Study Unit 1: Nature Of Accounting

Question 1

What is the nature of Financial Accounting?

Answer 1

Financial accounting addresses accounting for an entity’s assets, liabilities, revenues, expenses, and other elements of financial statements

Question 2

Is it TRUE or FALSE that Financial Accounting is contrasted with Managerial Accounting?

Answer 2

It is TRUE that Financial Accounting is contrasted with Managerial Accounting

Because…

Managerial Accounting assists management decision making, planning, and control. Managerial Accounting information is therefore primarily directed to specific internal users, and it ordinarily need not follow GAAP.

Question 3

What is the difference between Financial Accounting and Managerial Accounting?

Answer 3

Financial Accounting generally follows Generally Accepted Accounting Principles (GAAP)

But Managerial Accounting typically doesn’t follow GAAP standards

Question 4

What the meaning of the term “Issuers”

Answer 4

Issuers is another term for publicly traded companies.

Question 5

What authority did the SEC delegate to the FASB?

Answer 5

The SEC delegated the authority to establish Accounting Principles, such as GAAP, for financial reporting in the United States.

Question 6

How does the SEC work with the FASB?

List 3 key ways…

Answer 6

1) The SEC allows the FASB to set the Accounting Principles for Financial Reporting, such as GAAP.
2) SEC enforces the Principles that are set by FASB by ensuring that Issuers, or publicly traded companies, meet certain periodic reporting requirements.
3) The SEC also investigates possible violations of securities laws and prosecutes them in federal court.

Question 7

What approach does the SEC use that allows investors to evaluate investments for themselves?

Answer 7

The SEC enforces the principles set by the FASB by ensuring that issuers meet certain periodic reporting requirements.

Question 8

What does the FAF Stand for?

Answer 8

The Financial Accounting Foundation.

Question 9

What is the Financial Accounting Foundation and what does it do?

Answer 9

The FAF is a independent body established by the accounting profession in 1973.

The FAF oversees two other Accounting Bodies:

1) Financial Accounting Standards Board (FASB)
2) Financial Standards Advisory Council (FASAC)

Question 10

Name the two Accounting Bodies overseen by the Financial Acconting Foundation? Also List what each body does?

Answer 10

Two bodies of FAF:

1) Financial Accounting Standards Board (FASB) -
2) Financial Standards Advisory Council (FASAC)

What each body does:

FASB - Sets the Genarally Accepted Accounting Standards (GAAP) for US businesses

Financial Standards Advisory Council (FASAC) - Sets the priorities and proposed standards and

they evaluate the performance of the FASB

Question 11

How Many Board Members does the FASB has?

Answer 11

It has Seven board members.

Question 12

What is the due process procedure that the FASB follows before it makes a final pronouncement?

Answer 12

1) After Discussing Issue;
2) and Considering Input from interested parties, such as businesses, academia, & the profession)

3) The FASB votes on the final draft proposal, and if majority of the seven board members vote to approve, then accounting standard Update (ASU) is issued.

Question 13

True or False: Financial statements are the primary method of communicating to external parties information about the entity’s results of operations, financial position and cash flows.

Answer 13

True

Question 14

True or False: For general-purpose financial statements to be useful to external parties, they must be prepared in conformity with accounting principles that are generally accepted in the US (GAAP)

Answer 14

True

Question 15

Name the two sources of authoritative guidance for nongovernmental entities in the United States? Who does this authoritative guidance apply to?

Answer 15

two sources of authoritative guidance for nongovernmental entities are:

1) Accounting Standards Codification (ASC)
2) SEC Pronouncements

These apply only to SEC Registrants.

Question 16

True or False: The FASB’s Accounting Standards Codification (ACS) became effective in 2009 and it is the sole source of Non-SEC authoritative accounting and reporting standards.

Answer 16

True

Question 17

True or False? In the Accounting Standards codification (ASC), The FASB combined the many pronouncements that formerly constituted U.S. GAAP into a consistent, searchable format available on the Internet

Answer 17

True

Question 18

What is the International Accounting Standards Board (IASB) and what do they do.

Answer 18

The IASB is one of the major accounting bodies that Sets Accounting and Reporting Standards.

