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38 Cards in this Set
- Front
- Back
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What is financial accounting? |
process that culminate in the preparation of financial reports on the enterprise for use by both internal and external parties |
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What is managerial accounting? |
process of identifying, measuring, analyzing, and communicating financial information needed by management to plan, control, and evaluate a company's operations |
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What are financial statements? |
means through which a company communicates its financial info to those outside it |
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What are 4 financial statements? |
- Income statement - Statement of Retained Earnings - Balance Sheet - Statement of Cash Flows |
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What is the objective of financial reporting? |
provide financial info about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors
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What is general purpose financial statements? |
- provide financial reporting info to a wide variety of users - provide at the least cost the most useful information possible |
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What is entity perspective? |
- part of the objective of general-purpose financial reporting - companies are viewed as separate and distinct from their owners (present shareholders) |
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What is proprietary perspective? |
perspective that financial reporting that should be focused only on the needs of the shareholders |
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What is decision usefulness? |
- investors are interested in assessing = the company's ability to generate net cash flows = management's ability to protect the capital provider's investments |
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What is accrual based accounting? |
ensure that a company records events that change its financial statements in the period in which the events occur rather than only in the periods which receives or pay cash |
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What is general purpose financial statements? |
present fairly, clearly, and completely the company's financial operations |
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What is generally accepted accounting principles? |
- universally practiced accounting principles - used by business entities in preparing external reports for users |
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What organizations are part in the development of GAAP? |
- SEC - AICPA - FASB |
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What is Security Exchange Commission? |
- federal agency - help develop and standardize financial info presented to stockholders - broad power to prescribe the accounting standards to be employed by companies that fall within its jurisdiction |
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What is American Institute of CPA? |
- national professional organization of practicing CPA - important contributor to the development of GAAP |
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What is accounting principles board? |
- advance the written expression of accounting principles - determine appropriate practices - narrow the areas of difference and inconsistency in practice |
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What is financial accounting standards board? |
establishes and improve standards of financial accounting and reporting for the guidance and education of the public |
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What are the differences in FASB and APB? |
- smaller membership - full-time, renumerated membership - greater autonomy - increased independence - broader representation |
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What is Financial Accounting Standards Advisory Council? |
- consults with FASB on major policy and technical issues = helps select task force members |
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When establishing financial accounting standards, FASB relies on what? |
- FASB should be responsible to the needs and viewpoints of the entire economic community, not just the public accounting profession - operate in full view of the public through a due process system that gives interested persons ample opportunities to make their views known. |
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What are 3 major types of pronouncement issued by FASB? |
- standards, interpretations, and staff positions - Financial Accounting concepts - emerging issue task force statements |
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What is the Financial Accounting Standards Codification? |
- developed by FASB - provide in one place all the authoritative literature related to a particular topic - explains GAAP and eliminates non-essential info |
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What are economic consequence? |
impact of accounting reports on the wealth positions of issuers and users of financial info, and the decision-making behavior of these individual and groups could have detrimental financial effects |
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What are internal controls? |
system of checks and balances designed to prevent and deter fraud and errors |
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What is expectations gap? |
what the public thinks accountants should do and what accountants think they can do |
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What are 3 fundamental considerations that FASB must keep in mind in its rule making activities? |
- improvement in financial reporting - simplification of the accounting literature and rule-making process - international convergence |
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What is accounting? |
information system to account for all business transactions and translate these transactions into accounting terms to be reported in financial statements for interested users |
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- SEC - AICPA - FASB |
What are parties involved in Accounting Standards Setting? |
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What is Securities and Exchange Commission? |
- established by federal government - require public companies to adhere to GAAP - Oversight - Enforcement Activity |
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What is American Institute of CPA? |
- national professional organization - established Committee on Accounting Procedures and Accounting Principles |
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What is Committee on Accounting Procedures? |
- 1939-1959 - Issued 51 Accounting Research Bulletins - Problem-by-problem approach failed |
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What is Accounting Principles Board? |
- 1959-1973 - Issued 31 Accounting Principle Board Opinions - Wheat Committee recommendations adopted in 1973 |
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What is Financial Accounting Standards Board? |
establish and improve standards of financial accounting and reporting |
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What is Financial Accounting Foundation? |
- select members of the FASB - funds FASB activities - exercised general oversight over FASB |
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What is Financial Accounting Standards Advisory Council? |
consult on major policy issues |
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1. Topics are identified and placed on board's agenda 2. research and analysis conducted and preliminary views of pros and cons issued 3. public hearing on proposed standard 4. board evaluates research and public response and issues exposure draft 5. board evaluates responses and change exposure draft, if neccessary 6. final standard issued |
What is due process of accounting standards? |
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What is Sarbanes Oxley Act? |
- made at the demand of the public to restore the confidence in the credibility of financial reports - created an oversights board - Prohibition of Non-Audit Services - Audit Partner Rotation - increase corporate executive accountability - forfeiture of certain bonuses and profits - management evaluation of internal control |
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- companies doing business in one or more nation find it hard to comply with more than 1 set of accounting standards established by authorities in different nations = international accounting standards committee was found to develop a single set of global accounting standards |
What is there a need for international accounting standards? |
