9D Financial Statements Flashcards
How can income statements be presented?
Multi-step or single step form
What is the purpose of the different categories on income statements?
To enable users to assess future cash flows as continuing operations, discontinuing operations, and extraordinary items are presented separately
What does the SEC require of public company with multistep income statement?
Requires the placement of impairment losses in operating income instead of under other expenses and losses
Unusual or infrequent items
1) An unusual or infrequent event considered to be material that does not qualify as extraordinary
2) Placed as part of income from continuing operations after normal recurring revenues and expenses.
3) Eg- restructuring charge
Discontinued operations
1) results from disposal of a business component
2) placed as a separate category after income from continuing operations
Extraordinary items
1) An unusual and infrequent nonrecurring event which has material effects
2) Placed as a separate category after discontinued operations
Change in accounting principle
1) No longer on income statement.
2) Retrospective application
3) Report cumulative effect of change in the carrying amounts of assets and liabilities as of the beginning of the first period presented, with an offsetting adjustment to the opening balance of retained earnings for that period.
3) Finacnial statements for each period are adjusted to reflect period-specific effects of the change for direct effects.
Correction of an error
1) Correction of a material error from a prior period
2) Report as a prior period adjustment by restating the prior-period finacnial statements
3) Cumulative effect of the error on prior periods is reflected in the carrying value of assets and liabilities at the beginning of the first period, with an offsetting adjustmetns made to the opening balance of retained earnings for that period.
4) Financial statements are adjusted to reflect correction of period-specific effects of the error.
What is restructuring?
1) Unusual or infrequent item
2) program that is planned and controlled by management and materially changes either the scope of the business undertaken by the company, or the manner in which that business is conducted
Ex; sale or termination of a line of business
closure of business activities in a particular location
relocation of business activities from one location to another
changes in management structure, or,
fundamental reorganizations that affect the nature and focus of operations
What is costs of exit and disposal?
1) Unusual or infrequent item
2) Includes restructuring
3) liability for this cost should be measured initially at fair value in the period it was incurred
4) FV is usually determined as the PV of the esitmated future payments discounted at the credit-adjusted, risk-free rate of interest
What happens if fair value for exist and disposal costs cannot be reasonably estimated?
1) Recognized in the period where it can be reasonably estimated
2) Onetime termination benefits provided to current employees that are involuntarily terminated
3) Costs to terminate a contract that is not a capital lease
How is onetime termination benefits recognized?
1) Depends on whether employees are required to provide services beyond minimum retention period
2) If yes, the expense is recognized over the period that the services are provided
3) if no, liability is recognized when the plan is communicated to the employees
What is the liability measured at subsequent to initial measurement?
Credit-adjusted risk free rate that was used to the liability initially
What happens to costs associated with exit or disposal activity that does not involve discontinued operations?
1) Included in income from continuing operations before income taxes
2) FN should provide extensive disclosure of the activities
What are the items that are never extraordinary?
1) Foreign currency devaluation
2) Effect of strike
3) Asset writedowns (goodwill, inventory, PPE, receivables, and intangibles)
What is included in loss from discontinued operations?
1) Loss or income of the component for the period and the gain or loss on its disposal
2) Income taxes or tax benefit are deducted from or added to that amount to determine the gain or loss after taxes
How to qualify as discontinued operations?
1) Comprise a component of the entity with operations and cash flows that are clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity
2) Component can be a reportable or operating segment, a reporting unit, a subsidiary or an asset group
What are the requirements to be reported as discontinuing operations?
1) operations and cash flows of the compnent have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal
2) enttity will not have any significant involvement in the operations of the component after the disposal
What happens if the items are long-lived assets?
Classified as discontinued operations in the first period that it meets the criteria as being “held for sale”
What is the criteria for being “held for sale”?
1) Management commits to a plan of disposal
2) Assets are available for sale
3) Active program to locate a buyer has been initiated
4) sale is probable
5) asset is being actively marketed for sale at a fair price
6) unlikely that the disposal plan will significantly change
How is long-lived assets held for sale reported?
1) Reported at lower of their carrying amoutns or fair values less costs to sell
2) Gain or loss on disposal of discontinued operations is the actual gain or loss if disposal occurs in the same period that the component meets the criteria to be classified as “held for sale”
What if the criteria for held for sale is met in a period before it is disposed of?
