Intermediate Accounting

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

Information and Communication Systems

Capture accounting information that is conveyed to key personnel

Conceptual Framework

Coherent system of interrelated objectives and fundamentals that can lead to consistent rules and that prescribes the nature, function, and limits of financial accounting and financial statements

Accounting Standards Executive Committee (AcSEC)

Committee Authorized to speak for the AICPA in the area of financial accounting and reporting.

SEC

Companies listed on the stock exchange must submit their financial statements to the ____

Emerging Issues Task Force (EITF)

Comprised of representatives from CPA firms and financial statement preparers to reach a consensus on how to account for new and unusual transactions that may potentially create differing financial reporting practices

Financial Accounting Standards Advisory Council (FASAC)

Consults with FASB on major policy and technical issues and also helps select task force members

Authorization

Control activity that prohibits or restricts activities without the approval of management

Rank in terms of authority FASB Technical Bulletins, AICPA Practice Bulletins, and FASB Standards

1) FASB Standards 2) FASB Technical Bulletins 3) AICPA Practice Bulletins

SEC, FASB, American Institute of CPAs (AICPA)

3 Organizations instrumental in the development of GAAP in the USA

Understandability

A company may present highly relevant and reliable information, however it is useless to those who do not understand it

Objectives of financial reporting does not intend to provide information __

About the management and major shareholders of an enterprise

How are financial accountants challenged in their work to make ethical decisions outside of technical mastery of GAAP?

Accountants must perceive that GAAP does not define or cover all specific features that are reported in financial statements. When this happens accountants much choose among alternatives using moral decision making

Qualitative Characteristics

Accounting information that distinguish better information from inferior information for decision making purposes

Are

All ARB and APB Opinions (are/are not) in effect until amended or superseded by FASB pronouncements

Management

An internal auditor needs to be independent of _______

Communications of AcSEC

Audit & Accounting Guides, Statements of Position, Practice Bulletins

Financial Statements

Balance sheet, income statement, statement of cash flows, statement of owners' equity

Internal Audit

Designed to objectively and independently monitor the activities of an entity and maintain and improve efficiency of operations

External Audit

Determines if the financial statements are prepared in accordance with GAAP and are free from material misstatements

International Financial Reporting Standards (IFRS) (iGAAP)

Developed by the IASB, used in over 100 countries and required by the EU. US is in transition to require companies to use iGAAP and the IASB and FASB are working to converge the 2 standards

What is the expectations gap and what is the profession doing to close the gap?

Difference between what the public thinks accountants can do and what accountants think they can do; continuing efforts to develop standards to serve as guidelines for recording transactions in the changing economic environment

1) Smaller 2)Full-time Paid 3)FASB 4)APB 5)APB

Differences Between FASB & APB 1) FASB has a (smaller/larger) membership 2) FASB members, unlike APB are (full-time paid/part-time volunteer) 3)____is not part of a single professional organization 4)____members retained private positions 5)____members were required to be CPAs

Expectations Gap

Differences between what the public thinks accountants should do and what accountants think they can do

Explain the Role of Emerging Issues Task Force in establishing GAAP.

EITF often arrives at consensus conclusions on certain financial reporting issues; these consensus conclusions are then looked upon as GAAP because the SEC has indicated that these solutions are preferred accounting

Documents and Records

Enhances the reliability of financial records through the use of a well-designed system of documentation

Accrual Based Accounting

Ensures that a company records events that change its financial statements in periods in which the events occur, rather than only in the periods in which it receives or pays cash

Independent Verification

Ensures that records are periodically subject to independent review and testing to provide assurances of their accuracy

Accounting Principles Board (APB)

Established by the AICPA to advance the written expression of accounting principles, determine appropriate practices, and narrow the areas of difference and inconsistency in practice

Committee on Accounting Procedure (CAP)

Established in 1939 at the urging of the SEC that issued 51 Accounting Research Bulletins during from 1939-1959

Financial Accounting Standards Board (FASB)

Establishes and improves standards of financial accounting and reporting for the guidance and education of the public including issuers, auditors, and users of financial information.

Risk Assessment

Establishes relative risk levels of an entity's activities so that appropriate controls can be implemented

Wheat Committee

Examined the organization and operation of the APB and determined necessary changes to attain better results.

1) Agenda 2) Research 3) Public Hearing 4) Exposure 5) Final Standard

FASB Due Process Steps 1) Place topic on ____ 2) Conduct ____ on topic 3) Hold ________on proposed standard 4) Evaluate research and issues _____draft 5) Evaluate draft and issue ______

In what ways was it felt that statements issued by FASB carry greater weight than opinions issued by APB?

