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31 Cards in this Set
- Front
- Back
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FASB (Financial Accounting Standard Board) Accounting Standards Codification
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The single source of authorative nongovernmental U.S. GAAP. Accounting and financial reporting practices not included in the Codification are not GAAP.
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IFRIC (International Financial Reporting Interpretations Committee)
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Provides guidance on newly identified financial reporting issues not addressed in the IFRSs and assists the IASB in achieving international convergence of accoutning standards.
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IASB (International Accounting Standards Board)
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The purpose of the IASB is to develp a single set of high-quality, global accounting standards. IASB issues IFRSs (International Financial Reporting Standards) and related documents.
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Conceptual Framework for Financial Reporting
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Existing and potential investors, lenders, and other creditors use financial information to assess the reporting entity's prospects for future net cash inflows to the entity. Such information may be used to estimate the value of teh reporting entity.
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Qualitative Characteristics of Useful Financial Information
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Relevance & Faithful presentation
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Relevance
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"Passing Confirms Money"
(1) Predictive Value (2) Confirming Value (3) Materiality |
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Faithful Representation
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"Completely Neutral is Free from Error"
(1) Completeness (2) Neutrality (3) Freedom from error |
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Enhancing Qualitative Characteristics
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"Compare & Verify in Time to understand"
a. Comparabiltiy, consistency b. Verifiability c. Timeliness d. Understandability |
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Full Set of Financial Statements
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a. Statement of financial position (balance sheet)
b. Statement of earnings (income statement) c. Statement of comprehensive income d. Statement of cash flows Statement of changes in owners' equity |
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Fundamental Assumptions
a. Entity Assumption |
Economic activity can be accounted for when considering an identifiable set of activities
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Fundamental Assumptions
b. Going Concern Assumption (IASB) |
For financial accounting, it is presumed that the entity will continue to operate in the foreseeable future
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Fundamental Assumptions
c. Monetary Unit Assumption |
Money is an appropriate basis by which to measure economic activity
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Fundamental Assumptions
d. Periodicity Assumption |
Economic acitivity can be divided into meaningful time periods
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Fundamental Assumptions
e. Historical Cost Principle |
As a general rule, financial information is accounted for and based on cost, not current mkt value
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Fundamental Assumptions
f. Revenue Recognition Principle |
As a general rule, revenue should be recognized when it is earned and when it is realized or realizable
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Fundamental Assumptions
g. Matching Principle |
Expenses are necessarily incurred to generate revenue: all expenses incurred to generate a specific amount of revenue in a period are matched against that revenue
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Fundamental Assumptions
h. Accrual Accounting (IASB) |
Revenues are recognized when they are earned and expenses are recognized that same period as the related revenue, not necessarily in the period in which the cash is received or expended by the company
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Fundamental Assumptions
i. Full Disclosure Principle |
"Notes - completeness"
It is importantant that the user be given information that would make a difference in the decision process but not so much information that the user is impeded in analyzing what is important |
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Fundamental Assumptions
j. Conservatism Principle |
If in doubt when selecting from alternative GAAP methods, the method that is least likely to overstate assets (and revenues/gains) and understate liabilities (and expenses/losses) in the current period should be selected
(1) Recognize revenues/gains when the earnings process is complete (or virtually completed) (2) Recognize expenses/losses immediately |
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Elements of Financial Statements
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"REGL ALE needs ID"
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Elements of Financial Statements
1. Complehensive Income |
Includes all differences between beginning equity and ending equity other than transactions with owners (i.e., net income + other comprehensive income)
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Elements of Financial Statements
Income Statement: Operating |
2. Revenues
3. Expenses |
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Elements of Financial Statements
Income Statement: Non-operating |
4. Gains: Selling Price > Book Value
5. Losses: Selling Price < Book Value, impairment/writedown |
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Elements of Financial Statements
Balance Sheet |
6. Assets
7. Liabilities 8. Equity (residual interest in the assets that remains after deducting its liabilities) |
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Elements of Financial Statements
Excluded from comprehensive income |
9. Investments by owners
10. Distributions to owners |
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Elements of Financial Statements
IASB |
Assets, liabilities, equity, income, expenses, & capital maintenance adjustments
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Capital maintenance adjustments
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Increases and decreases in equity that arise from the revaluation or restatement of assets and liabilities
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***Five Elements of Present Value Measurement
-when using FCF as a measurement basis for assets and liabilities |
"U VOTE"
a. Estimate of future cash flow b. Expectations about timing Variations of future cash flows - Credit Risk: impacts discount rate and/or FCF c. Time value of money (risk-free rate of interst) d. The price for bearing Uncertainty e. Other factors (e.g. liquidity issues and mkt imperfections) |
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Present Value Computations
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a. Traditional Approach
b. Expected Cash Flow Approach |
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Present Value Computations
a. Traditional Approach |
When assets and liabiities have contractual (i.e., fixed) cash flows that are not expected to vary
PV bonds |
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Present Value Computations
b. Expected Cash Flow Approach |
Uses only the risk-free rate of return as the discount rate and then turns its attention to the expected future cash flows, considering uncertainties (e.g., default risk) as adjustments to the FCF
PV warranties |
