Chapter 1: Environment and Theoretical Structure of Financial Accounting Accounting Principles Board (APB)
The Accounting Principles Board (APB) followed the CAP.
With the asset/liability approach, recognition and measurement of assets and liabilities drives revenue and expense recognition.
Auditors express an opinion on the compliance of ﬁnancial statements with GAAP.
The capital markets provide a mechanism to help our economy allocate resources efﬁciently.
Certified public accountants (CPAs)
Certiﬁed public accountants (CPAs) are licensed by states to provide audit services.
Accounting information should be comparable across different companies and over different time periods.
A depiction is complete if it includes all information necessary for faithful representation.
The conceptual framework does not prescribe GAAP. It provides an underlying foundation for accounting standards.
Conservatism is inconsistent with neutrality.
Accounting information is consistent if it is measured and reported the same way in each time period.
Corporations acquire capital from investors in exchange for ownership interest and from creditors by borrowing.
Information is cost effective only if the beneﬁt of increased decision usefulness exceeds the costs of providing that information.
The economic entity assumption presumes that economic events can be identiﬁed speciﬁcally with an economic entity.
Emerging Issues Task Force (EITF)
The Emerging Issues Task Force (EITF) identiﬁes ﬁnancial reporting issues and attempts to resolve them without involving the FASB.
Ethics deals with the ability to distinguish right from wrong.
Fair value bases measurements on the price that would be received to sell assets or transfer liabilities in an orderly market transaction.
The primary focus of ﬁnancial accounting is on the information needs of investors and creditors.
Free from error
Representational faithfulness is enhanced if information is free from error.
The full-disclosure principle requires that any information useful to decision makers be provided in the ﬁnancial statements, subject to the cost effectiveness constraint.
Going concern assumption
Financial statements of a company presume the business is a going concern.
Historical cost bases measurements on the amount given or received in the exchange transaction.
Initial market transactions
Initial market transactions involve issuance of stocks and bonds by the corporation.
International Accounting Standards Board (IASB)
The International Accounting Standards Board (IASB) is dedicated to developing a single set of global accounting standards.
International Financial Reporting Standards (IFRSs)
International Financial Reporting Standards are gaining support around the globe.
According to the matching principle, expenses should be recognized in the period in which they produce revenues.
Information is material if it has an effect on decisions.
The monetary unit assumption states that ﬁnancial statement elements should be measured in a particular monetary unit (in the United States, the U.S. dollar).
Net operating cash flow
Net operating cash ﬂow is the difference between cash receipts and cash disbursements from providing goods and services.
Net Realizable Value
Net realizable value bases measurements on the amount of cash into which the asset or liability will be converted in the ordinary course of business.
Neutrality implies freedom from bias.
The periodicity assumption allows the life of a company to be divided into artiﬁcial time periods to provide timely...
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