question

Financial Accounting deals with the preparation of the financial statements which include the following:

answer

1.income statement 2.balance sheet 3.statement of cash flows 4.statement of changes in the stockholders equity or retained earnings statement

question

the notes to the financial statements are an _____ part of these four statements and the formal statements would be incomplete without them

answer

integral

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Other forms of financial reporting include:

answer

1.presidents letter or supplementary schedules in the annual report 2.prospectuses 3.reports filed with SEC and other government agencies 4.news releases and management forecasts

question

Accounting influences its environment

answer

since its feeds back information to users and they in turn react to this information

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Objectives of financial reporting: to provide useful information to present and potential investors, creditors and other users in:

answer

1.making rational investment and credit decisions 2.assessing cash flow prospects 3. analyzing enterprise resources, claims to those resources and changes in them

question

The Need for Standards

answer

1.external users must rely on general purpose financial statements since they do not have access to the records 2.users need to compare the financial statements of different enterprises 3.practing accountants need a theory structure and a set of practices to reduce and/or eliminate the dangers of bias, misinterpretation, inexactness and ambiguity. 4. the accounting profession has developed a common set of accounting concepts, standards, and procedures known as "generally accepted accounting principles"(GAAP). these principles serve as a general guide to the accounting practitioner in accumulating and reporting the financial information of a business enterprise.

question

Historical Perspective; major perspective responsible for the development of accounting as it exists today:

answer

1.growth of large corporations from 1900 to 1929 required increasing investments under absentee ownership 2.16th amendment of 1913 gave the government the power to tax 3.the stock market crash of 1929 and the great depression highlighted dissatisfaction with misleading accounting reports 4.securities exchange acts of 1933 and 1934 required listed companies to have audits and forced the accounting profession to develop standards and ethics 5.accounting scandals and the 2002 sarbanes-oxley act

question

Parties involved in the standard setting process

answer

1.American Institute of certifies public accountants(AICPA) 2.Financial Accounting standards board(FASB) 3.International Financial Reporting Standards(IFRS) 4.Governmental accounting standards board(GASB) 5.Securities and Exchange commission 6.American Accounting Association(AAA) 7.Other organizations having an impact on accounting

question

American Institute of certifies public accountants(AICPA)

answer

-publish the journal of accountancy -administer the CPA exam

question

Committee on Accounting Procedure(CAP)

answer

-issued 51 accounting research bulletins(ARB's) -Existing from 1939 to 1959 -failed to provide a well-defined, structured body of accounting principles

question

Accounting principles board(APB)

answer

-issued 31 APB option -existed from 1959 to 1973 -also accused of being unproductive and failing to act promptly to correct alleged accounting abuses

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Financial Accounting Standars Board(FASB)

answer

1.current rule making body since 1973 2.differences from the CAP and APB 3. Follows the "due process" system to cope with the political atmosphere which affects the standard setting process 4.FASB pronouncements 5.FASB codification

question

Differences from the CAP and APB

answer

-only 7 members -members are well-paid and full-time for renewable 5-year terms -FASB reports to the financial accounting foundation not the AICPA -members cannot retain their former private positions and must sever all ties -members do not have to be CPA's and members of the AICPA -has the assistance of the financial accounting standards advisory council

question

FASAB pronouncements

answer

-statements of financial accounting standards(SFAS) or FASB statements deal with accounting and reporting rules -statments of financial accounting concepts deal with conceptual issues and objectives -FASB technical bulletins provide guidance on implemting FASB standards etc... -Emerging issues force statements address new and unusual financial transactions that have the potential for creating diversity in reporting practices.

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FASB codification

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-purpose is to provide in one place all authoritative literature relating to a particular topic -provides one level of GAAP which is authoritative -the codification is not creating new GAAP but is simply synthesizing existing GAAP

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International Financial reporting standards

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-there are many differences between US GAAP and iGAAP(IFRS) -the FASB is slowly converging to iGAAP -some doubt that there will be complete convergence and the date continues to be pushed back.

