Ch.18 Financial Accounting and Reporting Flashcards

1
Q

What kinds of insights can be provided by analyzing financial statements?

A
  • How well a company has managed its liquidity
  • How effectively it used and financed its assets
  • Whether it had a proper balance between debt and equity financing compared to peers
  • How well it controlled operating and financing costs
  • Whether the profit it earned was satisfactory in relation to the levels of revenue it experience and in the investment in assets that support its operations.
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2
Q

What is the IASB?

A

International Accounting Standards Board

- General accounting standards made up by board members from 9 countries, based in London.

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3
Q

What are the basic principles of IFRS?

A

Laid out by the IASB

  • Relevance: must be of value
  • Materiality: information must show significant impact
  • Faithful Representation: complete, neutral and free from error
  • Comparability: Consistency and compatibility with previous years
  • Verifiablity: Neutral and unbiased, fairly represent the business.
  • Timeliness: Information presented in the time capable for decisions
  • Understandability: Makes sense
  • Completeness: Complete enough to be usable and reliable
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4
Q

What are the four principles of GAAP?

A
  1. Historical-Cost: Assets and liabilities reported a the original costs
  2. Full-Disclosure: any info that may influence judgment and decision of a user of the info, must be disclosed.
  3. Revenue Recognition:
  4. Matching: Expenses must be reported when they are associated with.
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5
Q

What are the key differences between IFRS and GAAP?

A

IFRS is principle based versus rule based GAAP

Companies in the US adhere to GAAP and must comply with IFRS

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6
Q

What is shareholders’ equity?

A
  • Represents what would remain if all assets were sold and all creditors paid off
    2 Primary Categories are:
    • Contributed Capital: Cash or assets invested by shareholders
    • Retained earnings: Retention of profits or losses, less dividends paid out.
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7
Q

Compare and contrast internal and external financial statements.

A

Internal are used by the owners of the company for management and day to day operations. External are used by investors for financial status of the entity.

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8
Q

What are the five types of audit opinions?

A
Standard unqualified 
Unqualified opinion with explanatory paragraph
Qualified Opinion
Adverse Opinion
Disclaimer of Opinion
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9
Q

What are the basic types of financial statements?

A

Balance Sheet
Income Statement
Statement of Cash Flows

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10
Q

What are the two methods of preparing the statement of cash flows?

A

Direct Method - reports gross cash receipts and disbursements without examining adjustments
Indirect Method - Reflects noncash transactions

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11
Q

What is a derivative?

A

financial instrument that’s value is derived from some underlying financial asset.

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12
Q

What is ASC Topic 820?

A

Clarifies the definition and application of fair value measurement.

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13
Q

Describe the basic steps in preparing a foreign currency translation adjustment for financial statement purposes.

A
  • Determine the functional currency of the subsidiary
  • Determine whether its the home currency
  • Remeasure the currency using historical exchange rates
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14
Q

What is the key feature that distinguishes governmental and not-for-profit (G/NFP) organizations from profit-oriented businesses?

A

refer to equity as Net Worth

Not public

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