Determines the form and content f accounting reports filed by companies under its jurisdiction. Has the authority to define terms and prescribe accounting principles and standards. Let the accounting profession develop principles and standards but has the final authority. Private Sector Represented by the FAST Business – Has the authoritative rule making body for the private sector. Seven member board – each having distinguished accounting backgrounds who are full time employees. Responsible for developing Financial Accounting Standards and Principles. Develops and issues Statements of Financial Accounting Standards
Has issued about 160 financial standards that SEC recognizes as authoritative. 2. It is desirable to have a set of fundamental concepts to be used in developing accounting standards and rules because it will provide the accounting community guiding the FAST in establishing accounting standards on a consistent basis. It will also help determining bounds for judgment in preparing financial statements by prescribing the nature functions and limits of financial accounting and reporting. It also incises the users’ understanding of and the confidence of financial reporting. 3. U. S. Nannies be affected by the FIRS – International Financial Reporting Standards has been affecting US companies for some time – through their business dealings with non-US counterparts (particularly with customers and vendors), convergence between US GAP and FIRS, or through non-US subsidiaries that have already adopted or are adopting FIRS for local statutory reporting or financing purposes. For US companies with non-IIS subsidiaries, the impact of continued global FIRS adoption is likely to increase in the foreseeable future following the Saab’s recent issuance of FIRS. 4.
Neutrality means that the statements are prepared without bias and without attempting tap portray a predetermined picture. The need of all users is considered equally. 5. Comparability is when financial data is presented in such a way that it can be meaningfully compared with the same data for other companies. 6. The matching concept or matching principle is a fundamental element of accrual basis of accounting. In accrual basis of accounting, a company records revenue in its books as soon as it has done everything necessary to earn that revenue, regardless of when the money actually comes in.
The matching principle then requires that all expenses required to generate that revenue be recorded at the same time as revenue. 7. The cost principle is depended on the going concern assumption because unless there is evidence against a business, it is assumed that a business will continue to operate indefinitely as a going concern. However, if evidence exists that a business will not be able to continue in existence as a going concern, the only useful information would be the value of assets. Reporting the assets of a business that is not a going concern at cost will provide useless information.
In this case the cost are immaterial, GAP may be less important and other factors such as the cost of applying GAP may take precedence. 8. Materiality affects day to day accounting because if the item or total is less than 5% of the net income, then the item is not material. Some of the unimportant items are either left out or included with other items. For example, purchases of items like, a fountain pen, stapler, pen, pin cushions, punching machine, etc. , can be treated as part of assets when considering their useful life, but it is not necessary to maintain separate legers for each item purchased.
These low cost items can beer treated as an expense for the accounting period. The reason why unimportant items are either left out or merged with other items is because of their magnitude of their amount. The dividing line between material and immaterial varies on the business, the circumstances of their transactions and economic significance. 9. If an item is immaterial, there is less justification for incurring substantial cost to comply with GAP regarding the item. The cost of compliance may outweigh the benefits. If an item is highly material the cost becomes less important. 10.
The concept of the periodicity of income so the idea that economic activities of an entity can be divided logically and identified within a specific time period, such as a year or a quarter. 1 1 . Large companies that have manipulated their business transactions and or accounting records to move income reported to a different year would be misstating their net income on the income statement and would violate the neutrality, reliability, and comparability qualitative characteristics as well as the materiality convention and the revenue recognition principle. 12. Revenue recognition principle, satirical cost and matching principle. 3. Full disclosure principle requires that all information that might affect the users’ interpretation of the profitability and financial position of the business must be disclosed in the financial statements. The SEC’s full disclosure policy is essential that any information that would be likely, if disclosed, to change the users’ interpretation of the statement should be disclosed. It is the idea of transparency in financial reporting. Both the SEC & FAST have focused recently on the topic of transparency in their public comments and authoritative pronouncements. 4.
A conceptual framework is necessary so that standard setting is useful. For example standard setting should build on and relate to an established body of concepts and objectives. A well- developed conceptual framework should enable the FAST to use more useful and consistent standards in the future.