SU1: FINANCIAL REPORTING ENVIRONMENT

Question 1

STANDARDS SETTING FOR FINANCIAL ACCOUNTING

What bodies are designated by the AICPA Council to establish accounting and reporting principles (GAAP)?

Answer 1

FASB
GASB
FASAB - Federal Accounting Standards Advisory Board

Question 2

ELEMENTS OF FINANCIAL STATEMENTS

Need to understand/define the ASSET element

Answer 2

probable future economic benefits

Question 3

ELEMENTS OF FINANCIAL STATEMENT

What examples of ASSET valuation accounts/allowances are neither an asset nor liability?

Answer 3

Accum depreciation
Credit losses
Premium on bonds receivable

Question 4

ELEMENTS OF FINANCIAL STATEMENTS

Need to understand/define the LIABILITY element

Answer 4

Probable future sacrifices of economic benefits

Question 5

ELEMENTS OF FINANCIAL STATEMENT

What examples of LIABILITY valuation accounts/allowances are neither an asset nor liability?

Answer 5

Discounts on bonds payable

Question 6

ELEMENTS OF FINANCIAL STATEMENT

GAINS

Answer 6

Increases in equity (or net assets) except from revenues or investments by owners. Gains typically result from nonreciprocal transactions or events, exchange transactions, and holding gains or losses

Question 7

SEC (1934)

Why was it created?

Answer 7

regulate the trading of securities
enforce securities registration
prevent fraud and misrepresentation
require full and fair disclosure so investors can evaluate investments

Question 8

Types of SEC filing/reports

Answer 8

Regulation S-X
10K
10Q
8K
20F

Question 9

SEC - Regulation S-X

Answer 9

Governs the reporting of financial statements including notes and schedules
includes MD&A (Management discussions and analysis

Question 10

SEC 10-K

Answer 10

Annual
Audited
60 days = large accelerated filers, public float of $700 million or more, any amount of revenue
75 days = accelerated filers, public float of $75 - $700 million, revenue of $100 million or more
90 days = nonaccelerated filers, public float less than $75 million or public float of $75 - $700 million and revenue of less than $100 million

Question 11

SEC 10-Q

Answer 11

Quarterly
Reviewed
40 days = large accelerated filers and accelerated filers
45 days = nonaccelerated filers

Question 12

QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL INFORMATION

Fundamental characteristics

Answer 12

Relevance - material and predictive/confirmatory value

Faithful - completeness, neutrality, freedom from error

Question 13

QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL INFORMATION

Enhancing characteristics

Answer 13

Comparability
Verifiability
Timeliness
Understandability

Question 14

ASSUMPTIONS

Answer 14

Economic-entity - separately identified for the purpose of economic and financial accountability

Going-concern - operates for the foreseeable future

Monetary-unit - stated in units of money

Periodicity - distinct time periods

Question 15

MEASUREMENT ATTRIBUTES

Answer 15

Historical cost - plant assets and most inventories

Replacement cost (current cost) - cash or equivalent that would be paid for a current acquisition of the same or an equivalent asset

Current market value - used to measure some marketable securities, e.g., those held by investment companies, or assets expected to be sold at below their carrying amount

Net realizable value - used to measure short-term receivables and inventories measured at (a) the lower of cost or NRV or (b) LCM (LIFO and retail) if market is lower than cost and equals NRV. It is the cash or equivalent expected to be received for an asset in the due course of business minus the costs of completion and sale

Present value - incorporates time value of money concepts. In practice, it is currently used only for long-term receivables and payables