Generally Accepted Accounting Principles

Question 1

The financial reporting framework includes 4 criteria. What are they?

Answer 1

Recognition

Measurement

Presentation

Disclosure

Question 2

What is the definition of recognition criteria?

Answer 2

What will appear on the FS and when it will appear

Question 3

What is the definition of measurement criteria?

Answer 3

To determine the amount at which it will be reported

Question 4

What is the definition of presentation criteria?

Answer 4

Where it will appear on the financial statements

Question 5

What is the definition of disclosure criteria?

Answer 5

To determine what information and how much information must be provided to FS users

Question 6

There are two financial reporting frameworks. What are they?

Answer 6

General purpose

Special purpose

Question 7

What is a general purpose framework?

Answer 7

Publicly held entities are required to submit their FS to the SEC prepared in accordance with general purpose framework (GAAP or IFRS)

Question 8

What is a special purpose framework?

Answer 8

A definite set of criteria other than GAAP or IFRS that has substantially support underlying the preparation of FS

Ex:
Cash basis
Modified cash basis
Tax basis
Contractual basis
Regulatory basis

Question 9

FASB created the Private Company Council (PCC). What is their role?

Answer 9

They are charged with evaluating existing GAAP to determine if there are requirements from which no public entities should be exempt or simplified

Published “Summary of significant accounting policies”

Question 10

Who developed the conceptual framework for accounting?

Why?

Answer 10

FASB

To define objectives and concepts

Question 11

What are the objectives of the conceptual framework?

Answer 11

1. Provide useful info (relevance vs. faithful representation)
2. Provide info about economic resources (BS)
3. Changes in economic resources (IS)
4. Accrual basis
5. Non-cash changes

Question 12

What are the PRIMARY characteristics?

USEFUL

Answer 12

Relevance and faithful representation

Question 13

What are the 2 ingredients of relevance?

Answer 13

1. Predictive value
2. Confirmatory value

PC

“Roger is always politically correct.”

“Capable of making a difference in a user’s decision making process”

Question 14

What are the 3 ingredients for faithful representation?

Answer 14

1. Free from error
2. Neutrality
3. Completeness

“Roger is never on the FENCe”

Question 15

What are the 4 enhancing qualitative characteristics?

Answer 15

1. Comparability (consistency)
2. Understandability
3. Timeliness
4. Verifiability

“Cut like a V”

Question 16

The cost of obtaining and presenting the information shouldn’t what?

Answer 16

Exceed the benefit

Question 17

Objectives: users of FS

Useful: relevance & faithful representation

F/S Elements: comparable, understandable, timely, verifiable

Recognition & measurement: what/ when, amount

Accounting principles: GAAP & IFRS

Answer 17

Pyramid (small to big)

Question 18

What are the 3 basic elements of the financial statements?

Answer 18

Assets, liabilities, & equity (or net assets)

Question 19

Equity consists of 3 elements

Answer 19

Contributions by owners

Distributions to owners

Comprehensive income

Question 20

Comprehensive income

Answer 20

All changes in equity other than owner sources

Question 21

What affects comprehensive income, but not net income?

Answer 21

DENT

Derivative cash flow hedges

Excess adjustment of pension & FV of plan assets at YE

Net unrealized gains & losses on available for sale securities

Translation adjustments for foreign currency