Chapter 1 Financial Accounting and Accounting Standards

The essential characteristics of accounting are (1) the identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties Financial accounting is _______________________________________________________________ __________________________________________________________________________________. For example accounting information is used by financial accounting to decide whether to invest in the company, evaluate borrowing capacity to determine the extent of a loan to grant or buy, sell, hold equity and debt instruments.

Managerial accounting is _______________________________________________________________ __________________________________________________________________________________.

The financial statements* most frequently provided are (1) _______________________ (2) _______________________ (3) _______________________ (4) _______________________ *Also part of the financial statements are the notes of the financial statements. Other means of financial reporting that are not financial statements include the presidents letter or supplementary schedules in the corporate annual report, prospectuses, reports filed with government agencies, news releases, management forecasts, and social or environmental impact statements.

a) The objectives of Financial Reporting The objective; ______________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________

General-purpose financial statements____________________________________________________ _____________________________________________________________________________________ ______________________.

Entity perspective ____________________________________________________________________

Provide decision-useful _______________________________________________________________ __________________________________________________________________________________.

The accounting profession has developed a set of standards and procedures called __________________ _______________________________________

Which of the following represents a form of communication through financial reporting but not through financial statements?

A. Notes to financial statements. B. Balance sheet. C. President's letter. D. Income statement.

The objective of financial reporting places most emphasis on:

A. providing specific guidance related to specific needs. B. providing information to individuals who are experts in the field. C. reporting on stewardship. D. reporting to capital providers.

General-purpose financial statements are prepared primarily for: A. external users. B. auditors. C. internal users. D. government regulators.

LO 1.2 Identify the major policy-setting bodies and their role in the standard-setting process.

Three organizations: Securities and Exchange Commission (SEC): ______________________________

American Institute of Certified Public Accountants (AICPA): _________________ ______________________________________________

Financial Accounting Standards Board (FASB): ____________________________

The federal government established the SEC to help develop and standardize financial information presented to stockholders. Most companies that issue securities to the public or are listed on a stock exchange are required to file audited financial statements with the SEC.__________________________ _____________________________________________________________________________________ ______________________.

Under the direction of the SEC the __________________________________ was created by the AICPA in _______. It was the first private sector organization that had the task of setting accounting standards in the United States. ___________________________________________________ that narrowed the wide range of alternative accounting practices then in existence. In _______. the __________________________________ was formed to meet the demand for more structured accounting standards. The APB issued pronouncements on accounting principles until _______. the pronouncements where known as _________________, when it was replaced by the __________________________________ .Wheat Committees recommendations resulted in creation of FASB.

The FASB represents the current rule-making body within the accounting profession. The mission of the FASB is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, which includes issuers, auditors, and users of financial information. The FASB differs from the predecessor APB in the following ways: a. __________________________________ b. __________________________________ c. __________________________________ d. __________________________________ e. __________________________________

In 1984, the FASB created the __________________________________ The purpose of the Task Force is to reach a consensus on how to account for new and unusual financial transactions that have the potential for creating differing financial reporting practices.

Which organization was responsible for issuing Accounting Research Bulletins? A. The Accounting Principles Board. B. The SEC. C. The Committee on Accounting Procedure. D. The FASB.

The Financial Accounting Standards Board (FASB) was proposed by the A. Study Group on the Objectives of Financial Statements. B. American Institute of Certified Public Accountants. C. Study Group on establishment of Accounting Principles (Wheat Committee). D. Accounting Principles Board.

The major distinction between the Financial Accounting Standards Board (FASB) and its predecessor, the Accounting Principles Board (APB), is A. a majority of the members of the FASB are CPAs who are drawn from public practice. B. all members of the FASB possess extensive experience in financial reporting.C. all members of the FASB are fully remunerated, serve full time, and are independent of any companies or institutions. D. the FASB issues exposure drafts of proposed standards.

The FASB issues two major types of pronouncements: a. When the FASB issues a new standard it is refers as _________________________________to communicate changes to the FASB Codification. They are considered GAAP and must be followed in practice. o How the FASB has changed US GAAP, including each specific amendment to the FASB Codification o Why the FASB decided to change US GAAP and background information related to the change o When the changes will be effective and the transition method. b. __________________________________ The SFACs represent an attempt to move away from the problem-by-problem approach to standard setting that has been characteristic of the accounting profession. The Concept Statements are intended to form a cohesive set of interrelated concepts, a conceptual framework that will serve as tools for solving existing and emerging problems in a consistent manner. Unlike FASB statements, the Concept Statements do not establish GAAP.

Prior to 2009 the FASB issued several type of pronouncements which had different levels of authority. The type of pronouncements are listed in descending order of relative weight of authority they had within GAAP

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______________ : these pronouncements refined GAAP by clarifying conflicting or unclear issues relating to previously issued standards

______________ FASB staff issued pronouncements to provide more timely and consistent application guidance and to make narrow and limited revision of standards.

______________: FASB staff issue these pronouncements to clarify and explain, or elaborate on accounting and reporting problems. __________________________________

Which of the following is not a publication of the FASB? A. Statements of Financial Accounting Concepts B. Accounting Research Bulletins C. Interpretations D. Technical Bulletins

_________________________________________________________________________ The FASB has established the following procedures for developing accounting standards. These procedures are used for major projects. Not all of the steps may be necessary for projects focused on narrower application and implementation issues. Many other steps are followed during the course of the project that are not specifically required by the Boards Rules of Procedures.

Why was it believed that accounting standards that were issued by the Financial Accounting Standards Board would carry more weight? A. The FASB board had a smaller membership. B. The FASB board members were well-paid. C. The FASB follows due process. D. The FASB board members were CPAs.

GAAP

The FASB developed the Financial Accounting Standards Board Accounting Standards Codification _____________________________ to provide in one place all the authoritative literature related to a particular topic._______________________________________________________________________ __________________________________________

Major sources of GAAP:

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Most countries have recognized the need for more global standards. _____________________________________________ and U.S. rule-making bodies are working together to reconcile U.S. GAAP with the IASB _________________________________________

Major challenges in the financial reporting environment.

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