Reading 20 Financial Reporting Standards Flashcards
Identify the principle objectives of the IFRS Foundation.
To develop and promote the use and adoption of a single set of high-quality financial standards; to ensure the standards result in transparent, comparable, and decision-useful information while considering the needs of a range of sizes and types of entities in diverse economic settings; and to promote the convergence of national accounting standards and IFRS.
Who is subject to SEC regulations?
Any company issuing securities in the United States, or otherwise involved in U.S. capital markets.
What is the objective of general purpose financial reporting under the conceptual framework?
To provide financial information that is useful in making decisions about providing resources to the entity to existing and potential providers of resources (e.g., investors, lenders, and creditors) to the entity.
Note: An effective financial reporting framework includes the following characteristics:
Transparency
Comprehensiveness
Consistency
Identify the approaches reporting standards can be based on.
Principles-based: Requires subjective judgment, provides broad framework with limited guidance on specific transactions.
Rules-based approach: Strict rules for classifying elements and transactions.
Objectives-oriented approach: Combination approach that includes principles and appropriate implementation guidance.
Identify the two fundamental qualitative characteristics and four supplementary qualitative characteristics of financial information that make it useful.
The two fundamental qualitative characteristics are:
Relevance
Faithful representation
Note: Faithful representation requires complete, neutral information that is free from errors.
The four supplementary qualitative characteristics are:
Comparability
Verifiability
Timeliness
Understandability
Identify required financial statement elements.
Statement of financial position (balance sheet).
Statement of comprehensive income.
Statement of changes in equity.
Statement of cash flows.
Significant accounting policies and explanatory notes to facilitate the understanding of financial statements.
In certain cases, a statement of financial position from the earliest comparative period.
Identify the desirable attributes of an accounting standards board.
Clear objectives, responsibilities, and processes.
High standards, including confidentiality. Well-regarded; standards recognized and adopted by regulatory authorities.
Adequate authority, resources, and competencies.
Independence, but with stakeholder input.
Summarize the disclosure of accounting policies.
Measurement bases used in preparing financial statements, and other accounting policies relevant to an understanding of the financial statements.
Judgments made in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements.
Note: The bases of measurement typical of financial statements include:
Historical cost, amortized cost, current cost
Realizable (settlement) value, present value, fair value
Explain the differences between IFRS and U.S. GAAP financial statement elements.
FASB identifies gains, losses, and comprehensive income.
Under FASB, assets are the “future economic benefits.” Under IASB assets are “resources” that generate future economic benefits.
FASB does not consider “probable” in revenue recognition criteria; IASB requires probability of future economic flows to/from the entity.
FASB does not allow upward revaluation of assets except for certain categories of financial instruments that must be reported at fair value.
What relationship do regulatory authorities have with accounting standard-setting bodies?
They have legal authority to enforce financial reporting requirements and can overrule private sector standard-setting bodies. Standard-setting bodies have no authority unless their standards are recognized by regulatory authorities.
Describe the two important assumptions that determine how financial statement elements are recognized and measured.
Accrual basis accounting – Transactions should be recorded on the financial statements (except the cash flow statement) when they actually occur, irrespective of when the related exchange of cash occurs.
Going concern refers to the assumption that the company will continue operating for the foreseeable future or all assets must be written down to their liquidation values.
Describe standard-setting bodies, such as IASB and FASB.
They are private sector organizations of accountants and auditors that develop financial reporting rules, regulations, and accounting standards.
