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FAR CPA Exam > FASB Conceptual Framework > Flashcards

FASB Conceptual Framework Flashcards

Conceptual Framework, Standard Setting, and Financial Reporting

1
Q

FASB Conceptual Framework Level 1

A

Objectives

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2
Q

FASB Conceptual Framework Level 2

A
  • Qualitative Characteristics: Fundamental Qualities & Enhancing Qualities
  • Elements
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3
Q

FASB Conceptual Framework Level 3

A
  • Assumptions: Economic Entity, GC, Monetary Unit, Periodicity
  • Principles: Measurement, Revenue and Expense Recognition, Full Disclosure
  • Constraints: Cost and Industry Practices
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4
Q

Level 1 Objective Definition

A

to provide information that is useful to present and potential equity investors, lenders, creditors, in their capacity as capital providers

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5
Q

What are the Fundamental Qualities

A

Relevance & Faithful Representation

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6
Q

Relevance Definition

A

Information is helpful in making decisions
- Predictive value
- Confirmatory value
- Materiality

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7
Q

Predictive Value Definition

A

relevant information is used by investors to form their own expectations about the future

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8
Q

Confirmatory Value Definition

A

relevant information also helps users confirm or correct prior expectations

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9
Q

Materiality Definition

A

information is material if omitting it or misstating it could influence decisions that users make on the basis of the reported financial information

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10
Q

Faithful Representation Definition

A

the numbers and descriptions match what actually existed or happened
- Completeness
- Neutrality
- Free from error

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11
Q

Completeness Definition

A

all the information that is necessary for faithful representation is provided

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12
Q

Neutrality Definition

A

a company cannot select information to favor one set of interested parties over another

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13
Q

Free from error Definition

A

more accurate (faithful) representation of a financial item

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14
Q

What are Enhancing Qualities

A

Comparability, Verifiability, Timeliness and Understandability

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15
Q

Comparability Definition

A

information that is measured and reported in a similar manner for different companies is considered comparable

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16
Q

Verifiability Definition

A

occurs when independent measurers, using the same methods, obtain similar results

17
Q

Timeliness Definition

A

having information available to decision-makers before it loses its capacity to influence decisions

18
Q

Understandability Definition

A

the quality of information that lets reasonably informed users see its significance

19
Q

What are the Elements in Level 2 FASB Conceptual Framework

A
  • Assets
  • Liabilities
  • Equity
  • Investments by Owners
  • Distributions to Owners
  • Comprehensive Income
  • Revenues
  • Expenses
  • Gains and Losses
21
Q

What are the Level 3 Assumptions

A

Economic Entity, GC, Monetary Unit & Periodicity

21
Q

Economic Entity Definition

A

company keeps its activity separate from its owners and other businesses

22
Q

Going Concern Definition

A

company to last long enough to fulfill objectives and commitments

23
Q

Monetary Unit Definition

A

money is the common denominator

24
Q

Periodicity Definition

A

company can divide its economic activities into time periods

25
Q

What are the Level 3 Principles

A

Measurement, Revenue and Expense recognition & full disclosure

26
Q

Measurement Principle Definition

A

the most commonly used measurements are based on historical cost and fair value

27
Q

Revenue recognition Definition

A

generally occurs when realized or realizable and when earned

28
Q

Expense Recognition Definition

A

let the expense follow the revenues

29
Q

Full disclosure Definition

A

providing information that is of sufficient importance to influence the judgment and decisions of an informed user
- Financial Statements
- Notes to the FS
- Supp Information

30
Q

Cost Constraint Definition

A

cost of providing information must be weighed against the benefits that can be derived from using it

31
Q

Industry Practice Definition

A

the unique nature of some industries and business concerns sometimes requires departure from basic accounting theory

FAR CPA Exam (7 decks)

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