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Social Science / Economics / Finance
cfas midterm
Terms in this set (155)
info must be expressed in terminologies adapted to the users' range of
quality of info
understanding
fs are a form of general purpose financial reports that provide info about
the reporting entity's assets, liabilities, equity, income, & expenses that is
objective & scope of fs
useful to users in assessing future net cash inflows & management's
stewardship of the entity's economic resources
removal of all or part of recognized asset or liability from an entity's
derecognition
statement of financial position
shows info on balances of assets, liabilities, & equity, &
statement of financial position
entity's economic resources
micro entities total assets & liabilities of less than 3m
when users are more concerned w operating capability of enterprise &
physical concept of capital
capital is viewed as the operating capacity of an enterprise
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present value of cash or other economic resources that an entity expects to
fulfillment value be obliged to transfer to the counterparty as it fulfills a liability
losses incidental or peripheral transactions
fs for a reporting entity comprising 2 or more entities not linked by a parent-
combined fs
subsidiary relationship
timeliness availability of info to users early enough to be used in making decisions
confirm earlier expectations for users to understand how past economic
confirmatory/feedback value
activities have affected the enterprise
provide financial info about an entity that is useful to potential investors,
general purpose financial reporting lenders, & other creditors in making decisions about providing resources to
the entity
has the ultimate purpose of generating general purpose fs that provide info
accounting process
about economic entities that is useful in making decisions
active owners and managers of an entity use financial info to evaluate an
internal users
entity's performance, make plans, & implement decisions
users other than the management of an entity & do not have ready access
external users
info to financial reports
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management accounting branch of accounting that meets the needs of external users
branch of accounting that produces general purpose financial reports aka fs
financial accounting
provided mainly to external users
users w direct interest use financial info to protect their own interest in the
direct users
enterprise
indirect users provide advice to or protect the interest of a direct user
monetary unit unit of measure used in communicating accounting info
capable of controlling its own resources & incurring economic obligations &
reporting/accounting entity
has separate personality from owners
cost accounting measurement & recognition of cost
tax accounting preparation of tax returns to be submitted to a taxing authority
process of analyzing, classifying, summarizing, & communicating all
government accounting transactions involving the receipt & disposition of gov't funds & property &
interpreting the result thereof
bookkeeping only refers to the recording phase of accounting
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independent examination of fs & renders an opinion as to fairness of the
auditing
presentation of the fs
multinational companies led to international business operations and there
reason for development of international
was a need to bring into common basis the system of measurement &
accounting standards
communication of economic activities
year of creation of IASC 1973
international accounting standards (IAS) initially developed & promoted by IASC
established to develop globally accepted accounting standards, called the
IFRS foundation
IFRS standards, & to promote & facilitate adoption of the standards
international financial reporting standards the standards from the IASB
(IFRS)
communicate financial info that achieves transparency, accountability, &
objective of the IASB
efficiency to financial markets around the world
setting the agenda, planning the project, developing & publishing the
IASB's standard setting process discussion paper, developing & publishing the exposure draft, developing &
publishing the standard, & issuance of standard
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contains the overview of issue, possible approaches, view of its authors, &
discussion paper
invitation for others to comment
a proposed standard or amendment to a standard & is the IASB's main
exposure draft
vehicle to to consult the interested public
balloting circularizing the near final draft to IASB members for final review & approval
international financial reporting interpretations succeeded the SIC & is tasked to interpret specific issues when standards
committee (IFRIC) do not include authoritative guidance
accounting principles were patterned from actual business practices from
before accounting standards in the ph
accounting principles & practices from the us
created by PICPA and is tasked to study the accounting standard-setting
accounting standards council (ASC) process in the ph, promulgate, develop, & revise accounting standards, and
to establish and improve GAAP in the ph
board of accountancy (BOA) body that regulates the practice of accountancy in the ph
financial reporting standards council (FRSC) took over the role of ASC
established by FRSC to assist in establishing & improving financial standards
philippine interpretations committee (PIC)
in the ph & issue guidelines regarding the implementation of PFRS
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developed back then by the ASC and is based on existing practices,
statement of financial accounting standards research, & studies by the ASC & on accounting literature by the IASC &
(SFAS) FASB of the US
years when ph moved fully to the IAS & IFRS 1997-2001
year of full adoption of IAS & IFRS 2005
set out the requirements dealing w transactions & such that are important in
philippine financial reporting standards (PFRS) general purpose financial transactions & talk about requirements for
transactions that arise only in specific industries
consideration of pronouncement of IASB, formation of task force (if
