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FASB Flashcards

1
Q

What is the classification of assets that are in the form of cash, or will be converted into cash, or consumed within one year or the operating cycle of the business, whichever is longer?

A

The classification is current assets.

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2
Q

When are expenses recognized under accrual accounting?

A

Expenses are recognized when incurred, regardless of the period of cash payment.

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3
Q

Which agency enforces Generally Accepted Accounting Principles (GAAP)?

A

Securities and Exchange Commission (SEC).

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4
Q

What are long-term assets?

A

Assets that are not classified as current assets. Long-term assets are reported on the balance sheet and represent a company’s property, equipment, and other capital assets (reduced by depreciation) expected to be useable for more than one year.

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5
Q

What does Generally Accepted Accounting Principles (GAAP) address?

A

Recognition, measurement, and disclosure.

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6
Q

What are the seven key components of the general purpose external financial report?

A

Income Statement; Balance Sheet; Statement of Cash Flows; Statement of Retained Earnings; Statement of Comprehensive Income; Footnote Disclosures; Auditor’s Opinion.

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7
Q

What topics does the Financial Accounting Standards Board (FASB) Accounting Standards Codification not include?

A

Other comprehensive basis of accounting; Cash basis; Income tax basis; Regulatory accounting principles.

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8
Q

What is the Accounting Principles Board?

A

The entity that published thirty-one opinions, some of which are now part of the Codification.

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9
Q

When is revenue recognized under accrual accounting?

A

Revenues are recognized when earned and collection is reasonably assured, regardless of the period of cash collection.

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10
Q

What purpose does the Financial Accounting Standards Board (FASB) Accounting Standards Codification serve?

A

The FASB Accounting Standards Codification is the sole source of authoritative U.S. Generally Accepted Accounting Principles for nongovernmental entities, except for the Securities Exchange Commission guidance.

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11
Q

What body developed Generally Accepted Accounting Principles (GAAP)?

A

The Financial Accounting Standards Board (FASB).

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12
Q

What comprises United States Generally Accepted Accounting Principles (GAAP)?

A

The Financial Accounting Standards Board (FASB) Accounting Standards Codification, comprise authoritative U.S. GAAP for publicly traded companies, Securities and Exchange Commission (SEC) pronouncements are also GAAP.

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13
Q

What is the role of the Financial Accounting Advisory Council (FASAC)?

A

The FASAC provides guidance on major policy issues, project priorities, and the formation of task forces.

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14
Q

What is the main purpose of the Securities and Exchange Commission (SEC)?

A

The main purpose of the SEC is to promote efficient allocation of capital by maintaining open, orderly, and fair securities markets.

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15
Q

What are the final three steps in the standard setting process?

A
  1. Evaluate research and comments from interested parties and issue an exposure draft; 2. Solicit additional comments; 3. Finalize new accounting guidance and issue Accounting Standards Update (ASU).
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16
Q

What is the American Institute of Certified Public Accountants (AICPA)?

A

The AICPA is the professional organization for participating CPAs.

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17
Q

What are the first three steps the Financial Accounting Standards Board (FASB) uses when issuing a new accounting standard?

A

Considers whether to add a project to its agenda in consultation with the Financial Accounting Foundation (FAF); 2. Conducts research; 3. Holds a public hearing on the topic.

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18
Q

What is the Financial Accounting Standards Board (FASB)?

A

The FASB establishes financial accounting standards for business entities.

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19
Q

How do user groups influence the outcome of the Financial Accounting Standards Board (FASB) standards?

A

Users influence standards by providing input during the due process procedure.

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20
Q

What is the role of the Financial Accounting Foundation (FAF)?

A

The FAF exercises oversight of the Financial Accounting Standards Board (FASB), appoints the members of the FASB, and ensures funding.

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21
Q

What does the Securities and Exchange Commission (SEC) do?

A

It administers the US securities laws, most notably the Securities Act of 1933 and the Securities Exchange Act of 1934 as well as others.

