part 1.FASB standard setting

Question 1

organizations involved in developing GAAP

Answer 1

. FASB
. SEC
. AICPA
.PCC

Question 2

GAAP addresses

Answer 2

. recognition
. measurement
. disclosure

Question 3

accounting standard setting mechanism

Answer 3

. FASB
. FAF
. FASAC

Question 4

mission of the FASB

Answer 4

• improve usefulness of financial reporting
• maintain current accounting standards
• promptly address deficiency in accounting standards
• promote international covergence of accounting standards
• improve the understanding of the nature and purpose of information in f/s

Question 5

FASB

Answer 5

• private entity
• 7 full time members - 5 years term
• subject to FAF oversight and policies
• members can’t have employement or invest ties with other entities
• members not need to be CPA

Question 6

FASB process to issue a new standard

Answer 6

1. considers whether to add project to agenda
2. conduct research on topic
3. issues a discussion memo
4. holds public hearings on topic
5. evaluate the research and issues an exposure draft
6. solicits additional comments and modifies exposure draft
7. finalize the new accounting guidance
8. issues an accounting standard update

Question 7

FASB emerging issue task force

Answer 7

they act as a filter for FASB allowing FASB to focus on more important issues

Question 8

negative economic consequence

Answer 8

is often an argument of an interested party. a common argument against a proposed standard is that it will cause earnings to decline thus reducing the firms ability to raise capital

Question 9

the role of FAF

Answer 9

. oversight of FASB
. appoints FASB members
. ensure FASB funding

Question 10

FASB

Answer 10

establishes financial accounting standards for business entities

Question 11

what sec do?

Answer 11

administers u.s. securities laws

Question 12

what is the role of FASAC?

Answer 12

provides guidance on major policy issues, project priorities and formation of task force

Question 13

authoritative GAAP

Answer 13

the FASB accounting standards codification is the sole source of authoritative U.S. GAAP for nongovernmental entities, except for SEC guidance

accounting and financial reporting practices not included in the codification are not authoritative

Question 14

the codification does not change GAAP

Answer 14

but rather provides accounting standards in a newly structure electronic form. materials are organized by major areas and topic

Question 15

the codification does not include guidance

Answer 15

for non GAAP matters including:
. OCBOA
. cash basis
. income tax basis
. regulatory accounting principles

Question 16

if guidance for transactions is not specified in the codification

Answer 16

authoritative GAAP for similar transactions should be considered before considering non authoritative GAAP

Question 17

sources of non authoritative GAAP

Answer 17

FASB concept statements
AICPA issues papers
IFRS and others

Question 18

the codification does not include

Answer 18

SEC content related to management discussion and analysis and other items appearing outside the f/s

Question 19

the accrual and differal accounts

Answer 19

are simply holding the revenue or expense amounts on the balance sheet until they can be recognized in the income statement

deffered: cash first
accruals: cash second

Question 20

prior period adjustments

Answer 20

which are the effects of corrections of errors affecting prior year net income are shown on the statement of retained earnings as adjustments to the begining balance of retained earnings in the year the error is discovered.

Question 21

items not included in the income statement but instead are included in other comprehensive income

Answer 21

. unrealized gains and losses on investments in securities available for sale
. certain pension costs adjustments
. foreign currency translation adjustment

Question 22

income statement

Answer 22

revenues - expenses

measures the performance of the firm. applies all inclusive approach.

Question 23

balance sheet measurement basis

Answer 23

. property plant and equipment: historical cost and depreciated/amortized historical cost.

. receivables: net realizable value

. inventory: lower of cost or market

. investments in marketable securities: market value

. liabilities: present value

, owner’s equity: historical value of cash inflows and residual valuation

, short term payables: historical cost

. warranty obligations: net realizable value

, long term receivables: present value of future cash flows