necessary), issuing for comment on exposure draft, consideration of all
PFRS due process
comments received & preparation of a comment letter to the IASB, &
approval of a standard or an interpretation by majority of FRSC members
conceptual framework describes the objective & concepts for general purpose financial reporting
purpose of conceptual framework assist IASB, preparers, and all parties
communication of fs & its purpose is to provide useful financial info to
financial reporting
entity's stakeholders
relevance affects the decision or evaluation of the user
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accrual accounting recognizing users resources & claims when they occur
financial structure predicting future borrowing needs & how future profits will be distributed
financial position info about an entity's economic resources & claims
ability of a company to adjust to unexpected downturns in the economic
operating & financial flexibility
environment
profitability ability to generate cash flows from existing resources
solvency availability of cash in the longer term to meet financial commitments
availability of cash in the near future after taking account of financial
liquidity
commitments
what public checks in financial reports info about trends, recent developments, & employment data
what gov't & it's agencies check in financial regulate activities of enterprise and for taxation
reports
check stability, & profitability of their employes. also check employer's ability
what employees check in financial reports to provide just remuneration, retirement benefits, & other employment
opportunities
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what do employees check in financial reports check stability
indirect verification recalculation using verified info
direct verification applying techniques & methods to achieve the same result
info can be replicated using the same measurement methods & applying the
verifiability
same process
intercomparability comparability between & among enterprises
intracomparability comparability within the reporting entity for at least 2 reporting periods
enables users to identify similarities & differences between at least 2 sets of
comparability
economic circumstances
free from error limitations must be clearly explained
prudence exercise of caution results in a neutral depiction of info
neutral not biased
faithful representation reflect actual results of the transactions
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info that is significant enough to influence the economic decisions of users.
materiality this is a matter of professional judgement
help users formulate more intelligent predictions since historical info is used
predictive value
as a basis for forecast or performance
unconsolidated fs just like consolidated fs but only about the parent
consolidated fs fs of a reporting entity comprising both the parent & its subsidiaries
parent entity has control over another entity called the subsidiary entity
an entity that is required to chooses to prepare fs and is not necessarily a
reporting entity
legal entity
the only assumption in the conceptual going concern
framework
enterprise is a going concern & will continue in operation for the
going concern assumption
foreseeable future
reporting period specific period of time wherein fs are prepared
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practical exception to the application of the sound accounting theory so
the cost constraint on useful financial reporting
the benefits derived from info should exceed the cost of providing it
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users also have the responsibility to understand the contents of the financial
quality of user
statements & should have reasonable knowledge of accounting & business
understandability linkage between the info & the economic decision to be made by the user
decreases in assets or increases in liabilities that result in a decrease in
expenses
equity & from principal operations of an entity
gains income from incidental or peripheral transactions
revenues income from principal operations of an entity
income increases in assets or decreases in liabilities that result in increases in equity
equity residual interest in the assets of the entity after deducting all of its liabilities
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obligation of an entity, the obligation is to transfer an economic resource, &
3 criteria for a liability to exist
the present obligation arose from a past event
present obligation of an entity to transfer an economic resource as a result
liability
of past events
3 aspects in the definition of asset right, potential to receive economic benefits, & control
economic resource right that has the potential to produce economic benfits
assets present economic resource of the entity as a result of past events
what is seen in financial performance balances of income & expenses
what is seen in financial position asset, liabilities, & equity
direct observation assets & liabilities w an active market
present value of the cash flows or other economic benefits that an entity
value in use
expects to derive from the use & eventual disposal of an asset
assets & liabilities w an inactive market and in this case some measurement
indirect observation
techniques will have to be applied (cash-flow measurement techniques)
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price to be received to sell an asset or transfer a liability & reflects the
fair value perspective of market participants (buyer & seller) acting in their economic
best interest
uses info updated to reflect conditions @ the measurement date & not
current value
derived from price of transaction during acquisition of asset or liability
estimates of future cash flows, discounted at a rate determined at initial
amortized cost
recognition
historical cost of a liability value of consideration received to incur the liability minus transaction costs
value of costs incurred in acquiring or creating considerations paid & transaction costs
the asset
historical cost based on a price of the transaction or event that gave rise to fs element
initial measurement (@ date of creation),
subsequent measurement (date of reporting),
factors in choosing measurement basis
