FAR 1A Conceptual Framework

Question 1

Who is the primary standard-setting body for U.S. GAAP?

Answer 1

🏛️ The Financial Accounting Standards Board (FASB).

Question 2

What is the purpose of the FASB Codification?

Answer 2

📚 To organize all authoritative U.S. GAAP into a single, searchable system.

Question 3

What is the due process followed by FASB in issuing a new standard?

Answer 3

🔄 Identify issue → Research → Discussion Memo → Exposure Draft → Public Comment → Final ASU

Question 4

What is the role of the SEC in standard-setting?

Answer 4

🧑‍⚖️ The SEC has legal authority over public companies but delegates standard-setting to FASB

Question 5

What are ASUs and how do they relate to the Codification?

Answer 5

📝 Accounting Standards Updates (ASUs) amend and update the FASB Codification

Question 6

What is the difference between authoritative and nonauthoritative guidance?

Answer 6

🧭 Authoritative = in Codification; Nonauthoritative = practices, textbooks, articles.

Question 7

How is the FASB Codification organized?

Answer 7

🧩 Topic – Subtopic – Section – Paragraph (e.g., 605-10-25-1).

Question 8

What is the objective of general-purpose financial reporting?

Answer 8

🎯 To provide useful information to investors, lenders, and other creditors.

Question 9

What international body sets accounting standards outside the U.S.?

Answer 9

🌍 The International Accounting Standards Board (IASB), which issues IFRS.

Question 10

What are the four levels of the GAAP hierarchy for nongovernmental entities (before Codification)?

Answer 10

🪜 Level A: FASB Statements
Level B: FASB Technical Bulletins
Level C: AICPA Accounting Interpretations
Level D: Industry practice, textbooks, etc.

Question 11

Since the Codification was introduced, what is considered U.S. GAAP?

Answer 11

🧾 Only guidance included in the FASB Codification is considered authoritative GAAP

Question 12

How do you cite a specific piece of guidance in the Codification?

Answer 12

🔢 Use the format Topic-Subtopic-Section-Paragraph (e.g., 606-10-25-1).

Question 13

What does Topic 606 in the Codification relate to?

Answer 13

💰 Revenue from Contracts with Customers.

Question 14

Where can you find guidance about presentation in the Codification?

Answer 14

🖼️ In Section 45 of any Subtopic (e.g., 840-10-45 for presentation guidance under leases).

Question 15

How often is the Codification updated?

Answer 15

🗓️ Periodically through Accounting Standards Updates (ASUs) issued by the FASB.

Question 16

What role does the Emerging Issues Task Force (EITF) play?

Answer 16

⚡ It addresses emerging or narrow accounting issues and its guidance becomes part of GAAP once approved.

Question 17

What is the difference between the FASB and the GASB?

Answer 17

🏢 FASB sets standards for private/public companies & nonprofits; 🏛️ GASB does so for state/local governments.

Question 18

What is the role of the Private Company Council (PCC)?

Answer 18

🧑‍💼 It advises the FASB on accounting alternatives to reduce complexity for private companies.

Question 19

What is the significance of the “Basis for Conclusions” section in an ASU?

Answer 19

📖 It explains the FASB’s reasoning and considerations but is not authoritative GAAP.

Question 20

How does the FASB seek public input when developing new accounting standards?

Answer 20

📢 Through Exposure Drafts, followed by public comment periods, and sometimes public forums or roundtables to gather stakeholder feedback on proposed guidance.

Question 21

What is an Exposure Draft in the FASB’s standard-setting process?

Answer 21

📝 A preliminary version of a proposed Accounting Standards Update (ASU) issued to solicit public feedback before finalizing new guidance.

Question 22

What are the enhancing qualitative characteristics in the conceptual framework?

Answer 22

🔍 Comparability, Verifiability, Timeliness, Understandability — they enhance information that is relevant and faithfully represented and help choose between equally valid reporting options.

Question 23

What are the two fundamental qualitative characteristics of useful financial information under the FASB Conceptual Framework?

Answer 23

🎯 Relevance and Faithful Representation — these make financial information useful for decision-making

Question 24

What are the components of Relevance and Faithful Representation?

Answer 24

🧩 Relevance = Predictive value, Confirmatory value, Materiality;
🧱 Faithful Representation = Completeness, Neutrality, Free from error.

Question 25

What is the difference between fundamental and enhancing qualitative characteristics?

Answer 25

⚖️ Fundamental characteristics are required (relevance & faithful representation); ✨ Enhancing characteristics (comparability, verifiability, timeliness, understandability) improve usefulness when fundamentals are met.