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Governmental Accounting Standards Board(GASB)

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-deals only with state and local government reporting -operational structure is similar to the FASB and is also under the control of the financial accounting foundation

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Securities and Exchange commission(SEC)

answer

-direct results of the 1933 and 1934 securities act -purpose is to act as an oversight body -a number of companies are required to file annual audited financial statements with the SEC -has supported FASB and required registrants to adhere to GAAP -have the authority to issue a 'stop order' on the trading of a Co's stock -has endorsed IFRS and will require by 2016

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American Accounting Association(AAA)

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-emphasis is on the development of accounting theory through research

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Other Organizations having an impact on accounting

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-institute of management accountants -emphasis on managerial and cost accounting -sponsors the certificate in managerial accounting

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Political Environment

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-user groups can exert pressure on the standard setting process -accounting standards have economic consequences

question

continue scrutiny of the accounting profession

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-government concern over white-collar crime and the numerous accounting scandals -AICPA establishment of an independent public oversight board -sarbanes oxley established new standards on internal control, fraud and illegal acts, and auditor's communications -will the "expectations gap" be filled

question

T or F; The statement of retained earnings is one of the financial statements most frequently provided by public companies.

answer

FALSE

question

T or F;Capital allocation is the process of determining how and at what cost money is allocated among competing interests.

answer

TRUE

question

Which of the following generally provides a better indication of an enterprise's present and continuing ability to generate favorable cash flows? A)Cash basis accounting. B) Accrual basis accounting. C) Managerial basis accounting. D) Financial basis accounting.

answer

B) Accural basis Acccounting

question

Accounting principles are "generally accepted" only when; I. an authoritative accounting rule-making body has established it in an official pronouncement. II. it has been accepted as appropriate because of its universal application.

answer

I or II

question

The role of the Securities and Exchange Commission in the formulation of accounting principles can be best described as; A) consistently primary. B) consistently secondary. C) sometimes primary and sometimes secondary. D) non-existent.

answer

C)sometimes primary and sometimes secondary.

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Which of the following was established by the federal government to help develop and standardize financial information presented to stockholders? A)AICPA. B)FASB. C)GASB. D)SEC.

answer

D) As a result of the call for greater regulation after the stock market crash of 1929, the federal government established the SEC to help develop and standardize financial information for stockholders.

question

The first step taken in the establishment of a typical FASB statement is: A)the board conducts research and analysis and a discussion memorandum is issued. B) a public hearing on the proposed standard is held. C) the board evaluates the research and public response and issues an exposure draft. D) topics are identified and placed on the board's agenda.

answer

D) topics are identified and placed on the board's agenda.

question

T or F; Financial Accounting Concepts are a major type of pronouncement issued by the FASB.

answer

TRUE

question

Which of the following publications is not considered a GAAP document? A)Statements of financial standards issued by the FASB B) Accounting interpretations issued by the FASB C) APB Opinions D) Accounting research studies issued by the AICPA

answer

D)Accounting research studies issued by the AICPA

question

Generally accepted accounting principles: A)include detailed practices and procedures as well as broad guidelines of general application. B)are influenced by pronouncements of the SEC and IRS. C)change over time as the nature of the business environment changes. D)all of these answer choices are correct.

answer

D)all the above

question

T or F; Politics play no role in establishing GAAP.

answer

False, Politics is everywhere. GAAP is part of the real world, and it cannot escape politics and political pressures.

question

T or F; All listed companies in the European Union use IFRS.

answer

True, Over 115 countries including those in the European Union use IFRS.

question

From the four statements that follow, which are true? 1. Technical competence is not enough when encountering ethical decisions. 2. The pressures "to bend the rules," "to play the game," "to just ignore it" can be considerable. 3. Time, job, client, personal, and peer pressures do not complicate the process of ethical sensitivity and selection among alternatives. 4. The decision may be easier because there is no comprehensive ethical system to provide guidelines.

answer

1 and 2 are true, pressures complicate ethics as does the lack of guidelines.

question

International Financial Reporting Standards (IFRS) are issued by the: A)FASB. B)IASB. C) IASF. D) SEC.

answer

C) The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS).

question

T or F; IFRS is more "rule-based" in its approach to standards than U.S. GAAP.

answer

False, IFRS is more "principle-based" in its approach to standards than is U.S. GAAP.

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