FSA LEVEL 1 EXAM Q&A
Financial Accounting Standards Board (FASB) creation - Answer- 1973
1975-2015 Intangible Assets - Answer- 17-84%
Relation between Sustainability criteria and corporate financial performance - Answer-
90% non-negative
Amount of institutional investors using sustainability information in decisions - Answer-
82% - 2014 PwC
PRI 2017 - Answer- 2500 signatories, $60 trillion
PCAOB (Public Company Accounting Oversight Board) - Answer- The PCAOB protects
investors and the public interest by working toward useful independent audit reports and
by establishing standards for audits and auditors. The PCAOB has oversight over the
external audit profession. The SEC regularly communicates with and provides feedback
to the PCAOB, the FASB, the International Accounting Standards Board ("IASB"), and
the American Institute of Certified Public Accountants ("AICPA") regarding accounting
standards
Trueblood Committee - Answer- to propose the objectives of financial reporting, based
on the underlying belief that identifying objectives would help improve financial
reporting. The Trueblood Committee's report seconded the decision-usefulness
objective that ASOBAT had articulated, with a strong emphasis on future cash flows to
investors. The Trueblood Committee stated that the economic and social goals of
business are equally important. 44 The committee pointed to pollution as an example of
"enterprise activities which require sacrifices from those who do not benefit."45 In other
words, some corporate activities impose externalities on the rest of society. Therefore,
one objective of financial statements is "to report on those activities of the report
affecting society which can be determined and described and measured and which are
important to the role of the enterprise in its social environment."46
Wheat Committee - Answer- charged with identifying ways to improve the establishment
of accounting standards. In 1972, it proposed the formation of the Financial Accounting
Standards Board ("FASB"). The FASB was to be an independent organization
dedicated to the development of financial accounting standards, unlike the APB, which
was made up of individuals serving part-time. The AICPA adopted the Wheat
Committee's recommendation, and in July 1973, the FASB began operations and
replaced the APB with the SEC's approve
Characteristics of Useful Financial Information - Answer- • Relevance, which explicitly
recognizes the importance of materiality
, • Faithful representation, which more specifically means that the information is
complete, neutral, and free from error. To enhance the relevance and faithful
representation of the information, it should also be:
• Comparable.
• Verifiable.
• Timely.
• Understandable
Determining if a trend has a material affect - Answer- (1) Is the known trend, demand,
commitment, event, or uncertainty likely to come to fruition? If management determines
that it is not reasonably likely to occur, no disclosure is required. (2) If management
cannot make that determination, it must evaluate objectively the consequences of the
known trend, demand, commitment, event, or uncertainty, on the assumption that it will
come to fruition. Disclosure is then required unless management determines that a
material effect on the registrant's financial condition or results of operations is not
reasonably likely to occur
SEC Climate Change Guidance - Answer- 1. Impact of legislation and regulation
2. International Accords
3. Indirect Consequences of regulation or business trends
4. Physical Impacts of Climate Change
How many companies report sustainability - Answer- 95% of 250 largest firms
Disclosure Overload - Answer- The idea that companies have been disclosing too
much information in sustainability reports and in a way that is not useful
positivity bias - Answer- 90% of known negative events were not reported
Risk in using different definition of materiality between Sustainability report and SEC
filing - Answer- 29% of "material issues" from sus report in SEC filings - legal liability
Material information - Answer- "if there is a substantial likelihood that the omitted fact
would have significantly altered the total mix of information available to the reasonable
investor
Benefits of Improved Sustainability Disclosure for Companies - Answer- Opportunity for
competitive advantage
• Improved access to capital
• Enhanced reputation
• Increased efficiency and waste reduction
• Improved employee loyalty
• Lower cost of capital
• Expanded revenue growth
• Improved risk management
Financial Accounting Standards Board (FASB) creation - Answer- 1973
1975-2015 Intangible Assets - Answer- 17-84%
Relation between Sustainability criteria and corporate financial performance - Answer-
90% non-negative
Amount of institutional investors using sustainability information in decisions - Answer-
82% - 2014 PwC
PRI 2017 - Answer- 2500 signatories, $60 trillion
PCAOB (Public Company Accounting Oversight Board) - Answer- The PCAOB protects
investors and the public interest by working toward useful independent audit reports and
by establishing standards for audits and auditors. The PCAOB has oversight over the
external audit profession. The SEC regularly communicates with and provides feedback
to the PCAOB, the FASB, the International Accounting Standards Board ("IASB"), and
the American Institute of Certified Public Accountants ("AICPA") regarding accounting
standards
Trueblood Committee - Answer- to propose the objectives of financial reporting, based
on the underlying belief that identifying objectives would help improve financial
reporting. The Trueblood Committee's report seconded the decision-usefulness
objective that ASOBAT had articulated, with a strong emphasis on future cash flows to
investors. The Trueblood Committee stated that the economic and social goals of
business are equally important. 44 The committee pointed to pollution as an example of
"enterprise activities which require sacrifices from those who do not benefit."45 In other
words, some corporate activities impose externalities on the rest of society. Therefore,
one objective of financial statements is "to report on those activities of the report
affecting society which can be determined and described and measured and which are
important to the role of the enterprise in its social environment."46
Wheat Committee - Answer- charged with identifying ways to improve the establishment
of accounting standards. In 1972, it proposed the formation of the Financial Accounting
Standards Board ("FASB"). The FASB was to be an independent organization
dedicated to the development of financial accounting standards, unlike the APB, which
was made up of individuals serving part-time. The AICPA adopted the Wheat
Committee's recommendation, and in July 1973, the FASB began operations and
replaced the APB with the SEC's approve
Characteristics of Useful Financial Information - Answer- • Relevance, which explicitly
recognizes the importance of materiality
, • Faithful representation, which more specifically means that the information is
complete, neutral, and free from error. To enhance the relevance and faithful
representation of the information, it should also be:
• Comparable.
• Verifiable.
• Timely.
• Understandable
Determining if a trend has a material affect - Answer- (1) Is the known trend, demand,
commitment, event, or uncertainty likely to come to fruition? If management determines
that it is not reasonably likely to occur, no disclosure is required. (2) If management
cannot make that determination, it must evaluate objectively the consequences of the
known trend, demand, commitment, event, or uncertainty, on the assumption that it will
come to fruition. Disclosure is then required unless management determines that a
material effect on the registrant's financial condition or results of operations is not
reasonably likely to occur
SEC Climate Change Guidance - Answer- 1. Impact of legislation and regulation
2. International Accords
3. Indirect Consequences of regulation or business trends
4. Physical Impacts of Climate Change
How many companies report sustainability - Answer- 95% of 250 largest firms
Disclosure Overload - Answer- The idea that companies have been disclosing too
much information in sustainability reports and in a way that is not useful
positivity bias - Answer- 90% of known negative events were not reported
Risk in using different definition of materiality between Sustainability report and SEC
filing - Answer- 29% of "material issues" from sus report in SEC filings - legal liability
Material information - Answer- "if there is a substantial likelihood that the omitted fact
would have significantly altered the total mix of information available to the reasonable
investor
Benefits of Improved Sustainability Disclosure for Companies - Answer- Opportunity for
competitive advantage
• Improved access to capital
• Enhanced reputation
• Increased efficiency and waste reduction
• Improved employee loyalty
• Lower cost of capital
• Expanded revenue growth
• Improved risk management
