The financial reporting environment Flashcards
Financial statements are the primary method of communicating what to external parties?
Information about the results of operations, financial position, and cash flows.
How does financial accounting differ from management accounting?
Management accounting information assists management decision making, planning, and control. It is primarily for internal use and does not need to follow GAAP.
Which organization has the legal authority to establish financial reporting requirements for publicly traded companies?
The SEC. The SEC delegated this authority to the FASB.
What is the financial accounting foundation (FAF)?
And independent body established by the accounting profession in 1972 to oversee the following bodies involved in the establishment of US GAAP for non-governmental entities:
- The financial accounting standards advisory Council (FASAC)
- The private company council (PCC)
- The emerging issues task force (EITF)
- The financial accounting standards Board (FASB)
What is the objective of general purpose financial reporting?
To report financial information that is useful to current and potential investors and creditors in making decisions about providing resources to an individual reporting entity.
Who are the primary users of financial information?
Current or potential investors and creditors who cannot obtain it directly. Management is not a primary user.
Information about cash flows is helpful in:
- understanding operations,
- evaluating financing in investing activities liquidity insolvency
- interpreting other financial information, and
- assessing the potential for future net cash inflows.
Who are the users of financial reporting for governmental agencies/type activities?
- Citizens, those to whom the government is directly accountable.
- Legislative and oversight bodies, representatives of the set of citizenry.
- Investors and creditors, provider is a financing.
What is fiscal accountability?
The responsibility of a government to justify that its actions comply with public decisions about obtaining an expending public resources in the short term.
What is operational accountability?
The responsibility to report the extent to which accounting objectives have been effectively and efficiently using available resources.
What is interperiod equity?
A part of accountability. Financial resources received during a period should suffice to pay for the services provided during that period. Additionally, debts should be repaid during the period of usefulness of the assets acquired.
What is the economic entity assumption?
It is the assumption that the reporting entity is separately identified for the purposes of economic and financial accountability from its owners and managers.
What is the revenue recognition and matching principle?
Revenue is reported in the period earned, and cost required to produce those revenues are matched to those revenues.
What are the constraints of financial reporting?
Cost constraints, industry practices constraint, and conservatism constraint.
