Spiceland: Intermediate Accounting Ch. 1
What is the Asset/Liability Approach
- Recognize and measure the assets and liabilities that exist at a balance sheet date. - Recognize and measure the revenues, expenses, gains and losses needed to account for the changes in these assets and liabilities from the previous measurement date.
What are 2 examples of politics in Standard Setting
1) 1990's - accounting for employee stock options 2) Implementation of the fair value accounting standard issued in 2007
What are the most frequently used financial statements
1) Balance sheet (Statement of financial position) 2) Income statement (followed by statement of comprehensive income) 3) statement of cash flows 4) statement of shareholder equity
What is the order of the Hierarchy of Accounting Standard Setting Authority?
1) Congress 2)SEC - Securities and Exchange Commission 3) Private Sector 4) FASB - Financial Accounting Standards Board
What is the Hierarchy of Qualitative Characteristics of Financial Information
1) Decision Usefulness 2) Relevance - Predictive Value - Confirmatory Value - Materiality & Faithful Representation - Completeness - Neutrality - Free from error 4) Comparability, Verifiability, Timliness, Understandability 5) Cost effective
What is the criteria for the realization principle
1) Earnings process is judged to be complete or virtually complete 2) Reasonable certainty as to the collectability of the asset to be received
What ar the attributes of measurement
1) Historical cost 2) net realizable value 3) current cost 4) present value 5) fair value
How is the conceptual framework IFRS and GAAP different.
1) IFRS also provides basis for practitioners to make accounting judgements when another IFRS standard does not apply. GAAP only provides guidance to standard setters 2) IFRS emphasizes concept of financial statments providing "fair representation" US GAAP does not but US auditing standards do.
What is the role of the auditor?
1) Offer credibility to financial statements 2) Express an opinion on the compliance of financial statements with GAAP 3) Licensed by states to provide audit services
What are the key provisions of the Sarbanes Oxley Act
1) Oversight board 2) Corporate executive accountability 3) non audit services 4) retention of work papers 5) auditor rotation 6) conflict of interest 7) hiring of auditor 8) internal control
What is the result of useful info about economic activity?
1) Produce good decisions 2) Foster a prosperous society.
Who are the providers of financial info?
1) Profit oriented companies 2) Not for profit entities 3) Households
What are the key variables in investment decisions?
1) Rate of Return 2) Uncertainty or risk
What are 3 primary forms of business organizations
1) Sole proprietorship 2) Partnership 3) Corporation
What do Investors and creditors use financial information for?
1) To predict the future risk and potential return of investments or loans
What are the characteristics of financial info do investors what to evaluate
1) amounts 2) timing 3) uncertainty
What are the 4 approaches to expense recognition
1) based on exact cause and effect relationship 2) By associating an expense with the revunes recognized in a specific time period 3) by a systematic and rational allocation to specific time periods 4) In the period incurred without regard to related revenue
What are the steps of the FASB's standard setting proccess?
1. The Board identifies financial reporting issues based on requests/recommendations from stakeholders or through other means. 2. The Board decides whether to add a project to the technical agenda based on a staff-prepared analysis of the issues. 3. The Board deliberates at one or more public meetings the various issues identified and analyzed by the staff. 4. The Board issues an Exposure Draft. (In some projects, a Discussion Paper may be issued to obtain input at an early stage that is used to develop an Exposure Draft.) 5. The Board holds a public roundtable meeting on the Exposure Draft, if necessary. 6. The staff analyzes comment letters, public roundtable discussion, and any other information. The Board redeliberates the proposed provisions at public meetings. 7. The Board issues an Accounting Standards Update describing amendments to the Accounting Standards Codification.
How many people are on the FASB board?
7
What type of accounting produces net income or net loss
Accrual
What is Accounting Standards Update? (ASU)
Any New Standard Issued by FASB.
What are the elements of Financial Statements
Assets Liabilities Eqity Investments by owners Distributions by owners Comprehensive income Revenues Expenses Gains Losses
What is the dominant form of ownership of productive resources in the US?
Corporation
What are the general Recognition Criteria
Definition, Measurability, Relevance, Reliability
What does the Government Accounting Standards Board do?
