithful Representation
(Roger is never on the FENCE)
3 Ingredients:
- Free from Error - no errors or omissions in the info
- Neutrality - Financial Statment is free of bias
- Completeness - info is presented in a way users can understand
Enhancing Qualitative Characteristics
(Roger is CUT like a V)
Comparability
Understandability
Timeliness
Verifiability
Constraint - Cost/Benefit
What are the 4 full set of financial statement?
- Statement of Position (B/S)
- Statement of Earnings Financial & Comprehensive Income (I/S)
- Statement of Cash Flows
- Statement of Changes in Owner’s Equity
What are the 10 Key Elements that make up the financial statements for GAAP?
Asset - Resource that has probable future benefit, one can obtain the benefit, & transaction creating the benefit has already occured.
Liabilities - Obligation which needs use of an asset, cannot be avoided & transaction has already occured.
Equity - Assets less Liabilities
Investments by Owners, Distributions to Owners, Comprehensive Income, Revenue, Expenses, Gains, Losses.
What are the three valuation techniques for measuring an item at fair value?
- Market approach - using information generated by market transactions that involve identical or comparable assets or liabilities
- Income approach - involves analyzing future amounts in a the form of revenues, cost savings, earnings
- Cost approach - involves measuring the cost that would be incurred to replace the item
What are the three levels of inputs for fair value that is also required to be disclosed when fair value is elected?
Level 1 - use of observable data from actual market transactions
Level 2 - use of observable data from actual market but either (asset is restricted or not traded):
- ) Transactions did not occur in an active market or
- ) Transactions relate to similar, but not identical
Level 3 - Based on management’s judgement (Financial Forecast)
Fair Value Disclosures
(4 Requirements)
Disclosures centered around consistency & comparability
- Identification of which items are reported at FV
- Level of Inputs
- Valuation Technique Applied
- Disposition of Changes in FV
What are the four areas of disclosures for ASC Topic 275 Risk & Uncertainties?
- Nature of Operations - description of how entity generates revenues
- Use of Estimates - amounts relating to F/S
- Certain Significant Estimates - probable losses
- Current Vulnerability due to certain concentrations - when an entity doesnt diversify
What are the three parts of the NOTES section in the F/S?
1. Summary of significant accounting policies
(E.g. inventory costing method)
2. Summary of significant assumptions
(E.g. anticipated rate of inflation)
3. Other notes to the financial statments
(E.g. contingent liabs, contract obligations)
What are the 5 basic F/S Elements of financial reporting for IFRS?
Elements of Financial Position
- Assets
- Liabilities
- Equity
There are 2 Elements of Performance
- Income
- Expenses
Capital Maintenance Adjustments under IFRS?
Results from the revaluation or restatement of assets & liabilities that cause an increase or decrease in equity (fixed assets), but not from income or expenses.
Accounting Rules & Concepts
Recognition
vs
Realization
Recognition - Bookin an item in the F/S
“Reporting” = Recognition
Realization - Converting non-cash resources in to cash or claim to cash (A/R)
“Recording” = Realization
Realization Examples:
Realization is the conversion of an item or service into cash or a claim(A/R) to cash as would be the case when equipment is sold for a note receivable.
Realization occurs at the time that an entity converts goods or services into accounts receivable, and not necessarily when the receivable is collected.
Which financial statement is “accumulated” other comperensive income reported?
Statement of FInancial Position (B/S)
Accumulated OCI is reported under of EQUITY
What is the difference in the criteria for recognizing an element of financial reporting in GAAP vs. IFRS
GAAP - 3 Criterias
IFRS - 2 Criterias
Under IFRS (2 Criterias):
- Probablity of Occurance
- Reliable Measurement
Under US GAAP:
- Meets the definition of an element (asset,libility)
- Measured in Monetary Terms
- Item/Element is Relevant & Faithfully Represented
Three methods of recognizing Expenses
The appropriate methods for recognizing expenses include
cause and effect - such as charging inventory to cost of goods sold
systematic and rational allocation - such as depreciation of property and equipment
immediate recognition - such as recognizing salaries expense as it is incurred.
