Flashcards in Section 1 - Conceptual Framework & IFRS Deck (39):
What is GAAP and who is GAAP authorized by?
-General Purpose Financial Reporting Framework
-Developed by Financial ACCY Standards Board (FASB)
-FASB authorized by SEC
What are the two General Purpose Frameworks?
1) GAPP - US
2) IFRS - International Financial Reporting Standards
What are the Special Purpose Frameworks or OCBOA?
For nonpublic companies only
What does the Private Company Council (PCC) do?
- PCC created by FASB
-Evaluate existing GAAP to simplify and exempt nonpublic entities to reduce cost
What are the Primary Qualitative Characteristics that makes f/s useful?
Info must be both RELEVANCE and FAITHFUL REPRESENTATION
-Relevance - "Roger is PC"
-Confirmatory value (feedback value)
-Faithful Representation - "FENCe"
-free from Error
-Neutral (w/o bias)
What are the Enhancing Qualitative Characteristics related to both relevance and faithful representation?
Relate to both relevance and faithful representation
"Roger is CUT like a V"
*very desirable but not required
What are FASB 3 Basic Elements of F/S?
3) Equity or net assets
What is assets?
Economic resource with:
-probable future benefit
-one can obtain the benefit
-transaction creating benefit occurred already
What is included in Comprehensive Income in Equity (or Net Assets)?
These items affect comprehensive income but not net income.
-Derivative cash flow hedges
-Excess adjustment of pension PBO and FV of plan assets at year end
-Net unrealized gains or losses on "available-for-sale" securities
-Translation adjustments for foreign currency
What are the four Comprehensive Income elements?
1) revenues - inflows from entity's primary operation
2) expenses - outflows from entity's primary operation
3) gains - increases equity from incidental transaction
4) losses - decreases equity from incidental transaction
What is the Physical Capital Maintenance Concept on decided what will be included in comprehensive or net income?
Only recognize an event when an asset is sold or a liability is settled (measures the effects of price changes in nominal or constant dollars)
What is the Financial Capital Maintenance Concept on decided what will be included in comprehensive or net income?
Recognize an event as a change in the value of an asset or liability occurs (recognize holding gains and losses -- current GAAP)
When do you recognize a financial statement element?
1) Meets the definition of element (asset, liability)
2) Element capable of being measured in monetary terms
3) Items is relevant and faithfully represented (useful)
What are the Monetary Terms Measurement?
-fair market value (FMV)
-net realizable value (NRV)
-present value (PV)
What items are required to be recognize at fair value?
1) trading securities or available for sale securities (mark-to-market)
2) assets acquired and liabilities assumed in business combination (consolidation)
3) impairment losses
What items do not qualify for Fair Value election?
1) pension plan, post retirement, and other post-employment
3) financial instruments that are components of equity
4) share based payments and stock options
When FAIR VALUE option is elected...
...unrealized gains and losses are reported in income.
What is Fair Value?
"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."
ORDERLY: cannot be forced
-knowledge of assets/liability
-acquiring or assuming asset/liability
-voluntarily willing to acquire/assume asset/liability
What are the Fair Value Valuation Techniques?
What are the Fair Value THREE levels of input?
-Level 1 - most reliable, identical assets/liabilities
-Level 2 - observable data, similar assets/liabilities
-Level 3 - unobservable data, based on management's judgment
Under Accrual Accounting, when are revenue or gains recognized?
-earned: earnings process is complete
-realizable (realized): collect cash or a claim to cash
Based on Revenue Recognition, when is a revenue recognized?
A revenue is recognized when:
-binding signed contract exists
-services rendered or delivery has occurred
-fixed or determinable price exists
-collection is reasonably assured
When should you recognize expenses or losses as incurred?
Economic benefit used up (consumed) or assets lose future benefit (as incurred)
-cause and effect
-systematic and rational allocation
What are the four areas of Risks and Uncertainties Disclosure?
1) nature of operations
2) use of estimates
3) certain significant estimates
4) current vulnerability associated w/ certain concentraions
What does the Statements on Financial Accounting Concepts (SFAC) represents?
-FASB periodically issues SFAC
-represent the ideas of FASB as to the theoretical framework which it believes should guide financial accounting and reporting
When was the Emerging Issues Task Force (EITF) created and what is their role?
-created in 1984 by FASB
-account for new and unusual financial transactions
- only deals w/ short term issues
What is IFRS based on?
-leave a lot of room for judgement
*GAAP is rule-based
What is the Convergence Project?
GAAP and IFRS eliminating major differences
Under IFRS, the Financial Statements are prepared based one what?
Prepared on the ACCRUAL BASIS based on the GOING CONCERN concept
Under IFRS, what are the 5 Basic F/S Elements?
3 elements of financial position
2 elements of performance
What is IFRS Assets?
"A RESOURCE controlled by the entity as a result of PAST EVENTS and from which FUTURE economic benefits are expected to flow to the entity."
What is IFRS Liability?
"A present OBLIGATION of the entity arising from PAST EVENTS, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits."
What is IFRS Equity?
"The RESIDUAL INTEREST in the assets of the entity after deducting all its liabilities."
What is IFRS Income?
-"increases in economic benefit..."
-income includes both revenues and gains
What is IFRS Expenses?
-"decreases in economic benefits..."
-include capital maintenance adjusments
-revaluation or restatement of assets and liabilities
IFRS uses "Profit", what does GAAP use?
US GAAP uses "net income"
What are the two IFRS Recognition criterias?
-PROBABILITY of occurrence
What is IFRS Capital Maintenance Adjustments?
Revaluation or restatement of assets or liabilities that cause an increase or decrease in equity