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Financial Analysis Report > Module 1 > Flashcards

Module 1 Flashcards

1
Q

These are accounting principles that have substantial authoritative support.

A

Generally accepted accounting principles

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2
Q

The formal process of developing the accounting principles that exist today in the United States began with the -

A

Securities Acts of 1933 and 1934.

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3
Q

Prior to these laws, the New York Stock Exchange (NYSE), which was established in -

A

1792

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4
Q

The primary mechanism for establishing specific requirements for the disclosure of financial information.

A

the New York Stock Exchange (NYSE)

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5
Q

It was designed to protect investors from abuses in financial reporting that developed in the United States

A

The Securities Act of 1933

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6
Q

This Act was intended to regulate the initial offering and sale of securities in interstate commerce.

A

Securities Act of 1933

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7
Q

It was intended to regulate securities trading on the national exchanges, and it was under this authority that the Securities and Exchange Commission (SEC) was created.

A

the Securities Exchange Act of 1934

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8
Q

It is a professional accounting organization whose members are certified public accountants (CPAs).

A

The AICPA

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9
Q

What is GAAP ?

A

Generally Accepted Accounting Principles

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10
Q

What is AICPA ?

A

American Institute of Certified Public Accountants

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11
Q

What is FASB ?

A

Financial Accounting Standards Board

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12
Q

A panel of electors is selected from nine organizations. What are they ?

A
  1. AICPA
  2. Financial Executives Institute
  3. Institute of Management Accountants
  4. Financial Analysts Federation
  5. American Accounting Association
  6. Security Industry Association
  7. three not-for-profit organizations.
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13
Q

What is FAF ?

A

Financial Accounting Foundation

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14
Q

How many trustees are there ?

A

16 trustees

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15
Q

4 types of pronouncements issued by FASB

A
  1. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
  2. INTERPRETATIONS
  3. TECHNICAL BULLETINS
  4. STATEMENTS OF FINANCIAL ACCOUNTING CONCEPTS (SFACs)
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16
Q

These establish GAAP for specific accounting issues. SFASs are part of GAAP unless they have been superseded.

A

STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS (SFAS)

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17
Q

These pronouncements provide clarifications to previously issued standards, including SFASs, APB Opinions, and Accounting Research Bulletins.

A

INTERPRETATIONS

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18
Q

The interpretations have the same -

A

authority and require the same majority votes for passage as standards

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19
Q

Interpretations are part of GAAP unless they have been -

A

superseded

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20
Q

These provide timely guidance on financial accounting and reporting problems. They may be used when the effect will not cause a major change in accounting practice for a number of companies and when they do not conflict with any broad fundamental accounting principle.

A

TECHNICAL BULLETINS

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21
Q

These provide a theoretical foundation on which to base GAAP. They are the output of the FASB’s Conceptual Framework project, but they are not part of GAAP.

A

STATEMENTS OF FINANCIAL ACCOUNTING CONCEPTS (SFACs).

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22
Q

The Conceptual Framework for Accounting and Reporting was on the agenda of the FASB from its inception in -

A

1973

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23
Q

This Framework is intended to set forth a system of interrelated objectives and underlying concepts that will serve as the basis for evaluating existing standards of financial accounting and reporting.

A

The Conceptual Framework for Accounting and Reporting

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24
Q

7 Concepts Statements issued by the Framework Project

A
  1. “Objectives of Financial Reporting by Business Enterprises”
  2. “Qualitative Characteristics of Accounting Information”
  3. “Elements of Financial Statements of Business Enterprises”
  4. “Objectives of Financial Reporting by Nonbusiness Organizations”
  5. “Recognition and Measurement in Financial Statements of Business Enterprises”
  6. “Elements of Financial Statements” (a replacement of No. 3)
  7. “Using Cash Flow Information and Present Value in Accounting Measurements”
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25
Q

Concepts Statement No. 1 is issued in -

A

1978

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26
Q

This deals with identifying the objectives of financial reporting for business entities and establishes the focus for subsequent concept projects for business entities.

