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Organization of Codification 4

1 Topic
2 Subtopic
3 Section
4 Subsection

1

What is topic 958 on the ASC?

Not for profit entities (in industry specific)

2

SFAC

Who are they issued by?

Statements for accounting financial concepts

Issued by FASB

3

What are the SFACS?

They are the rules for writing the rules

4

Codification is...

2) while SFAC is...

GAAP

2) not GAAP (not authoritative)

5

What were SFAC 1 and SFAC 2 superseded by?

SFAC 8

6

What is the chapter in SFAC 8 that replaces SFAC 1?

Chapter 1: The Objective of General-Purpose Financial Reporting

7

What is the chapter in SFAC 8 that replaces SFAC 2?

Chapter 3, Qualitative Characteristics of Useful Financial Information

8

The objective of general purpose financial reporting is to provide...

Financial info about the reporting entity that is useful to existing

And potential investors, lenders and other decision makers For providing resources to the entity

9

Not all information needs are met by...

Accounting and financial reporting

10

Objectives of general purpose financial reporting focus on...

Users of financial information

11

Who are the primary users of financial reporting? 3

1 investors
2 lenders
3 other creditors who must rely on other entities to provide info To them

12

Although management is also interested in financial information, management does not rely on general purpose reports because...

Information can be obtained internally

13

Who are not considered primary users of financial info according to SFAC 8? 2

1 Regulators

2 members of the general public (aren't investors)

14

SFAC 8 Chapter 1, states that the objective of financial reporting is to provide: Information that is useful to...

Potential and existing investors, lenders, other creditors (Primary users)

15

SFAC 8 Chapter 1, states that the objective of financial reporting is to provide: Information about the reporting entity's...

Economic resources and claims against the reporting entity

16

SFAC 8 Chapter 1, states that the objective of financial reporting is to provide: Changes in...

Economic resources and claims

17

SFAC 8 Chapter 1, states that the objective of financial reporting is to provide: Financial performance reflected by...

Accrual accounting

18

SFAC 8 Chapter 1, states that the objective of financial reporting is to provide: Financial performance reflected by...

Past cash flow

19

SFAC 8 Chapter 1, states that the objective of financial reporting is to provide: Changes in economic resources and claims...

Not resulting from financial performance

20

Primary users of accounting information

Existing and potential investors, lenders and other creditors

21

Hierarchy of accounting Qualities:

Pervasive Costraint

Benefits exceed costs

Ex. Its expensive to gather accounting info and produce financial
Statements

22

Relevance leads to...

Predictive value and confirmatory value

23

Faithful representation emphasizes the...

Substance of the transaction over the form

24

The bias on financial reporting is the bias of...

Conservatism (underlies all of US GAAP)

25

Financial information is relevant if it has...

Predictive value, confirmatory value or both

26

Predictive value

Requires info be used to predict future outcomes

27

Confirmatory value

Requires that info either confirms or changes prior evaluations

28

An item is material if...

Omitting it or misstating it could influence a user's decision

29

Materiality threshold relates to the qualitative characteristic of...

Relevance

30

Information has the quality of faithful representation if the information depicts...

What it purports to represent

31

What 3 characteristics should faithful representation have?

1 complete

2 neutral

3 free from error

32

Completeness, requires that information is...

Presented or depicted in a way users can understand the item Being depicted

33

Neutrality requires that the item is depicted...

Without bias either favorably or unfavorably to users

34

Free from error

There are no errors or omissions in the information reported

35

4 enhancing qualitative characteristics of accounting information

1 comparability
2 verifiability
3 timeliness
4 understandability

36

Comparability

Enables users to identify and understand similarities and differences between items

37

Consistency

Use of same accounting methods in different periods

38

Consistency helps achieve comparability because it...

Helps the user make comparisons across different time periods

39

Verifiability

Different sources reach consensus or agreement on amount of representation of an item

40

Direct verification occurs through...

Direct observation

41

Indirect verification occurs by using techniques such as...2

1 checking formulas

2 recalculating amounts

42

Verifiability: although forward looking information can't be verified, the underlying assumptions, methods, facts and circumstances can be...

Disclosed to help users determine if the info is useful

43

Timeliness

Requires info is available to a decision maker when it is useful To make the decision

44

Understandability

Classifying, characterizing and presenting info clearly and Concisely

45

Hierarchy of accounting Qualities:

Threshold for recognition

Materiality

46

Hierarchy of accounting Qualities:

Fundamental Qualitative characteristics 2

1 relevance (predictive value and confirmatory value)

2 faithful representation (complete, neutral, free from error)

47

Hierarchy of accounting Qualities:

Enhancing qualitative characteristics 5

1 comparability
2 consistency
3 verifiability
4 timeliness
5 understandability

48

Substance over form

Substance = bought the asset (ex. capital lease)

Form = rental agreement (ex. Operating lease)

49

Example of valuation account?

