FAR Exam Questions & Answers 2023/2024
SU 1 - The Financial Reporting Environment - ANSWER-
1.1 - Standards Setting for Financial Accounting - ANSWER-
Nature of financial reporting - ANSWER-Financial accounting produces information about an entity's assets, liabilities, revenues, expense...
FAR Exam Questions & Answers 2023/2024
SU 1 - The Financial Reporting Environment - ANSWER-
1.1 - Standards Setting for Financial Accounting - ANSWER-
Nature of financial reporting - ANSWER-Financial accounting produces information about an entity's assets, liabilities, revenues, expenses, and other elements of financial statements.
Financial statements are the primary method of communicating to external parties information about the results of operations, financial position, and cash flows.
For general-purpose financial statements to be useful to external parties, they must be prepared in accordance with generally accepted accounting principles (GAAP) in the U.S.
FASB
IASB
GASB
FASAB
Financial accounting vs management accounting - ANSWER-Financial accounting differs from management accounting.
Management accounting information assists management decision making, planning, and control. It is primarily for internal use. It need not follow GAAP but is often derived from financial accounting records.
SEC - ANSWER-The SEC has the legal authority to establish financial reporting requirements for publicly traded companies (referred to as issuers) in the United States. Issuers are firms that issue stocks and bonds. The SEC delegated this authority to the FASB.
The SEC enforces those principles by ensuring that issuers meet certain periodic reporting requirements for the disclosure of financial and other information.
This approach allows investors to evaluate investments for themselves using standardized reports filed with the SEC.
FAF - ANSWER-The FAF is an independent body established by the accounting profession in 1972. It oversees the following bodies involved in the establishment of U.S. GAAP for nongovernmental entities:
-The Financial Accounting Standards Advisory Council (FASAC) advises the FASB on priorities and proposed standards and evaluates its performance.
-The Private Company Council (PCC)
--Proposes exceptions to and modifications of U.S. GAAP for private companies and
--Advises the FASB on private company issues before new pronouncements are issued.
-The Emerging Issues Task Force (EITF) addresses new and unusual accounting issues that require prompt
action to avoid differences in accounting treatments. An example is the guidance provided regarding losses from the 9/11 attacks.
--Many consensus positions of the EITF have been included in Accounting Standards Updates (ASUs).
--Unlike the FASAC and the PCC, the EITF was created by the FASB.
Financial Accounting Standards Board (FASB)
The Sarbanes-Oxley Act of 2002 authorized the SEC to recognize a standard setter for U.S. GAAP to be applied by nongovernmental entities. --The SEC formally recognized the FASB as that standard setter.
--The other bodies described above affect U.S. GAAP indirectly by advising and submitting proposals to the FASB. FASB - ANSWER-The FASB follows a due process procedure before issuing final pronouncements. This procedure includes consideration of whether the benefits of change exceed its costs.
Due Process Procedure - ANSWER-1. Financial reporting issues are identified based on communications with stakeholders (e.g., investors, creditors, businesses, academics, and accountants), research, and other activities.
2. The decision to add a project to the technical agenda is based on an analysis by the FASB's staff.
3. Deliberation of the issues occurs at a public meeting(s).
4. An Exposure Draft is published to solicit broad stakeholder responses.
-In some projects, a Discussion Paper also may be issued at an early stage to seek input.
5. A public meeting regarding the Exposure Draft may be held if needed.
6. The staff analyzes the information obtained in the preceding steps. The FASB then redeliberates the proposals with stakeholder input at a public meeting(s).
7. The FASB votes on a final draft proposal. If a majority of the seven board members approves, an ASU is
issued to amend the Accounting Standards Codification (ASC).
-When an ASU has been incorporated into the FASB's ASC, it has the status of U.S. GAAP .
-The ASC is one of only two sources of authoritative financial accounting guidance for nongovernmental entities in the U.S. The other source of mandatory guidance consists of SEC pronouncements. These apply only to SEC registrants. Some, but not all, relevant SEC guidance is included in the Codification.
-All prior accounting guidance for nongovernmental entities not reflected in the ASC or SEC pronouncements is nonauthoritative.
IASB - ANSWER-The International Accounting Standards Board (IASB) was founded in 2001. It is an independent group of experts that are responsible for
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