M1 Standards and Conceptual Framework

Question 1

The qualitative characteristics of useful information needs to be what?

Answer 1

Relevant and faithful representation.

Question 2

What is the process of reporting an item in the financial statements of an entity?

Answer 2

Recognition

Question 3

What is the process of converting noncash resources and rights into money?

Answer 3

Realization

Question 4

Financial information provided in general purpose financial reports should include information about the resources of the entity, the claims against the entity and how effectively and efficiently the entity’s management and governing board have discharged their responsibilities to use the entity’s resources. What should it not include?

Answer 4

Shareholder information since they do not have a responsibility (or a right) to use the entity’s resources.

Question 5

Where would a US public company get guidance in accounting for and reporting a complex derivative transaction that it entered with a European subsidiary?

Answer 5

The FASB Accounting Standards Codification is the single source of US GAAP. US public companies are required to follow US GAAP. International Financial Reporting Standards (IFRS) can not be used by a US public company as a source of US GAAP.

Question 6

What are the 5 elements of present value measurement as defined in FASB Statement of Financial Accounting Concepts Number 7?

Answer 6

1. The price for bearing uncertainty
2. Expectations about timing variations of future cash flows.
3. Other factors (e.g., liquidity issues and market imperfections).
4. Time value of money (the risk-free rate of return).
5. Estimate of future cash flow.

Question 7

What components are in Faithful Representation?

Answer 7

CNF
Completeness - are all necessary facts included in the information (primary financial statements & notes).

Neutral - the information is free from bias.

Free from Error - the information doesn’t contain material errors.

Question 8

What components are in Relevance?

Answer 8

PCM
Predictive Value - does the info help make predictions (forecasting) about future events?

Confirmatory Value - does the info provide earlier expectations or predictions?

Materiality

Question 9

The FASB amends the Accounting Standards Codification through the issuance of?

Answer 9

Accounting Standards Updates