Framework, Overview And statement Flashcards

1
Q

What is GAAP?

A

The rules of financial reporting for business enterprises. Also called “accounting standards”

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2
Q

What 3 aspects of financial reporting does GAAP address?

A
  1. ) recognition - recognized item is recorded and affects the financials
  2. ) measurement - relates to the actual dollar amount
  3. ) disclosure - many unrecognized items are reported in the footnotes
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3
Q

Who is the current standard-setting body in the U.S.?

A

The FASB

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4
Q

What is the SEC?

A

Federal government agency that administers the securities laws of the U.S. These laws affect firms that issue debt and securities to the public

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5
Q

Who has authority to establish GAAP publicly traded companies?

A

Congress gave this right to the SEC, but they have mostly given this authority to the private sector body (FASB). In a few rare cases SEC has exercised its authority and reversed or modified a standard adopted by the private sector

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6
Q

What is the mission of the AICPA?

A

To provide its members with resources, information and leadership as it is the national professional organization for practicing CPAs

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7
Q

What board was created in 1959?

A

The Accounting principles board was created by the AICPA. They were the second private sector group designed to formulate GAAP. They issued 31 opinions many of which are still GAAP

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8
Q

What are the 3 parts of the current accounting standard-setting mechanism in the U.S.?

A
  1. ) FASB - establishes financial accounting standards for business entities. Independent body subject only to FAF
  2. ) FAF - appoints the member of the FASB, ensures adequate funding for FASB. Funding sources include fees levied under SOX, contributions, and publication sales.
  3. ) FASAC - provide guidance on major issues
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9
Q

What is the mission of the FASB?

A
  1. ) improve usefulness of financial reporting
  2. ) maintain current accounting standards
  3. ) promptly address deficiencies in the standards
  4. ) promote international convergence
  5. ) improve common understanding of financial reports
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10
Q

Brief facts about FASB

A
  1. ) 7 full time members with renewable and staggered 5 year terms
  2. ) subject to FAF policies and oversight
  3. ) members cannot have employment or investment ties with other entities
  4. ) members do not have to be CPAs
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11
Q

What principles does FASB apply when making GAAP?

A
  1. ) should be unbiased
  2. ) the needs and views of the economic community should be considered, the accounting profession should not come first
  3. ) process of developing standards should be open to the public
  4. ) the benefits of accounting standards should exceed their cost
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12
Q

What is financial accounting and reporting concerned with?

A

Providing relevant information to investors and creditors for the purpose of making informed resource allocations (whether to invest)

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