Financial Reporting Environment Flashcards
How does the FASB amend an Accounting Standards Codification?
Using Accounting Standards Updates
WHAT are the (2) Qualitative Characteristics of Accounting Information?
(1) Relevance
(2) Representational Faithfulness
WHAT are the Four Accounting Pronouncements and what is the order of the authority for the (4)?
(1) Financial Accounting Standards
(2) FASB Interpretations
(3) AICPA Accounting Principles Board Opinions
(4) AICPA Accounting Research Bulletins
True or False.
Pronouncements of the FASB’s predecessor bodies remain in force until amended or superseded by the FASB.
FALSE.
The FASB’s Accounting Standards Codification and SEC pronouncements are the only sources of authoritative guidance for nongovernmental entities in the U.S.
True or False.
The Financial Accounting Foundation oversees the FASB.
TRUE.
The Financial Accounting Foundation oversees the FASB.
HOW is information “Verifiable?”
Knowledgeable and independent observers can reach a consensus (but not necessarily unanimity) that it is faithfully represented.
E.g. An arm’s-length transaction between two independent parties
WHAT is the purpose of the Statement of Financial Accounting Concepts (SFAC)?
To create a conceptual framework for accounting
i.e. They are used to develop standards of financial accounting and reporting
WHAT is the objective of present value when used to determine an accounting measurement for initial recognition purposes?
To Estimate Fair Value as it encompasses all financial statement elements using the estimates and expectations of participants in the market.
WHAT would be considered appropriate means of measuring an element of financial reporting in monetary terms?
(a) Replacement cost
(b) Net Realizable Value
(c) Present Value
(d) Historical Cost
TRUE or FALSE.
The most important accomplishment in accomplished providing general-purpose financial information useful for making decisions about providing resources to an entity is sufficient information to determine the value of the entity.
FALSE.
This is false as general-purpose financial reports are significantly based on estimates and do not suffice to determine the value of the entity.
WHAT does “FENCe” stand for?
Free from Error
Neutrality
Completeness
Note: These are all element(s) or “ingredients” of Faithful Representation
WHAT does P.C. stand for?
Predictive Value
Confirmatory Value
Note: These are element(s) or “ingredients” of Relevance
WHAT are the three types of inputs involving the valuation technique?
Level I - Most Reliable. Observable data from actual market
Level II - Observable market data from similar market transactions; except transactions did not occur in ACTIVE market
Level III - Unobservable inputs (e.g. internal data and estimates - Based on management’s judgement)
WHAT is the primary purpose of the statement of activities of the government-wide financial statements?
TO provide information to assess “Operational accountability.”
NOTE: It is important to make the distinction between Fiscal accountability which is for governmental funds and Operational accountability which is for government-wide funds.
According to FASB, how are noncurrent payables are usually measured and reported?
AT Present value of future cash flows.
WHY? - because it incorporates time value of money concepts which is important when dealing with noncurrent receivables and payables.
WHAT is the “Realization” Concept?
This is the conversion of an item to cash or a claim to cash
e.g. Realization occurs when an entity converts goods or services into an Accounts Receivable
This does NOT involve the collection of the receivable – Just the conversion
WHAT are the valuation techniques used to measure or estimate fair value?
Market Approach - Use of information generated by market transactions
Income Approach - Analyzing future amounts in the form of Revenue
Cost Approach - Measuring the cost that would be incurred to replace benefit received from an asset
I.e. Rock the “MIC”
TRUE or FALSE.
Notes to Financial Statements are considered to be one of the 10 Financial Statement Elements according to FASB.
FALSE.
Information disclosed in notes or parenthetically on the face of financial statements amplifies or explains information recognized in the financial statements.
However, they are NOT considered one of the (10) Financial Statement Elements.
WHAT does an enterprise’s Financial Statements provide direct information on?
THE Enterprise’s Performance
Note: The financial reporting can also provide information on management’s performance; however this is considered “indirect”
WHAT are the “Enhancing” characteristics of financial reporting?
Comparability
Understandability
Timeliness
Verifiability
“CUT-V”
