FAR EXAM 1 QUESTIONS
& ANSWERS
Public entities submit F/S in accordance with - ANSWERSGAAP or IFRS general purpose
framework
Cash Basis - ANSWERS-Revenue is recognized when received
- Expenses recognized when paid
-Fixed assets are expensed
Modified Cash Bases - ANSWERSHybrid of accrual and cash
- Assets can be capitalized
-Tax and inventory can be accrued
Tax Basis - ANSWERScan be cash or accrual
revenues and expenses are recognized in the same period
Contractual basis - ANSWERSaccrual - when a party is subject to a contract
Regulatory basis - ANSWERSWhen a governmental regulatory agency imposes this report
nonpublic entities submit F/S with - ANSWERSGAAP, IFRS, Special Purpose Framework (Cash,
Tax, Contractual, Regulatory, FRF for Small to Med size
Accrual based accounting - ANSWERSrevenues are recognized in the periods that they are
earned
,Private Company Council (PCC) - ANSWERSEvaluates existing GAAP to see if nonpublic entities
are exempt
-developed alternative accounting approach for goodwill
Election of alternative approach for goodwill is disclosed in the - ANSWERSSummary of
Significant Accounting Policies
Public Entity Criteria (4) - ANSWERS- Reports F/S to the SEC (voluntary or required)
-Regulated by the 1934 Securities Exchange Act
- Issue securities that are traded or have securities that are listed on an exchange
- Are required to apply GAAP and have securities that are not restricted as to transfer
Emerging Issues Task Force (EITF) - ANSWERSGroup 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. WORKS ON SHORT-TERM ISSUES
Statements of Financial Accounting Concepts (SFACs) - ANSWERSRepresents the conceptual
framework that guides the development of financial accounting and reporting standards
Objective of financial reporting - ANSWERSFOCUSES on the USERS
To provide information that is useful to existing and potential investors, lenders, and other
creditors in making decisions about providing resources to the entity
What is reported on the F/S? - ANSWERS-Info about economic resources and claims against the
entity (B/S)
-Changes in economic resources and claims
-Financial performance reflected by accrual accounting (Income statement)
,-Financial Performance reflected by past cash flow (Statement of Cash Flows)
- Changes in economic resources and claims NOT resulting from financial performance
(Statement of Changes in Owner's Equity)
Primary Qualitative Characteristics - ANSWERSRelevance and Faithful representation
Relevance consists of (roger is PC) - ANSWERSPredictive value - helps users predict and forecast
Confirmatory value- helps users confirm the prediction
Faithful Representation consists of - ANSWERSFree from Error
Neutrality
Completeness
Enhancing Qualitative Characteristics - ANSWERSComparability (same method), verifiability
(different sources agree), timeliness, and understandability (clear and concise info)
Constraints to the usefulness of information - ANSWERSMateriality (also goes with Relevance)
and Cost/benefit
Consistency helps achieve - ANSWERScomparability (goes for both relevance and faithful
representation)
Financial Statement Key Elements - ANSWERSAsset, liability, equity, investment by owner,
distribution to owners, comprehensive income, revenues, expenses, gains, and losses
Full Set of F/S - ANSWERSBalance sheet, income statement, statement of cash flows, statement
of changes in owner's equity
, Asset definition - ANSWERSan economic resource that has a probable future benefit, one can
obtain the benefit, and the transaction creating the benefit has already occurred
Liability definition - ANSWERSAn economic obligation in which one needs to use or transfer an
asset, it cannot be avoided and the transaction has already occurred
Equity - ANSWERSAssets - Liabilities
revenue definition - ANSWERSinflows from an entity's primary operations
expenses definition - ANSWERSoutflows due to an entity's primary operations
gains definition - ANSWERSincreases in equity from identical transactions
losses definition - ANSWERSdecreases in equity from identical transactions
Other Comprehensive Income (OCI) - ANSWERSDerivative cash flow hedges
Excess adjustment of Pension PBO and FV of plan assets at year end
Net unrealized gains or losses on AFS securities
Translation adjustment for foreign currency
Physical capital maintenance concept - ANSWERSOnly recognize an event when an asset is sold
or a liability is settled
Financial capital maintenance concept - ANSWERSRecognize an event as a change in the value
of an asset or liability occurs
