FAR 1.1 Accounting standards and conceptual frameworks

Question 1

What is the primary objective of accounting?

Answer 1

To measure income

Question 2

What is the most authoritative set of accounting pronouncements?

Answer 2

The FASB Codification

All pronouncements fall under the Codification umbrella

Question 3

What are the 2 Levels of Authority within the FASB codification?

Answer 3

Authoritative and Non-Authoritative

Question 4

How does managerial accounting differ from financial accounting?

Answer 4

Managerial Accounting has a timeliness focus

Managerial Accounting is not required to follow GAAP

Question 5

What is the focus of financial reports for individual companies?

Answer 5

Focus is on the needs of users to help them make decisions and assessments about the company

Does not make assessments of the economy

Question 6

What are the Primary Constraints of Financial Reporting?

Answer 6

Cost vs. Benefit

Materiality

Question 7

What are the Secondary Constraints of Financial Reporting?

Answer 7

Consistency - Year vs. Year

Comparability - Company vs. Company

Question 8

What are the Qualitative Characteristics of Financial Reporting?

Answer 8

Relevance

AND

Faithful Representation

Question 9

What are the ingredients of Relevance according to the FASB and IASB Conceptual Framework?

Answer 9

Predictive Value - Future Trends

Confirming Value - Past Predictions

Materiality - Could affect User Decisions

Question 10

What are the ingredients of Faithful Representations according to the FASB and IASB Conceptual Framework?

Answer 10

Completeness - Nothing omitted that would impact the decision-making of a user

Neutrality - Information is presented is without bias

Free from Error - No material errors or omissions

Question 11

What are the Enhancing Qualitative Characteristics of Financial Reporting?

Answer 11

Comparability

Verifiability

Timeliness AND

Understandability

Question 12

What are the Authoritative Literature included in the FASB Accounting Standards Codification?

Answer 12

FEDPRIA:

Financial Accounting Standards Board ( FASB)

Emerging Issues Task Force ( EITF)

Derivative Implementation Group Issues

Accounting Principles Board Opinions

Accounting Research Bulletins

Accounting Interpretations

American Institute of Certified Public Accountants ( AICPA)

Question 13

What the two most important setting process for FASB Updates?

Answer 13

Exposure Draft - Proposed FASB Amendment are first issued to the public via Exposure Draft

Majority Vote - Is required by Board Members to approve the draft.

Question 14

What the two most important setting process for FASB Updates?

Answer 14

Discussion paper - The first publication of major new topic

Exposure Draft - For public comment on the new topic (required).

9 IASB members - Are required to approve the draft.

Question 15

Entity Assumption

Answer 15

Economic activity can be accounted for when considering an identifiable set of activities

Question 16

Going Concern Assumption

Answer 16

For financial accounting, it is presumed that the entity will continue to operate in the foreseeable future.

Question 17

Monetary Unit Assumption

Answer 17

It is assumed that money is an appropriate basis by which to measure economic activity

Question 18

Periodicity Assumption

Answer 18

Economic activity can be divided into meaningful time periods.

Question 19

Historical Cost Principle

Answer 19

Financial information is accounted for and based on cost, not current market value.

Question 20

Reve nue Recog nition Principle

Answer 20

revenue should be recog nized when it is earned and when it is realized or realizable

Question 21

Matching Principle

Answer 21

All expenses incurred to generate a specific amount of

revenue in a period are matched against that revenue.

Question 22

Accrual Accounting

Answer 22

Revenues / Expense are recognized in the same period earned and incurred.

Question 23

Full Disclosure Principle

Answer 23

Provide information that would make a difference in

the decision process

Question 24

Conservatism Principle

Answer 24

Recognize revenues/gains when the earnings process is complete

Recognize expenses/losses immediately.