FAR: 1-Conceptual Framework
Terms in this set (27)
1. SEC's standard setting authority
1. The Securities and Exchange Commission (SEC) is a governmental entity created to protect the interest of investors by ensuring full and adequate disclosure by publicly traded companies. Although the SEC has the authority to establish standards, it has generally deferred to the Financial Accounting Standards Board (FASB) or its predecessors to generate U.S. accounting standards.
2. The SEC has the authority to establish accounting standards, but it has generally deferred to the FASB to generate U.S. GAAP
2. Securities and Exchange Commission was created under which of the following acts?
The 1934 Securities Exchange Act
3. SEC's rule-making procedures
1. Concept release
2. Rule Proposal
3. Rule adoption
4. Concept release
Begins with rule proposal, but sometimes commission needs public input
5. Rule Proposal
Commission publishes a detailed formed rule proposal for public comment
6. Rule adoption
The commissioners consider what they have learned from the public exposure of the proposed rule, & seek to agree on the specifics of the final rule.
7. GAAP are:
The basic concepts underlying financial accounting & reporting (FAR).
GAAP includes pronouncements of other authoritative bodies like:
Accounting Principles Board (APB)
Governmental Accounting Standards Board (GASB)
Securities & Exchange Commission (SEC)
FASB & FASB's Accounting Standards Codification
8. Underlying Accounting Principles
Unit of measure
9. Modifying Conventions
Substance over form
Application of Judgement
10. FASB codification
Financial statements issued for interim & annual periods ending after Sep. 15, 2009, Accounting standards codification is the single source of authoritative GAAP recognized by FASB to be applied by non-governmental entities
11. Two levels of codification
Authoritative & Non-authoritative
12. Financial statement serve as
Financial statements serve as the primary, not the only, means for communicating financial information to those outside the entity. For example, press releases also can communicate information to users.
Only the balance sheet is a "snapshot" in time of the financial condition of the entity. The other financial statements serve as a "motion picture" showing the impact of various activities occurring throughout the year.
Since financial statements are designed for external reporting, they are not the principal tool for managing the entity. To manage an entity, managers require other types of information that are usually provided by internal managerial accounting reports.
13. Reporting inventory at the lower of cost or market is a departure from the accounting principle of:
Financial accounting is primarily based on the historical cost principle which specifies that assets be recorded and carried at their historical acquisition cost. When reporting inventory at the lower of cost or market, cost is compared with market (usually some variant of replacement cost) and the lower value is used to reflect the loss of utility (i.e., market value) of the goods. Selection and use of a value other than acquisition cost is clearly a departure from the historical cost principle.
14. During a period when an enterprise is under the direction of a particular management, its financial statements will directly provide information about:
Enterprise performance but not directly provide information about management performance.
Financial statements provide direct information about enterprise performance because the primary focus of the statements is to provide information about the financial performance of that enterprise by providing information about earnings.
The same cannot be said, however, in regard to management performance. The financial statements depict only indirect information concerning management performance. (Direct information related to management performance would be provided in internal managerial performance reports but not in the external financial statements.)
15. Documents is typically issued as part of the due-process activities of the Financial Accounting Standards Board (FASB) for amending the FASB Accounting Standards Codification
The process for issuing a new accounting standards update includes the following steps:
1. The FASB identifies a financial reporting issue.
2. The FASB Chairman adds a project to the technical agenda.
3. Public meetings are held.
4. An exposure draft (proposed accounting standards update) is issued.
5. A public roundtable is held.
6. The FASB staff collects and analyzes all comments and the FASB redeliberates the proposed standard at public meetings.
7. The FASB issues an Accounting Standards Update. It becomes part of the Accounting Standards Codification.
16. IASB - International Accounting Standards Board
Independent, not-for-profit private sector organization working in the public interest.
Develop a single set of high quality, understandable, enforceable, & globally accepted International Financial Reporting Standards (IFRS)
Promote the use & rigorous application of those standards
Organized to work toward the convergence of the IFRS & national accounting standards
17. GAAP & IFRS
same - Objective of general purpose financial reporting
same - Qualitative characteristics of useful financial information
The U.S. generally accepted accounting principles (GAAP) are a very rule-based set of standards. The International Financial Reporting Standards (IFRS) tend to be based on principles rather than rules.
