D103 Conceptual Framework

Securities and Exchange Commission (SEC)

a federal agency that has the broad powers to prescribe, in whatever detail it desires, the accounting standards to be employed by companies that fall within its jurisdiction

American Institute of Certified Public Accountants (AICPA)

issued standards through its Committee on Accounting Procedure and Accounting Principles Board

Financial Accounting Standards Board (FASB)

establishes and improves standards of financial accounting and reporting for the guidance and education of the public

Generally accepted accounting principles (GAAP)

principles that have substantial authoritative support, such as FASB standards, interpretations, and Staff Positions, APB Opinions and interpretations, AICPA Accounting Research Bulletins, and other authoritative pronouncements. All these documents and others are now classified in one document referred to as the Codification.

purpose of FASB codification for GAAP

to simplify user access to all authoritative U.S. GAAP; it is the means by which GAAP is documented, presented, and updated.

Prepaid expenses

Expenses paid in cash before they are used or consumed

Unearned revenues

Cash received before services are performed

Accrued revenues

Revenues for services performed but not yet received in cash or recorde

Accrued expenses

Expenses incurred but not yet paid in cash or recorded

Which role does the Securities and Exchange Commission (SEC) play in the formulation of accounting standards?

it provides guidance to other standard setters

What is the role of the Financial Accounting Standards Board (FASB) task forces in standards setting?

performing research and analysis to support decision-making by the board

What is the primary mission of the Financial Accounting Standards Board (FASB)?

to provide a transparent process for creating useful accounting standards, to establish and improve standards of financial accounting and reporting for the guidance and education of the public

Why were the accounting standards issued by the Financial Accounting Standards Board (FASB) expected to be more influential than previously issued standards?

the FASB operates in full view of the public

Premises of the new FASB’s success

1. The FASB should be responsive to the needs and viewpoints of the entire economic community, not just the public accounting profession.

2. It should operate in full view of the public through a “due process” system that gives interested persons ample opportunity to make their views known

How are FASB and GAAP related when it comes to user groups?

user groups often pressure the FASB to influence GAAP

Which statement correctly compares a conceptual framework to a rules-based framework

conceptual frameworks focus on the objective of financial reporting versus technical compliance to existing accounting rules

In the conceptual framework for financial reporting, what provides “the why”– the purpose of accounting?

objective of financial reporting

In the conceptual framework for financial reporting, what provides "the how" - of accounting? 

recognition, measurement, and disclosure concepts such as assumptions, principles, and constraints

The underlying theme of the conceptual framework is

decision usefulness

Which term is used to describe the residual interest in the assets of an entity after subtracting the entity's liabilities?

equity

Which basic element of financial statements will be affected by the issuance of a cash dividend?

equity

The change in net assets during a period from transactions and other events and circumstances from non-owner sources is called

comprehensive income

An increase in net assets arising from peripheral or incidental transactions is called a(n)

gain

Which of the following elements of financial statements describes amounts of resources less claims against those resources at a moment in time?

equity

Fundamental qualitative characteristics of accounting information are

faithful representation and relevance

Which ingredient is associated with the fundamental quality of relevance?

materiality

Which characteristic describes an ingredient of fundamental qualities for relevance?

confirmatory value

All of the following are ingredients of relevance except   

• confirmatory value  

• predictive value  

• materiality  

• neutrality 

neutrality  

Which fundamental quality supports useful accounting information?

relevance

Which characteristic is a fundamental quality of useful accounting information?

faithful representation

Which of the following is not among the ingredients of the fundamental quality of faithful representation?

• freedom from error.   

• neutrality.   

• materiality.   

• completeness

materiality

Enhancing qualitative characteristics of accounting information include

comparability and timeliness

Enhancing qualities of accounting information include all of the following except  

• comparability.   

• understandability.  

• neutrality.   

• timeliness.  

neutrality

Which type of enhancing quality is being used when the same accounting treatment for similar events is used from period to period?

comparability

Enhancing qualities of accounting information include

comparability and verifiability

Which situation is considered unbiased in measuring fair value?

Prices are readily available from active markets for identical items.

Which statement accurately describes the fair value principle?

Fair value is generally more relevant than historical cost.

Which description accurately characterizes financial reporting?

It provides useful financial information to stakeholders.

Which term is used to describe a decrease in equity (net assets) that arises from peripheral or incidental transactions?

Loss

Which organization is currently responsible for establishing and improving generally accepted accounting principles (GAAP)?

Financial Accounting Standard Board (FASB)

What is a qualitative characteristic of the conceptual framework for financial reporting?

Providing comparable information for different companies

Which basic objective is associated with the conceptual framework for financial reporting?

Decision usefulness