1) The amount of the loss (if applicable) on disposal is an estimated loss resulting from the write-down of the group of assets to their estimated fair values
2) Estimated gains cannot be initially recognized
What if the component is held for sale over several reporting periods?
Estimated gains can be recognized based on new information but are limited to the losses previously recognized
Can held for sale items be written up?
Yes, but not above their carrying amounts when they meet the criteria as being held for sale
How are discontinued operations handled in a comparative income statement?
1) Income statement presented for each previous year must be adjusted retroactively to enhance comparability with the current year’s income statement
2) Revenues, COGS, operating expenses (including income taxes) for the discontinued component are removed from the revenues, cost of goods sold, and operating expenses of continuing operations and are netted into one figure, that is “Income (loss) from discontinued operations”
What is comprehensive income?
1) Sum of net earnings (loss) and other comprehensive income
2) It requires disclosure of changes during a period of the following: unrealized gains and losses on available for sale investments and foreign currency items, including any reclassification adjustments and any adjustments necessary to recognize the funding status of pension plans or other postemployment benefits
What is one way of presenting comprehensive income?
1) At the bottom of income statement, continue from net income to arrive at OCI
2) Total amount for net income and its components
3) total amount for OCI and its components
4) total comprehensive income
What is another way of presenting comprehensive income?
1) In a separate statement that may start with net income and that directly follows the statement of income
2) Net income and its components in the statement of net income
3) Comprehensive and its components along with total comprehensive income
How is comprehensive income shown on the balance sheet?
1) Presented separately from retained earnings and APIC
2) changes in the balance are to be presented in the note sto the FS or on the face of the FS
3) each component of OCI will be presented separately and reclassifications shall be presented separately
How are reclassification adjustments to comprehensive income recorded?
1) As unrealized gains (losses) recorded and reported in OCI for the current or prior periods are later realized, they are recognized and reported in net income
2) To avoid double counting, it is necessary to reverse the unrealized amounts that have been recognized
3) Entity must separately disclose information about net income and reclassification out of other comprehensive income effects either on the face of the financial statements containing net income or separately in the notes
4) For items not required to be reclassified in entirety to net income, cross-reference to related disclosures is required
Where is OCI shown on the balance sheet?
1) In the stockholder’s equity
2) when entity has components of OCI, the total of these is closed to the b/s account accumulated OCI, not retained earnings
3) the net loss is closed to retained earnings
What is the balance sheet?
1) Statement of financial position
2) Presents assets, liabilities, and stockholders’ equity
3) Shows effects of transactions at a point in time
4) The other statements: statements of earnings (income) and comprehensive income, statement of retained earnings, and statement of cash flows report the effect of transactions over the period of time
What is the operating cycle?
Average time between acquisition of materials and final cash realization
What are the disclosures required for accounting policies?
1) Set forth in the initial FN to the statements
2) accounting principles used when alternatives exist
3) principles peculiar to a particular industry
4) unusual or innovative applications of accounting principles
Subsequent events
After balance sheet date but before statements are issued or available to be issued
Available to be issued
Form and format that is complete and complies with GAAP and all necessary approvals for issuance have been obtained
Subsequent events procedure SEC filer or conduit bond obligor for conduit debt securities traded publicly
Evaluate events through date FS are issued, all others evaluate through date FS are available to be issued
Recognized sub event
1) Condition existed at the BS date and therefore should be recognized
2) Example: estimate for warranty liability, estimate of contingent liability due to a lawsuit, or an estimate of allowance for uncollectible accounts
3) If settled after BS date but before issuance, settlement amounts should be used as the liability in the balance sheet
Nonrecognized sub event
1) Condition did not exist as of the BS date but after
2) Event not recognized in these cases
3) But if not disclosing means misleading fs, then FN disclosure must be made with nature of event and estimate of impact
Does the subevent date need to be disclosed?
