Term
| What are the four sections under Financial accounting and accounting standards? |
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Definition
Financial statements and financial reporting.
Parties involved in standard setting
generally accepted accounting principles
issues in financial reporting |
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Term
| What are some issues with financial statements and financial reporting? |
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Definition
accounting and capital allocation
challenges
objectives
need to develop standards |
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Term
| what are the parties involved in standard setting? |
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Definition
SEC
American institute of CPAs
Financial Accounting Standards Board
Changing role of the AICPA |
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Term
| what factors go under GAAP? |
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Definition
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Term
| What are some issues in financial reporting? |
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Definition
Political environment
expectations gap
international accounting standards
ethics |
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Term
| What are the essential characteristics of accounting? |
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Definition
| the identification, measurement, and communication of financial information about economic entities to interested parties. |
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Term
| What is financial accounting? |
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Definition
| the process that culminates in the preparation of financial reports on the enterprise for use by both internal and external parties. Typically include investors creditors, managers, unions, and government agencies. |
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Term
| What is managerial accounting? |
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Definition
| process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control and evaluate a companys operations. |
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Term
| What are the financial statements? |
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Definition
| Balance sheet, income statement, statement of cash flows, statement of owners or stock holders equity, and note disclosures. ( GAAP ) |
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Term
| What are some other forms of financial reporting? |
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Definition
| Presidents letter, prospectuses, SEC reporting, forecasts, etc. |
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Term
| Accounting and Capital Alocation |
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Definition
| Resources are limited. Efficient use of resources often determines whether a business thrives |
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Term
| What is the capital allocation process? |
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Definition
Financial reporting - information to help users with capital allocation decisions.
Users - Creditors, investors, and other users
Capital Allocation - the process of determining how and at what cost money is allocated among competing interests. |
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Term
| explain how accounting assists in the efficient use of scarce resources |
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Definition
| Since efficient use of resources determines whether or not a business thrives, accountants must measure performance accurately and fairly on a timely basis, so that the right managers and companies are able to attract investment and capital. |
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Term
| What does an effective process of capital allocation do? |
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Definition
| it is critical to a healthy economy. It promotes productivity, encourages innovation, and provides an efficient and liquid market for buying and selling securities and obtaining and granting cedit. |
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Term
| What are some challenges faced in financial accounting. |
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Definition
1) Non financial measurements- customer satisfaction, backlog info, etc.
2.) Forward looking information- accounting is historical in nature.
3) Soft assets- Microsofts know how, dells marketing set up, etc.
4) Timeliness- no real time financial is available |
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Term
| Financial reporting should provide information that |
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Definition
Is useful to present and potential investors and creditors and other users in making rational investment, credit, and simiiar decisions
Helps present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts.
clearly portrays the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events and circumstances that change its resources and claims to those resources. |
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Term
| The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced. |
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Definition
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Term
| What are the objectives of financial reporting? |
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Definition
1.) useful to investors and creditors in making rational investment, credit, and similiar decisions. Should be comprehended by those with a reasonable understanding in business.
2.) Helps potential investors , creditors , and other users assess the amounts, timing, and uncertainty of prospective cash receipts.
3.) Clearly portrays the economic resources of an enterprise, the claims to thos resources. |
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Term
| What are the three organizations involved in standard setting? |
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Definition
Securities and exchange commission ( SEC )
American Institute of certified public accountants ( AICPA)
Financial Accounting Standards board ( FASB) |
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Term
| What are some key facts about the SEC? |
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Definition
established by the federal govt.
Accounting and reporting for public companies
encouraged private standard setting body
SEC requires public companies to adhere to GAAP
SEC oversight
Enforcement Authority |
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Term
| What are some key facts about the American Institute of CPA's |
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Definition
National professional organization
Established Committee on accounting procedures.Issued ARBs ( Problem by problem approach failed )
Accounting principles board ( issued 31 accounting principle board opinions ( APBOs
- Wheat committee recommendations adopted in 1973 |
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Term
| Wheat committees reccomendations resulted in the created of what? |
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Definition
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Term
| Who selects members of the FASB, funds their activites, and exercises general oversight |
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Definition
| Financial Accounting Foundation |
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Term
| Whose mission is to establish and improve standards of financia accounting and reporting? |
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Definition
| Financial accounting standards board |
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Term
| Who consults on major policy issues |
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Definition
| Financial accounting standards advisory council |
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Term
| What is the financial accounting standards board, and what are some differences between FASB and APB? |
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Definition
Mission is to establish and improve standards of financial accounting and reporting.
differences include smaler membership, full time, remunerated mebership
greater autonomy
increased independence
broader representation |
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Term
| What is meant by due process? |
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Definition
FASB relies on two basic premises
- Responsive to entire economic community
- operate in full view of the public
the steps are
step 1 ) Topic placed on agenda
step 2 ) research conducted and discussion memorandum issued
step 3) public hearing
step 4) Board evaluates research, public response and issues exposure draft
step 5) Board evaluates responses and issues final statement of finacial accounting standard. |
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Term
| What are the types of pronouncements issued by the FASB? |
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Definition
1.) Standards, interpretations, and staff positions
2.) Financial accounting concepts
3) Emerging issues task force statements |
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Term
| What is the changing role of AICPA? |
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Definition
The AICPA established the Accounting Standards Executive committee ( AcSEC)
- Audit and Accounting guides
- Statements of position ( SOP )
- practice bulletins
AICPA and AcSEC no longer issues authoritative accounting guidance for public companies
PCAOB oversees the development of auditing standards
AICPA continues to develop and grade the CPA exam |
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Term
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Definition
those principles that have substantial authoritative support
- major sources of GAAP are:
FASB standards, interpretations, and staff positions
- APB opinions
- AICPA accounting research bulletins |
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Term
| What is meant by the issue in financial reporting by standard setting in a political environment? |
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Definition
| accounting standards are as much a product of political action as they are of careful logic or empiracal findings |
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Term
| What is the expectation gap? |
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Definition
what the public thinks accountants should do vs. what accountants think they can do
- difficut to close
- sarbanes- oxley act ( 2002 )
Pubic Company Accounting oversight board ( PCAOB ) |
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Term
| What are international accounting standards? |
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Definition
two sets of standards accepted for international use :
- U.S. GAAP, issued by the FASB
- International Financial reporting standards ( IFRS ), issued by the IASB
FASB and IASB recognize that global markets will best be served if only one set of GAAP is used. |
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Term
| What are some key facts in the ethics in the environment of financial accounting? |
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Definition
In accounting, we frequently encounter ethical dilemmas
- GAAP does not always provide an answer
- doing the right thing is not always or obvious |
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Term
| What are some relevant facts when it comes to GAAP and whatnot? |
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Definition
- iGaap includes the standards, referred to as internationa financial reporting standards ( IFRS ) developed by the IASB
Differences between U.S. GAAp and iGaap exist because of different user needs.
