FAR - Chap 1 - Standard Setting for Financial Accounting

Question 1

What are financial statements?

Answer 1

Method of communicating to external parties info about the results of operations, cash position, and cash flow of a company within a certain time frame

Question 2

What standard must financial statements follow?

Answer 2

G.A.A.P. - generally accepted accounting principles

Question 3

What are the bodies designated to establish professional standards?

Answer 3

FASB - Financial accounting standards board
IASB - international accounting standards board
GASB - governmental accounting standards board
FASAB - Federal advisory accounting standards board

Question 4

What are the difference between financial and management accounting

Answer 4

• Mgmt is for internal users, Financial is external
• Mgmt does not have to follow GAAP, Financial must follow GAAP
• Mgmt is focused on the future events, Financial has a past focused

Question 5

What is the primary purpose of financial accounting and reporting?

Answer 5

Provide info that will aid in the decision making process for investors and creditors. Such as

• investment decision
• credit decision
• assess cash flow
• assess the economic resources (assets) and obligations (liabilities)

Question 6

What is the SEC role in financial accounting and reporting?

Answer 6

The authority to establish principles (GAAP) for issuers.
- delegated this to FASB
-requires issuers to meet certain reporting requirement
Enforcement and prosecution if principles are violated

Question 7

What is FAF and what does it do?

Answer 7

Financial Accounting Foundation

• governs/oversight FASB & FASAC
• appoints board members to FASB
• ensured funding

Question 8

What is FASB and what does it do?

Answer 8

Financial Accounting Standards Board

• private sector body of 7 full time members
• establishes GAAP for nongovernmental US entities

Question 9

What process does FASB use to establish GAAP?

Answer 9

• add an item to the agenda
• conduct research and issue a discussion memo
• hold public hearing
• evaluate comments/research, issue an exposure draft
• additional comments, modify draft if necessary
• finalize through a vote. 4 out of 7 must approve
• accounting standard update is issued

Question 10

What is an ASU?

Answer 10

Accounting Standard Update. This is not GAAP, until it is incorporated into the codification

Question 11

What is ASC?

Answer 11

Accounting Standard Codification. This is the compilation and organization of GAAP.

Question 12

What are the two sources of authoritative GAAP

Answer 12

FASB, and the SEC pronouncements

Question 13

What is the PCC and what does it do?

Answer 13

Private Company Council

• propose exceptions and modifications to GAAP for private companies
• advise FASB on private companies issues before new pronouncements are issued

Question 14

What is the FASAC and what do they do

Answer 14

Financial Accounting Standards Advisory Board

• advises FASB on priorities
• proposed standards
• evaluates standards performance

Question 15

What is IASB and what do they do?

Answer 15

International Accounting Standards Board

• one global accounting standard
• reduce the need to rewrite statements for multi-national or foreign companies to adhere to GAAP

Question 16

What are IASB standards called?

Answer 16

IFRS- international financial reporting standards