1) No for SEC filer
2) Yes for non-SEC filer- disclose the date and whether date is when FS are available to be issued or issued
Fair value measurements
Required for assets and liabilities like investments, derivatives, asset impairments, asset retirements obligations, goodwill, business combinations, troubled debt restructuring
How to apply fair value measurement
1) Identify asset or liability to be measured
2) Determine the principle or most advantageous market
3) Determine the valuation premise
4) Determine the appropriate valuation technique (market, income, or cost approach)
5) Obtain inputs for valuation (level 1, 2, 3)
6) Calculate the FV
Fair value
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) under current market conditions
Orderly transaction
Transaction that allows for normal marketing activities that are usual and customory- it is not a forced transaction or sale
Principal market
1) Fair value assumption that if principle market exists or if not, the most advantageous market
2) market in which the greatest volume and level of activity occurs
Most advantageous market
Maximizes price received for asset or minimizes amountpaid to transfer the liability
Characteristics of principal or most advantageous market
1) Be independent of the reporting entity (not related parties)
2) Be knowledgeable
3) Able to transact
4) Willing to transact (motivated but not compelled)
Price in market?.
Will not be adjusted for transaction costs, such as costs to sell
Cost to sell?
is used to determine which market is the most advantageous. However, selling costs or brokerage fees are not used when calculating fair value
If location is a characteristic of the asset or liability?
price is adjusted for costs necessary to transport the asset or liability to the market
Highest and best use
1) Assumed by FV measurement
2) Maximize the value of the asset or group of assets
3) Use of asset must be physically possible, legally permissible, and financially feasible at the measurement date
4) Not relevant for financial assets and liabilities since they do not have alternative uses and their FV do not depend upon their use within a group.
Highest and best use is used to measure FV as follows:
1) Using asset that provides maximum value with other assets as a group. The fair value of the asset is the price that would be received to sell the asset assuming the asset is used with other assets as a group
2) If asset provides maximum value by itself, the FV of the asset is the price that would be received in a current transaction to sell the asset stand-alone
What are the valuation methods to measure fair value?
Market Approach
Income Approach
Cost Approach
Market Approach
Prices and relevant information from market transactions for identical or comparable assets or liabilities
Income approach
Converts future amoutns to a single current (discounted) amount
Cost approach
Relies on current replacement cost to replace the asset with a comparable asset, adjusted for obsolescence
Fair value disclosure
If valuation technique or approach is changed, it is treated as a change in accounting estimate and treated on a prospective basis.
The disclosure provisions for a change in accounting estimate are not required for revisions or changes to valuation techniques used in FV measurements
Fair value hierarchy
Level 1, 2 and 3
Level 1
1) quoted prices (unadjusted prices) from active markets for identical assets or liablities
2) most reliable evidence of FV and should be used without adjustment whenever possible
3) FV in level 1 is quoted price times quantity held and is not adjusted for the quantity of shares (blockage factor) held
Level 2
1) directly or indirectly observable inputs other than quoted prices of level 1
2) examples include: quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets that are in markets where few transactions occur, prices are not current or prices vary substantively over time
3) also include observable inputs like yield curves, bank prime rates, interest rates, volatilities, prepayment speeds, loss severities, credit rsisk, and default rates.
Level 3
1) unobservable inputs
2) may only be used if other levels are not available (i.e. there is little market activity)
3) may reflect reporting entity’s own assumptions about the market and are based on the best info possible
4) examples: pricing 3 year option using historical volatility on shares, valuing ARO using expected CF estimated by company, or valuing a reporting unit using a firm’s forcecast for cf or earnings
Financial asset
cash, evidence of an ownership interest in an entity, or a contract that conveys a right to receive cash or other finacnial instrument or to exchange financial instruments on favorable terms
Financial liability
contract that imposes an obligation to deliver cash or other financial instrument
For which financial assets can FV be applied?
All including available for sale securities, held to maturity, and equity method investments
For which financial liabilities can FV be applied?
certain liabilities, firm commitments that involve financial instruments, written loan commitments, nonfinancial insurance contracts that can be settled by paying a third party, warranties that can be settled by paying a third party, and a host financial instrument that is an embedded nonfinancial derivative instrument separated from a nonfinancial hybrid instrument.
FV does not apply to
Consolidations, pensions, share-based payments, stock options, other postemployment benefits (OPEB), exit or disposal activities, leases, or finacnial instruments that are a component of equity.
