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CFA Level I > 16: Financial reporting standards > Flashcards

16: Financial reporting standards Flashcards

1
Q

Objectives of financial reporting: provide information about the firm to current and potential ____ and ____that is useful for making their decisions about _____ or _____ to the firm

A

investors and lenders
investing or lending

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2
Q

What is the importance of the conceptual framework for financial reporting?

A

provide consistency, by narrowing the range of acceptable financial reports

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3
Q

private sector, professional organizations of accountants and auditors that establish financial reporting standards

A

standard setting bodies

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4
Q

For standard setting bodies to have authority, they must be ____?

A

recognized by regulatory authorities

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5
Q

what are the two primary standard setting bodies and what do they each set?

A

FASB sets GAAP
IASB sets IFRS

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6
Q

government agencies that have the legal authority to enforce compliance with financial reporting standards

A

regulatory authorities

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7
Q

What regulatory authority does the US use? And what does it oversee?

A

SEC oversees the public companies accounting oversight board

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8
Q

The SEC enforces ______?

A

Sarbanes Oxley

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9
Q

Many national ______ belong to the International Organization of Securities Commissions (IOSCO)

A

regulatory authorities

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10
Q

The objective of the IOSCO is to ensure markets are ____?

A

fair, efficient, transparent

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11
Q

IOSCO Role: promoting cross-border ______ and _____ in securities regulation

A

cooperation; uniformity

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12
Q

The conceptual framework for financial reporting details _______ and specifies ______?

A

qualitative characteristics of financial statements;
specifies the required reporting elements

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13
Q

The objective of the conceptual framework for financial reporting: provide financial information that is useful in making decisions about ______? Based on ______ , ______, _______ of the firm?

A

providing resources to an entity
financial position
financial performance
cash flows

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14
Q

What are the two qualitative characteristics of the conceptual framework for financial reporting?

A

relevance;
faithful representation

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15
Q

Financial statements are ______ if information can influence user’s economic decisions or affect evaluations of past events or forecast of future events

A

relevance (qualitative characteristic)

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16
Q

Financial statements have faithful representation if information is …..?

A

complete
neutral
free from error

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17
Q

What are the 4 enhancing characteristics for the qualitative characteristics of the conceptual framework?

A

comparability
verifiability
timeliness
understandability

18
Q

What are the required reporting elements for IASB conceptual framework?

A

assets
liabilities
equity
income
expense

19
Q

Resources controlled as a result of past transactions that are expected to provide future economic benefits

A

assets

20
Q

Obligations as a result of past events that are expected to require an outflow of economic resources

A

liabilities

21
Q

The owners’ residual interest in the assets after deducting the liabilities

A

equity

22
Q

An increase in economic benefits
 Enhancement of assets
 Decrease of liabilities
 Revenue and gains

A

income

23
Q

Decreases in economic benefits
 Outflow/depletion of assets
 Increase in liabilities
 Expenses and losses

A

expenses

24
Q

Balance sheet measures ____?

A

a company’s financial position

25
Q

Income statement measures____?

A

a company’s financial performance

26
Q

When recognizing reporting elements, what two parameters are necessary?

A

probable flows of benefit
items value can be measured reliably

27
Q

Items should be recognized in its financial statement element if a future economic benefit from the item is probable

A

probable flows of benefit

28
Q

the amount originally paid for the asset

A

historical cost

29
Q

the amount the firm would have to pay today for the sam asset

A

current cost

30
Q

the estimated selling price of the asset in the normal course of business minus the selling cost
* Amount received in an orderly disposal

A

net realizable value

31
Q

discounted value of the asset’s expected future cash flows

A

present value

32
Q

the price at which the asset can be sold, or liability transferred in an orderly transaction between willing parties

A

fair value

33
Q

What are the two constraints of financial statement preparation?

A

benefit of info > cost of presenting info
non-quantifiable info (company reputation)

34
Q

What are the two assumptions of financial statements?

A

accrual basis
going concern

35
Q

Accrual basis: that the financial statements should reflect transactions when ______ , not when _____

A

they actually occur;
cash is paid

36
Q

Distinguishes between short term and long term components

A

going concern

37
Q

What are the required financial statements under IFRS (IASB)?

A
  • Balance sheet
  • Statement of comprehensive income
  • Cash flow statement
  • Statements of changes in owner’s equity
  • Explanatory notes (including a summary of accounting policies)
38
Q

The following are ….?
fair representation
going concern basis
accrual basis of accounting
consistency
materiality

A

features/fundamental principles of the required financial statements

39
Q

The following are…?
aggregation where appropriate
no offsetting
reporting frequency
comparative info
classified balance sheet
specific minimum info

A

Presentation requirements of financial statements:

40
Q

Reporting frequency of financial statements must be ____?

A

annually

41
Q

A classified balance sheet shows?

A

current and noncurrent liabilities

42
Q

To evaluate the potential effect of an innovative and unique type of business transaction on financial statements, an analyst should gain an understanding of the transactions ______?

A

economic purpose

CFA Level I (45 decks)

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