Develop accounting standards for governmental units.
What is the formula for rate of return?
Dividends+share price appreciation/initial investment
What is the group to deal with emerging issues for US GAAP?
EITF Emerging Issues Task Force: 15 members
What is the Revenue/Expense approach
Emphasis principles for recognizing revenues and expenses with some assets and liabilities recognized as necessary to make the balance sheet reconcile with the income statement.
What is the foundation providing oversight, appointing members and raising funds for US GAAP
FAF Financial Accounting Foundation: 14-18 trustees
Who supports the FASB?
Financial Accounting Foundation (FAF)
What is the advisory council providing input on agenda and projects for GAAP
Financial Accounting Standards Advisory Council (FASAC) 30-40 members
What is the standard setting board for US GAAP
Financial Accounting Standards Board: 7 members
What is the primary means of providing financial info?
Financial statements.
What does GAAP stand for?
Generally Accepted Accounting Principles
What is the advisory council providing input on agenda and projects for IFRS?
IFRS Advisory Council: members
What is the foundation providing oversight abbpointing members and raising funds for IFRS
IFRS Foundation: 22 trustees
What is the group to deal with emerging issues for IFRS?
IFRS Interpretations Committee: members
What is the standard setting board for IFRS
INternational Accounting Standards Board ISAB; 14 members
What does the Emerging Issues Task Force (EITF) do?
Identifies financial reporting issues and attempts to resolve them without involving the FASB Decisions are ratified by FASB and are part of GAAP
What kind of issues does the EITF deal with
Implementation issues & therefore speeding up standard setting process
What is IASC stand for?
International Accounting Standards Committee
What body created the International Accounting Standards Board?
International Accounting Standards Committee (reorganization of IASC)
What kind of standards does the IASB issue?
International Financial Reporting Standards (IFBS)
Where do Corporations acquire capital?
Investors - in exchange for ownership interest Creditors - by borrowing (loans or bonds)
What is cash based accounting
Measurement of cash receipts and cash payments from transactions related to providing goods and services.
What is accrual accounting?
Measurement of revenues and expenses regardless of when cash is received or paid
Who provides regulatory oversight for IFRS
Monitoring Board
What is the risk-return trade-off?
Most investors would invest in the higher risk option only if potential return is high enough.
What type of income does cash basis accounting produce?
Net operating cash flow
What is the FASB Accounting Standards codification
Only source of authoritative non govermental US GAAP
What do Capital Markets do?
Provide a mechanism to help the economy allocate resources efficiently
What is the primary objective of financial accounting?
Provide investors with info that should be useful for decision making.
What are the elements fo the conceptual framework
Qualitative characteristics Recognition and Measurement Concepts Financial statements (constraints)
What is net income?
Revenues - expenses
Who provides Regulatory oversight for GAAP
SEC
Who is a financial intermediary?
SOmeone who provides advice to investors, creditors or makes decisions on their behalf. (financial analyst, stock broker, mutual fund manager, credit rating agencies)
What does the FASB do?
Sets US accounting standards FOcuses on pervasive long-term problems Ratifies EITF Rulings
What is net operating cash flow
The difference between cash receipts and cash payments from providing goods or services.
What is the purpose of the IASB?
To develop a single set of high-quality, understandable and enforceable global accounting standards.
Why does the IASC exist?
To develop global accounting standards. (1973)
What is the purpose of GAAP?
To facilitate decision making by investors and creditors by allowing them to compare financial info among companies.
What is the primary function of financial accounting
To provide useful financial info to external users especially providers of capital
When is revenue recognized
When goods or services are transferred to customers.
What is GAAP?
a dynamic set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financial statements and related notes
Is cash accounting or accrual accounting a more complete and accurate picture of future cash flows?
accrual
What are the 4 basic underlying assumptions about GAAP
economic entity going concern periodicity monetary unit
What is the Conceptual Framework
establishes the concepts that underlie financial reporting
Who uses financial information?
investors creditors employees labour unions customers suppliers Government regulatory agencies Financial intermediaries
Who are the providers of capital?
investors and creditors
