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Conceptual Framework
| Question | Answer |
|---|---|
| Who is the current standard setting body in the US? | The FASB |
| What does FASB Stand for? | Financial Accounting Standards Board |
| What is Financial Reporting concerned with? | Providing relevant information to all users of financial statements |
| Financial information is presented in what forms? | News releases, Prospectuses, SEC Filings, and Annual Reports |
| Financial statements represent what? | The most comprehensive financial information made by the firms. |
| Footnotes in the financial statements provide what? | Supplementary information to the financial statements |
| Footnotes in the financial statements help explain what? | The amounts disclosed in the financial statements. |
| Definition of Generally Accepted Accounting Principles (GAAP) | GAAP is the rules of financial reporting for businesses. |
| What else is GAAP called? | Accounting Standards |
| What are the 3 items GAAP addresses? | 1. Recognition, 2. Measurement, 3. Disclosure |
| When is an item recognized? | When it is recorded on the financial statements. |
| What is realization? | An economic concept that indicates cash is paid or received. |
| Is GAAP more concerned with recognition or realization? | GAAP is more concerned with Recognition |
| Define Measurement under what GAAP addresses | Concerned with the dollar amount assigned to an item or transaction. |
| Define Disclosure under what GAAP addresses | Discloses unrecognized amounts not reported on the financial statements to give the user a better idea of the financial position of the firm. |
| Why does GAAP affect what is disclosed in the financial statements? | To give a more uniform set of guidelines and so that firms are not able to report what ever amounts they want to. |
| What does SEC stand for? | Securities and Exchange Commission |
| What is the SEC? and what do they do? | A governmental agency that administers the securities laws of the United States. They are also granted the permission to create accounting laws and regulations. They have deferred this permission to the FASB |
| What firms have to follow SEC regulations | Firms that issue debt and securities to the public. In other words, publicly traded companies. |
| Firms that register with the SEC are called what? | Registrants |
| Congress granted who the authority to establish GAAP? | the SEC |
| The SEC has generally ceded their authority to the FASB to do what? | Establish GAAP |
| The SEC has generally ceded their authority to whom to establish GAAP? | thee FASB |
| Does the FASB consider what the SEC's reaction might be to its proposed standard? Explain | Yes, the FASB does consider the SEC's potential reaction as the SEC has authority to change the exposure draft. |
| What does AICPA stand for? | American Institute of Certified PUblic Accountants |
| What is the AICPA? | A National professional organization for practicing CPA'a |
| What is the mission of the AICPA? | To provide its members with resources, information, and leadership so that they may in turn provide valuable services for the benefits of their clients, employers, and general public. |
| What was the first private sector charged with establishing and making known GAAP? | CAP or Committee on Accounting Procedure |
| Who was CAP or Committee on Accounting Procedure appointed by? | The AICPA |
| When was CAP or Committee on Accounting Procedures established? | 1939 |
| How many Accounting Research Bulletins were issued by CAP? | 51 |
| What organization took the place of CAP? | APB or Accounting Principles Board |
| What year did the APB take over CAP? | 1959 |
| What was the second private sector body charged with establishing and making known GAAP? | APB or Accounting Principles Board |
| How many opinions di the APB issue? | 31 Opinions |
| What was a requirement to be a member of the APB? | Members were required to be CPA's |
| In what year did the FASB take over from the APB in establishing and making known GAAP? | 1971 |
| Is the FASB associated with the AICPA? | NO |
| Who recommended the formation of the FASB? | The Wheat Committee |
| What are the three parts of standard setting in the US | FASB, FAF, FASAC |
| What does FAF Stand for | Financial Accounting Foundation |
| What does FASAC stand for? | Financial Accounting Standards Advisory Council |
| What is the FAF responsible for? | Appointing the members of the FASB and its advisory councils. - ensuring the FASB is adequately funded. - exercise oversight of the FASB |
| How are trustees of FAF found / appointed? | Trustees are appointed from organizations who have an interest in accounting standards. |
| What is the only body that the FASB reports to? | FAF |
| What does the FASAC do? | Provide guidance on major policy issues, project priorities, and the formation of task forces. |
| What is the mission of the FASB? | - Improve the usefulness of financial reporting - maintain current accounting standards - address deficiencies in accounting standards -promote international convergence of accounting standards - Improve the common understanding of the nature and purpose of information in financial reporting |
| How many full time members does the FASB have? | 7 |
| How long is a members term in the FASB? | 5 years |
| How many times can a member of the FASB renew? | once |
| The FASB is subject to who's policies and oversight? | FAF |
| Members of the FASB can not have what with other entities? | Employment and or investment ties |
| Do members of the FASB have to be CPA's? | No |
| What professions are typically represented on the FASB board? | -CPA's - Investor communities |
| What are the four principles the FASB applies when establishing GAAP? | - Standards should be unbiased and not favor any particular industry - Needs and views of the economic community should be considered and the views of the accounting profession should not take precedence. - Process of developing standards should be open to the public and allow due process to provide opportunity for interested parties to make their views known. - Benefits of the standards should exceed costs. |
| What are the steps in issuing a new standard? | 1. Considers whether to add a project to its agenda. 2. Conducts research on the topic and issues a discussion memo detailing the issues surrounding the topic. 3. Holds Public hearings on the topic. 4. Evaluates the research and opinions / comments from interested parties and issues an exposure draft. 5. Solicits additional comments and modifies the exposure draft if necessary. 6. Finalizes the new guidance and approves with a majority voting. 7. Issues Accounting Standards Update (ASU) |
| What does the EIFT stand for? | Emerging Issues Task Force |
| What does the EITF Do? | They act as a filter so the FASB can focus on more pressing issues. |
| Are accounting standards Law? | No they are GAAP. |
| Can a firm be penalized if they do not follow GAAP? and if so by whom? | Yes and by the SEC |
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