The IASB is committed to developing in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require transparent and comparable information in general purpose financial statements.

Question 19

In light of the IASB’s purpose, What is the Principal Benefit of a single set of global standards?

Answer 19

The principal benefit is that multinational corporations do not have to rewrite their statements in (or perfor complex reconciliation to) the local GAAP to trade their stock on a foreign exchange.

And therefore, foreign investment is thereby made much easier, and the cost of capital is lowered.

Question 20

True or False? IFRS tend to be less detailed than US GAAP, with few exceptions and less interpretive and implementation guidance. Thus, they require greater exercise of professional judgement regarding their application to the economic substance of transactions.

Answer 20

True

Question 21

The IASB issues authoritative pronouncements in what form?

Answer 21

The IASB issues authoritative pronouncements in the form of International Financial Reporting Standards (IFRS)

Question 22

Name 3 Differences between the two sets of principles, IFRS and IFRS for SMES?

Answer 22

1) Certain Topics don’t apply to nonissuers (e.g. earnings per share, interim reporting, segment reporting)
2) Where full IFRS may offer a choice of accounting principles in a given situation, IFRS for SMES only allows the simplest choice.
3) Required Disclosures are reduced by about 90%

Question 23

What does IFRS for SMES stand for?

Answer 23

IFRS - Standards for International Financial Reporting Standards

SMES - Stands for Small-and-Medium-Sized Entities.

IFRS for Small-and-Medium-Sized Entities.

Question 24

Are Pronouncements of the IASB binding? If not, why aren’t they binding?

Answer 24

The pronouncements of the IASB is not binding.

They are not binding because of their authority is restricted to the willingness of national authorities to adopt them.

Question 25

When was the IFRS recognized by the European Union?

Answer 25

The IFRS was recognized by the European Union as of January 1, 2005

Question 26

What is the the Convergence Project and who does it involve?

Answer 26

The convergence project is an effort to harmonize the U.S. GAAP and IFRS.

This involves the FASB and the IASB.

Question 27

This Pledge was made by the IASB and the FASB back in 2002, what is the name of the pledge? Also What two things did they pledge to do?

Answer 27

The name of the pledge, or agreement is the: Convergence Project.

The IASB and the FASB pledged to use their efforts to:

1) Make their existing Financial Reporting Standards fully compatible as soon as is practicable and
2) they pledged to Coordinate their future work programs to ensure that once achieved, compatibility is maintained.

Question 28

What percentage of all businesses around the world does the IASB estimate to be Small-or-Medium Sized businesses?

Answer 28

95%, which is the reason why they implemented the IFRS for Small-to-Medium Sized-Entities.

Question 29

True of False? As of Fall of 2012, the SEC required U.S. Issuers to adopt IFRS or the converged Standards?

Answer 29

False. The SEC has not committed to requiring the adoption of either IFRS or the converged standards for U.S. Issuers.

Question 30

What is the GASB and when was it established?

Answer 30

GASB - Stands for Governmental Accounting Standards Board.

It was established in 1984, and it is the primary standard setter for State and Local Governmental entities.

Question 31

Does GASB establish GAAP for the Federal Government? If NO, Why?

Answer 31

NO!

GASB only establishes GAAP for State and Local Governments

Accounting Principles for the Federal Government are established by the Federal Accounting Standards Advisory Board (FASAB)

Question 32

Why was GASB formed?

Answer 32

GASB was formed to address the problem of comparability of governmental financial statements with those of private enterprises.

Question 33

TRUE or FALSE? GASB Statements have the status of GAAP for State and Local Governments?

Answer 33

True

Question 34

Who establishes accounting principles for the Federal Government?

Answer 34

Federal Accounting Standards Advisory Board (FASAB)

Question 35

The AICPA Council designates these four agencies or bodies, that issue GAAP for the purpose of compliance with Conduct Rule 203, Accounting Principles. What are those Four Agencies or Bodies?

Answer 35

1) Financial Accounting Standards Board (FASB)
2) International Accounting Standards Board (IASB)
3) Governmental Accounting Standards Board (GASB)
4) Federal Accounting Standards Advisory Board (FASAB)