18. A goal of the International Accounting Standards Board
As stated on the IASB website (www.ifrs.org), the International Accounting Standards Board is an independent, not-for-profit private sector organization working in the public interest. Its principal objectives are:
to develop a single set of high-quality, understandable, enforceable, and globally accepted international financial reporting standards (IFRS) through its standard-setting body, the IASB,
to promote the use and rigorous application of those standards,
to take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMEs), and
to bring about convergence of national accounting standards and IFRS to high-quality solutions.
19. The purpose of convergence of U.S. GAAP and IFRS is
to make U.S. GAAP and IFRS uniform to enhance the globalization of business.
The globalization of business has resulted in many multinational companies. Different accounting standards in the United States and other countries have made it very difficult to issue financial statements everywhere. The purpose of the convergence is to provide uniformity between U.S. GAAP and IFRS (International Financial Reporting Standards).
20. Terms refers to the current harmonization of accounting practices of the United States and the countries represented by the IASB
21. entity develops and distributes accounting standards for non-U.S. companies
The FASB, SEC, and International Accounting Standards Board (IASB) are working toward convergence, as evidenced by the following discussion on IASB's website (www.fasb.org):
The International Accounting Standards Board (IASB) is an international organization organized to develop international financial reporting standards (IFRSs). Additional goals of the organization are to promote the use of these standards and to work towards the convergence of the IFRSs and national accounting standards.
Establishes accounting & reporting standards for state & local government entities which include states, counties, towns, independent school districts, state & local govt. educational institutions (colleges & universities), hospitals, charitable institutions.
23. Balance sheet/Stmt. of Financial position-A company has outstanding accounts payable of $30,000 and a short-term construction loan in the amount of $100,000 at year-end. The loan was refinanced through issuance of long-term bonds after year-end but before issuance of financial statements. How should these liabilities be recorded in the balance sheet (statement of financial position)?
Current liabilities of $30,000, long-term liabilities of $100,000
The accounts payable will be paid with current assets, so it is considered a current liability.
The refinanced loan is not included in current liabilities. FASB ASC 470-10-45-13 and 45-14, "Short-Term Obligations Expected to Be Refinanced," addresses this refinanced loan
24. Balance sheet/Stmt. of Financial position-Bard Co. owned several subsidiaries at December 31. The following table shows each subsidiary's total liabilities, excluding intercompany transactions, and percentage of stock owned by Bard:
Subsidiary Total Liabilities % Owned
---------- ----------------- -------
Brock Co. $4,000,000 70
Harlson Co. 2,000,000 48
Porter Co. 7,000,000 80
Nortin Co. 5,000,000 100
What amount should Bard include as liabilities in its consolidated balance sheet at December 31?
Intercompany balances in total are eliminated in the preparation of consolidated financial statements. Harlson is not included in the consolidated statements since Bard owns less than 50% of Harlson's stock.
Brock Co. $4,000,000
Porter Co. 7,000,000
Nortin Co. 5,000,000
25. Balance sheet/Stmt. of Financial position-According to the FASB conceptual framework, which of the following attributes would not be used to measure inventory?
Present value of future cash flows
26. Balance sheet/Stmt. of Financial position-Assuming a single tax jurisdiction, under FASB ASC 740-10-45-4 the maximum number of deferred tax balances that can be presented on a classified balance sheet (statement of financial position) is:
two net balances, one that would be classified as current and one that would be classified as non-current.
27. Balance sheet/Stmt. of Financial position-With respect to the categories of assets, liabilities, and stockholders' equity presented on the balance sheet (statement of financial position), what are U.S. GAAP and IFRS differences?
The categories of assets, liabilities, and stockholders' equity are quite similar within U.S. GAAP and IFRS (International Financial Reporting Standards). However, IFRS statements may present property, plant, and equipment first in the balance sheet.
IFRS statements may present property, plant, and equipment first in the balance sheet.