Accounting Concepts and Conceptual Framework Flashcards
(20 cards)
What is the process for amending IFRS?
1) IASB publishes a discussion paper, although it is not required.
2) After reviewing comments, an Exposure Draft is issued.
3) The feedback is analyzed and then the new IFRS is drafted and voted on. It must be approved by at least 9 members.
What is the process FASB amendments to the ASC?
1) Exposure Drafts are issued after a majority of the Board has voted on it.
2) The public feedback is analyzed and the Board redeliberates the issue.
3) A new amendment is drafted for Board consideration and a vote.
Fundamental Qualitative Characteristics of the FASB Conceptual Framework?
1) Relevance
a. Predictive Value
b. Confirming Value
c. Materiality
2) Faithful Representation
a. Completeness
b. Neutrality
c. Free From Error
Enhancing Qualitative Characteristics of the FASB Conceptual Framework?
1) Comparability
2) Verifiability
3) Timeliness
4) Understandability
Entity Assumption
Economic activity can be accounted for when considering an identifiable set of activities.
Going Concern Assumption
It is presumed that the entity will continue to operate in the foreseeable future.
Monetary Assumption
It is assumed that money is an appropriate basis by which to measure economic activity and that the monetary unit doesn’t change over time. This assumption ignores inflation.
Periodicity Assumption
Economic activity can be divided into meaningful time periods.
Historical Cost Principle
Financial information is accounted for and based on cost, not current market value.
Revenue Recognition Principle
Revenue should be recognized when realized or realizable. Recognize when the earnings process is complete.
Matching principle
Expenses are incurred to generate revenue so it should be expensed alongside the revenue it helps generate.
Accrual Accounting
Revenues are recognized when they are earned and expenses are recognized in the same period as the related revenue, not necessarily when the cash is received or expended.
Full Disclosure Principle
It is important that the user to be given information that would make a difference in the decision process but not so much info that the user is impeded in analyzing what’s important.
Conservatism Principle
If in doubt when selecting from alternative GAAP methods, the method that is least likely overstate assets and understate liabilities in the current period should be selected. Recognize revenue when the earnings process is complete and expenses/losses immediately.
The IASB Framework for the Preparation of Financial Statements outlines only two fundamental assumptions
1) Accrual Basis Accounting
2) Going Concern
The IASB Framework outlines the following elements of financial statements
1) Assets
2) Liabilities
3) Equity
4) Income
5) Expenses
6) Capital Maintenance Adjustments
Capital Maintenance Adjustments
The increases and decreases in equity that arise from the revaluation or restatement of assets and liabilities.
Five Elements of Present Value Measurement
1) Estimate of Future Cash Flow
2) Expectations about timing variations of future cash flows
3) Time value of money
4) Price for bearing uncertainty
5) Other factors such as liquidity and market imperfections
Present Value Computations
Traditional Approach
May be used when assets and liabilities have contractual cash flows and there is little uncertainty. It focuses on the interest rate.
Present Value Computations
Expected Cash Flow Approach
This approach focuses on the risk free rate of return as the discount rate and then turns it’s attention to the expected future cash flows. It considers a range of possible cash flows and computes a weighted average based on the probability.
