Financial Reporting (FAR)

Who is the body that establishes U.S. GAAP for nongovernmental entities, and what is its authoritative output?

The Financial Accounting Standards Board (FASB) sets U.S. GAAP for nongovernmental entities. Its single authoritative source is the FASB Accounting Standards Codification (ASC); changes are issued through Accounting Standards Updates (ASUs), which amend the Codification rather than stand on their own.

Under the FASB Conceptual Framework, what is the fundamental objective of general-purpose financial reporting?

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 (e.g., buying/selling equity or debt, providing or settling loans).

What are the two FUNDAMENTAL qualitative characteristics of useful financial information under the Conceptual Framework (Concepts Statement 8)?

Relevance and faithful representation. Relevance = capable of making a difference in decisions (predictive value, confirmatory value, and materiality). Faithful representation = complete, neutral, and free from error.

Name the four ENHANCING qualitative characteristics of useful financial information.

Comparability, verifiability, timeliness, and understandability. These enhance the usefulness of information that is already relevant and faithfully represented but cannot make non-useful information useful.

How does the Conceptual Framework define materiality?

Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence decisions that primary users make based on the financial statements. Materiality is entity-specific — it depends on the nature and magnitude of the item in the context of an individual entity's report.