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CPAExcel FAR > Role and Standard-Setting Process > Flashcards

Role and Standard-Setting Process Flashcards

1
Q

What is the main purpose of the Securities and Exchange Commission (SEC)?

A

The main purpose of the SEC is to promote efficient allocation of capital by maintaining open, orderly, and fair securities markets.

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2
Q

What comprises United States Generally Accepted Accounting Principles (GAAP)?

A

The Financial Accounting Standards Board (FASB) Accounting Standards Codification, comprise authoritative U.S. GAAP for publicly traded companies, Securities and Exchange Commission (SEC) pronouncements are also GAAP.

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3
Q

What is the role of the Financial Accounting Foundation (FAF)?

A

The FAF exercises oversight of the Financial Accounting Standards Board (FASB), appoints the members of the FASB, and ensures funding.

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4
Q

What is the Financial Accounting Standards Board (FASB)?

A

The FASB establishes financial accounting standards for business entities.

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5
Q

What is the role of the Financial Accounting Advisory Council (FASAC)?

A

The FASAC provides guidance on major policy issues, project priorities, and the formation of task forces.

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6
Q

What are the first three steps the Financial Accounting Standards Board (FASB) uses when issuing a new accounting standard?

A
  1. Considers whether to add a project to its agenda in consultation with the Financial Accounting Foundation (FAF);
  2. Conducts research;
  3. Holds a public hearing on the topic.
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7
Q

What are the final three steps in the standard setting process?

A
  1. Evaluate research and comments from interested parties and issue an exposure draft;
  2. Solicit additional comments;
  3. Finalize new accounting guidance and issue Accounting Standards Update (ASU).
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8
Q

How do user groups influence the outcome of the Financial Accounting Standards Board (FASB) standards?

A

Users influence standards by providing input during the due process procedure.

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9
Q

What is the American Institute of Certified Public Accountants (AICPA)?

A

The AICPA is the professional organization for participating CPAs.

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10
Q

What does the Securities and Exchange Commission (SEC) do?

A

It administers the US securities laws, most notably the Securities Act of 1933 and the Securities Exchange Act of 1934 as well as others.

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11
Q

When the FASB’s Emerging Issues Task Force reaches a consensus on a particular reporting issue, generally the FASB does not address it further. T/F

A

TRUE

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12
Q

The objectives of financial statements include a mandate to provide information useful for assessing cash flows, but do not mandate the cash basis of accounting. T/F

A

TRUE

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13
Q

The process of developing accounting standards is essentially a closed process.

A

FALSE

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14
Q

Recognition in accounting refers to the process of recording a measurable attribute such that it affects one or more of the financial statements.

A

TRUE

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15
Q

The SEC created the Committee on Accounting Procedure.

A

FALSE

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16
Q

All members of the FASB must be CPAs.

A

FALSE

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17
Q

The Wheat Committee was involved in the formation of the FASB.

A

TRUE

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18
Q

The SEC has the ability to force the FASB to modify an accounting standard.

A

TRUE

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19
Q

The Accounting Principles Board was the standard-setting body that immediately preceded the FASB.

A

TRUE

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20
Q

“Economic consequences” is a concept used by the FASB to gain acceptance of its proposed standards.

A

FALSE

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21
Q

The primary objective of financial statements is to provide information useful in assessing stewardship.

A

FALSE

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22
Q

The FASB decides accounting standards independent of outside input or influence.

A

FALSE

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23
Q

One of the principles used by the FASB in developing accounting standards is that the cost of complying with GAAP should be less than the benefit of those standards.

A

TRUE

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24
Q

The Conceptual Framework is not GAAP.

A

TRUE

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25
Q

The AICPA currently sets accounting standards.

A

FALSE

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26
Q

FASB members serve four-year terms

A

FALSE

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27
Q

What topics does the Financial Accounting Standards Board (FASB) Accounting Standards Codification not include?

A
  1. Other comprehensive basis of accounting;
  2. Cash basis;
  3. Income tax basis;
  4. Regulatory accounting principles
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28
Q

What purpose does the Financial Accounting Standards Board (FASB) Accounting Standards Codification serve?

A

The FASB Accounting Standards Codification is the sole source of authoritative U.S. Generally Accepted Accounting Principles for nongovernmental entities, except for the Securities Exchange Commission guidance

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29
Q

What are long-term assets?

A

Assets that are not classified as current assets. Long-term assets are reported on the balance sheet and represent a company’s property, equipment, and other capital assets (reduced by depreciation) expected to be useable for more than one year.

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30
Q

What is the Accounting Principles Board?

A

The entity that published thirty-one opinions, some of which are now part of the Codification.

31
Q

What is the classification of assets that are in the form of cash, or will be converted into cash, or consumed within one year or the operating cycle of the business, whichever is longer?

A

The classification is current assets.

32
Q

What are the seven key components of the general purpose external financial report?

A
  1. Income Statement;
  2. Balance Sheet;
  3. Statement of Cash Flows;
  4. Statement of Retained Earnings;
  5. Statement of Comprehensive Income;
  6. Footnote Disclosures;
  7. Auditor’s Opinion.
33
Q

When is revenue recognized under accrual accounting?

