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Intermediate Accounting Exam 1 (Ch.1-5)
Terms in this set (57)
The process that cultivates in the preparation of financial reports on the enterprise for use by both internal and external parties
The process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control and evaluate a company's operations. (internal parties)
Provide financial information about the reporting entity that is useful to investors, lenders and creditors
General-Purpose financial statements
provide at the least cost the most useful information possible
ensures that a company records events that change its financial statements in the periods in which the events occur, rather than only in the periods in which it receives or pays cash
Securities and exchange commission (SEC)
created by the federal government to help develop and standardize financial information presented to stockholders. Encouraged private standard setting body
American Institute of Certified Public Accountants (AICPA)
the national professional organization consisting of the accounting principles board
Accounting Principles Board
develop an overall conceptual framework to assist in the resolution of problems as they become evident
Financial Accounting Standards Board (FASB)
establish and improve standards of financial accounting and reporting for the guidance and education of the public
Due Processes system of FASB
1. topics identified and placed on board's agenda
2. research and analysis
3. public hearing
4. exposure draft
5. FASB standard
provide in one place all the authoritative literature related to a particular topic. creates one level of GAAP
increases the resources for the SEC to combat fraud and curb poor reporting practices
Public Company Accounting Oversight Board (PCAOB)
has oversight and enforcement authority and establishes auditing, quality control, and independence standards and rules
International Financial Reporting Standards (IFRS)
Developed by International Accounting Standards board. Simpler and more principle-based
Accounting Research Bulletins
Private standard-setting organization from 1959 to 1973, whose mission was to develop an overall conceptual framework. Its official pronouncements, called APB Opinions, were to be based mainly on research studies and be supported by reasons and analysis. The APB issued 31 opinions in its lifetime.
Accounting Standards Updates
The products of standard-setting (e.g., FASB standards, staff positions, EITF consensuses) included in the FASB Codification. The Updates include the background and basis for conclusions for the new pronouncement in a common format, regardless of the form in which such guidance may have been issued. Updates are also issued for amendments to the SEC content in the Codification.
The official pronouncements of the Accounting Principles Board, intended to be based mainly on research studies and be supported by reasons and analysis. Between its inception in 1959 and its dissolution in 1973, the APB issued 31 opinions.
Auditing Standards Board
The arm of the AICPA that had been responsible for developing auditing standards. The Public Company Accounting Oversight Board, established by the Sarbanes-Oxley Act, now oversees the development of auditing standards.
Committee on Accounting Procedure
Committee established by the AICPA in 1939 at the urging of the SEC to deal with accounting Problems. The CAP issued 51 Accounting Research Bulletins and was replaced by the Accounting Principles Board in 1959.
Approach that requires that financial reporting be useful to investors by helping them assess (1) the company's ability to generate net cash inflows and (2) management's ability to protect and enhance the capital providers' investments.
Emerging Issues Task Force (EITF)
Group created in 1984 by the FASB to reach a consensus on how to account for new and unusual financial transactions that might create differing financial reporting practices. The FASB reviews and approves all EITF consensuses, and the SEC views consensus solutions as preferred accounting.
The difference between what the public thinks accountants should do and what accountants think they can do.
FASB Staff Positions
Issued by the FASB, these provide interpretive guidance and also minor amendments to standards and interpretations.
Codification Research System (CRS)
An online, real-time database that provides easy access to the Codification, through a topically organized structure, subdivided into topics, subtopics, sections, and paragraphs, using a numerical index system.
Establishes the concepts that underlie financial reporting. purpose is to develop a coherent set of standards and rules, to solve new and emerging practical problems
accounting information must be capable of making a difference in a decision
has value as an input to predictive processes used by investors to form their own expectations about the future
relevant information also helps users confirm or correct prior expectations
if omitting it or misstating it could influence decisions that users make on the basis of the reported financial information. quantitative AND qualitative factors
the numbers and descriptions match what really existed or happened
all the information that is necessary for faithful representation is provided, omitting it will cause people to be mislead
a company cannot select information to favor one set of interested parties over another
Free From Error
an information item that is free from error will be a more accurate (faithful) representation of a financial item
information that is measured and reported in a similar manner for different companies, consistent over time
occurs when independent measures, using the same methods, obtain similar results
having information available to decision-makers before it loses its capacity to influence decisions
the quality of information that lets reasonably informed users see its significance. The linkage between users and their decisions they make
company keeps its activity separate from its owners and other businesses
company to last long enough to fulfill objectives and commitments
money is the common denominator
company can divide its economic activities into time periods
Creditors and Investors
Primary users for general purpose financial statements
Generally Accepted Accounting Principles
A common set of accounting standards and procedures
Due process in context of standard setting at the FASB
-The FASB operated in full view of the public
-Public hearings are held on proposed accounting standards
-Interested parties can make their views known
Which of the following organizations has not been instrumental in the development of financial accounting standards in the United States?
The purpose of Statements of Financial Accounting Concepts is to
form a conceptual framework for solving existing and emerging problems
Benefits associated with the FASB Conceptual Framework
-A conceptual framework should increase financial statement users' understanding of the confidence in financial reporting
-Practical problems should be more quickly solvable by reference to an existing conceptual framework
-A coherent set of accounting standards and rules should result
A fundamental quality of useful information
Changing the method of inventory valuation should be reported in the financial statements under what qualitative characteristic?
What is the quality of information that is capable of making a difference in a decision?
Relevance and Faithful Representation
The two fundamental qualities that make accounting information useful for decision making are?
1st level- basic objectives
2nd level- qualitative characteristics and elements
3rd level- recognition, measurement, and disclosure
Objective of financial reporting
To provide financial information about the reporting entity that is useful to equity investors, lenders, and creditors in making decisions about providing resources to the entity.
2nd Level of Conceptual Framework
3. Enhancing qualitites
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