Flashcards in Ch 1 Deck (40):
Essential characteristics of accounting?
Identification, measurement and communication of
Financial info about economic entities to interested parties
Process that culminates to preparation of financial
Reports for internal and external party use
Process of identifying, measuring, analyzing and
communicating financial info needed by management to
Plan, control and evaluate company's operations
How does accounting assist in scarce use of resources?
Helps inform parties on which businesses
Are most efficient with managing limited resources
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
Primary users of general purpose financial statements?
Investors and creditors
Companies are viewed as separate and distinct form
Financial reporting should only be focused on the needs of
Entity's Performance in discharging its responsibilities
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
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
Expectations of general purpose financial statements?
Users expect statements presented fairly, clearly and
Completely cover the company's financial operations
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)
FASB Main purpose?
Develop accounting standards
Improve guidance for financial reporting
International Organization of Securities Commissions (IOSCO)
Consists of over 100 securities regulatory agencies
Or securities exchanges throughout the world
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
Audit and Accounting Guides
Summarize accounting practices of specific industries
And provide guidelines for matters not addressed by the FASB
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
Indicate the AcSEC's views on narrow financial reporting
Issues not considered by the FASB
What did Sarbanes Oxley diminish the role of?
That the AICPA and AcSEC will no longer issue authoritative
Accounting guidance for public companies
Financial Accounting Foundation (FAF)
Selects members of the FASB and Advisory Council,
Funds their activities and generally oversees FASB's
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
Financial Accounting Standards Advisory Council (FASAC)
Consults on major policy issues, technical issues,
Project priorities and selection and organization
Of task forces
2 types of FASB major pronouncements?
Accounting standards updates
Financial Accounting Concepts
Accounting Standards Updates
These updates amend the Accounting Standards Codification
Which represents the source of authoritative
accounting standards issued by SEC
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
Statements Of Financial Accounting. Concepts
Series sets forth fundamental concepts and objectives
The Board uses in developing future standards in financial
Does not establish GAAP
What does GAAP include?
Mixture of 2000 documents from over 70 years including:
APB Opinions, FASB Standards and AICPA Research Bulletins
Financial Accounting Standards Board Accounting Codification
Provides one place for all authoritative literature related
To particular topics
Financial Accounting Standards Board Research System (CRS)
CRS is an online, real time database provides easy
Access to Codification
Describe impact of rule making on GAAP?
GAAP is as much a product of political action
As it is careful logic and empirical findings
Impact of accounting reports on wealth positions
Of issuers and users of financial info and decisionmaking
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
System of checks and balances designed to prevent
And detect fraud and errors
What the public thinks accountants should do and
What accountants think they can do
What are 5 challenges to report with financial reporting?
Forward looking information
4 Nonfinancial measurements?
Customer satisfaction indexes
Reject rates of goods purchased
Results of company's sustainability efforts
Soft assets problems reporting?
Financial reports fail to talk about company's intangibles
Companies only prepare quarterly and annual statements,
Little to no real time financial info is available