Chapter 1
CA1-1 (FASB and Standard-Setting) Presented below are four statements which you are to identify as true or false. If false, explain why the statement is false.
1. GAAP is the term used to indicate the whole body of FASB authoritative literature.
2. Any company claiming compliance with GAAP must comply with most standards and interpretations but does not have to follow the disclosure requirements.
3. The primary governmental body that has influence over the FASB is the SEC.
4. The FASB has a government mandate and therefore does not have to follow due process in issuing a standard.
CA1-3 (Financial Reporting and Accounting Standards) Answer the following multiple-choice questions.
1. GAAP stands for:
(a) governmental
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(h) Arises from income statement activities that constitute the entity’s ongoing major or central operations.
(i) Residual interest in the assets of the enterprise after deducting its liabilities.
(j) Increases assets during a period through sale of product.
(k) Decreases assets during the period by purchasing the company’s own stock.
(l) Includes all changes in equity during the period, except those resulting from investments by owners and distributions to owners.
E2-7 (Assumptions, Principles, and Constraints) Presented below are a number of operational guidelines and practices that have developed over time.
Instructions
Select the assumption, principle, or constraint that most appropriately justifies these procedures and practices. (Do not use qualitative characteristics.)
(a) Fair value changes are not recognized in the accounting records.
(b) Financial information is presented so that investors will not be misled.
(c) Intangible assets are capitalized and amortized over periods benefited.
(d) Repair tools are expensed when purchased.
(e) Agricultural companies use fair value for purposes of valuing crops.
(f) Each enterprise is kept as a unit distinct from its owner or owners.
(g) All significant postbalance sheet events are reported.
(h) Revenue is recorded at point of sale.
(i) All important aspects of bond indentures are presented in
The FASB should consider economic consequences in the standard setting process; “The Board cannot cease to be concerned about the cost-effectiveness of its standards. To do so would be a dereliction of its duty and a disservice to its constituents”. (SFAC No.2 P. 144) FASB member Victor H. Brown identified the economic costs to consider:
Briefly discuss the scope of the standard (i.e., explain the types of transactions to which the standard applies).
1.4 Do the financial statements include: a. b. c. balance sheet; an income statement; a statement showing either: i) ii) all changes in equity; or changes in equity other than those arising from capital transactions with equity holders acting in their capacity as equity holders
An enterprise shall establish a policy concerning which short-term, highly liquid investments that satisfy the said definition of cash equivalents. For example, an enterprise having banking operations might decide that all investments that qualify except for those purchased for its trading account will be treated as cash equivalents, while an enterprise whose operations consist largely of investing in short-term, highly liquid investments might decide that all those items will be treated as investments rather than cash equivalents. An enterprise shall disclose its policy for determining which items are treated as cash equivalents. Any change to that policy is a change in accounting principle that shall be affected by restating financial statements for earlier years presented for comparative purposes.
The mutual set of accounting criteria used to develop medical centers financial statements are known as generally accepted accounting principles (GAAP). GAAP are a mixture of respected criteria created by Securities and Exchange Commission (SEC) and accountants. The SEC has authority granted by The Securities Act of 1933 and the Securities Exchange Act of 1934, to determine reporting and disclosure requirements. Oversight is the general functions of the SEC, granting the Governmental Accounting Standards Board (GASB) to determine the standards. Generally accepted accounting practices are required for accountant to follow and medical centers to use so medical centers and provide investors with a minimal
In this week we are turning our attention towards the remaining major component of the balance sheet – owners’ equity. Like liabilities, owners’ equity represents another form of financing for a business. At first glance, liabilities (capital provided by creditors) and owners’ equity (capital provided by owners or shareholders) may look very different. As we delve deeper into the topic, however, you will
| Measured at fair value with value changes recognised either (a) in income statement or (b) in equity until the investment is sold.
2 Consolidated interim statement of changes in equity ............................................................................................................................. 3 Consolidated interim cash flow statement
Part I. The system by which American companies compiled and present their financial accounting standards is the generally accepted accounting principles (GAAP). This system is "a common set of principles, procedures and standards" to ensure that there is a high level of consistency in accounting statements in the country (Investopedia, 2013). The IFRS (international financial reporting standards) is a similar set of standards that is widely used internationally, in over 100 countries including most of continental Europe.
In contrast GAAP financial statements are usually prepared on a going concern basis unless immediate liquidation is required. If immediate liquidation is required then there are specific requirements and guidelines that must be followed for disclosers and recognitions. Assessment periods are prohibited from exceeding past 1 year past the financial statement that are being audited. Also
Basically, these include all those procedures as well as standards recommended by the Financial Accounting Standards Board (FASB) and utilized by entities as they seek to draft their financial statements. These standards can hence be seen as a compilation of agreed upon procedures that govern not only the reporting but also the recording of information contained in financial statements. According to Edwards and Hermanson (2007), "Generally Accepted Accounting Principles (GAAP) set forth standards or methods for presenting financial accounting information." Adherence to these standards enhances the standardization of financial accounting information. This standardization in one way or the other enables those interested in the information contained in financial statements to compare financial statements from different entities in a more straightforward way. Further, by ensuring that firms embrace consistency in the preparation of financial statements, GAAPs ease the work of investors as the performance of a company over the years can be
Company's legislation does not directly require compliance with accounting standards. However, the Companies Act 1985 requires accounts (other than those prepared by small or medium-sized companies) to
|27, but in revising IAS 27 in December 2003 the IASB concluded that these restrictions, in themselves, do not | |
• Going Concern. The financial statements presume that an enterprise will continue in operation indefinitely or, if that presumption is not valid, disclosure and a different basis of reporting are required.
* May refer to Balance Sheet on company position and Income Statement on company performance.