Chapter 2 Flashcards
(24 cards)
What did the FASB issue for business enterprises?
7 statement of financial concepts (SFAC)
What are the 7 SFAC?
- SFAC No.1 Objectives of financial reporting
- SFAC No.2 Qualitative Characteristics of Accounting Information
- SFAC No.3 Elements of Financial Statements
- SFAC No.5 Recognition and Measurement in Financial Statements
- SFAC No.6 Elements of Financial Statements (Replaces SFAC No. 3)
- SFAC No.7 Using Cash Flow Information and Present Value in Accounting Measurements
- SFAC No.8 The objective of general pupose financial reporting and qualitative characteristics of useful financial information
What do the three levels of the conceptual frameworks focus on?
First Level-Basic Objectives (Why)
Second Level-Qualitative Characteristics and Elements (Binds level 1 and 3)
Third Level-Recognition, measurement, and disclosure concepts (How)
The first level contains what objectives?
To provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions about providing resources to the entity.
What is the role of the qualitative characteristics in the second level?
-Distinguish better (more useful) information from inferior (less useful) information for decision-making purposes
What does relevance mean in the second level?
The accounting information must be capable of making a difference in a decision.
What is the purpose of predictive value?
-It allows investors to form their own expectations about the future.
What is the purpose of confirmatory value?
-It helps users confirm or correct prior expectations
What is the meaning of materiality?
-Information is material if omitting it or misstating it could influence decisions that users make on the basis of the reported financial information
What is faithful representation?
-Means that the numbers and descriptions match what really existed or happened.
What does completeness mean?
-Means that all the information that is necessary for faithful representation is provided
What does neutrality mean?
-Means that a company cannot select information to favor one set of interested parties over another
What is meant by free from error?
-Information will be a more accurate representation of a financial item
What is comparability?
-It is information that is measured and reported in a similar manner for different companies.
What is verifiability?
-It occurs when independent measurers, using the same methods, obtain similar results.
What is timeliness?
-It is having information available to decision-makers before it loses its capacity to influence decisions.
What is understandability?
-It is the quality of information that lets reasonably informed users see its significance.
What is economic entity?
Company keeps its activity separate from its owners and other businesses
What is going concern?
Company to last long enough to fulfill objectives and commitments
What is monetary unit?
Money is the common denominator
What is periodicity?
Company can divide its economic activities into time periods
What is cost constraint?
Cost of providing information must be weighed against the benefits that can be derived from using it
What is industry practice?
the peculiar nature of some industries and business concerns sometimes requires departure from basic accounting theory
Where is full disclosure provided in?
- Financial Statements
- Notes to Financial Statements
- Supplementary information