When can the company choose to use FV?
1) The date an eligible item is first recognized
2) the date the entity enters into a firm commitment
3) the date financial assets cease to qualify for fair value treatment due to specialized accounting rules
For companies using equity method of accounting
Measure FV on the date the percentage of ownership changes and the entity is no longer required to consolidate
for debt modifications
The date the debt is modified- once FV is selected, it is irrevocable
FV on instrument by instrument basis
This is allowable however if it is selected, it must be applied to the entire instrument and not a portion
What happens to unrealized gains and losses?
Reported in the earnings for the period - in the income statement rather than OCI
If financial assets or liabilities are exposed to market and credit risks of counterparties
Can apply FV to the net position if following conditions are met:
1) Group is managed on basis of net exposure
2) information provided on net basis
3) reporting entity measures group at fair value
FV disclosure for financial asset and liabilities
Two methods are allowed
1) Present aggregate FV and non-FV amounts in same line with amounts measured at FV in parenthesis
2) Present two separate line items for FV and non-FV carrying amounts
FV disclosure for recurring assets and liabilities
1) FV at end of reporting date
2) level used and segregated (1, 2, 3)
3) amount of transfers between levels and reason for transfer along with transfer policy, transfers into and out of each level are disclosed separately
4) for level 2 and level 3, a decription of the valuation techniques or inputs used- if there is a change in techniques used- that must be disclosed
5) Level 3- a reconciliation of beginning and ending balance should be shown- including gains and losses, purchases, sales, issues, settlements (shown separately), transfers in and out (shown separately) along with transfer policy
6) description of nonfinancial assets with a current use differing from highest and best use
FV disclosure for nonrecurring assets and liabilities
Disclosed at year-end and interim
1) FV measurement at end of reporting period and reasons for measurement
2) levels
3) 2 or 3- the valuation technique and inputs used
4) level 3- description of vlauation processes
5) description of nonfinancial assets with current use differing from highest and best use
Development stage enterprise accounting
1) Follow GAAP
2) only extra disclosure is that cumulative amounts from inception of losses, revenues, expenses, and cash flows should be shown in IS and CF.
3) stockholder’s equity section in BS should include cumulative net losses “deficit accumulated during development change”
4) statement should be identified as those of a development stage enterprise
Constant dollar accounting
1) method of reporting fs elements in dollars which have the same purchasing power.
2) accounting in units of current purchasing power
3) purchasing power indicates the ability of a dollar to command goods and services
4) requires classification of bs items as either monetary or nononetary
monetary items
1) amounts fixed by statute or contract (already stated in dollar terms- no need to be restated)
2) cash, account and notes receivable, accounts and notes payable, bonds payable
Nonmonetary items
1) require restatement
2) inventory, PPE, and unearned service revenue
CPI
historical cost (nominal dollars) x (price level adjusting to/price level adjusting from) = restated historical cost (constant dollar)
Holding of a nonmonetary asset such as land need not result in a loss of purchasing power because
the value of that land can “flow” within the price level (hence, the need for restatement).
If a monetary asset like cash is held during period of inflation with no interest
purchasing power is lost b/c cash will purchase less goods and services at YE than at beginning- this is called purchasing power loss
Monetary liability during inflation
More monetary liabilities than monetary assets, a purchasing power gain would result, since
Current cost accounting
valuing everything at current cost at BS date or at date of their use or sale; discards historical cost
Current cost income from continuing operations
sales revenue less expenses on a current cost basis
realized holding gains (different between current cost and historical cost of assets consumed) are then added to arrive at realized income, which will always be equal to historical cost less net income
unrealized holding gains (increases in the current cost of assets held throughout the year) are included tor esult in current cost net income
What is the same between historical and current cost?
Sales and some expense (salaries, rent etc)
When expense represents the use or consumption of an asset whose current cost has changed since its acquisition
must be expressed at current cost of the asset when used
Do holding gains reflect changes in general purchasing power?
