16: Financial reporting standards

Question 1

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

Answer 1

investors and lenders
investing or lending

Question 2

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

Answer 2

provide consistency, by narrowing the range of acceptable financial reports

Question 3

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

Answer 3

standard setting bodies

Question 4

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

Answer 4

recognized by regulatory authorities

Question 5

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

Answer 5

FASB sets GAAP
IASB sets IFRS

Question 6

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

Answer 6

regulatory authorities

Question 7

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

Answer 7

SEC oversees the public companies accounting oversight board

Question 8

The SEC enforces ______?

Answer 8

Sarbanes Oxley

Question 9

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

Answer 9

regulatory authorities

Question 10

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

Answer 10

fair, efficient, transparent

Question 11

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

Answer 11

cooperation; uniformity

Question 12

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

Answer 12

qualitative characteristics of financial statements;
specifies the required reporting elements

Question 13

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

Answer 13

providing resources to an entity
financial position
financial performance
cash flows

Question 14

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

Answer 14

relevance;
faithful representation

Question 15

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

Answer 15

relevance (qualitative characteristic)

Question 16

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

Answer 16

complete
neutral
free from error

Question 17

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

Answer 17

comparability
verifiability
timeliness
understandability

Question 18

What are the required reporting elements for IASB conceptual framework?

Answer 18

assets
liabilities
equity
income
expense

Question 19

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

Answer 19

assets

Question 20

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

Answer 20

liabilities

Question 21

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

Answer 21

equity

Question 22

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

Answer 22

income

Question 23

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

Answer 23

expenses

Question 24

Balance sheet measures ____?

Answer 24

a company’s financial position

Question 25

Income statement measures____?

Answer 25

a company's financial performance

Question 26

When recognizing reporting elements, what two parameters are necessary?

Answer 26

probable flows of benefit items value can be measured reliably

Question 27

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

Answer 27

probable flows of benefit

Question 28

the amount originally paid for the asset

Answer 28

historical cost

Question 29

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

Answer 29

current cost

Question 30

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

Answer 30

net realizable value

Question 31

discounted value of the asset’s expected future cash flows

Answer 31

present value

Question 32

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

Answer 32

fair value

Question 33

What are the two constraints of financial statement preparation?

Answer 33

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

Question 34

What are the two assumptions of financial statements?

Answer 34

accrual basis going concern

Question 35

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

Answer 35

they actually occur; cash is paid

Question 36

Distinguishes between short term and long term components

Answer 36

going concern

Question 37

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

Answer 37

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

Question 38

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

Answer 38

features/fundamental principles of the required financial statements

Question 39

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

Answer 39

Presentation requirements of financial statements:

Question 40

Reporting frequency of financial statements must be ____?

Answer 40

annually

Question 41

A classified balance sheet shows?

Answer 41

current and noncurrent liabilities

Question 42

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 ______?

Answer 42

economic purpose