FAR 1.01

Question 1

1.01 - 2 General Purpose Frameworks

Answer 1

GAAP - Generally Accepted Accounting Principles - United States

IFRS - International Financial Reporting Standards

• used by public and nonpublic
• developed by FASB (Financial Accounting Standards Board)
  authorized by the SEC (Securities and Exchange Commission)

Question 2

1.01 OCBOA (Other Comprehensive Basis of Accounting)

Answer 2

• used by non public entities

- considered a special purpose framework

Question 3

1.01 (4) A Financial Reporting Framework includes (FRF)

Recognition Criteria

Answer 3

(4) - Recognition, Measurement, Presentation & Disclosure Criteria
- determine what will appear on financial statements and when it will appear

Question 4

1.01 (4) A Financial Reporting Framework includes (FRF)

Measurement Criteria

Answer 4

(4) - Recognition, Measurement, Presentation & Disclosure Criteria
- determine the amount at which it will be reported

Question 5

1.01 (4) A Financial Reporting Framework includes (FRF)

Presentation Criteria

Answer 5

(4) - Recognition, Measurement, Presentation & Disclosure Criteria
- determine where it will appear on the financial statements

Question 6

1.01 (4) A Financial Reporting Framework includes (FRF)

Disclosure Criteria

Answer 6

(4) - Recognition, Measurement, Presentation & Disclosure Criteria
- determine what information and how much must be provided to financial statement users

Question 7

1.01 Special Purpose Frameworks

Cash Basis

Answer 7

(4) Cash basis (or Modified cash basis - hybrid), tax basis, contractual basis, regulatory basis
- under which revenues are recognized when they are received, regardless of when they are earned; and expenses are recognized when they are paid , regardless of when they are incurred. Fixed assets are expensed and not capitalized.
- One could also use the modified cash basis , which is considered a sort of hybrid approach

Question 8

1.01 Special Purpose Frameworks

Tax Basis

Answer 8

(4) Cash basis (or Modified cash basis - hybrid), tax basis, contractual basis, regulatory basis
- under which revenues and expenses are recognized for financial reporting purposes in the same periods and in the same amount as they are recognized when the entity is preparing its income tax return.
- Could be cash or accrual

Question 9

1.01 Special Purpose Frameworks

Contractual Basis

Answer 9

(4) Cash basis (or Modified cash basis - hybrid), tax basis, contractual basis, regulatory basis
- required to be used by a party to a contract and is generally designed to assist users in determining whether or not terms of the contract, and other req to it, are being adhered to

Question 10

1.01 Special Purpose Frameworks

Regulatory Basis

Answer 10

(4) Cash basis (or Modified cash basis - hybrid), tax basis, contractual basis, regulatory basis
- is imposed by a governmental regulatory agency to which the entity is required to report

Question 11

1.01 FRF for SMEs

Answer 11

The Financial Reporting Framework for Small & Medium Entities

Question 12

1.01 PCC (Private Company Council)

Answer 12

created to reduce the cost of financial reporting for nonpublic entities

• charged with evaluating existing GAAP to determine if there are requirements, including disclosures, from which nonpublic entities should be exempt, or simplified acct approaches to reduce the cost of reporting without diminishing the value of the info provided
• PCC pronouncements are included in FASB Accounting Standards Codification

Question 13

1.01 Summary of Significant Accounting Policies

Answer 13

• entity can elect to use alternative accounting (made by PCC) treatment by including information in its Summary of Significant Accounting Policies
• Can only be used by a nonpublic entity

Question 14

1.01 FASB defines public entitities as:

Answer 14

• That submit financial statements to SEC, wheteher req’d or vol
• regulated under the 1934 Securities Exchange Act
• Issuing securities that are traded or have securities that are listed on an exchange
• required to apply GAAP and has securities that are not restricted as to transfer

Question 15

1.01 FASB Conceptual Framework for Accounting

Objectives (6)

Answer 15

• Provide info that is useful to investors, lenders and other creditors, in making decisions about providing resources to the entity
• info about the economic resources and claims against the entity
• Changes in economic resources and claims
• Financial performance reflected by accrual accounting
• Financial performance reflected by past cash flow
• Changes in economic resources and claims NOT resulting from financial performance (ex issuing additional Stock)

USEFUL info is required

Question 16

1.01 Primary Qualitative Characteristics

Answer 16

To be USEFUL it must have BOTH Relevance and Faithful Representation

Question 17

1.01 Primary Qualitative Characteristics

Relevance

Answer 17

(Roger is PC)

Predictive Value - Helps decision makers predict or forcast furute results

Confirmatory (Feedback) Value - Confirm or correct prior predicitons
- MATERIALITY - Information Capable of making a difference in decision making if omitted or misstated (auditors judgement)

Question 18

1.01 Primary Qualitative Characteristics

Faithful Representation

Answer 18

(Roger is never on the FENCe)

• Free From Error - No Errors or omissions in the info.
• Neutrality (w/out bias) - The info is free from bias
• Completeness - Info is presented in a way that users can understand

Question 19

1.01 Primary Qualitative Characteristics

Enhancing Qualitative Characteristics

Answer 19

(Roger is Cut like a V)

• Comparability (Consistency) - Same principles being used with business enterprises in similar Industry/ Same accounting methods in different periods
• Understandability - Classifying, characterizing and presenting info clearly and concisely
• Timeliness - Info is available to a decision maker when it is useful to make the decision
• Verifiability - Different sources agree on an amount through either direct or indirect verification

One Constraint that overrides USEFULNESS
- Cost/Benefit - Cost of obtaining and presenting the information the information shouldn’t exceed the benefit.