No, holding gains are not reported net of general inflation when the reporting model is current cost/nominal dollar
Current cost/constant dollars
relationship measured is current cost but the measurement unit is restated dollars. Changes in both the general and specific price levels are separately recorded
Risks and uncertainties
Disclosed if existing as of date of fs, 4 types
1) Nature of operations
2) Use of estimates in preparation of FS
3) certain sig estimates
4) current vulnerability due to concentrations
Quantification used in disclosures
Not necessary, words like predominantly, equally, major, or other may be used
Nature of operations
1) Major products/services and principal markets served
2) industries operating within and relative importance of each industry, including basis of determination (Assets, revenue, or earnings)
Use of estimates in preparation of FS
1) Disclose by an explanation that management must use estimates
2) purpose is to alert users clearly to pervasiveness of estimates
Certain significant estimates
1) potential impact of estimates when reasonably possible the estimate will change in near term or effect of change could be material
2) contingencies
3) disclose of factors causing estimate to be sensitive to change is encouraged but not required
4) materiality is measured by the effect that using a different estimate would have on the financial statements
Current vulnerability due to concentrations
1) Management must know before FS issuance that they exist, make entity vulnerable to risk of near-term severe impact, reasonably possible events could cause problems
2) example: volume of business focused on one customer, lender, supplier, revenue from certain product or service
3) must dislcose percentage of labor covered by collective bargaining agreement and the percentage covered whose agreement expires within the year
4) describe for operations outside of home country, the carrying value of net assets and location
Comparative FS
1) purpose is to enable users to evaluate trends which may reveal info about company’s future performance.
2) SEC requires 2 year BS and 3 year IS and CF
Other comprehensive bases of accounting (OCBOA)
Cash basis, modified cash basis, tax basis, regulatory basis
Cash-basis
1) only asset is cash
2) revenue recognized when cash is received
3) expenses recognized when they are paid
4) rarely used
Modified cash basis
1) FS that are cash basis with modifications that have substantial support
2) present items as they would be in GAAP statements providing it is not illogical
3) ex. Fixed assets, inventories and related liabilities are typically recorded in modified cash basis statements
4) illegal modification would be recording ivnentories but not recording AP related to inventories
Tax basis
1) prepared based on tax laws and regulations
2) FS should not simply repeat items and amounts in tax return
3) all items should be fully reflected (like nontaxable municipal interest and nondeductible portion of travel and entertainment expense)
Titles of OCBOA statements
1) No regular titles “Balance sheet” “income statement” etc
2) can use “balance sheet-tax basis”, “Statement of assets and liabilities- modified cash basis”
3) notes to FS should disclose difference between OCBOA and GAAP basis as well as other info normally included in GAAP fs
Liquidation basis
when liquidation is imminent (remote likelihood the entity will return from liquidation and if either of the following exist)
a) an approved liquidation plan with remote likelihood of being blocked
or b) an outside force imposed plan
Liquidation basis measurement
1) Assets presented at amounts reflecting expected cash proceeds. Assets should include sellable items not previously recognized under US gaap (trademark)
2) liabilities are to be presented using current US GAAP guidance
3) accrue expected liquidation period costs and income
Liquidation basis disclosure
1) Plan
2) measurement methods and assumptions
3) expected period costs and income
4) expected time frame
Prospective financial information
1) Any info about the future
2) responsibility of management for assumptions underlying info
3) general use of fs by parties with whom responsible party is not directly negotiating
3) limited use by responsible party only or by responsible party and third parties directly negotiating
Financial forecast
Prospective FS that presents knowledge and belief of responsible party in terms of expected financial position, cash flow, results of operations
1) General or limited use
2) monetary amounts expressed as single point estimate of results or range
Financial projection
Prospective FS that present the knowledge and belief of responsible party based on one or more hypothetical assumptions, the enterprise’s financial position, results of operations and cash flows
1) assumptions not necessarily expected to occur
2) single-point or range
3) limited use
Why prepare prospective financials?
1) Obtain external financing
2) Consider a change in accounting or operations
3) Prepare budgets
Process for preparing forecasts and projections
1) Formal system
2) Carrying out a work program that outlines steps followed in preparation
3) Documented procedures, methods, and practices used in preparation
What should prospective financial info reflect?
