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FAR > Section 1 - Conceptual Framework & IFRS > Flashcards

Section 1 - Conceptual Framework & IFRS Flashcards

1
Q

What is GAAP and who is GAAP authorized by?

A
  • General Purpose Financial Reporting Framework
  • Developed by Financial ACCY Standards Board (FASB)
  • FASB authorized by SEC
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2
Q

What are the two General Purpose Frameworks?

A

1) GAPP - US

2) IFRS - International Financial Reporting Standards

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3
Q

What are the Special Purpose Frameworks or OCBOA?

A

For nonpublic companies only

  • cash basis
  • tax basis
  • contractual basis
  • regulatory basis
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4
Q

What does the Private Company Council (PCC) do?

A
  • PCC created by FASB

- Evaluate existing GAAP to simplify and exempt nonpublic entities to reduce cost

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5
Q

What are the Primary Qualitative Characteristics that makes f/s useful?

A

Info must be both RELEVANCE and FAITHFUL REPRESENTATION

  • Relevance - “Roger is PC”
    • Predictive value
    • Confirmatory value (feedback value)
      • Materiality
  • Faithful Representation - “FENCe”
    • free from Error
    • Neutral (w/o bias)
    • Completeness
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6
Q

What are the Enhancing Qualitative Characteristics related to both relevance and faithful representation?

A

Relate to both relevance and faithful representation

“Roger is CUT like a V”

  • Comparability (consistency)
  • Understandability
  • Timeliness
  • Verifiability
  • constraint: cost/benefit
  • very desirable but not required
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7
Q

What are FASB 3 Basic Elements of F/S?

A

1) Assets
2) Liabilities
3) Equity or net assets

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8
Q

What is assets?

A

Economic resource with:

  • probable future benefit
  • one can obtain the benefit
  • transaction creating benefit occurred already
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9
Q

What is included in Comprehensive Income in Equity (or Net Assets)?

A

These items affect comprehensive income but not net income.

“DENT”

  • 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
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10
Q

What are the four Comprehensive Income elements?

A

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

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11
Q

What is the Physical Capital Maintenance Concept on decided what will be included in comprehensive or net income?

A

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)

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12
Q

What is the Financial Capital Maintenance Concept on decided what will be included in comprehensive or net income?

A

Recognize an event as a change in the value of an asset or liability occurs (recognize holding gains and losses – current GAAP)

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13
Q

When do you recognize a financial statement element?

A

Recognition

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)

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14
Q

What are the Monetary Terms Measurement?

A
  • historical cost
  • replacement cost
  • fair market value (FMV)
  • net realizable value (NRV)
  • present value (PV)
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15
Q

What items are required to be recognize at fair value?

A

1) trading securities or available for sale securities (mark-to-market)
2) assets acquired and liabilities assumed in business combination (consolidation)
3) impairment losses
- all derivatives

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16
Q

What items do not qualify for Fair Value election?

A

1) pension plan, post retirement, and other post-employment
2) leases
3) financial instruments that are components of equity
4) share based payments and stock options

17
Q

When FAIR VALUE option is elected…

A

…unrealized gains and losses are reported in income.

18
Q

What is Fair Value?

A

“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

MARKET PARTICIPANTS:

  • independent
  • knowledge of assets/liability
  • acquiring or assuming asset/liability
  • voluntarily willing to acquire/assume asset/liability
19
Q

What are the Fair Value Valuation Techniques?

A

MIC

  • Market approach
  • Income approach
  • Cost approach
20
Q

What are the Fair Value THREE levels of input?

A
  • Level 1 - most reliable, identical assets/liabilities
  • Level 2 - observable data, similar assets/liabilities
  • Level 3 - unobservable data, based on management’s judgment
21
Q

Under Accrual Accounting, when are revenue or gains recognized?

A
  • earned: earnings process is complete

- realizable (realized): collect cash or a claim to cash

22
Q

Based on Revenue Recognition, when is a revenue recognized?

A

A revenue is recognized when:

  • binding signed contract exists
  • services rendered or delivery has occurred
  • fixed or determinable price exists
  • collection is reasonably assured
23
Q

When should you recognize expenses or losses as incurred?

A

Economic benefit used up (consumed) or assets lose future benefit (as incurred)

  • cause and effect
  • systematic and rational allocation
  • immediate recognition
24
Q

What are the four areas of Risks and Uncertainties Disclosure?

A

1) nature of operations
2) use of estimates
3) certain significant estimates
4) current vulnerability associated w/ certain concentraions

25
Q

What does the Statements on Financial Accounting Concepts (SFAC) represents?

A
  • FASB periodically issues SFAC
  • represent the ideas of FASB as to the theoretical framework which it believes should guide financial accounting and reporting
26
Q

When was the Emerging Issues Task Force (EITF) created and what is their role?

A
  • created in 1984 by FASB
  • account for new and unusual financial transactions
  • only deals w/ short term issues
27
Q

What is IFRS based on?

A
  • principle-based
  • leave a lot of room for judgement
  • GAAP is rule-based
28
Q

What is the Convergence Project?

A

GAAP and IFRS eliminating major differences

29
Q

Under IFRS, the Financial Statements are prepared based one what?

A

Prepared on the ACCRUAL BASIS based on the GOING CONCERN concept

30
Q

Under IFRS, what are the 5 Basic F/S Elements?

A

3 elements of financial position

1) assets
2) liabilities
3) equity

2 elements of performance

1) income
2) expenses

31
Q

What is IFRS Assets?

A

“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.”

32
Q

What is IFRS Liability?

A

“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.”

33
Q

What is IFRS Equity?

A

“The RESIDUAL INTEREST in the assets of the entity after deducting all its liabilities.”

34
Q

What is IFRS Income?

A
  • “increases in economic benefit…”

- income includes both revenues and gains

35
Q

What is IFRS Expenses?

A
  • “decreases in economic benefits…”
  • include losses
  • include capital maintenance adjusments
    • revaluation or restatement of assets and liabilities
36
Q

IFRS uses “Profit”, what does GAAP use?

A

US GAAP uses “net income”

37
Q

What are the two IFRS Recognition criterias?

A
  • PROBABILITY of occurrence

- RELIABLE MEASUREMENT

38
Q

What is IFRS Capital Maintenance Adjustments?

A

Revaluation or restatement of assets or liabilities that cause an increase or decrease in equity

39
Q

What is IFRS Revenue recognized at?

A

Fair value of consideration received or receivable

FAR (31 decks)

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