A

Concept Statement No. 1

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27
Q

Concepts Statement No. 1 pertains to -

A

general-purpose external financial
reporting and is not restricted to financial statements.

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28
Q

Summary of the highlights of Concepts Statement No. 1. Give 3.

A
  1. Financial reporting should be helpful to users in assessing the amounts, timing, and uncertainty of future cash flows.
  2. The primary focus is on information about earnings and its components.
  3. Information should be provided about the economic resources of an enterprise and the claims against those resources.
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29
Q

Statement Concept No. 2 is issued in -

A

May 1980

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30
Q

This examines the characteristics that make accounting information useful for investment, credit, and similar decisions.

A

Statement Concepts No. 2

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31
Q

2 primary qualities that makes accounting information useful for decision making.

A

Relevance and reliability

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32
Q

the information needs to have predictive and feedback value and must be timely.

A

Relevant

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33
Q

the information must be verifiable, subject to representational faithfulness, and neutral.

A

Reliable

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34
Q

This includes consistency, interacts with relevance and reliability to contribute to the usefulness of information

A

Comparability

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35
Q

The hierarchy includes 2 constraints :

A
  1. to be useful and worth providing, the information should have benefits that exceed its cost.
  2. all of the qualities of information shown are subject to a materiality threshold
36
Q

10 interrelated elements of SFAC No. 6

A
  1. ASSETS
  2. LIABILITIES
  3. EQUITY
  4. INVESTMENTS BY OWNERS
  5. DISTRIBUTION TO OWNERS
  6. COMPREHENSIVE INCOME
  7. REVENUES
  8. EXPENSES
  9. GAINS
  10. LOSSES
37
Q

These are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

38
Q

These are probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

A

LIABILITIES

39
Q

This is the residual interest in the assets of an entity that remains after deducting its liabilities.

40
Q

Equity = ?

A

Equity = Assets - Liabilities

41
Q

These are increases in the equity of a particular business enterprise resulting from transfers to the enterprise from other entities of something of value to obtain or increase ownership interests (or equity) in it.

A

INVESTMENTS BY OWNERS.

42
Q

Assets, most commonly received as investments by owners, may also include -

A

services or satisfaction or conversion of liabilities of the enterprise.

43
Q

This is a decrease in equity of a particular business enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners.

A

DISTRIBUTION TO OWNERS.

44
Q

Distributions to owners decrease -

A

ownership interest (or equity) in an enterprise.

45
Q

This is the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from nonowner sources.

A

COMPREHENSIVE INCOME.

46
Q

Comprehensive Income includes all changes in equity during a period except -

A

those resulting from investments by owners and distributions to owners.

47
Q

These are inflows or other enhancements of assets of an entity or settlements of its liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.

48
Q

These are outflows or other consumption or using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.

49
Q

These are increases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other events and circumstances affecting the entity during a period except those that result from revenues or investments by owners.

50
Q

These are decreases in equity (net assets) from peripheral or incidental transactions of an entity and from all other transactions and other
events and
circumstances affecting the entity during a period except those that result from expenses or distributions to owners.

51
Q

“Objectives of Financial Reporting by Nonbusiness Organizations” (SFAC No. 4) was completed in -

52
Q

Organizations that fall within the focus of this statement include -

A
  1. churches
  2. foundations
  3. human-service organizations
53
Q

“Recognition and Measurement in Financial Statements of Business Enterprises” (SFAC No. 5) is issued in -

54
Q

4 criteria of SFAC NO. 5

A
  1. DEFINITION
  2. MEASURABILITY
  3. RELEVANCE
  4. RELIABILITY
55
Q

The item fits one of the definitions of the elements.

A

DEFINITION

56
Q

The item has a relevant attribute measurable with sufficient reliability.

A

MEASURABILITY

57
Q

The information related to the item is relevant.

58
Q

The information related to the item is reliable.