1) Reflect reasonably object basis
2) In good faith
3) with due care by qualified personnel
4) in accordance with GAAP
5) with the highest quality information that is reasonably available
6) using info that is in accordance with plans of the entity
7) identifying key factors as basis for assumptions
8) using appropriate assumptions
9) providing ways to determine relative effect of variations in main assumptions (sensitivity analysis)
10) documenting forecast/projection and process used
11) providing for comparison of forecast/projection with attained results
12) prospective financial statement disclosures include summary of policies, significant assumptions
Registered securities
Unless exempt, companies with assets of more than $10 million and 500 or more shareholders and securities that trade on a national securities exchange or an over-the-counter market must have the securities registered
Regulation S-X
describes form and content of fs filed with SEC
Regulation S-K
describes the requirements for info and forms required by S-X
Regulation AB
reporting requirements for asset backed securities
Regulation fair disclosure (FD)
publicly traded cos disclose material info to all investors simultaneously
Form S1/F1
registration statements for US/foreign companies
Form 8-K/6-K
1) info about material events for US/foreign companies
2) mergers/acquistions, changes in directors or CEO, major changes in operations or status, changes in auditors etc
3) must be filed within 4 business days of occurrence of the events
Form 10-K/20F
1) annual report for US/foreign companies
2) foreign registrant can omit the reconciliation between US GAAP and home-country GAAP (ex IFRS) if foreign based company follows IFRS as issued by IASB
3) includes 4th quarter and year-end
4) provides comprehensive picture of a company’s performance
5) audited FS
6) due 60 days for large accelerated filers (more than 700 million in market value of voting and nonvoting stock)
7) 75 days after for between 75 M and 400M
8) 90 days after for all others
Form 10-Q
1) quarterly reports similar to 10K but in less detail
2) reviewed but not audited
3) 3 10-Qs every year
4) due 40 days after end of fiscal quarter for large and accelerated filers and 45 days for all others
Schedule 14A
Proxy statements
Accounting and auditing enforcement releases (AAERs)
announce enforcement actions of the SEC’s reporting and disclosure requirements
Accounting Series releases (ASRs)
issued from 1937-1982 are the pedecessor of Financial Reporting policies; those still in effect are codified
Financial reporting releases (FRRs)
update the SEC codification of Financial Reporitng policies and regularions S-K and S-X
Staff Accounting Bulletins (SABs)
unofficial interpretations relating to accounting and disclosure practices, SEC staff follow SABs when administering disclosure requirements, not legally binding
Staff legal bulletins
summarize the Commission staff’s views related to SEC regulations and federal securities laws, not legally binding
Staff no-action, interpretive letters
published SEC staff responses to interpretation inquiries, not legally binding
Trusts
1) entities formed to hold assets for the benefit of beneficiaries
2) administered by trustees
3) statement of assets and liabilites
4) statement of operations
5) statement of changes in net assets
6) accrual basis; assets at fair value
IAS 1
1) complete set of FS must be prepared annually
2) include statement of financial position, comprehensive income, changes in equity, cash flows, and notes containing sign accounting policies and explanations
IFRS FS format
1) heading: name of the entity, title of the statement and date of the statement
2) present a “true and fair view”.
3) IFRS must be used unless it would be misleading
Retrospective adjustments or reclassifies items- IFRS
1) 3 years of statements of financial position are required
2) presentation and classification of items on the financial statements should be consistent for the periods presented
IFRS basis
1) Accrual basis should be used with the assumption that entity is a going concern
2) Assets and liabilities should not be offset unless permitted
3) Income and expenses should not be offset unless permitted
4) offsets can be used for valuation purposes, such as contra assets (allowance for uncollectible or accumulated depreciation)
5) items on the FS should be presented separately for each material class of similar items. If item is not material, it may be aggregated with other items
IFRS subsequent events
Considered through the date the FS are authorized to be issued unlike US GAAP which considers sub events through the fs issuance date
IFRS current assets
1) within 12 months
2) if cash or cash equivalent- non-restricted
IFRS noncurrent assets
1) more than 12 months
IFRS current liabilities
1) settled within 12 months
2) certain liablities like trade payables or accruals for operating costs are classified as current regardless of the settlement date
IFRS interest-bearing liabilities
1) classified based upon wehether they are due within 12 months
2) however, if an agreement to refinance on a long-term basis is executed prior to FS date, liability may be classified as non-current. Executed agreement is not necessary
3) this is different from US GAAP, where if there is the intent and ability to refinance before the issuance of the FS, reclassification is permitted
4) IFRS: if agreement is made after BS date, then liability must be classified as current at the BS date.
