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Physics Paper 2
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Chapter 1: Financial Accounting andAccounting Standards
What does GAAP stand for? >>> Generally Accepted Accounting Principles
Accounting standard-setters use the following process in establishing accounting standards:
a) Research, expoure draft, discussion paper, standard
b) Discussion paper, research, exposure draft, standard
c) Research, preliminary views, discussion paper, standard
d) Research, discussion paper, exposure draft, standard. >>> D)
True or False: GAAP is the term used to indicate the whole body of FASB authoritative
literature. >>> True
Accountants... >>> Identify, identify, communicate, and measure financial information about
economic entities to corporations and interested parties such as investors and creditors.
True or False:Business resources are limited and efficient use of resources often determines
whether a business thrives. >>> Business resources are limited and efficient use of resources
often determines whether a business thrives. True.
True or False: The objective of financial reporting is to provide financial information about the
reporting entity that is useful to present and potential equity investors, lenders, and other
creditors in making decisions in their capacity as capital providers. >>> The objective of
financial reporting is to provide financial information about the reporting entity that is useful to
present and potential equity investors, lenders, and other creditors in making decisions in their
capacity as capital providers. false. True
Accounting Principles Board >>> Private standard-setting organization from 1959 to 1973,
whose mission was to develop an overall conceptual framework. Its official pronouncements,
called APB Opinions, were to be based mainly on research studies and be supported by reasons
and analysis. The APB issued 31 opinions in its lifetime.
Accounting Research Bullentins >>> Fifty-one bulletins from the Committee on Accounting
Procedure (CAP) during the years 1939 to 1959, issued to deal with accounting Problems as they
arose. Subsequently, the AICPA created the Accounting Principles Board to provide a structured
body of accounting principles.
Accounting Standards Updates >>> The products of standard-setting (e.g., FASB standards,
staff positions, EITF consensuses) included in the FASB Codification. The Updates include the
background and basis for conclusions for the new pronouncement in a common format,
regardless of the form in which such guidance may have been issued. Updates are also issued for
amendments to the SEC content in the Codification.
accrual-basis accounting >>> Accounting approach, in which a company records events that
change its financial statements in the periods in which the events occur, rather than only in the
periods in which it receives or pays cash. Thus, a company recognizes revenue when it satisfies a
performance obligation rather than when it receives cash, and it recognizes expenses when it
incurs them rather than when it pays them.
American Institute of Certified Public Accountants (AICPA) >>> The national professional
organization of practicing Certified Public Accountants (CPAs), whose various committees and
boards have been an important contributor to the development of GAAP.
, *Issued Accounting Research Bulletins (ARBs) from 1939 to 1959
*Issued APB Opinions from 1959-1973
*provides input into standard setting process and issues various documents generally considered
GAAp
*Responsible for Auditing Standards until PCAOB created by SOX
*Develops and grades uniform CPA exam
APB Opinions >>> The official pronouncements of the Accounting Principles Board, intended
to be based mainly on research studies and be supported by reasons and analysis. Between its
inception in 1959 and its dissolution in 1973, the APB issued 31 opinions.
Auditing Standards Board >>> The arm of the AICPA that had been responsible for developing
auditing standards. The Public Company Accounting Oversight Board, established by the
Sarbanes-Oxley Act, now oversees the development of auditing standards.
Committee on Accounting Procedure (CAP) >>> Committee established by the AICPA in 1939
at the urging of the SEC to deal with accounting Problems. The CAP issued 51 Accounting
Research Bulletins and was replaced by the Accounting Principles Board in 1959.
decision-usefulness >>> Approach that requires that financial reporting be useful to investors by
helping them assess (1) the company's ability to generate net cash inflows and (2) management's
ability to protect and enhance the capital providers' investments.
Emerging Issues Task Force (EITF) >>> Group created in 1984 by the FASB to reach a
consensus on how to account for new and unusual financial transactions that might create
differing financial reporting practices. The FASB reviews and approves all EITF consensuses,
and the SEC views consensus solutions as preferred accounting.
entity perspective >>> The view that companies are distinct and separate from their owners
(present shareholders).
expectation gap >>> The difference between what the public thinks accountants should do and
what accountants think they can do.
FASB staff positions >>> Issued by the FASB, these provide interpretive guidance and also
minor amendments to standards and interpretations.
financial accounting >>> The accounting process that culminates in the preparation of financial
reports for use by both internal and external parties.
Financial Accounting Standards Board (FASB) >>> The major organization of the standard-
setting structure for financial accounting. Its mission is to establish and improve standards of
financial accounting and reporting for the guidance and education of the public. The FASB
consists of seven members, appointed for five-year terms by the Financial Accounting
Foundation. Accounting guidance issued by the FASB is considered generally accepted
accounting principles (GAAP).
Financial Accounting Standards Board Accounting Standards Codification (Codification) >>>
Developed by the FASB, it provides in one place all the authoritative literature related to a
particular topic.
Financial Accounting Standards Board Codification Research System (CRS) >>> An online,
real-time database that provides easy access to the Codification, through a topically organized
structure, subdivided into topics, subtopics, sections, and paragraphs, using a numerical index
system.
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