F1.1 Standards and Conceptual Framework

Question 1

Primary users of FS

Answer 1

Investors, Creditors, Lenders; not regulators

Question 2

Fundamental qualitative characteristics of useful financial information

Answer 2

Relevance and faithful representation

Question 3

FASB, process of reporting an item in FS of an entity

Answer 3

Recognition, SFAC 5 para. 6

Question 4

Financial info. in general purposes financial reports does NOT include

Answer 4

How effectively and efficiently the entity’s shareholders’ have discharged their responsibility to use entity’s resources

Question 5

US public company needs guidances on complex derivative transaction, most likely find appropriate guidance

Answer 5

FASB Accounting Standards Codification is single source of GAAP. US public companies are required to follow US GAAP.

Question 6

SFAC 7, five elements of present value (or economic value) measurement used to establish the value of assets or liabilities using cash flow information

Answer 6

Risk Tolerance of Management is not one of the elements.
SFAC the following elements of present value measurement:
The Price of Bearing Uncertainty
Expectations about Timing Variations of Future Cash Flows
Other Factors (e.g., Liquidity Issues and Market Imperfections)
Time Value of Money (Risk-free Rate of Interest)
Estimate of Future Cash Flow

Question 7

Completeness is ingredient of:

Answer 7

Faithful representation, not relevance.

Faithful representation - completely neutral free from error (completeness, neutrality, and freedom from error)

Question 8

Managerial v. Financial Accounting

Answer 8

Public companies must follow GAAP for external financial reporting purposes. GAAP need not be followed for (internal) managerial accounting purposes

Question 9

Predictive value

Answer 9

Quality of info. helps users forecast future outcomes is predictive value. Forecasting is predicting.

Question 10

Confirming value

Answer 10

Provides feedback about evaluations previously made by users

Question 11

Faithful representation

Answer 11

Financial information faithfully represents the reported economic phenomena.

Question 12

Neutrality

Answer 12

Depiction of financial information that is free from bias in selection or presentation

Question 13

Enhancing characteristic of faithful representation and relevance

Answer 13

Timeliness is a characteristic that enhances the usefulness of information that is relevant and faithfully represented. Interim FS emphasize timeliness by providing financial info. based on actual performance to date and estimates prior to year end.

Question 14

Relevance

Answer 14

Confirming value, predictive value, and materiality. To be relevant, information should have predictive value and/or confirming value, and must be material

Question 15

Money (Monetary unit)

Answer 15

money is the common denominator for economic activity and provides an appropriate basis for accounting measurements and analysis

Question 16

Replacement cost

Answer 16

Amount of cash or its equivalent that would be paid to acquire or replace an asset currently. RC is an acquisition cost.

Question 17

Operating procedure for issuing FASB Accounting Standards Update

Answer 17

Acct. Std. Update is issued only after a majority vote by the members of FASB.

Question 18

Most authoritative source of US GAAP

Answer 18

FASB Accounting Standards Codification is single source of authoritative nongovernmental US GAAP

Question 19

Documents typically issued part of due-process activities of FASB for amending FASB Accounting Standards Codification

Answer 19

A proposed accounting standards update is prepared by FASB as part of the due-process activities

Question 20

Measurement basis to use to dispose assets within 3 months or less

Answer 20

Net realizable value is appropriate measurement basis because decision to end operations and quickly (3 months) dispose of its assets

Question 21

Intermin financial reporting

Answer 21

Viewed as reporting for an integral part of an annual period

Question 22

Essential characteristic of an asset

Answer 22

Asset provides future benefits, assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Question 23

Revenue may result

Answer 23

Revenues are inflows or other enhancements of assets and/or settlements (decreases) in liabilities resulting from the entity’s ongoing major operations, not from “incidental” operations

Question 24

Royalties paid should be reported as an expense

Answer 24

In the period incurred

Question 25

Equity

Answer 25

Assets - Liabilities = Equity, is residual interest in the assets of a company that remains after deducting its liabilities

Question 26

Primary objective of financial reporting

Answer 26

Provide information that is useful for economic decision making

Question 27

FASB amends Accounting Standards Codification through issuance of

Answer 27

Accounting Standards Updates