FASB and Standard Setting Flashcards
Describe the role of the Financial Accounting Standards Board. Describe the primary purpose of financial reporting. List the three aspects of financial reporting addressed by GAAP. Identify the major organizations in U.S. accounting standards. Know the standard-setting process in the United States.
what is the main purpose of financial statement?
To help users to make the informed financial decisions. Ex, for investors, whether or not to invest in a company.
What is GAAP?
The rules of financial reporting for business enterprises. GAAP is also called accounting standards. It address:
(1) Recognition: Record the item
(2) Measurement: $ of the item
(3) Disclosure: Include the unrecognized items in the footnote to complete the whole pictures of the company’s financial situation.
3 Accounting standard setting mechanism, in the U.S.
FAF: Appoints the members of the FASB and its advisory councils, ensure the funding or FASB, and oversight over FASB.
FASB: Establish GAAP
FASAC: Provide guidance on major policy issues, project priorities and tasks.
Facts about FASB
- 7 members with 5-year term from 1973 2008, reduced to 5 members until 2008. Members can be renewed for one more term.
- Subject only to FAF. Independent to other.
- Members need not to be CPAs.
What is the standards setting process?
- Add a project agenda with consultation with FAF and FASAC.
- FASB conducts research/issue discussion memo
- Public hearing on the topic
- Evaluate research and comments, issue an exposure draft
- seek additional comments and modified draft.
- Finalized new accounting standards and issue Accounting Standards Updates. (ASUs)
What is EITF?
EITF is Emerging issues task forces. It provide guidance for implement. It helps to reduce the diversity of implementation. EITF pronouncements are also included in GAAP.
What is the negative economic consequences of proposed standard?
It refers to a proposed standard cause earning to decline, thus reducing capital raising ability.
What is responsible for GAAP enforcement?
GAAP is not law, but SEC have the authority to penalize firms or managers subject to jurisdiction when not comply with GAAP. How?
SEC send a deficiency letter, then stop order if firm disagrees. Outright violations may result in criminal sanction.
What is include in FASB Accounting Standards Codification (GAAP)?
The Codification includes the authoritative literature of the FASB, the EITF, SEC ,Accounting Principles Board Opinions, Accounting Research Bulletins, Accounting Interpretations, AICPA Statements of Position, AICPA Audit and Accounting Guides, and Practice Bulletins. The FASB Accounting Standards Codification does not include the AICPA Statements of Auditing Standards. The auditing standards are included in the Professional Standards issued by the AICPA. FASB concepts statement, AICPA issues papers, IFRS at not GAAP.
