300164 Flashcards
2117.01
The concept of adequate disclosure is firmly established as an underlying principle of financial reporting. The CPA’s responsibility for disclosure extends to the inclusion of all information believed to be relevant to financial statement users who have a reasonable knowledge of accounting and business matters. The user must not be burdened with information that is irrelevant in terms of quantity and detail nor must the user be misled or left uninformed on important matters.
Mint Co.’s cash balance in its balance sheet is $1,300,000, of which $300,000 is identified as a compensating balance. In addition, Mint has classified cash of $250,000 that has been restricted for future expansion plans as “other assets.” Which of the following should Mint disclose in notes to its financial statements?
Both compensating balance and restricted cash
Restricted cash
Neither compensating balance nor restricted cash
Compensating balance
Both compensating balance and restricted cash
Material amounts of restricted cash must be segregated from “regular” cash for reporting purposes because it is not readily available for general use. Restricted cash is classified as current or long-term assets depending upon the date of availability for disbursement.
Compensating balances should be separately classified as being maintained as a compensating balance. It is classified as current or noncurrent based upon the terms of the agreement requiring the compensating balance, and details of the arrangement should be disclosed in the notes.
2117.02
Disclosure of financial information about an enterprise is accomplished through a variety of means, including the financial statements themselves, the auditor’s report, discussions in the annual report other than the financial statements, press releases, and others. Of particular interest in the preparation of financial statements are the following types of disclosures:
- Form and content in the body of the financial statements (including parenthetical information, information shown “short,” and classifications of information)
- Notes to the financial statement and supplemental information
Information presented in the body of the financial statements has been illustrated in the preceding example. Supplemental disclosures and notes to the financial statements are discussed in the following paragraphs.
2117.03
Notes to the financial statements and supplemental disclosures are difficult to categorize because appropriate disclosure in any particular set of circumstances is dependent on the particular characteristics of each financial reporting situation. The following chart shows the types of footnotes and supplemental disclosures that are frequently encountered.
FASB ASC 210-10-S99-1
