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Intermediate Accounting - Exam 1

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General purpose financial statements are


intended for the primary use of who?

Capital providers - investors, banks;


management, government, etc; because
they are general purpose financial
statements, they are intended for a wide
use

What does codification refer to?

...

SEC now accepts financial statements


using IFRS standards: true or false?

true

GAAP stands for:

Generally Accepted Accounting Principles

Before the codification, GAAP was


comprised of:

FASB standards, interpretations, ETIF


consensus, and accounting rules issued
by FASB predecessor organizations

Now, GAAP is comprised of:

any accounting guidance included in the


FASB Codification; if it's in the
codification, it's under U.S. GAAP; if it's
not under the codification, then it's not
under GAAP

Accounting standard-setters use the


following process in establishing
accounting standards:

Research, discussion paper, exposure


draft, standard

The authoritative status of the


conceptual framework is as follows:

It is used when there is no standard or


interpretation related to the reporting
issues under consideration; if you're
facing something that's not in the
codification, then the conceptual
framework has some authority, but the
conceptual framework is not in the
Codification

The objective of financial reporting


places most emphasis on:

capital providers

General-purpose financial statements


are prepared primarily for:

external users

Economic consequences of accounting


standard-setting means:

accounting standards can have


detrimental impacts on the wealth levels
of the providers of financial information.
Financial accounting is objective; if a
company is not doing well, that's what
the financial statements must present

The expectation gap is:

what the public thinks the accountants


should do and what accountants think
they can do

What are the financial statements most


frequently provided?

Balance Sheet, Income Statement,


Statement of Stockholder's Equity,
Statement of Cash Flows; supporting
footnote disclosures

What is the difference between financial


statements and financial reporting?

Financial reporting is broader; reporting


includes activities such as a CEO writing a
letter about operations, press releases;
financial statements include IS, BS,
Statement of Stockholder's Equity,
Statement of CF

AICPA

American Institute of Public Accountants

Is the conceptual framework in the


Codification?

No

SFAC No. 1 - title and function

"Objectives of Financial Reporting by


Business Enterprises" presents the goals
and purposes of accounting

SFAC No. 2 - title and function

"Qualitative Characteristics of Accounting


Information" examines the
characteristics that make accounting
information useful

SFAC No. 3 - title and function

"Elements of Financial Statements of


Business Enterprises" provides
definitions of items in financial
statements, such as assets, liabilities,
revenues, and expenses

SFAC No. 5 - title and function

"Recognition and Measurement in


Financial Statements of Business
Enterprises" sets forth fundamental
recognition measurement criteria and
guidance on what information should be
formally incorporated into financial
statements and when

SFAC No. 6- title and function

"Elements of Financial Statements"


replaces SFAC No. 3 and expands its
scope to include not-for-profit
organizations

SFAC No. 7 - title and function

"Using Cash Flow Information and


Present Value in Accounting
Measurements," provides a framework
for using expected future cash flows and
present values as a basis for
measurement

SFAC No. 8 - title and function

Chapter 1, "The Objective of General


Purpose Financial Reporting," and
Chapter 3, "Qualitative Characteristics of
Useful Financial Information," replaces
SFAC No. 1 and 2

Why do we have financial accounting?

Financial accounting provides


information about the reporting entity
that is USEFUL to present and potential
equity investors, lenders, and other
creditors in their capacity as capital
providers

What are the fundamental qualities of


financial reporting?

Relevance (Predictive value, confirmatory


value, materiality) and Faithful
Representation (completeness,
neutrality, free from error)

What are the enhancing qualities of


financial reporting?

Understandability, verifiability,
timeliness, comparability