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FAR Chapter 1 Review Note

FAR Chapter 1 Review Note

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Published by niggy.fan
Preparing for CPA exam? This review note is based on 2012 version study materials, self-made. This is Chapter 1. More chapters are coming
Preparing for CPA exam? This review note is based on 2012 version study materials, self-made. This is Chapter 1. More chapters are coming

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Categories:Business/Law
Published by: niggy.fan on May 16, 2013
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04/07/2014

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FAR1ReviewNotes1.SEChasthelegalauthoritytoestablishUSGAAP,however,SECallowaccountingprofessiontoestablishGAAPandself-regulate.a)SecurityandExchangeCommission(SEC)TheSECwasestablishedbytheSecurityExchangeActof1934.b)CommitteeonAccountingProcedure(CAP)CAPwasapart-timecommitteeofAICPA,whichissuedARB,determinedGAAPfrom1939–1959.c)AccountingPrinciplesBoard(APB)APBwasanotherpart-timecommitteeofAICPA,whichissuedAPBOandinterpretations,determinedGAAPfrom1959–1973.d)FinancialAccountingStandardsBoard(FASB)FASBisanindependentfull-timeorganization,starteddeterminingGAAPsince1973.FASBhas7full-timemembers,theyserveona5-yearterms.2.Allthoseregulationbodiesmadeaccountingguidancecomplicated,thus,fromJuly1,2009,theFASBAccountingStandardsCodificationbecamethesinglesourceofauthoritativenongovernmentalUSGAAP.3.InternationalAccountingStandardsBoard(IASB)IASBhas15full-timemembersand2part-timemembers,withamixofpracticeexperience.4.InternationalFinancialReportingInterpretationsCommittee(IFRIC)IFRICwasappointedbythetrusteesoftheIFRSFoundationtoassisttheIASBinestablishingandimprovingstandardsofinternationalfinancialaccountingandreporting.5.On-goingstandard-settingprocessDiscussionPaper->ExposureDraft->publiccomments->atleast9membersapproveExposureDraft.6.ConceptualFrameworkforFinancialReportingisajointprojectforIASBandFASB.ThepurposeofthisprojectistoconvergeandimprovetheFASBandIASBfinancialreportingframework.ButtheConceptualFrameworkisNOTanIFRS.7.Thegoalforinternationalconvergenceofaccountingstandardsistosetupasinglesetofhighquality,internationalaccountingstandardsthatcompaniescanuseforbothdomesticandcross-borderfinancialreporting.8.FASBcreatedaconceptualframework(StatementofFinancialAccountingConcepts,orSFAC)thatservesasabasisforallFASBpronouncements,however,SFACisNOTaGAAP.9.SFANo.8–Chapter1:TheObjectiveofGeneralPurposeFinancialReporting
 
Toprovidefinancialinformationaboutthereportingentitythatisusefulfortheprimaryusersofgeneral-purposefinancialreportsinmakingdecisionsaboutprovidingresourcestothereportingentity.(discloseentity’sperformance)a)PrimaryUsers(external)i.e.investors,lenders,othercreditorsb)UsefulInformationi.e.resourcesofthecompany,theclaimsagainsttheentity,howefficientlyandeffectivelytheentity’smanagementandgoverningboarddischargedtheirresponsibilitytothecompany’sresources,futurenetcashinflows.10.SFACNo.8–Chapter3:QualitativeCharacteristicsofUsefulFinancialInformationa)Fundamental–Relevance&FaithfulRepresentationRelevance:1)PredictiveValue;2)ConfirmingValue;3)MaterialityFaithfulRepresentation:1)Completeness;2)Neutrality;3)FreedomfromErrorb)Enhancing:1)Comparability;2)Verifiability;3)Timeliness;4)Understandabilityc)Benefit>Cost11.FullsetofFinancialStatementsinclude:Statementoffinancialposition(BalanceSheet)Statementofearnings(IncomeStatement)StatementofcomprehensiveincomeStatementofcashflowsStatementofchangesinowners’equity12.Fundamentalassumptions(USGAAP)EntityAssumptionGoingConcernMonetaryUnitPeriodicityHistoricalCostPrincipleRevenueRecognitionPrinciple(Earned&Realized/realizable)MatchingPrincipleAccrualAccountingFullDisclosurePrincipleConservatismPrincipleFundamentalassumptions(IFRS)GoingconcernAccrualaccounting13.ElementsofFinancialStatementsComprehensiveincome=NetIncome+OtherComprehensiveIncome(OCI)Normaloperating,recurring:Revenue&ExpenseNon-operating,unusualorinfrequent:Gain&LossBalanceSheetitem:Assets,Liabilities,Equity
 
Investmentof/Distributiontoowners(excludedfromcomprehensiveincome)14.SFACNo.7–UsingCashFlowInformationandPresentValueinAccountingMeasurements(providesaframeworkwhenusingfuturecashflowsasameasurementbasisforassetsandliabilities)Fiveelementsofpresentvaluemeasurement:1)Estimateoffuturecashflow2)Expectationsabouttimingvariationsoffuturecashflows3)Timevalueofmoney(risk-freeinterest)4)Thepriceforbearinguncertainty5)Otherfactors(i.e.liquidityissues)15.Presentvaluecomputation1)Traditionalapproach2)Expectedcashflowapproach16.MeasurementAttributesforAssetsandLiabilities1)Historicalcost(PPE)2)Currentcost(inventory)3)Netrealizablevalue(A/R)4)Currentmarketvalue(marketablesecurities)5)Presentvalueoffuturecashflows(long-termdebt,bond)17.Equipmentdepreciationwasassignedtoaproductiondepartmentandthentoproductunitcosts–exampleofallocatingoverheadDepreciatedequipmentwassoldinexchangeforanotereceivable–examplerealizationProductunitcostswereassignedtocostofgoodssoldwhentheunitsweresold–exampleofmatching18.Replacementcostisdefinedastheamountofcashoritsequivalentthatwouldbepaidtoacquireorreplaceanassetcurrently.Replacementcostisanacquisitioncost.19.UnderIASBframework,goingconcernandaccrualaccountingaretheonlytwounderlyingassumptionsoffinancialstatementpreparationandpresentation.20.PresentationOrderofmajorcomponentsofIncomestatement
I
–
I
ncome(orloss)fromContinuingOperations(individuallineitemsshow“grossoftax”,thentotalreported“netoftax”)
D
–Income(orloss)from
D
iscontinuedOperations(netoftax)
E
–
E
xtraordinaryItems(netoftax,separatedisclosure)
 A
–CumulativeEffectofChangein
 A
ccountingPrinciple(netoftax)21.Multiplestepincomestatement(enhanceduserinformation)[
I
perabove]1)Normaloperating

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