To provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity (SFAC 8)
No, they are issued by FASB. The SFAC provide the framework for writing rules, essentially the rules for writing the rules, and are not authoritative and not GAAP.
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Primary users of financial reporting are investors, lenders, and other creditors who must rely on reporting entities to provide information to them. Regulatory entities and general public are not considered primary users according to SFAC 8.
1) Information that is useful to potential/existing investors, lenders, and creditors (primary users)2) Information about the reporting entity”s assets (economic resources) and claims (liabilities).3) Changes in economic resources (assets) and claims (liabilities).4) Financial performance reflected by accrual accounting and past cash flow5) Changes in economic resources (assets) and claims (liabilities) not resulting from financial performance.
What are the Statements of Financial Accounting Concepts intended to establish?a) Generally accepted accounting principles in financial reporting by business enterprise.b) The meaning of “Present fairly in accordance with GAAP.”c) The objectives and concepts for use in developing standards of financial accounting and reporting.d) The hierarchy of sources of generally accepted accounting principles.
The best answer is C. SFAC are the rules that the FASB uses to write the rules. They provide the conceptual framework.
According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on:a) GAAPb) Reporting for regulatorsc) The need for conservatismd) The needs of the users of the information
D – The needs of the users of the information. The financial reports are supposed to provide information to the primary users.
Hierarchy of Accounting Qualities: Pervasive constraints mean the benefits of providing the information (financial reports) exceed the costs. True or false.
Hierarchy of Accounting Qualities: Fundamental qualitative characteristics include two parts of decision usefulness:
Relevance and Faithful Representation. How relevant is the transaction and how faithfully is it represented.
Hierarchy of Accounting Qualities: Fundamental qualitative characters of decision usefulness – Relevance: Define predictive value and confirmatory value.
Predictive value – looking at past activity to determine what happens in the future. Confirmatory value – Confirmation of what happened in the past.
Faithful Representation – Valuing substance of a transaction over it”s form of a transaction when doing reporting of financial information. This involves three items:
Comparability – same accounting period, two different companies(Consistency – one company, multiple accounting periods)Verifiability – Directly and indirectly verifying Timeliness – Accuracy takes longer. Understandability
Consistency helps achieve comparability because it helps the user make comparisons across multiple accounting periods. One company, multiple accounting periods.
According to FASB conceptual framework, the relevance of providing information in financial statements is subject to the constraint of:a) Comparabilityb) Cost-benefitc) Reliabilityd) Faithful representation
B – The FASB conceptual framework has identified the cost benefit constraint to the relevance of providing financial reports. Information is NOT disclosed if the costs outweigh the benefits of disclosing the information.
The enhancing qualitative characteristics of financial reporting are:a) Relevance, reliability, and faithful representationb) Cost-benefit and materialityc) Comparability, verifiability, timeliness, and understandabilityd) Completeness, neutrality, and freedom from error
According to SFAC, neutrality is an ingredient of: Faithful Representation Relevancea) Yes Yesb) Yes Noc) No Yesd) No No
B – Neutrality is freedom from bias. Unbiased information would always be more faithfully represented.
According to FASB conceptual framework, which of the following is an enhancing quality that relates to both relevance and faithful representation?a) Comparabilityb) Confirmatory valuec) Predictive valued) Freedom from error
a) Comparability. It is an enhancing quality and the best selection of the group. B & C are relevance. D is faithful representation.
What is the underlying concept that supports estimating a fixed asset impairment charge?a) substance over formb) consistencyc) matchingd) faithful representation