FAR 1.1 Accounting standards and conceptual frameworks Flashcards
What is the primary objective of accounting?
To measure income
What is the most authoritative set of accounting pronouncements?
The FASB Codification
All pronouncements fall under the Codification umbrella
What are the 2 Levels of Authority within the FASB codification?
Authoritative and Non-Authoritative
How does managerial accounting differ from financial accounting?
Managerial Accounting has a timeliness focus
Managerial Accounting is not required to follow GAAP
What is the focus of financial reports for individual companies?
Focus is on the needs of users to help them make decisions and assessments about the company
Does not make assessments of the economy
What are the Primary Constraints of Financial Reporting?
Cost vs. Benefit
Materiality
What are the Secondary Constraints of Financial Reporting?
Consistency - Year vs. Year
Comparability - Company vs. Company
What are the Qualitative Characteristics of Financial Reporting?
Relevance
AND
Faithful Representation
What are the ingredients of Relevance according to the FASB and IASB Conceptual Framework?
Predictive Value - Future Trends
Confirming Value - Past Predictions
Materiality - Could affect User Decisions
What are the ingredients of Faithful Representations according to the FASB and IASB Conceptual Framework?
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
What are the Enhancing Qualitative Characteristics of Financial Reporting?
Comparability
Verifiability
Timeliness AND
Understandability
What are the Authoritative Literature included in the FASB Accounting Standards Codification?
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)
What the two most important setting process for FASB Updates?
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.
What the two most important setting process for FASB Updates?
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.
Entity Assumption
Economic activity can be accounted for when considering an identifiable set of activities
Going Concern Assumption
For financial accounting, it is presumed that the entity will continue to operate in the foreseeable future.
Monetary Unit Assumption
It is assumed that money is an appropriate basis by which to measure economic activity
Periodicity Assumption
Economic activity can be divided into meaningful time periods.
Historical Cost Principle
Financial information is accounted for and based on cost, not current market value.
Reve nue Recog nition Principle
revenue should be recog nized when it is earned and when it is realized or realizable
Matching Principle
All expenses incurred to generate a specific amount of
revenue in a period are matched against that revenue.
Accrual Accounting
Revenues / Expense are recognized in the same period earned and incurred.
Full Disclosure Principle
Provide information that would make a difference in
the decision process
Conservatism Principle
Recognize revenues/gains when the earnings process is complete
Recognize expenses/losses immediately.
