FAR - Chap 1 - Standard Setting for Financial Accounting Flashcards
What are financial statements?
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
What standard must financial statements follow?
G.A.A.P. - generally accepted accounting principles
What are the bodies designated to establish professional standards?
FASB - Financial accounting standards board
IASB - international accounting standards board
GASB - governmental accounting standards board
FASAB - Federal advisory accounting standards board
What are the difference between financial and management accounting
- 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
What is the primary purpose of financial accounting and reporting?
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)
What is the SEC role in financial accounting and reporting?
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
What is FAF and what does it do?
Financial Accounting Foundation
- governs/oversight FASB & FASAC
- appoints board members to FASB
- ensured funding
What is FASB and what does it do?
Financial Accounting Standards Board
- private sector body of 7 full time members
- establishes GAAP for nongovernmental US entities
What process does FASB use to establish GAAP?
- 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
What is an ASU?
Accounting Standard Update. This is not GAAP, until it is incorporated into the codification
What is ASC?
Accounting Standard Codification. This is the compilation and organization of GAAP.
What are the two sources of authoritative GAAP
FASB, and the SEC pronouncements
What is the PCC and what does it do?
Private Company Council
- propose exceptions and modifications to GAAP for private companies
- advise FASB on private companies issues before new pronouncements are issued
What is the FASAC and what do they do
Financial Accounting Standards Advisory Board
- advises FASB on priorities
- proposed standards
- evaluates standards performance
What is IASB and what do they do?
International Accounting Standards Board
- one global accounting standard
- reduce the need to rewrite statements for multi-national or foreign companies to adhere to GAAP