A

RELIABILITY

59
Q

5 different measurement attributes of SFAC NO. 5

A
  1. Historical cost (historical proceeds)
  2. Current cost
  3. Current market value
  4. Net realizable (settlement) value
  5. Present (or discounted) value of future cash flows
60
Q

5 full set of financial statements of SFAC No. 5

A
  1. Financial position at the end of the period
  2. Earnings (net income)
  3. Comprehensive income (total nonowner change in equity)
  4. Cash flows during the period
  5. Investments by and distributions to owners during the period
61
Q

SFAC No. 7 was issued in -

A

February 2000

62
Q

This provides general principles for using present values for accounting measurements. It describes techniques for estimating cash flows and interest rates and applying present value in measuring liabilities.

A

SFAC No. 7

63
Q

11 TRADITIONAL ASSUMPTIONS OF THE ACCOUNTING MODEL

A
  1. Business Entity
  2. Going concern or Continuity
  3. Time Period
  4. Monetary Unit
  5. Historical Cost
  6. Conservatism
  7. Realization
  8. Matching
  9. Consistency
  10. Full Disclosure
  11. Materiality
64
Q

An economic unit that stands on its own

A

Business Entity

65
Q

This assumption states that the entity in question will remain in business for an indefinite period of time, provides perspective on the future of the entity.

A

Going-concern or Continuity

66
Q

The going-concern assumption deliberately disregards the possibility that the entity will -

A

go bankrupt or be liquidated.

67
Q

The only accurate way to account for the success or failure of an entity is to accumulate all transactions from the opening of business until the business eventually liquidates

A

Time Period

68
Q

Accountants need some standard of measure to bring financial transactions together in a meaningful way.

A

Monetary Unit

69
Q

This is used in practice because it is objective and determinable. This call for another measurement attribute such as current market value, net realizable value, or present value

A

Historical Cost

70
Q

The accountant is often faced with a choice of different measurements of a situation, with each measurement having reasonable support. According to this, the accountant must select the measurement with the least favorable effect on net income and financial position in the current period.

A

Conservatism

71
Q

Accountants face a problem of when to recognize revenue. All parts of an entity contribute to revenue, including the janitor, the receiving department, and the production employees.

A

Realization

72
Q

Revenue is usually recognized at the -

A

point of sale

73
Q

4 acceptable methods of recognizing revenue

A
  1. End of production
  2. Receipt of cash
  3. During production
  4. Cost recovery
74
Q

The recognition of revenue at the completion of the production process is acceptable when the price of the item is known and there is a ready market.

A

End of Production

75
Q

This method should be used when collection is not capable of reasonable estimation at the time of sale.

A

Receipt of Cash

76
Q

Some long-term construction projects recognize revenue as the construction progresses. This exception tends to give a fairer picture of the results for a given period of time.

A

During Production

77
Q

This approach is acceptable for highly speculative transactions.

A

Cost Recovery

78
Q

The revenue realization concept involves when to recognize revenue. Accountants need a related concept that addresses when to recognize the costs associated with the recognized revenue. The basic intent is to determine the revenue first and then match the appropriate costs against this revenue.

79
Q

This requires the entity to give the same treatment to comparable transactions from period to period. This adds to the usefulness of the reports, since the reports from one period are comparable to the reports from another period. It also facilitates the detection of trends.

A

The consistency concept

80
Q

The accounting reports must disclose all facts that may influence the judgment of an informed reader.

A

FULL DISCLOSURE

81
Q

4 methods of disclosure

A
  1. parenthetical explanations
  2. supporting schedules
  3. cross-references
  4. notes
82
Q

The accountant must consider many concepts and principles when determining how to handle a particular item. The proper use of the various concepts and principles may be costly and time-consuming. This concept involves the relative size and importance of an item to a firm.

A

Materiality

83
Q

2 types of transaction approach

A
  1. Cash basis
  2. Accrual basis
84
Q

This recognizes revenue when cash is received and recognizes expenses when cash is paid. This usually does not provide reasonable information about the earning capability of the entity in the short run.

A

Cash basis

85
Q

This recognizes revenue when realized (realization concept) and expenses when incurred (matching concept).

A

Accrual basis

Financial Analysis Report (1 decks)

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