Discount on B/P is a contra valuation account of B/P

50

FC

Foreign currency

51

FC translation

Convert foreign currency financial statements to $'s

52

Interim reporting

Less than 1 year

53

Recognition vs. Reporting

Recognition: record on financial statements, write JEs

Reporting: includes footnotes with financial statements

54

SFAC 6: Asset definition

Probable future economic benefits controlled by particular entity

As result of past transactions or events

55

SFAC 6: 3 characteristics of assets

1 probable future benefit by contribution to future net cash inflows

2 entity can obtain and control access to benefit

3 transaction or event leading to control has already occurred

56

SFAC 6:

Asset continues as an asset until...

Collected, transferred, used or destroyed

57

SFAC 6: assets

Valuation accounts are part of...

Related assets

58

SFAC 6:

Liabilities definition

Probable future sacrifices of economic benefits, arising from
Present obligations of particular entity

Result from past transactions/events

59

SFAC 6:

3 characteristics of liabilities

1 legal, equitable or constructive duty to transfer assets in future

2 little or no discretion to avoid future sacrifice

3 transaction or event obligating enterprise has already occurred

60

SFAC 6:

Liability remains a liability until...

Settled or discharged

61

SFAC 6: liabilities

Valuation accounts are part of...

Related liability

62

SFAC 6: Equity AKA Net Assets definition

Owner's residual interest in the assets of entity that remains
After deducting liabilities

63

SFAC 6: Business enterprises

3 characteristics of equity

1 source of distributions by enterprise to its owners
2 no unconditional right to receive future transfer of assets,
Depends on future profitability

3 inevitably affected by enterprise's operation and circumstances
Affecting enterprise

64

SFAC 6: business enterprises

Transactions or events that change owners' equity include...5

1 revenues and expenses
2 gains and losses
3 investments by owners
4 distributions to owners
5 changes within owners equity

65

Changes within owners equity does not...

Change total amount

66

SFAC 6: Revenues definition

Increases in assets or decreases in liabilities during period from
Delivering goods, rendering services

Or other activities constituting the entity's major or central
Operations

67

SFAC 6:

3 Characteristics of revenue

1 accomplishments of earning process

2 actual or expected cash inflows resulting from central operations

3 inflows reported gross

68

SFAC 6:

Expenses definition

Decreases in assets or increases in liabilities

during period from delivery of goods, rendering of services or
Other activities constituting the entity's major/central operations

69

SFAC 6:

3 characteristics of expenses

1 sacrifices involved in carrying out earnings process

2 actual or expected cash outflows resulting from central operations

3 outflows reported gross

70

SFAC 6:

Gains (losses) definition

Increases (decreases) in equity from peripheral transactions of entity excluding revenues (expenses)

and excluding investment/distribution of owners

71

SFAC 6:

3 characteristics of gains and losses

1 result from peripheral transactions and circumstances that may
be beyond control
2 May be classified according to sources or as operating and
Non operating
3 change in equity reported net

72

SFAC 6:

3 elements of financial statements exclusive to business enterprise

1 investments by owners

2 distributions to owners

3 comprehensive income

73

SFAC 6:

investments by owners definition

Increases in net assets resulting from transfers by other entities
Of something of value to obtain ownership

74

SFAC 6:

Distributions to owners definition

Decreases in net assets resulting transferring assets, rendering
Services, or incurring liabilities by the enterprise to owners

75

SFAC 6:

Comprehensive income definition

Change in equity of entity during period from transactions
And other events of no owner sources

All equity amount changes except investments and distributions

76

SFAC 6:

Term "comprehensive" income is used instead of net earnings (net income) because the board is...

Reserving "earnings" for component part of comprehensive
Income yet to be determined

77

ASC definition of comprehensive income

Total of net income and other comprehensive income

78

2 ASC approaches to presenting comprehensive income

1 present combined statement of income and comprehensive
Income with OCI at bottom

2 present second statement that directly follows income
Statement

79

Old Hierarchy of GAAP:

What 4 pieces of literature had the highest level of authority?

1 FASB Statements of Accounting Standards and Interpretations
2 FASB Staff Postions
3 AICPA Research Bulletins
4 Accounting Principles Board Opinions not superseded by FASB

80

Old Hierarchy of GAAP:

What 3 pieces of literature had the 2nd highest level of authority?

1 FASB Technical Bulletins

2 AICPA Industry Audit and Accounting Guides

3 Statements of position

81

Old Hierarchy of GAAP:

What 3 pieces of literature had the 3rd highest level of authority?

1 AICPA Accounting Standards Executive Committee Practice
Bulletins cleared by FASB
2 consensus positions of FASB Emerging Issues Task Force (EITF)
3 topics discussed in appendix D of EITF Abstracts

82

When is the statement of cashflows prepared?

2) what is the basis of accounting used in the statement of cashflows?

Last after other financial statements have been prepared

2) cash basis (not accrual)

83

Closing journal entries close...

Temporary accounts (revenues, expenses, dividends)

84

AFS

Available for sale (investments)

85

In GAAP impairment losses can only be reversed in...