5) Similar to US GAAP, if lt debt becomes callable due to violation of loan covenant, liability must be classified as a current liability
IFRS equity
1) number of shares of CS authorized, issued, outstanding
2) preference shares (preferred stock) must be disclosed separately including number authorized, issued and outstanding
3) redeemable preferred shares are classified as liabilities
4) treasury shares repurchased are stated at cost and shown as reduction to shareholder’s equity
5) accumulated OCI is reported in equity section and noncontrolling interests are reported separately in sharedholder’s equity
IAS 1 income statement
1) Revenue (referred to as income)
2) Finance costs (interest expense)
3) share of profits and losses of associates and joint ventures accounted for using equity method
4) tax expense
5) discontinued operations
6) profit or loss
7) noncontrolling interest in profit or loss
8) net profit (loss) attributable to equity holders in the parent
IAS 1 net profit (loss)
1) If entity acquires less than 100% of a sub, IS should indicate profit or loss attributable to the noncontrolling interest and the owners of the parent
IFRS vs US GAAP IS
1) IFRS does not permit the classification of items as “Extraordinary”
2) any gains or losses should be reported as income or expense
3) operating expenses may be classified either by nature of by function
4) Classification by nature is based on character of the expense
5) Classification by function is based on the purpose of the expenditure
6) US GAAP expenses are classified by function
7) For IFRS, finacne csots (interest expense) must be identified separately regardless of classification scheme used
IFRS operating expenses
Classified as distribution costs (selling expenses) and general and admin expenses
IFRS disclosure
1) If an item is material in amount and of such a size, nature, or incidence that disclosure is important to understand the performance of the entity, then the item should be disclosed separately
2) Example of disclosure: write-downs of inventory, writedown of PPE, restructuring costs, costs of litigation settlement, and reversals of provisions
IFRS discontinued operations
1) Same as US GAAP
2) if asset is classified as held for sale or part of disposal group, it is valued at lower of carrying value or fair value less costs to sell
3) write-downs net of tax is included
IFRS discontinued operations calculation
1) Calculate revenues, expenses, pretax profit or loss, and related income tax expense
2) Gain or loss on disposa or remeasurement is calculated with the related income tax expense
3) Total of these two amounts is determined net of tax and must be disclosed on IS
IFRS discontinued operations disclosure
Include pretax profit or loss, gain or loss on disposal, and tax effects, as well as net cash flows from operating, investing, and financing activities
IFRS comprehensive income
1) may be presented in one statement or two
2) 2-statement approach has a separate IS and then a second staetment, which begins with profit or loss and displays the components of comprehensive income
What is included in IFRS comprehensive income?
1) Changes in revaluation
2) Surplus for PPE
3) actuarial gains and losses on defined benefit plans
4) gains and losses from foreign currency translations
5) gains and losses on remeasuring available-for-sale financial assets
6) effective portion of gains and lsoses on hedging instruments used as cash flow hedges
7) each component of CI should be stated separately on statement of comprehensive income
IFRS Cash flows
1) similar to US GAAP
2) direct and indirect method is allowed
3) for indirect method, operating activities can be presented using a modified approach
IFRS indirect modified operating activities
Revenues and expenses in operating activities and then reports the changes in working capital accounts
Structure of IFRS cash flows
1) operating, investing and financing
2) at bottom, there is a reconciliation with amounts on the statement of cash flows and the cash and cash equivalents in the statement of financial position
IFRS cash flows differences from US GAAP
1) Interest and dividends received operating or investing
2) interest and dividends paid oerpating or financing
3) entity has discretion where to report interest and dividends- but it must be consistent
4) cash from purchase and sale of trading securities is operating
5) cash advances and loans (bank overdrafts) is operating
6) taxes paid on income disclosed separately in operating activities
7) certain taxes classified elsewhere if related to investing or financing
8) effects of noncash transactions are not reported, instead significant noncash activities should be disclosed in FS notes