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22
Q

What are the major areas in the Financial Accounting Standards Board (FASB) Accounting Standards Codification?

A

General principles 100; Presentation 200; Assets 300; Liabilities 400; Equity 500; Revenue 600; Expenses 700; Broad transactions 800; Industry 900.

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23
Q

How are changes to the Financial Accounting Standards Board (FASB) Accounting Standards Codification accomplished?

A

Accounting Standards Updates (ASU).

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24
Q

What is the lowest structure of the Financial Accounting Standards Board (FASB) Accounting Standards Codification?

A

Paragraphs.

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25
What is the reason for the Financial Accounting Standards Board (FASB) Accounting Standards Codification?
To put all accounting guidance in one place.
26
What is the highest structure of the Financial Accounting Standards Board (FASB) Accounting Standards Codification?
The highest structure is areas.
27
How are assets presented on the balance sheet?
Assets are presented in order of decreasing liquidity. The most liquid assets (such as cash) are shown first, and less liquid assets are shown last (such as property, plant and equipment).
28
What is the purpose of the statement of cash flows?
To explain the change in cash and cash equivalents that has occurred during the past accounting year.
29
How is owner's equity presented on the balance sheet?
In order of permanence.
30
How are liabilities presented on the balance sheet?
Liabilities are shown in order of maturity. Current liabilities are presented first, and then, long-term liabilities are presented.
31
What are cash equivalents?
Short-term investments that are convertible into a known and fixed amount of cash and have an original maturity to the purchaser of three months or less.
32
What are the items in other comprehensive income?
Unrealized gains and losses on investments in securities available for sale, certain pension cost adjustments, foreign currency translation adjustments, and unrealized gains and losses on certain hedging activities.
33
Name the two different formats of presentation for the balance sheet.
Account Form and Report Form.
34
What approach is used when financial statements are prepared?
The all-inclusive approach.
35
What are the categories that are listed on the statement of cash flows?
Operating; Investing; Financing.
36
How are long-term assets and liabilities defined?
By exclusion from current assets and current liabilities.
37
Where and how are prior period adjustments shown?
Statement of Retained Earnings as adjustments to the beginning balance of retained earnings in the year that the error is discovered.
38
What are current liabilities?
Liabilities that are due in the upcoming year or the operating cycle of the business, whichever is longer and which will be met through the transfer of a current asset or the creation of another current liability.
39
Distinguish between assets and liabilities measured at fair value on a recurring basis and nonrecurring basis.
Assets and liabilities measured at fair value on recurring basis are adjusted to fair value period after a period. Assets and liabilities measured at fair value on a nonrecurring basis are adjusted to fair value only at the time of a particular event (e.g., significant modification of debt).
40
What are the special disclosures required for fair value measurements (on a recurring basis) that are based on unobservable inputs (i.e., Level 3 inputs)?
1. Reconciliation of beginning and ending balances; 2. Description of the valuation process used; 3. Quantitative information about the unobservable inputs used; 4. Narrative description of the sensitivity of fair value to changes in unobservable inputs; 5. Unrealized gains/losses for the period and where reported.
41
What types of comparisons are fair value option disclosures intended to facilitate?
1. Between entities that choose different measurement methods for similar assets and liabilities; 2. Between assets and liabilities in the financial statements of an entity that selects different measurement for similar assets and liabilities.
42
What significant fair value disclosures are required only in annual statements?
The methods and significant assumptions used to estimate fair value.
43
What are the major purposes intended to be accomplished by the fair value framework?
To provide a framework for the use of fair value in GAAP so as to: 1. Achieve increased consistency and comparability in fair value measurements; and 2. Expand disclosure when fair value measurements are used.
44
For purposes of the fair value definition, what are the assumed characteristics of market participants?
Buyers and sellers that are: 1. Independent of the reporting entity; 2. Acting in their economic best interest; 3. Knowledgeable of the asset or liability and the transaction involved; 4. Able and willing, but not compelled, to transact for the asset or liability.
