Accounting standards and conceptual frameworks

FASB Accounting Standards Codification

Effective July 1, 2009, the FASB Accounting Standards Codification became the single source of authoritative nongovernmental US GAAP.

Financial Accounting Standards Board (FASB)

Established in 1973, and has determined US GAAP since then.

Relevance

Financial information is relevant if it is capable of making a difference in the decisions made by users. To be relevant, financial information must have predictive value, confirming value, and must be materiality.

Securities and Exchange Commission (SEC)

Has the legal authority to establish U.S. generally accepted accounting principles (GAAP). The SEC was established by the Securities Exchange Act of 1934. All companies that issue securities in the U.S. are subject to SEC rules and regulations.

International Convergence of Accounting Standards

IASB and FASB 2002. The goal of the convergence project was a single set of high-quality, international accounting standards that companies could use for both domestic and cross-border financial reporting. In order to achieve this goal, the FASB and IASB cooperated for several years to improve both U.S. GAAP and IFRS and to eliminate the differences between the two sets of standards.

Accrual Accounting

Revenues are recognized when they are earned and expenses are recognized in the same period as the related revenue, not necessarily in the period which the cash is received or expended by the company.

Historical Cost Principle

as a general rule, financial information is accounted for and based on cost, not current market value.

Revenue Recognition Principle

as a general rule, revenue should be recognized when it is earned and when it is realized and realizable.

Monetary Unit Assumption

assumes that money is an appropriate basis by which to measure economic activity.

External

between entity and envir receive cash sales obtain equip, with not

Comparability (Consistency)

comparability enables users to identify similarities and differences among items. Consistency, which is the use of the same methods for the same items either from period to period or across entities, helps to achieve comparability.

IASB - The Conceptual Framework for Financial Reporting

describes the basic concepts that underlie the preparation and presentation of financial statements for external users.

Economic Entity Assumption

economic activity can be accounted for when considering an identifiable set of activities.

Periodicity Assumption

economic activity can be divided into meaningful time periods (year, quarters, etc.)

Internal

event occurring entirely within an entity-paying salaries recording depreciation

Faithful Representation

faithful representation requires completeness, neutrality, and freedom from error.

Freedom From Error

freedom from error means that there are no errors in the selection or application of the process used to produce reported financial information.

Confirming value

information has confirming value if it provides feedback about evaluations previously made by users.

Materiality

information is material if an omission or misstatement of the information could affect the decisions made by users based on financial information.

Understandability

information is understandable if it is classified, characterized, and presented clearly and concisely.

Neutrality

is freedom from bias in selection or presentation, and an ingredient of faithful representation.

Full Disclosure Principle (Notes Completeness)

it is important that the user be given information that would make a difference in the decision process, but not so much information that the user is impeded in analyzing what is important.

Verifiability

means that different knowledgeable and independent observers can reach consensus that a particular depiction is faithfully represented.

Timeliness

means that information is available to users in time to be capable of influencing their decisions.

The quality of information that helps users forecast future outcomes is

predictive value

The fundamental qualitative characteristics of useful financial information are

relevance, faithful representation and Enhancing qualities

The Cost Constraint

the benefits of reporting financial information must be greater than the costs of obtaining and presenting the information.

International Accounting Standards Board (IASB)

was established in 2001 as part of the International Financial Reporting Standards (IFRS) Foundation. The PURPOSE of the IASB to develop a single set of high-quality, GLOBAL accounting standards.

Enhancing Qualitative Characteristics

Comparability, verifiability, timeliness, and understandability enhances the usefulness of information that is relevant and faithfully represented.

Accounting Principles Board (APB)

Issued Accounting Principles Board Opinions (APBO) and APB Interpretations, which determined GAAP from 1959 - 1973

Full Set of Financial Statements

Statement of financial position (the balance sheet), Statement of earnings (the income statement), Statement of comprehensive income, Statement of cash flows, and Statement of changes in owner's equity.

SFAC

Statements of Financial Accounting Concepts

International Financial Reporting Standards (IFRS)

The IASB issues IFRSs. The term International Financial Reporting Standards includes IFRSs, IASs, and Interpretations developed by the IFRIC and the former SIC.

Adoption of IFRS in the U.S.

The SEC has NOT announced whether, when, how, IFRS might be incorporated into U.S. Financial reporting and is not expected to do so in the near future. It does state that one of its initiatives is to work to promote higher-quality financial reporting WORLDWIDE and to consider whether a single set of high-quality global standards is ACHIEVABLE.

U.S. GAAP VS. IFRS - Conceptual Framework

Under IFRS entities are directed to refer to and consider the applicability of the concepts in the Framework when developing accounting policies in the absence of a standard or interpretation that specifically applies to an item. Under U.S. GAAP, the Conceptual Framework CANNOT be applied to specific accounting issues.

Completeness

a complete depiction of financial information includes all information necessary for the user to understand the reported economic phenomena, including descriptions and explanations (primary financial statements and notes).