Chapter 1 Flashcards
The Environment and Conceptual Framework of Financial Reporting (26 cards)
What is the purpose of information presented in the notes to the financial statements?
To provide disclosure required by Generally Accepted Accounting Principles
What is the objective of General-Purpose Financial Statements?
- Financial reporting information to a wide variety of users
- The most useful information possible at the least cost
Who are Equity Investors and Creditors?
Primary users for general-purpose financial statements
What is the objective of Financial Reporting?
To provide financial information about the entity, which is useful to: Lenders, Other creditors providing resources, and present/potential equity investors.
What is the purpose of the Financial Accounting Foundation (FAF)
To select members of the FASB and their Advisory Councils, fund their activities, and exercise general oversight.
What is the purpose of the Financial Accounting Standards Board (FASB)
To establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information
What is the purpose of the Financial Accounting Standards Advisory Council (FASAC)?
To consult on major policy issues, technical issues, project priorities, and selection and organization of task forces.
The first step takin in the establishment of a typical FASB statement is
Topics are identified and place on the board’s agenda
Fundamental Considerations the FASB must consider:
- Improvement in financial reporting
- International Convergence
- Simplification of the accounting literature
What is the objective of financial reporting?
To provide information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors for decision making.
The SEC was established by the federal government to….
help develop and standardize financial information presented to stockholders
Which group selects members of the FASB?
The FAF (Financial Accounting Foundation)
Elements of financial statements that describe an effect to a company during a moment in time
Liabilities, Assets, and Equity
Elements of financial statements that describe an affect to a company during a period of time (There are 7)
Investments by Owners, Distributions to Owners, Comprehensive Income, Revenues, Expenses, Gains, Losses
This group has oversight and enforcement authority and establishes auditing, quality control, and independence standards and rules
The PCAOB (Public Company Accounting Oversight Board)
What is the quality of information that enables users to confirm or correct prior expectations?
Confirmatory Value
Identify the Pervasive constraint developed in the conceptual framework
Consistency
When a company applies the same accounting treatment to similar events, from period to period.
Economic Entity Assumption
Economic activity can be identified with a particular unit of accountability
Going Concern Principle
The assumption that the company will have a long life.
Expense Recognition Principle
Companies recognize expenses when the work, service, or product actually contributes to revenue
Full disclosure principle
Recognizes thaat the nature and amount of information included in financial reports reflects a series of judgemental trade-offs (to balance sufficient details, while also condensing the information)
Materiality
Must make a difference due to the relative size and importance of the item - Quantitative and qualitative. (relevant for influencing decisions based on financial information.)
Monetary Unit Assumption
Money is the common denominator of economic activity and provides an appropriate basis for accounting measurement and analysis.