Held for sale investments

86

SFAC 7: Using Cash Flow Information and Present Value in Accounting Measurements

Statement provides, a framework for using future cash flows as the basis of accounting measurements 3

1 at initial recognition

2 in fresh start measurements

3 for interest method of allocation

87

SFAC 7 using future cash flows:

Fresh start measurements

Measurements in period following initial recognition that established
New carrying amount unrelated to previous amounts/accting conventions

88

Interest method allocation, is a reporting convention that uses...

Present value techniques in absence of fresh start measurement

To compute changes in carrying amount of asset or liability
From 1 period to the next

89

Interest method of allocation:

Like depreciation and amortization conventions, interest methods
Are grounded in...

Notion of historical cost

90

General principle that governs use of present value?

2) what is not addressed by SFAS 7?

Guidance on measurement issues only

2) recognition issues aren't addressed by SFAS 7

91

SFAS 7 does not address when...

2) FASB expects to decide whether a particular situation requires fresh start measurement/accounting response on a...

Fresh start measurements are appropriate

2) project by project basis

92

The techniques used to estimate future cash flows and interest rates will vary from one situation to another depending on...

Circumstances surrounding asset or liability in question

93

Certain general principles govern any application of present value techniques measuring assets or liabilities:

Estimated cash flows and interest rates should reflect assumptions about future events and uncertainties that would be considered in deciding...

Whether to acquire an asset or group of assets in arm's length
Transaction for cash

94

Certain general principles govern any application of present value techniques measuring assets or liabilities:

Interest rates used to discount cash flows should reflect assumptions that are...

2) otherwise the effect of some assumptions will be...

Consistent with those inherent in estimated cash flows

2) double counted or ignored

95

Certain general principles govern any application of present value techniques measuring assets or liabilities:

Estimated cashflows and interest rates should be free from both bias and factors...

Unrelated to the asset, liability or group of asset/liabilities

Ex. Deliberately understating estimated net cash flows to enhance apparent future profitability introduces bias into measurement

96

Certain general principles govern any application of present value techniques measuring assets or liabilities:

Estimated cash flows or interest rates should reflect the...

Range of possible outcomes rather than single most likely min
Or max amount

97

An accounting measurement that uses present value should reflect the...

2) otherwise items with different risks may appear...

Uncertainties inherent in estimated cash flows

2) similar

98

Accounting applications of present value have typically used a...

Single set of estimated cash flows and single interest rate

99

Which approach does SFAC 7 introduce?

Expected cash flow approach

100

The expected cash flow approach focuses on...

Explicit assumptions about the range of possible estimated cash
Flows and their respective possibilities

101

The traditional cash flow approach treats uncertainties...

Implicitly in selection of an interest rate

102

By incorporating a range of possible outcomes, the expected cash flow approach accommodates the use of...

present value techniques when timing of cash flows is uncertain

103

Multiple-deliverable revenue arrangements is another exception to...

The general revenue recognition principles

104

Multiple deliverable revenue arrangements:If an entity has revenue generating activities to provide multiple products or services at different times, the arrangement should be evaluated to determine if...

There are separate units being delivered

105

Multiple-deliverable revenue arrangements: 2 conditions must be met for an item to be considered a separate unit of accounting

1 delivered item has value on stand-alone basis

2 if arrangement includes right of return for delivered item, the Undelivered item must be substantially in control of vendor

106

Multiple-deliverable revenue arrangements:
1 delivered item has value on stand-alone basis 2 if arrangement includes right of return for delivered item, the Undelivered item must be substantially in control of vendorIf both of the above requirements are met, the revenue arrangement is...

Divided into separate units based on relative selling prices

Revenue recognition criteria are then applied to each separate Unit

107

Milestone method accounting may be used in accounting for...

Research and development arrangements where revenue (payments)To vendor

is contingent on achieving 1 or more substantive Milestones related to deliverables or units of accounting

108

Substantive milestone

Uncertain event that can only be achieved based on vendors Performance and 3 additional criteria

109

3 circumstances that must be met for vendor to recognize the contingent revenue in its entirety in the period in which the milestone was achieved

1 commensurate with vendors performance or enhancement of Value resulting from vendor's performance
2 relates solely to past performance
3 it's reasonably relative to all deliverables and payment terms

110

Recognition of milestone payments, accounting policy should be disclosed in...

The notes of the financial statements

111

Detail about the milestone method that should be disclosed: A description of...

The overall arrangement

112

Detail about the milestone method that should be disclosed: A description of each milestone and...

Related contingent consideration

113

Detail about the milestone method that should be disclosed: A determination of whether each milestone is...

Considered substantive

114

Detail about the milestone method that should be disclosed: The factors considered in determining whether the milestones are...

Substantive

115

Detail about the milestone method that should be disclosed: The amount of consideration recognized...

During the period for each milestone

116

Recognition questions VS measurement issues

Measurement issues = how to measure

Recognition questions = when to measure