Framework, Overview And statement

Question 1

What is GAAP?

Answer 1

The rules of financial reporting for business enterprises. Also called “accounting standards”

Question 2

What 3 aspects of financial reporting does GAAP address?

Answer 2

1. ) recognition - recognized item is recorded and affects the financials
2. ) measurement - relates to the actual dollar amount
3. ) disclosure - many unrecognized items are reported in the footnotes

Question 3

Who is the current standard-setting body in the U.S.?

Answer 3

The FASB

Question 4

What is the SEC?

Answer 4

Federal government agency that administers the securities laws of the U.S. These laws affect firms that issue debt and securities to the public

Question 5

Who has authority to establish GAAP publicly traded companies?

Answer 5

Congress gave this right to the SEC, but they have mostly given this authority to the private sector body (FASB). In a few rare cases SEC has exercised its authority and reversed or modified a standard adopted by the private sector

Question 6

What is the mission of the AICPA?

Answer 6

To provide its members with resources, information and leadership as it is the national professional organization for practicing CPAs

Question 7

What board was created in 1959?

Answer 7

The Accounting principles board was created by the AICPA. They were the second private sector group designed to formulate GAAP. They issued 31 opinions many of which are still GAAP

Question 8

What are the 3 parts of the current accounting standard-setting mechanism in the U.S.?

Answer 8

1. ) FASB - establishes financial accounting standards for business entities. Independent body subject only to FAF
2. ) FAF - appoints the member of the FASB, ensures adequate funding for FASB. Funding sources include fees levied under SOX, contributions, and publication sales.
3. ) FASAC - provide guidance on major issues

Question 9

What is the mission of the FASB?

Answer 9

1. ) improve usefulness of financial reporting
2. ) maintain current accounting standards
3. ) promptly address deficiencies in the standards
4. ) promote international convergence
5. ) improve common understanding of financial reports

Question 10

Brief facts about FASB

Answer 10

1. ) 7 full time members with renewable and staggered 5 year terms
2. ) subject to FAF policies and oversight
3. ) members cannot have employment or investment ties with other entities
4. ) members do not have to be CPAs

Question 11

What principles does FASB apply when making GAAP?

Answer 11

1. ) should be unbiased
2. ) the needs and views of the economic community should be considered, the accounting profession should not come first
3. ) process of developing standards should be open to the public
4. ) the benefits of accounting standards should exceed their cost

Question 12

What is financial accounting and reporting concerned with?

Answer 12

Providing relevant information to investors and creditors for the purpose of making informed resource allocations (whether to invest)