Section 1 - Conceptual Framework & IFRS Flashcards
What is GAAP and who is GAAP authorized by?
- General Purpose Financial Reporting Framework
- Developed by Financial ACCY Standards Board (FASB)
- FASB authorized by SEC
What are the two General Purpose Frameworks?
1) GAPP - US
2) IFRS - International Financial Reporting Standards
What are the Special Purpose Frameworks or OCBOA?
For nonpublic companies only
- cash basis
- tax basis
- contractual basis
- regulatory basis
What does the Private Company Council (PCC) do?
- PCC created by FASB
- Evaluate existing GAAP to simplify and exempt nonpublic entities to reduce cost
What are the Primary Qualitative Characteristics that makes f/s useful?
Info must be both RELEVANCE and FAITHFUL REPRESENTATION
- Relevance - “Roger is PC”
- Predictive value
- Confirmatory value (feedback value)
- Materiality
- Faithful Representation - “FENCe”
- free from Error
- Neutral (w/o bias)
- Completeness
What are the Enhancing Qualitative Characteristics related to both relevance and faithful representation?
Relate to both relevance and faithful representation
“Roger is CUT like a V”
- Comparability (consistency)
- Understandability
- Timeliness
- Verifiability
- constraint: cost/benefit
- very desirable but not required
What are FASB 3 Basic Elements of F/S?
1) Assets
2) Liabilities
3) Equity or net assets
What is assets?
Economic resource with:
- probable future benefit
- one can obtain the benefit
- transaction creating benefit occurred already
What is included in Comprehensive Income in Equity (or Net Assets)?
These items affect comprehensive income but not net income.
“DENT”
- Derivative cash flow hedges
- Excess adjustment of pension PBO and FV of plan assets at year end
- Net unrealized gains or losses on “available-for-sale” securities
- Translation adjustments for foreign currency
What are the four Comprehensive Income elements?
1) revenues - inflows from entity’s primary operation
2) expenses - outflows from entity’s primary operation
3) gains - increases equity from incidental transaction
4) losses - decreases equity from incidental transaction
What is the Physical Capital Maintenance Concept on decided what will be included in comprehensive or net income?
Only recognize an event when an asset is sold or a liability is settled (measures the effects of price changes in nominal or constant dollars)
What is the Financial Capital Maintenance Concept on decided what will be included in comprehensive or net income?
Recognize an event as a change in the value of an asset or liability occurs (recognize holding gains and losses – current GAAP)
When do you recognize a financial statement element?
Recognition
1) Meets the definition of element (asset, liability)
2) Element capable of being measured in monetary terms
3) Items is relevant and faithfully represented (useful)
What are the Monetary Terms Measurement?
- historical cost
- replacement cost
- fair market value (FMV)
- net realizable value (NRV)
- present value (PV)
What items are required to be recognize at fair value?
1) trading securities or available for sale securities (mark-to-market)
2) assets acquired and liabilities assumed in business combination (consolidation)
3) impairment losses
- all derivatives
What items do not qualify for Fair Value election?
1) pension plan, post retirement, and other post-employment
2) leases
3) financial instruments that are components of equity
4) share based payments and stock options
When FAIR VALUE option is elected…
…unrealized gains and losses are reported in income.
What is Fair Value?
“The price that would be received to sell an asset or paid to transfer a liability in an ORDERLY transaction between MARKET PARTICIPANTS at the measurement date.”
ORDERLY: cannot be forced
MARKET PARTICIPANTS:
- independent
- knowledge of assets/liability
- acquiring or assuming asset/liability
- voluntarily willing to acquire/assume asset/liability
What are the Fair Value Valuation Techniques?
MIC
- Market approach
- Income approach
- Cost approach
What are the Fair Value THREE levels of input?
- Level 1 - most reliable, identical assets/liabilities
- Level 2 - observable data, similar assets/liabilities
- Level 3 - unobservable data, based on management’s judgment
Under Accrual Accounting, when are revenue or gains recognized?
- earned: earnings process is complete
- realizable (realized): collect cash or a claim to cash
Based on Revenue Recognition, when is a revenue recognized?
A revenue is recognized when:
- binding signed contract exists
- services rendered or delivery has occurred
- fixed or determinable price exists
- collection is reasonably assured
When should you recognize expenses or losses as incurred?
Economic benefit used up (consumed) or assets lose future benefit (as incurred)
- cause and effect
- systematic and rational allocation
- immediate recognition
What are the four areas of Risks and Uncertainties Disclosure?
1) nature of operations
2) use of estimates
3) certain significant estimates
4) current vulnerability associated w/ certain concentraions