45
Define "fair value (for accounting purposes)".
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
46
Describe fair value measurement inputs.
Inputs can be observable or unobservable. Observable inputs are based on market data from independent sources. Unobservable inputs are the entity's assumptions about the factors that impact determination of fair value.
47
What purpose does the fair value hierarchy serve?
To prioritize the inputs to valuation techniques used to measure fair value.
48
To prioritize the inputs to valuation techniques used to measure fair value.
Level 1: highest level, are unadjusted quoted prices in active markets for assets and liabilities identical to those being valued. Level 2: are observable for assets or liabilities, either directly or indirectly, other than quoted prices described in Level 1. Level 3: lowest level, are unobservable and used to determine fair value only if observable inputs are not available.
49
Define "entry price".
The price paid to acquire an asset or the price received to assume a liability.
50
List the situations where the entry price may not be the exit price.
1. The transaction is between related parties; 2. The transaction occurs when the seller is under duress; 3. The unit of account included in the transaction price is different from the unit of account that would be used to measure at fair value; 4. The market in which the transaction price occurred is different from the market in which the asset would be sold or the liability transferred.
51
Describe the cost approach for determining fair value for Generally Accepted Accounting Principles (GAAP) purposes.
This approach uses the amount currently required to replace the service capacity of an asset.
52
List the financial assets and financial liabilities that entities may NOT use fair value to measure and report.
1. An investment in a subsidiary or variable interest to be consolidated; 2. Employers' and plans' obligations for pension benefits, other postretirement benefits, post-employment benefits; 3. Financial assets and liabilities under lease accounting; 4. Demand deposit liabilities of financial institutions; 5. Financial instruments classified by the issuer as a component of shareholders' equity.
53
List the dates when an entity may elect to use fair value option for an eligible item.
1. When item is first recognized; 2. When firm commitment occurs; 3. When financial, an asset previously reported at fair value with unrealized gain/loss in earnings, no longer qualifies for that fair value treatment; 4. When accounting treatment for an investment changes because it becomes subject to the equity method or ceases to be eligible for consolidation; 5. When an item is measured at fair value at the time of an event, but does not require fair value measurement at subsequent reporting dates.
54
Define "exit price".
The price that would be received to sell an asset or paid to transfer a liability.
55
Describe the income approach for determining fair value for Generally Accepted Accounting Principles (GAAP) purposes.
This approach converts future amounts to a single present amount.
56
What are the three valuation techniques (or approaches) that should be used in determining fair value for Generally Accepted Accounting Principles purposes?
1. Market approach; 2. Income approach; 3. Cost approach.
57
Describe the market approach for determining fair value for Generally Accepted Accounting Principles (GAAP) purposes.
This approach uses prices and other relevant information generated by market transactions involving assets or liabilities identical or comparable to those being valued.
58
List the items that entities may elect to measure and report at fair value
1. Recognized financial assets or financial liabilities, (some exceptions); 2. Firm commitments; 3. Written loan commitments; 4. Rights and obligations under insurance contracts and warranties; 5. Other financial instruments embedded in non-financial derivative instruments.
59
When does realization occur in the accounting period?
(1) Goods or services have been provided, (2) Collectability of cash is assured, (3) Expenses of providing goods and services can be determined.
60
How do we measure a revenue?
Revenues are measured as the cash equivalent amount of the good or service provided.
61
What is the matching principle?
Recognize expenses only when expenditures help to produce revenues.
62
What is the going concern assumption?
In the absence of information to the contrary, a business is assumed to have an indefinite life, that is, it will continue to be a going concern.
63
What does the historical cost accounting principle state?
Assets and liabilities are recorded at historical cost, that is, their cash equivalent amount at time of origination. This value is the market value of the item on the date of acquisition.
64
What is the time period assumption?