A

Revenues are recognized when earned and collection is reasonably assured, regardless of the period of cash collection.

34
Q

When are expenses recognized under accrual accounting?

A

Expenses are recognized when incurred, regardless of the period of cash payment.

35
Q

Which agency enforces Generally Accepted Accounting Principles (GAAP)?

A

Securities and Exchange Commission (SEC).

36
Q

What body developed Generally Accepted Accounting Principles (GAAP)?

A

The Financial Accounting Standards Board (FASB).

37
Q

What does Generally Accepted Accounting Principles (GAAP) address?

A

Recognition, measurement, and disclosure.

38
Q

A deferred revenue is a liability account.

A

TRUE

39
Q

The balance sheet is dated differently from the income statement and the statement of cash flows.

A

TRUE

40
Q

The top level of the GAAP hierarchy is the FASB Accounting Standards Codification.

A

FALSE

41
Q

FASB Statements are no longer included in GAAP.

A

FALSE

42
Q

The FASB Accounting Standards Codification presents relevant SEC guidance for publicly traded firms.

A

TRUE

43
Q

The FASB Accounting Standards Codification presents accounting standards as an individual discrete accounting standard.

A

FALSE

44
Q

What approach is used when financial statements are prepared?

A

The all-inclusive approach.

45
Q

Where and how are prior period adjustments shown?

A

Statement of Retained Earnings as adjustments to the beginning balance of retained earnings in the year that the error is discovered.

46
Q

What are the items in other comprehensive income?

A

Unrealized gains and losses on investments in securities available for sale, certain pension cost adjustments, foreign currency translation adjustments, and unrealized gains and losses on certain hedging activities.

47
Q

Name the two different formats of presentation for the balance sheet.

A

Account Form and Report Form.

48
Q

How are assets presented on the balance sheet?

A

Assets are presented in order of decreasing liquidity. The most liquid assets (such as cash) are shown first, and less liquid assets are shown last (such as property, plant and equipment).

49
Q

How are liabilities presented on the balance sheet?

A

Liabilities are shown in order of maturity. Current liabilities are presented first, and then, long-term liabilities are presented.

50
Q

How is owner’s equity presented on the balance sheet?

A

In order of permanence.

51
Q

What are current liabilities?

A

Liabilities that are due in the upcoming year or the operating cycle of the business, whichever is longer and which will be met through the transfer of a current asset or the creation of another current liability.

52
Q

How are long-term assets and liabilities defined?

A

By exclusion from current assets and current liabilities.

53
Q

What is the purpose of the statement of cash flows?

A

To explain the change in cash and cash equivalents that has occurred during the past accounting year.

54
Q

What are cash equivalents?

A

Short-term investments that are convertible into a known and fixed amount of cash and have an original maturity to the purchaser of three months or less.

55
Q

What are the categories that are listed on the statement of cash flows?

A
  1. Operating
  2. Investing
  3. Financing.
56
Q

A liability account is not classified into current and non-current categories.

A

FALSE

57
Q

Prior period adjustments are shown in the Retained Earnings Statement.

A

TRUE

58
Q

Financing is the appropriate cash flow classification of a dividend payment.

A

TRUE

59
Q

Is an investment in stocks of another company a cash equivalent if it is expected to be sold within two months of the balance sheet?

A

NO

60
Q

Operating is not a category of cash flows in the Statement of Cash Flows.

A

FALSE

61
Q

The total amount included in cash or in cash equivalents in the statement of cash flows must be the same title and groups of accounts used in the statement of financial position.

A

TRUE

62
Q

Does the income statement include all items of revenue and expense, gain and loss for a period?

A

NO

63
Q

Would the classification of the portion of long-term debt due within one year of the balance date as current be appropriate?

A

YES

64
Q

What are the major areas in the Financial Accounting Standards Board (FASB) Accounting Standards Codification?

A

General principles 100; Presentation 200; Assets 300; Liabilities 400; Equity 500; Revenue 600; Expenses 700; Broad transactions 800; Industry 900.

65
Q

What is the lowest structure of the Financial Accounting Standards Board (FASB) Accounting Standards Codification?

A

Paragraphs.

66
Q

What is the highest structure of the Financial Accounting Standards Board (FASB) Accounting Standards Codification?

A

The highest structure is areas.

67
Q

How are changes to the Financial Accounting Standards Board (FASB) Accounting Standards Codification accomplished?

A

Accounting Standards Updates (ASU).

68
Q

What is the reason for the Financial Accounting Standards Board (FASB) Accounting Standards Codification?

A

To put all accounting guidance in one place.

69
Q

When new guidance is pending, the codification will show the text as “pending text.”

A

TRUE

70
Q

The purpose of the codification is to gather all authoritative literature into one place.

A

TRUE

71
Q

The codification is updated with Accounting Standards Updates.

A

TRUE

72
Q

The purpose of the codification is to make the accounting standards uniform.

A

FALSE

73
Q

There is no industry specific accounting guidance in the codification.

A

FALSE

74
Q

Once the Accounting Standards Updates are incorporated into the Codification it becomes GAAP.

A

TRUE

CPAExcel FAR (9 decks)

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