FASB Statements carry greater weight due to the differences between them and the APB, mainly that FASB is smaller and consists of full time members, FASB has greater autonomy, and FASB has broader representation than APB.

1) Economic 2) Due Process

FASB relies on 2 basic premises: 1) be responsive to the needs and viewpoints of the entire ______ community 2) operate in full view of the public through a _____system that gives interested persons ample opportunity to make their views known.

True or False: Internal controls provide systems of checks and balances that ensures all fraudulent activity will be detected

False

If you had to explain or define GAAP what you include in your explanation?

GAAP has substantial authoritative support and consist of accounting practices and principles recognized by a large majority of the practicing accountants as well as other members of the financial community

Securities & Exchange Commission (SEC)

Government entity established to help develop and standardize financial information presented to stockholders and enforce GAAP standards

Public Company Accounting Oversight Board (PCAOB)

Has oversight and enforcement authority and establishes auditing, quality control and independence standards

If a company's financial performance is measured accurately, fairly, and on a timely basis, the right managers and companies are able to attract investment capital.

How does accounting help the capital allocation process?

APB Opinions

In operation from 1959-1973, intended to be based mainly on research studies and supported by reason and analysis, 31 opinions issued

Sarbanes-Oxley Act

Increases resources for the SEC to combat fraud and curb poor reporting practices

What are the sources of pressure that change and influence the development of GAAP?

Individual companies, industry associations, govt agencies, practicing accountants, academia, professional accounting orgs, and public opinion

Elements

Individual items in financial statements

Users

Investors and creditors that use financial reports to make their capital allocation decision

What document is generally the basis for an entry into the accounting system?

Invoice

Unqualified Opinion Report

Issued when the auditor believes that statements are prepared in accordance with GAAP and are presented fairly in all material aspects

Qualified Opinion Report

Issued when the auditor believes there to be a scope limitation that is not significant enough to warrant a disclaimer

Disclaimer of Opinion Report

Issued when the auditor is unable to obtain sufficient conceptual evidence because of a scope limitation or in situations where there are significant uncertainties relating to the entity being audited

Adverse Opinion Report

Issued when the financial statements are not presented in accordance with GAAP

Why is there such a concern about fraudulent financial reporting?

It can undermine the financial reporting process and lead to inappropriate allocation of resources

Accounting

Process of taking recorded transactions and culminating them into the financial statements and other forms of financial reports that are used by investors, creditors, and others

1) PCAOB 2) independence 3) certify 4) independent 5) ethics

Key Provisions of Sabarnes-Oxley Act 1)Establishment of _____ 2)Stronger _____rules for auditors 2)Requires CEOs and CFOs to _____financial statements 3)Requires audit committees to be comprised of _____members 5)Requires codes of _____for senior financial officers

Challenges Facing Accounting

Lack of nonfinancial measurements, lack of forward looking information, lack of information on soft assets, timeliness.

Interpretations

Modify or extend existing standards, same authority as standards

American Institute of CPAs (AICPA)

National professional organization of practicing CPAs. Important contributor to development of GAAP.

What are some of the main reasons why GAAP is often different among countries?

Objectives of financial reporting are often different in foreign countries, institutional structures are often not comparable, national tendencies are pervasive and there is reluctance to adopt any one country's approach

1) Credit 2) Cash Flow 3) Resources

Objectives of financial reporting: 1) Provide information that is useful in ___decisions 2) Provide information that is useful in assessing ___prospects 3) Provide information about company ___, to them, and claims in them

A common set of standards provides financial statements which are reasonable comparable, eliminating chance of differing theory structures and sets of practices

Of what value is a common set of standards in financial accounting and reporting?

FASB Codification Research System (CRS)

Online real time database that provides easy access to codification

Control Environment

Overall emphasis on and awareness of internal control throughout an entity

Monitoring

Periodic assessment of the effectiveness of the control system and the review of adherence to policies and procedures

Control Activities

Policies and procedures intended to control or diminish the identified tasks

How are FASB preliminary views and FASB exposure drafts related to FASB statements?

Preliminary views are drafts created by FASB in order to gather public opinion and research. Once the research is gathered an exposure draft is created. Pending final review an exposure draft is revised into a FASB statement.

Receiving Report

Prepared by receiving department once merchandise is inspected and quantities are verified. Used to verify an invoice

Stop Order

Prevents registrant from issuing or trading securities on the exchanges

What is the difference between principles and rules based accounting? Is iGAAP more principles based?

