FASB Standards and Frameworks

Question 1

What are the 4 criteria needed by a financial reporting framework (FRF)?

Answer 1

Recognition - what appears in F/S and when
Measurement - determines amount reported
Presentation - where it’ll appear
Disclosure - what info and how much must be provided to users

Question 2

What are the 2 general purpose frameworks?

Answer 2

GAAP & IFRS

Question 3

SMEs

Answer 3

Small and medium entities

Question 4

What are the 5 special purpose frameworks?

Answer 4

1. Cash basis
2. Tax basis
3. Contractual basis
4. Regulatory basis
5. FRF for SMEs

Question 5

Cash basis (rev, exp, assets)

Modified cash basis differences

Answer 5

Revenues - recognized when received
Expenses - when paid
Fixed assets - expensed not capitalized

Modified - capitalize fixed assets and taxes/inventory can be accrued

Question 6

Tax Basis

Answer 6

Revenues and expenses are recognized in the same periods and amounts as when preparing income tax return

Tax basis - could be cash or accrual basis

Question 7

Accrual basis

Answer 7

Revenues - recognized when earned

Expenses - when incurred (not paid)

Question 8

PCC and purpose for being

Answer 8

Private Company Council - simplifies GAAP so as to reduce costs of reporting for non-public entities

Question 9

FASB definition of public entities

Answer 9

1. Submit F/S to SEC
2. Regulated under 1934 Sec. Exchange Act
3. Issue securities that are traded

Question 10

ASC

Answer 10

Accounting Standards Codification - single source of authoritative GAAP

Question 11

ASC Topics (9)

Answer 11

100s - General Principles
200s - Presentation
300s - Assets
400s - Liabilities
500s - Equity
600s - Revenues
700s - Expenses
800s - Broad Transactions
900s - Industry

Question 12

GAAP Hierarchy

Answer 12

1. ASC - Authoritative - updated with Acct. Standards Updates (ASUs) which are not authoritative
2. Nonauthoritative

Question 13

What is the EITF and what does it do?

Answer 13

Emerging Issues Task Force - responsible for determining how to account for new/unusual transactions.

FASB - deals LT issues
EITF - deals ST emerging issues

Question 14

SFACs

Answer 14

Statements on Financial Accounting Concepts - the principles/conceptual framework that guide the development of accounting and reporting standards

Question 15

6 Objectives of Financial Reporting

Answer 15

1. Primary objective - provide useful information to existing and potential investors, lenders, and creditors in making decisions about providing resources to said entity.
2. Providing a picture of the entity’s economic resources and claims against it (B/S)
3. Changes in economic resources
4. Financial performance reflected by accrual accounting - better basis for assessing the entity’s past and future performance (I/S)
5. Financial performance reflected by cash flows (St. of cash flows)
6. Changes in econ. resources and claims not from financial performance (St. of Stockholder’s Equity)

Question 16

Primary Qualitative Characteristics

Answer 16

Relevance - predictive and confirmatory value

Faithful representation - free from error, neutrality, completeness

Question 17

Enhancing Qualitative Characteristics

Answer 17

1. Comparability
2. Understandability
3. Timeliness
4. Verifiability

Question 18

2 Constraints that override usefulness of information

Answer 18

1. Cost/Benefit

2. Materiality - capable of impacting the user’s decision making process