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0

Essential characteristics of accounting?

Identification, measurement and communication of
Financial info about economic entities to interested parties

1

Financial accounting

Process that culminates to preparation of financial
Reports for internal and external party use

2

Managerial accounting

Process of identifying, measuring, analyzing and
communicating financial info needed by management to
Plan, control and evaluate company's operations

3

How does accounting assist in scarce use of resources?

Helps inform parties on which businesses
Are most efficient with managing limited resources

4

Objective of financial reporting?

Provide financial information about the reporting entity
That is useful to present and potential equity investors,
Lenders and other creditors in decisions to that entity

5

Primary users of general purpose financial statements?

Investors and creditors

6

Entity perspective

Companies are viewed as separate and distinct form
Their owners

7

Proprietary perspective

Financial reporting should only be focused on the needs of
The shareholders

8

Stewardship

Entity's Performance in discharging its responsibilities

9

2 factors under the decision usefulness approach of investors?

Company's ability to generate net cash inflows

Management's ability to protect and enhance the capital providers' investments

10

Accrual basis accounting

Ensures that company records events that change it's
Financial statements in periods when events occur
Rather than only when it receives or pays cash

11

Expectations of general purpose financial statements?

Users expect statements presented fairly, clearly and
Completely cover the company's financial operations

12

3 organizations essential in setting GAAP financial accounting standards?

Securities and Exchange Commission (SEC)

American Institute of Certified Public Accountants (AICPA)

Financial Accounting Standards Board (FASB)

13

FASB Main purpose?

Develop accounting standards
Improve guidance for financial reporting

14

International Organization of Securities Commissions (IOSCO)

Consists of over 100 securities regulatory agencies
Or securities exchanges throughout the world

Established 1987

15

Accounting Standards Executive Committee (AcSEC), 3 written ways the AcSEC communicates?

Committee authorized to speak for AICPA in area of
financial Accounting and reporting

Written communications: Audit and Accounting Guides,
Statements of Position, Practice Bulletins

16

Audit and Accounting Guides

Summarize accounting practices of specific industries
And provide guidelines for matters not addressed by the FASB

17

Statements of Position (SOPs)

Provide guidance on financial reporting topics until
FASB sets standards for issue

SOPs may update, revise and clarify audit
and accounting guides

18

Practice Bulletins

Indicate the AcSEC's views on narrow financial reporting
Issues not considered by the FASB

19

What did Sarbanes Oxley diminish the role of?

That the AICPA and AcSEC will no longer issue authoritative
Accounting guidance for public companies

20

Financial Accounting Foundation (FAF)

Selects members of the FASB and Advisory Council,
Funds their activities and generally oversees FASB's
Activities

21

5 changes to the FASB under Sarbanes Oxley?

1 Smaller membership, 7 members

2 Full time remunerated membership: 5 yr. terms well paid

3 Greater Autonomy: answers only to Financial Accounting Foundation

4 increased independence: FASB members must sever ties from private positions at firms

5 Broader representation: not required to be a CPA. To
Be member of FASB

22

Financial Accounting Standards Advisory Council (FASAC)

Consults on major policy issues, technical issues,
Project priorities and selection and organization
Of task forces

23

2 types of FASB major pronouncements?

Accounting standards updates

Financial Accounting Concepts

24

Accounting Standards Updates

These updates amend the Accounting Standards Codification
Which represents the source of authoritative
accounting standards issued by SEC

25

Emerging Issues Task Force (EITF)

Task force purpose is to reach consensus on how to
Account for new and unusual financial transactions
That may potentially create differing financial reporting
Practices

26

Statements Of Financial Accounting. Concepts

Series sets forth fundamental concepts and objectives
The Board uses in developing future standards in financial
Accounting

Does not establish GAAP

27

What does GAAP include?

Mixture of 2000 documents from over 70 years including:
APB Opinions, FASB Standards and AICPA Research Bulletins

28

Financial Accounting Standards Board Accounting Codification

Provides one place for all authoritative literature related
To particular topics

29

Financial Accounting Standards Board Research System (CRS)

CRS is an online, real time database provides easy
Access to Codification

30

Describe impact of rule making on GAAP?

GAAP is as much a product of political action
As it is careful logic and empirical findings

31

Economic consequences

Impact of accounting reports on wealth positions
Of issuers and users of financial info and decisionmaking

32

5 Changes under Sarbanes Oxley?

1 establish oversight board Public Company Accounting Oversight Board (PCAOB) for accounting practices

2 no company affiliation with auditors

3 CEOs and CFOs must certify on annual reports they are providing accurate info

4 auditors must rotate every 5 years

5 requires code of ethics of senior financial officers

33

Internal controls

System of checks and balances designed to prevent
And detect fraud and errors

34

Expectations gap

What the public thinks accountants should do and
What accountants think they can do

35

What are 5 challenges to report with financial reporting?

Nonfinancial measurements

Forward looking information

Soft assets

Timeliness

Understandability

36

4 Nonfinancial measurements?

Customer satisfaction indexes

Backlog info

Reject rates of goods purchased

Results of company's sustainability efforts

37

Soft assets problems reporting?

Financial reports fail to talk about company's intangibles

38

Timeliness

Companies only prepare quarterly and annual statements,
Little to no real time financial info is available

39

3 fundamental considerations of FASB?

1 improvement of financial reporting

2 simplification of accounting literature and rule making process

3 international convergence