Principles based rules are considered to be based on accounting principles to result in financial statements that are presented. Rules-based standards are detailed and require a check box mentality. iGAAP is more principle based due to it being more simple

Assets

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Accounting Research Bulletins

Problem-by-problem bulletins that dealt with a variety of accounting problems and failed to provide the needed structured body of accounting principles.

Managerial Accounting

Process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company's operations

Bookkeeping

Process of recording transactions and maintaining financial records

What is Rule 203 of the Professional Code of Conduct?

Prohibits a member of AICPA from expressing an opinion that financial statements conform with GAAP if those statements contain a material departure from an accounting principle. Requires auditors to follow FASB standards

An effective process of capital allocation is critical to a healthy economy, which

Promotes productivity, encourages innovation, provides an efficient and liquid market for buying and selling securities

FASB Accounting Standards Codification

Provide in one place all the authoritative literature related to a particular topic

Staff Positions

Provide interpretive guidance and also minor amendments to standards and interpretations, same authority as standards and interpretations

Physical Control

Provide that access to assets and internal accounting systems are restricted

Sound Personnel Procedures

Provide that management establish written policies and procedures regarding the activities of employees

Separation of Duties

Provides that no single individual has access to all phases of an accounting transaction such that the risks of unauthorized or improper activities are minimized

Recording transactions

Provides that transactions need to be recorded in a timely manner and are subject to review and approval to ensure accountability and accuracy

Financial Accounting Foundation (FAF)

Selects the members of FASB and the advisory council, funds their activities, and generally oversees the FASB activities.

Statements of Financial Accounting Concepts

Sets forth fundamental objectives and concepts that FASB uses in developing future standards of financial accounting and reporting

What was the Committee on Accounting Procedure and its accomplishments and failings?

Special committee of the AICPA that issued Accounting Research Bulletins dealing with accounting issues. Accomplished providing solutions to immediate issues but failed in its problem-by-problem approach

Distinguish between FASB statements of financial accounting standards and FASB statements of financial accounting concepts

Statements of financial accounting standards constitute GAAP, statements of financial accounting concepts set forth objectives that FASB intends to use as a basis for future standards

Internal Controls

System of checks and balances designed to prevent and protect fraud and errors

In what way is the SEC concerned about and supportive of accounting principles and standards?

The SEC is concerned about the content, accuracy, and credibility of statements and is supportive of the development of accounting principles in the private sector

Accounting Standards Private Sector

The SEC's mandate is to establish ____, however it allows the____to do so while approving or denying attempts to establish standards

Financial Reporting

The financial information of a company provided to help users with capital allocation decisions about the company

What is meant by economic consequences? What dangers exist if politics play to much of a role in the development of GAAP?

The impact of accounting reports on the wealth positions of issuers and users of financial information; if politics plays a heavy role, the rules will be subject to manipulation for the purpose of furthering whatever policy prevails at the moment no matter the intention of the rulemaker

Capital Allocation

The process of determining how and at what cost money is allocated among competing interests

Financial Accounting

The process that culminates in the preparation of financial reports on the enterprise for use by both internal & external parties

What is the likely limitation of "general purpose financial statements"?

They are not likely to satisfy the specific needs of all interested parties due to the variation between parties

What is the purpose of information presented in notes to the financial statements?

To provide disclosure required by GAAP

What is the purpose of FASB Staff Positions?

To provide interpretive guidance and make minor amendments to existing standards

Why would it be advantageous for US GAAP and iGAAP to be the same?

To reduce additional costs and diminish need to understand two sets of GAAP, providing for more relevant and reliable financial information

Breakdown of CRS

Topic-Subtopic-Sections-Paragraph

Invoice

Typically contains a description of the merchandise sold, quantity, delivery method, and credit terms

Purchase Requisition

Typically issued when merchandise or goods on hand fall below a specified level, known as the reorder point. Directs the purchasing department to issue a purchase order to the selling company

Purchase Order

Typically specifies the price and quantity of the merchandise being ordered along with the delivery method for transporting the merchandise

Financial Accounting Foundation (FAF), Financial Accounting Standards Board (FASB), and Financial Accounting Standards Advisory Council (FASAC)

What were the three entities established by the Wheat Committee to replace the APB?

Accrual

_______ accounting generally better indicates a company's present and continuing ability to generate favorable cash flows


Kaugnay na mga set ng pag-aaral

Risk Management, Insurance Planning, and Employee Benefits

View Set

A Taste Of Honey - Key Quotes: Jo and Geof

View Set

California Real Estate Principles- Chapter 3

View Set

Interactive Quiz: 7. System Hacking

View Set

Sport and Exercise Psychology Exam 2

View Set