characteristics of asset or liability, &
how asset or liability contributes to the future cash flows
when an item no longer meets the definition of when entity loses control over that asset & when entity has no more present
an asset or liability obligation for liabilities
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including in the face of the fs an item that meets the definition of an fs
element & giving a name and assigning a monetary (carrying amount) to
recognition said fs element
aggregation adding together similar fs elements that have shared characteristics
when users are mainly concerned w the maintenance of nominal invested
financial concept of capital capital or purchasing power of invested capital & capital is synonymous w
net assets or equity of the enterprise
deducting an item from another item of different kind to arrive at a net
offsetting
amount
entity must communicate effectively the info in financial statements & there
presentation & disclosure objectives should be a balance between giving entities flexibility to provide relevant &
faithfully represented info & achieving comparability
other comprehensive income changes in current value of assets or liabilities
statement of profit or loss primary source of financial performance
deemed cost fair value or its equivalent is determined through measurement techniques
measurement bases on the date of measurement (after acquisition or
exit values
incurrence) disposal, or settlement
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entry values measurement bases on the date of acquisition, creation, or incurrence
provides different measures for different assets & liabilities but info is not
value in use/fulfillment value
comparable & valuation techniques may be costly reducing verifiability
value is indirectly observable & this type of measurement basis is for assets
when to use value in use/current cost
& liabilities that produce cash flows directly
when value of asset is sensitive to market factors, the most relevant info is
when to use fair market value provided by measuring asset or liability if directly observable & involves low
cost & enhances comparability
cost of an equivalent asset @ measurement date w transaction costs at that
current costs date & ✓for liabilities it is consideration that would be received minus
transaction costs for an equivalent liability
profit is measured as the excess of financial amount of net assets at the end
financial capital maintenance concept of the period over the financial amount of the net assets at the beginning of
the period
structured financial representation of the financial position & transactions of
financial statements
an enterprise
IAS 8 accounting policies, changes in accounting estimates and errors
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specific principles, bases, conventions, rules, & practices applied by an
accounting policies entity in preparing & presenting fs
IAS requires inclusion of statement of financial position at the beginning of
requirement for an additional statement of
the following period whenever an entity restates its comparative prior
financial position
period fs
showws relevant info that cannot be presented in the face of the financial
statements, description of the basis for presentation of the fs, summary of
notes to the financial statements
accounting policies, info required by the PFRS or IFRS, & additional info that
will help users better understand info in fs
statement of cash flows inflows & outflows of cash & cash equivalents
✓summarized transactions affecting the balances of equity accounts
statement of changes in equity (profit/loss, other comprehensive income, contributions & distributions of
owners)
expanded form of income statement since it includes profit or loss plus
statement of comprehensive income
other comprehensive income
IAS 1 presentation of financial statements
provide info about financial position, performance, cash flows of an
objective of fs
enterprise that is useful in making economic decisions
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there is profit only if the physical productive capacity (operating capability)
of the entity (resources of funds needed to achieve that capacity) at the end
physical capital maintenance concept
of the period exceeds the physical productive capacity @ the beginning of
the same period
capital for sole proprietorship capital
other changes in equity not from financial contributions from & distributions to owners
performance
operating cash flow activities inflows & outflows involved in the determination of profit
inflows & outflows that arise from transactions w non-trade lenders &
financing cash flow activities
owners of the equity
national government regulatory agency that supervises the corporate
securities & exchange commission
sector
regulate the sale & registration of securities & develop & regulate the
main job of SEC corporate & capital market toward good corporate governance, protection
of investors, widest participation of ownership, & democratization of wealth
republic act 8799 securities regulation code (SRC)
SRC rule 68 section 2 general guides to fs preparation
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large/publicly accountable entities total assets more than 350m or total liabilities more than 250m
total assets of more than 100m to 350m or total liabilities of more than 100m
medium-sized entities
to 250m (consolidated figures for parent reporting entity)
total assets of between 3m to 100m or liabilities between 3m & 100m
small entities
(consolidate figures for parent reporting entity)
general guides to fs preparation, responsibility to fs, qualifications & reports
SRC rule 68
of independent auditors, & review of the quality assurance process
reemphasizes the requirement for the submission of an annual report by
companies, together w fs certified by an independent cpa.
SRC
also requires internal record keeping & internal controls to be complied w
by entities
investing cash flow activities inflows & outflows that generally affect non-current assets
capital for corporation retained earnings/accumulated profits
capital for partnership partner's capital account
profit net effect of income & expenses presented in the profit section
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