& ANSWERS
Public entities submit F/S in accordance with - ANSWERSGAAP or IFRS general purpose
framework
Cash Basis - ANSWERS-Revenue is recognized when received
- Expenses recognized when paid
-Fixed assets are expensed
Modified Cash Bases - ANSWERSHybrid of accrual and cash
- Assets can be capitalized
-Tax and inventory can be accrued
Tax Basis - ANSWERScan be cash or accrual
revenues and expenses are recognized in the same period
Contractual basis - ANSWERSaccrual - when a party is subject to a contract
Regulatory basis - ANSWERSWhen a governmental regulatory agency imposes this report
nonpublic entities submit F/S with - ANSWERSGAAP, IFRS, Special Purpose Framework (Cash,
Tax, Contractual, Regulatory, FRF for Small to Med size
Accrual based accounting - ANSWERSrevenues are recognized in the periods that they are
earned
,Private Company Council (PCC) - ANSWERSEvaluates existing GAAP to see if nonpublic entities
are exempt
-developed alternative accounting approach for goodwill
Election of alternative approach for goodwill is disclosed in the - ANSWERSSummary of
Significant Accounting Policies
Public Entity Criteria (4) - ANSWERS- Reports F/S to the SEC (voluntary or required)
-Regulated by the 1934 Securities Exchange Act
- Issue securities that are traded or have securities that are listed on an exchange
- Are required to apply GAAP and have securities that are not restricted as to transfer
Emerging Issues Task Force (EITF) - ANSWERSGroup 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. WORKS ON SHORT-TERM ISSUES
Statements of Financial Accounting Concepts (SFACs) - ANSWERSRepresents the conceptual
framework that guides the development of financial accounting and reporting standards
Objective of financial reporting - ANSWERSFOCUSES on the USERS
To provide information that is useful to existing and potential investors, lenders, and other
creditors in making decisions about providing resources to the entity
What is reported on the F/S? - ANSWERS-Info about economic resources and claims against the
entity (B/S)
-Changes in economic resources and claims
-Financial performance reflected by accrual accounting (Income statement)
,-Financial Performance reflected by past cash flow (Statement of Cash Flows)
- Changes in economic resources and claims NOT resulting from financial performance
(Statement of Changes in Owner's Equity)
Primary Qualitative Characteristics - ANSWERSRelevance and Faithful representation
Relevance consists of (roger is PC) - ANSWERSPredictive value - helps users predict and forecast
Confirmatory value- helps users confirm the prediction
Faithful Representation consists of - ANSWERSFree from Error
Neutrality
Completeness
Enhancing Qualitative Characteristics - ANSWERSComparability (same method), verifiability
(different sources agree), timeliness, and understandability (clear and concise info)
Constraints to the usefulness of information - ANSWERSMateriality (also goes with Relevance)
and Cost/benefit
Consistency helps achieve - ANSWERScomparability (goes for both relevance and faithful
representation)
Financial Statement Key Elements - ANSWERSAsset, liability, equity, investment by owner,
distribution to owners, comprehensive income, revenues, expenses, gains, and losses
Full Set of F/S - ANSWERSBalance sheet, income statement, statement of cash flows, statement
of changes in owner's equity
, Asset definition - ANSWERSan economic resource that has a probable future benefit, one can
obtain the benefit, and the transaction creating the benefit has already occurred
Liability definition - ANSWERSAn economic obligation in which one needs to use or transfer an
asset, it cannot be avoided and the transaction has already occurred
Equity - ANSWERSAssets - Liabilities
revenue definition - ANSWERSinflows from an entity's primary operations
expenses definition - ANSWERSoutflows due to an entity's primary operations
gains definition - ANSWERSincreases in equity from identical transactions
losses definition - ANSWERSdecreases in equity from identical transactions
Other Comprehensive Income (OCI) - ANSWERSDerivative cash flow hedges
Excess adjustment of Pension PBO and FV of plan assets at year end
Net unrealized gains or losses on AFS securities
Translation adjustment for foreign currency
Physical capital maintenance concept - ANSWERSOnly recognize an event when an asset is sold
or a liability is settled
Financial capital maintenance concept - ANSWERSRecognize an event as a change in the value
of an asset or liability occurs