Igaap tends to be simpler and less stringent than U.S. Gaap
reguators have recently eliminated the need for foreign companies that trade shares in U.S. markets to reconcile their accounting with U.S. GAAP. |
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Term
| Why is their a need for conceptual framework? |
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Definition
- under conceptual framework, it means that there is a need to deveop a coherent set of standards and rules
- there is a need to solve new and emerging practical problems |
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Term
| Under the developement of conceptual framework, the FASB has issued six statements of financial accounting concepts ( SFAC) for business enterprises |
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Definition
1) Objectives of financial reporting
2) Qualitative characteristics of accounting information
3) Elements of financial statements ( superceded by SFAC 6)
4) Recognition and measurement in financial statements
5) Elements of financial statements
6) Using cash flow information and present value in accounting measurements |
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Term
| the framework is comprised of three levels,what are they? |
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Definition
first level = basic objectives
second level = qualitative characteristics and basic elements
third level = recognition and measurement concepts |
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Term
| what are some objectives of the first level of the conceptual framework? |
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Definition
1) Useful in investment and credit decisions
2) Useful in assessing future cash flows
3) About enterprise resources, claims to resources, and changes in them |
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Term
| What is the second level? |
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Definition
Qualitative characteristics ( Relevance, reliability, comparability, consistency)
Elements ( assets, liabilities, and equity, investments by owners, distributions to owners, comprehensive income, revenue and expenses, gains and losses ) |
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Term
| What is included in the third level |
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Definition
Assumptions ( economic entity, going concern, monetary unit, periodicity)
Principles ( Measurement, revenue recognition, expense recognition, full disclosure )
constraints ( cost-benefit, materiality, industry practice, conservatism ) |
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Term
| what are the first level basic objectives? |
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Definition
financial reporting should provide information that:
- is useful to present and potential investors and creditors other users in making rational investment, credit, and similiar decisions.
- helps present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts.
- portrays the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events, and circumstances that change its resources and claims to those resources |
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Term
| How does a company choose an acceptable accounting method, the amount and types of information to disclose, and the format in which to present it? |
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Definition
| by determining which alternative provides the most useful information for decision making purposes ( Decision usefulness) |
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Term
| What are qualitative characteristics? |
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Definition
| the FASB identified the qualitative characteristics of accounting information that distinguish better ( more useful ) information from inferior ( less useful ) information for decision making purposes. |
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Term
| What is meant by understandability? |
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Definition
| A company may present highly reevant and reliable information, however it was useless to those who do not understand it. |
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Term
| What are the primary qualities? |
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Definition
Relevance - making a difference in decison ( predictive value, feedback value, timeliness )
Reliability ( verifiable, representational faithfulness, neutral - free of error and bias ) |
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Term
| What are the secondary qualities? |
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Definition
comparability- Information that is measured and reported in a similiar manner for different companies is considered comparable
Consistency - when a company applies the same accounting treatment to simiiar events from period to period |
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Term
| What does concept number 6 state? |
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Definition
defines ten interrelated elements that relate to measuring the performance and financial status of a business enterprise.
Moment in time = assets, liabilities, and equity
Period of time - investments by owners, distributions to owners, comprehensive income, revenue, expenses, gains, losses. |
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Term
| What are the assumptions? |
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Definition
economic entity- company keeps its activity separate from its owners and other businesses
going concern - company to last ong enough to fulfill objectives and commitments
monetary unit- money is the common denominator
periodicity- company can divide its economic activities into time periods |
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Term
| What is meant by principles? |
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Definition
the most commonly used measurements are based on historical cost and fair value
issues:
- historical cost provides a reliabe benchmark for measuring historical trends.
- fair value information may be more useful
- recently the FASB has taken the step of giving companies the option to use fair value as the basis for measurement of financial assets and financial liabilities
- reporting of fair value information is increasing |
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Term
| What is revenue recognition? |
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Definition
| generally occurs when realized or realizable, and when earned. there is an exception |
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Term
| what is expense recognition? |
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Definition
| let the expense follow the revenues |
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Term
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Definition
providing information that is of sufficient importance to infuence the judgement and decisions of an informed user.
provided through :
- financial statements
- notes to the financial statements
- supplementary information |
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Term
| what are the constraints? |
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Definition
cost benefit - the cost of providing the information must be weighed against the benefits that can be derived from using it.
Materiality- an item is material if its inclusion or ommission would influence or change the judgement of a reasonable person
Industry practice - the peculiar nature of some industries and business concerns sometimes requires departure from basic accounting theory
conservatism - when in doubt, choose the solution that will be least likely to overstate assets and income |
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