Chapter 1 Financial Accounting and Accounting Standards
The essential characteristics of accounting are (1) theidentification, measurement, and communication of financialinformation about (2) economic entities to (3) interested partiesFinancial accounting is_________________________________________________________________________________________________________________________________________________.For example accounting information is used by financial accountingto decide whether to invest in the company, evaluate borrowingcapacity to determine the extent of a loan to grant or buy, sell,hold equity and debt instruments.
Managerial accounting is_________________________________________________________________________________________________________________________________________________.
The financial statements* most frequently provided are (1)_______________________ (2) _______________________ (3)_______________________ (4) _______________________ *Also part ofthe financial statements are the notes of the financial statements.Other means of financial reporting that are not financialstatements include the presidentâs letter or supplementaryschedules in the corporate annual report, prospectuses, reportsfiled with government agencies, news releases, managementforecasts, and social or environmental impactstatements.
a) The objectives of Financial Reporting The objective;__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
General-purpose financialstatements_______________________________________________________________________________________________________________________________________________________________.
Entity perspective____________________________________________________________________
Provide decision-useful_________________________________________________________________________________________________________________________________________________.
The accounting profession has developed a set of standards andprocedures called _________________________________________________________
Which of the following represents a form of communicationthrough financial reporting but not through financialstatements?
A. Notes to financial statements. B. Balance sheet. C.President's letter. D. Income statement.
The objective of financial reporting places most emphasison:
A. providing specific guidance related to specific needs. B.providing information to individuals who are experts in the field.C. reporting on stewardship. D. reporting to capital providers.
General-purpose financial statements are prepared primarily for:A. external users. B. auditors. C. internal users. D. governmentregulators.
LO 1.2 Identify the major policy-setting bodies and their rolein the standard-setting process.
Three organizations: Securities and Exchange Commission (SEC):______________________________
American Institute of Certified Public Accountants (AICPA):_______________________________________________________________
Financial Accounting Standards Board (FASB):____________________________
The federal government established the SEC to help develop andstandardize financial information presented to stockholders. Mostcompanies that issue securities to the public or are listed on astock exchange are required to file audited financial statementswith the SEC._____________________________________________________________________________________________________________________________________.
Under the direction of the SEC the__________________________________ was created by the AICPA in_______. It was the first private sector organization that had thetask of setting accounting standards in the United States. ï·___________________________________________________ that narrowedthe wide range of alternative accounting practices then inexistence. In _______. the __________________________________ wasformed to meet the demand for more structured accounting standards.The APB issued pronouncements on accounting principles until_______. the pronouncements where known as _________________, whenit was replaced by the __________________________________ .WheatCommitteeâs recommendations resulted in creation of FASB.
The FASB represents the current rule-making body within theaccounting profession. The mission of the FASB is to establish andimprove standards of financial accounting and reporting for theguidance and education of the public, which includes issuers,auditors, and users of financial information. The FASB differs fromthe predecessor APB in the following ways: a.__________________________________ b.__________________________________ c.__________________________________ d.__________________________________ e.__________________________________
In 1984, the FASB created the __________________________________The purpose of the Task Force is to reach a consensus on how toaccount for new and unusual financial transactions that have thepotential for creating differing financial reporting practices.
Which organization was responsible for issuing AccountingResearch Bulletins? A. The Accounting Principles Board. B. The SEC.C. The Committee on Accounting Procedure. D. The FASB.
The Financial Accounting Standards Board (FASB) was proposed bythe A. Study Group on the Objectives of Financial Statements. B.American Institute of Certified Public Accountants. C. Study Groupon establishment of Accounting Principles (Wheat Committee). D.Accounting Principles Board.
The major distinction between the Financial Accounting StandardsBoard (FASB) and its predecessor, the Accounting Principles Board(APB), is A. a majority of the members of the FASB are CPAs who aredrawn from public practice. B. all members of the FASB possessextensive experience in financial reporting.C. all members of theFASB are fully remunerated, serve full time, and are independent ofany companies or institutions. D. the FASB issues exposure draftsof proposed standards.
The FASB issues two major types of pronouncements: a. When theFASB issues a new standard it is refers as_________________________________to communicate changes to the FASBCodification. They are considered GAAP and must be followed inpractice. o How the FASB has changed US GAAP, including eachspecific amendment to the FASB Codification o Why the FASB decidedto change US GAAP and background information related to the changeo When the changes will be effective and the transition method. b.__________________________________ The SFACs represent an attemptto move away from the problem-by-problem approach to standardsetting that has been characteristic of the accounting profession.The Concept Statements are intended to form a cohesive set ofinterrelated concepts, a conceptual framework that will serve astools for solving existing and emerging problems in a consistentmanner. Unlike FASB statements, the Concept Statements do notestablish GAAP.
Prior to 2009 the FASB issued several type of pronouncementswhich had different levels of authority. The type of pronouncementsare listed in descending order of relative weight of authority theyhad within GAAP
ï· __________________________________
ï· ______________ : these pronouncements refined GAAP byclarifying conflicting or unclear issues relating to previouslyissued standards
ï· ______________ FASB staff issued pronouncements to providemore timely and consistent application guidance and to make narrowand limited revision of standards.
ï· ______________: FASB staff issue these pronouncements toclarify and explain, or elaborate on accounting and reportingproblems. ï· __________________________________
Which of the following is not a publication of the FASB? A.Statements of Financial Accounting Concepts B. Accounting ResearchBulletins C. Interpretations D. Technical Bulletins
_________________________________________________________________________The FASB has established the following procedures for developingaccounting standards. These procedures are used for major projects.Not all of the steps may be necessary for projects focused onnarrower application and implementation issues. Many other stepsare followed during the course of the project that are notspecifically required by the Boardâs Rules of Procedures.
Why was it believed that accounting standards that were issuedby the Financial Accounting Standards Board would carry moreweight? A. The FASB board had a smaller membership. B. The FASBboard members were well-paid. C. The FASB follows due process. D.The FASB board members were CPAs.
GAAP
The FASB developed the Financial Accounting Standards BoardAccounting Standards Codification _____________________________ toprovide in one place all the authoritative literature related to aparticulartopic._________________________________________________________________________________________________________________
Major sources of GAAP:
ï· _______________________________________
ï· _______________________________________
ï· _______________________________________
Most countries have recognized the need for more globalstandards. _____________________________________________ and U.S.rule-making bodies are working together to reconcile U.S. GAAP withthe IASB _________________________________________
Major challenges in the financial reporting environment.
ï·______________________________________________________________________
ï·______________________________________________________________________
