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Flashcards

Conceptual Framework and Standard Setting

Lindsey Williams FAR Chapter 1 English 44 cards

Cards in this deck (44)

  1. 1Conceptual Framework and Standard SettingDesigned to allow accounting professionals and self-regulating accounting bodies of "reasoning" to consider a previously un-encountered or novel event or transaction, within a common, existing structure or framework.
  2. 2Objective of the Conceptual FrameworkTo provide information about the entity that is useful to present to potential investors or users. Making financial statements based on the needs of the user.
  3. 3Qualitative Characteristic of the Conceptual FrameworkInvolve both fundamental and enhancing. Fundamental - relevance, predictive/confirmatory value, materiality, faithful representation, neutrality, freedom from errors. Enhancing - consistency, verifiability, timeliness, and understandability.
  4. 4Elements of Characteristics of the Conceptual FramewokAssets, Liabilities, Gains/Losses, Owners Equity, etc
  5. 5MaterialityCompany-specific and depends on the size of the company.
  6. 6Faithful RepresentationAccurate to the best of your ability.
  7. 7UnderstandabilityThe primary objective is decision usefulness
  8. 8Fundamental QualitiesRelevance & Faithful Representation
  9. 9Fundamental Quality - RelevancePredicitve Value, Confirmatory Value, Materiality. Suggest that accounting information has the potential to make a difference in the decision-making process.
  10. 10Fundamental Quality - Faithful RepresentationCompleteness, Neutrality, and Free from Error
  11. 11Enhancing QualitiesComparability, Verifiability, Timeless Understandability
  12. 12Constraint - Cost EffectivenessBenefit > Cost
    The benefit is greater than the cost.
  13. 13For financial statements to be relevant it must have:Predictive or confirmatory value and be material.
  14. 14Fundamental Quality - Predictive and Confirmatory ValueInterrelated and can help inform future decision this ear and improve processes next year
  15. 15Fundamental Quality - MaterialityAlways company specific and requires professional judgment. It is based on the relevant size an amount or piece of information to the companies size.
  16. 16Funadamental Quality - Faithful RepresentationSuggest that the accounting information is (1) complete, is (2) neutral (no bias) and is (3) free from error. It does not imply perfect accuracy, as such an estimate can be free for error if the estimate development process is appropriate.
  17. 17Enhancing Quality - ComparabilitySuggest similarity or consistency in reporting to enable comparisons between entities.
  18. 18Enhancing Quality - VerifiabilitySuggest that independent parties using the same measurement methods will achieve the same results or arrive at comparable conclusions.
  19. 19Enhancing Quality - TimelinessInformation is available when needed for decision making. Older, stale information is less useful.
  20. 20Enhancing Quality - UnderstandabilityClassifying information clearly and concisely
  21. 21Measurement and Disclosure ConceptsAssumptions, Principals, Constraints
  22. 22Assumptions of Accounting InformationEconomic Entity, Going Concern, Monetary Unit, Periodicity (Time)
  23. 23Economic Entity AssumptionPresume that transactions can be identified with a particular firm or entity, separable from other entities (department, division, subsidiary, and firm)
  24. 24Going Concern AssumptionPresumes the firm to have an unlimited or long life. Justifies the use of historical cost. If we assumed that the firm is about to fail or liquidate, the financial statements would be more useful if adjusted to liquidation or net realizable value (NRV)and recording depreciation, depletion, or amortization expenses would serve no purpose.
  25. 25Monetary Unit AssumptionAssumes US Firms and their use of the US dollar justifiable as this monetary unit is relevant, easy to use, universally available, understandable, stable and, therefore useful. Price level changes from inflation and deflation are ignored under this assumption.
  26. 26Periodicity (Time) AssumptionAllows for economic positions and results to be divided into artificial time periods
  27. 27Principals of Accounting InformationHistorical Cost, Revenue and Expense Recognition, Matching, and Full Disclosure
  28. 28Historical Cost PrincipalContinues to requires that most assets and liabilities be accounted for and reported at cost. This is an objective and reliable measure, and, at the date of acquisition, historical cost and fair market value (FMV) is presumed to represent equivalent measures.
  29. 29Revenue RecognitionProvides guidance on when revenues are to be recorded. Revenue is recognized when (1) earned - when services are provided or the ownership of goods is transferred, (2) is not dependant on cash receipts - a sales may be made on credit terms, (3) is measured at the FMV of cash and other consideration received.
  30. 30Matching PrincipalRequires that the expense follow or be matched with revenue. In some cases, a "rational and systematic" method of allocation is used when the matching principal is not otherwise clear or apparent. It is helpful in classifying cost as product and period costs.
  31. 31Full DisclosureRequires that notes or footnotes and supplemental information be provided in addition to the basic financial statements.
  32. 32Constraints to Accounting Information and Usefulness IncludeCost-Benefit Relationship - as the production of information is not free
  33. 33SFACStatement of Financial Accounting Concepts
  34. 34Statement of Financial Accounting ConceptsCodified by FASB ASC Topic 105, GAAP, detail future concepts that may be used to develop accounting standards. They represent a roadmap for the future development of reporting policy and procedure.
  35. 35ASCFASB Accounting Standard Codification
  36. 36FASB Accounting Standard CodificationThe single authoritative reference for all U.S. GAAP; or a one-stop shop for accounting guidance. All guidance carries an equal level of authority.
  37. 37FASB Standard Setting Process(1) Identify Topic (2) Conduct Pre Agenda Research (3) Make Agenda Decision (4) Deliberate at Public Meetings (5) Issue Document for Public Comment (6) Host Public Hearings or Round Tables (Major Products (7) Re Deliberate Based on Comments and Research (8) Issue Final Standard (9) Education (10) Implementation
  38. 38Identify TopicIdentifies financial reporting issues based on requests/recommendations from stakeholders.
  39. 39Conduct Pre-agenda research / Make Agenda DecisionDecides whether to add a project to the technical agenda based on an analysis of the issues.
  40. 40Deliberate at Public MeetingDeliberates at public meeting(s) the various reporting issues identified and analyzed by the staff.
  41. 41Issue Document for Public CommentIssues an Exposure Draft (ED) to solicit broad stakeholder input (comment letters).
  42. 42Host Public Hearings or Round Tables (Major Projects)Holds a public roundtable meeting on the Exposure Draft, if necessary. Analyzes comment letters, public roundtable discussion, and all other information obtained through due process activities.
  43. 43Redeliberate Based on Comments and ResearchRedeliberates proposed provisions and stakeholder input at public meeting(s) and votes on it.
  44. 44Issue Final Standard / Education / ImplementationIf approved, board issues an Accounting Standards Update (ASU), describing amendments to the Accounting Standards Codification (ASC). The ASC is the only authoritative accounting guidance.

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Chapter 1 FAR (Flash Cards) Flashcards on Conceptual Framework and Standard Setting , created by Lindsey Williams on 01/07/2018.
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