The indefinite life of a business is broken into smaller time frames, typically a year, for evaluation purposes and reporting purposes.
65
What is the entity assumption?
We assume there is a separate accounting entity for each business organization.
66
What is the unit of measurement assumption?
Assets, liabilities, equities, revenues, expenses, gains, losses, and cash flows are measured in terms of the monetary unit of the country in which the business is operated.
67
When should a company recognize revenues?
Revenues are recognized when they are earned and collectability is reasonably assured.
68
What is the concept of capital maintenance?
Capital is said to be maintained when the firm has positive earnings for the year, assuming no changes in price levels.
69
What is the full disclosure principle?
Financial statements should present all information needed by an informed reader to make an economic decision. This principle is sometimes referred to as the adequate disclosure principle.
70
What are revenues?
Revenues are increases in assets or extinguishment of liabilities stemming from delivery of goods or from providing services -- the main activities of the firm.
71
List the elements which a present value measurement that fully captures economic differences should include.
(1) An estimate of future cash flows, (2) Expectations about variations in amount or timing of those cash flows, (3) Time value of money as measured by the risk-free rate of interest, (4) The price for bearing the uncertainty inherent in the asset or liability, (5) Any other relevant factors.
72
List the elements included in a full set of financial statements.
(1) Balance sheet, (2) Income statement, (3) Statement of comprehensive income, (4) Statement of cash flows, (5) Statement of owner's equity.
73
What is the constraints to setting accounting standards?
Cost effectiveness (or cost-benefit).
74
What is Conservatism?
Conservatism (also called prudence) is the reporting of less optimistic amounts (lower income, net assets) under conditions of uncertainty or when Generally Accepted Accounting Principles (GAAP) provides a choice from among recognition or measurement methods.
75
What are the four criteria that must be met to be recognized and measured in a financial report?
1. Definition, 2. Measurability, 3. Relevance, 4. Reliability.
76
What is Cost Effectiveness?
This constraint on Generally Accepted Accounting Principles (GAAP) limits recognition and disclosure if the cost of providing the information exceeds its benefit.
77
Define cost effectiveness.
This constraint on Generally Accepted Accounting Principles (GAAP) limits recognition and disclosure if the cost of providing the information exceeds its benefit.
78
What does a fresh start measurement do?
Establishes a new carrying value after an initial recognition and is unrelated to previous amounts (e.g., mark-to-market accounting and recognition of asset impairments).
79
What are Objectives of Financial Reporting?
To provide information about the entity to current and future users of the financial statements who are making credit and investment decisions.
80
What is Comparability?
The quality of information that enables users to identify similarities and differences between sets of information.
81
What are the ingredients of Relevance?
Predictive value, Confirmatory value, Materiality.
82
What are the ingredients of Relevance?
Predictive value, Confirmatory value, Materiality.
83
What are the Primary Qualitative Characteristics of Financial Information?
Faithful representation and Relevance (FARR).
84
What is Timeliness?
To be relevant, accounting information must be received in time to make a difference to the decision maker.
85
What is Predictive Value?
To be relevant, accounting information should assist financial statement users in making predictions about future events.
86
What is Confirmatory Value?
To be relevant, accounting information should assist decision makers in confirming past predictions.
87
What is completeness?
Information is complete if it includes all data necessary to be faithfully representative.
88
What is Verifiability?
Information is verifiable if different knowledgeable and independent observers can reach similar conclusions.
89
Who is the Target Audience of Financial Statements?
Decision makers; mainly potential investors, creditors, and regulators.
90
What does it mean to be free from error?
Information is free from error if it is truthful.
91
What is Neutrality?
To be neutral, accounting information must be free of bias.
92
List the enhancing qualitative characteristics of financial information.
Comparability; Verifiability; Timeliness; Understandability.
93
What are Objectives of Financial Reporting?
To provide information about the entity to current and future users of the financial statements who are making credit and investment decisions.

CPA Excel FAR Flashcards (18 decks)

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