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Exam 1 ACC 3300

Chapters 1,2 and 3

Stable dollar assumption Monetary Unit Assumption
Earning process completed and realized/realizable Revenue recognition principle
Numbers and descriptions match what really existed or happened Faithful representation characteristics
Yearly financial reports Periodicity assumption
Accruals and deferrals in adjusting and closing process Expense recognition principle
Useful standard measuring unit for business transactions Monetary unit assumption
Notes as part of necessary information to a fair presentation Full disclosure principle
Affairs of the business distinguished from those of its owners Economic entity assumption
Company assumed to have a long life Going concern assumption
Valuing assets at amounts originally paid for them Historical cost principle
Application of the same accounting principles as in the preceding year Consistency characteristic
Summarizing significant accounting policies Full disclosure principle
Presentation of timely information with predictive and feedback value Relevance characteristic
What are the 2 committees that established accounting principles prior to the establishment of the FASB? Committee on Accounting Procedures (CAP) & the Accounting Principles Board (APB).
CAP-Committee on Accounting Procedures 1939-1959; issued 51 Accounting Research Bulletins (ARB); composed of practicing CPAs.
APB-Accounting Procedures Board 1959; replaced the CAP; released 31 official pronouncements called APB Opinions; consisted of 18-21 volunteers.
Why did CAP fail? CAP's problem-by-problem approach failed to provide the well-defined, structured body of accounting principles that was needed/desired.
Why did APB fail? lacked productivity; their job was to "better" accounting practice.
FASB-Financial Accounting Standards Board establishes/improves standards of financial accounting & reporting for the benefit of the public; 7 members (not required to be CPAs); members work full-time/paid well; answers only to FAF.
AICPA's role? AcSEC identifies current financial reporting problems & presents treatments; this gives FASB an early warning, and allows it to issue FASB standards, interpretations & staff positions.
Why would the AcSEC issue a Statement of Position? to provide guidance for the reporting issue.
Why would the AcSEC issue Practice Bulletins? b/c they indicate how the AICPA believes a given transaction should be reported.
Agreement b/w the FASB and the AICPA? The AICPA and AcSEC no longer will issue authoritative accounting guidance for public companies.
AICPA American Institute of CPAs
CAP Committee on Accounting Principles
ARB Accounting Research Bulletins (issued by CAP)
APB Accounting Principles Board
FAF Financial Accounting Foundation
FASAC Financial Accounting Standards Advisory Council
SOP Statement of Position
GAAP Generally Accepted Accounting Principles
CPA Ceritifed Public Accountants
FASB Financial Accounting Standards Board
SEC Securities & Exchanges Commission
IASB International Accounting Standards Board
ASEC issues: Practice Bulletins; Statement of Positions
APB issues: Opinions
CAP issues: Accounting Research Bulletins
FASB issues: Financial Accounting Standards
Staff Positions provides additional guidance on implementing or applying FASB Standards or Interpretations.
Interpretations (of the FASB) represent extensions or modifications of existing standards.
Statement of Financial Accounting Standards primary document of the FASB that establishes GAAP.
EITF Statements provides guidance on how to account for new and unusual financial transactions that have the potential for creating diversity in financial reporting practices.
Opinions official pronouncements of the APB.
Statement of Financial Accounting Concepts Sets forth fundamental objectives and concepts that will be used in developing future standards.
Accounting rule-making that relies on a body of concepts will result in useful and consistent pronouncements: true
Qualitative characteristics being employed when companies in the same industry are using the same accounting principles comparability
quality of information that confirms users' earlier expectations confirmatory value
imperative for providing comparisons of a company from period to period comparability (consistency)
ignores the economic consequences of a standard or rule neutrality
requires a high degree of consensus among individuals on a given measurement verifiability
predictive value is an ingredient of this fundamental quality of information relevance
four qualitative characteristics that are related to both relevance and faithful representation comparability; verifiability; timeliness; understandability
an item is not recorded because its effect on income would not change a decision materiality
neutrality is an ingredient of this fundamental quality of accounting information faithful representation
2 fundamental qualities that make accounting information useful for decision-making purposes relevance; faithful representation
issuance of interim reports is an example of what fundamental ingredient of relevance? timeliness
Conceptual Framework - First level (bottom) OBJECTIVE OF FINANCIAL REPORTING --- the "why", purpose of accounting.
Conceptual Framework - Middle level QUALITATIVE CHARACTERISTICS --- what makes acct. useful & ELEMENTS OF FINANCIAL STATEMENTS --- assets, liabilities,etc.
Conceptual Framework - Third level (top) RECOGNITION, MEASUREMENT & DISCLOSURE --- "how" implementation; includes assumptions, principles & constraints.
decision-usefulness determines which alternative provides the MOST useful info for decision-making purposes.
Qualitative Characteristics - Fundamental: RELEVANCE Relevance (capable of making a difference in decision); relevant if there is PREDICTIVE VALUE, CONFIRMATORY VALUE, or MATERIALITY.
Qualitative Characteristics - Fundamental: FAITHFUL REPRESENTATION info. must be COMPLETE, NEUTRAL, and FREE FROM ERROR.
Qualitative Charactertistics - Enhancing Qualities comparability, verifiability, timeliness, and understandability.
4 Basic Assumptions: ECONOMIC ENTITY A co. keeps its activities separate & distinct from its owners.
4 Basic Assumptions: GOING CONCERN That the co. will be in existence for a long time.
4 Basic Assumptions: MONETARY UNIT money is the common denominator of economic activity.
4 Basic Assumptions: PERIODICITY (time period) implies that a co. can divide its economic activities into artificial time periods.
Created by: kserrano005
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