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Becker FAR > All Chapters > Flashcards

All Chapters Flashcards

1
Q

Name the single source of authoritative nongovernmental U.S. GAAP

A

The FASB “Accounting Standards Codification” (ASC)

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2
Q

The term “international financial reporting standards” includes what standards

A

International Accounting Standards
International Financial Reporting Standards
IFRIC Interpretations
SIC Interpretations

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3
Q

Who are the primary users of general purpose financial reports?

A

Existing and potential:
Investors
Lenders
Other Creditors

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4
Q

Name the pervasive constraint on the information provided in financial reporting

A

Cost Constraint: the benefit of reporting financial information must be greater than the costs of obtaining and presenting the information

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5
Q

Name the fundamental qualitative characteristics of useful financial information

A

Relevance and Faithful representation

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6
Q

Name the three elements of relevance

A

Predictive Value
Confirming Value
Materiality

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7
Q

Name the three elements of faithful representation

A

Completeness
Neutrality
Freedom from error

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8
Q

Name the enhancing qualitative characteristics of financial information

A

Comparability
Verifiability
Timeliness
Understandability

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9
Q

According to SFAC No. 5 what should a full set of financial statements include?

A 
Balance Sheet
Income Statement
Statement of OCI
Statement of Cash Flows
Statement of Changes in Owners Equity
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10
Q

What is the difference between realization and recognition

A

Realized: When sold and converted to cash
Recognized: When recorded in F/S

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11
Q

List the 10 elements of financial statements

A 
Comprehensive Income
Revenues
Expenses
Gains
Losses
Assets
Liabilities
Equity
Investments by Owners
Distributions by Owners
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12
Q

List the six elements of financial statements according to the IASB framework

A 
Assets
Liabilities
Equity
Income (revenue & gains)
Expenses (expenses & losses)
Capital maintenance adjustments
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13
Q

Name the five elements of present value measurements

A 
Estimate of future cash flow
Expectations about timing Variations of future cash flows
Time value of money
The price for bearing uncertainty
Other factors
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14
Q

Describe the expected cash flow approach for present value computations

A

Considers a range of possible cash flows and assigns probability to each cash flow in the range to determine the weighted average or expected future cash flow

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15
Q

What is the presentation order of major components of an income and retained earnings statement?

A

I - Income from continuing operations
D - Discontinued Operations
E - Extraordinary Items
A - Cumulative effect of a change in Accounting Principle

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16
Q

The gain(loss) from discontinued operations can consist of

A

Impairment loss, gain(loss) from actual operations, and a gain(loss) on disposal

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17
Q

In what period are the following reported:

1) An impairment loss
2) Gain(loss) from actual operations
3) Gain(loss) on disposal

A

All are reported in the period which they occur

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18
Q

In reporting discontinued operations, how is a “component” of an entity defined under U.S. GAAP and IFRS?

A

US GAAP: Operating segment, reportable segment, reporting unit, subsidiary, asset group
IFRS: Separate major line of business or geographical area of operations, subsidiary acquired exclusively with a view to resale

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19
Q

How do we account for subsequent increases in the fair value of a discontinued component

A

Gain is recognized for subsequent increase in fair value minus costs to sell (but not in excess of previously recognized cumulative loss). Gain is reporting in period of increase

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20
Q

What types of costs are associated with exit and disposal activities?

A

Involuntary employee termination benefits, costs to terminate a contract

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21
Q

What types of costs are associated with exit and disposal activities

A

Involuntary employee termination benefits
Costs to terminate a contract that is not a capital lease
Other costs associated with exit or disposal activities

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22
Q

Define extraordinary items

A

Material in nature
Of a character significantly different from the typical or customary business activities
Not expected to occur in foreseeable future
Not normally considered in evaluating the ordinary operating results of an enterprise (Key words, unusual and infrequent) (Only under GAAP not IFRS)

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23
Q

List some examples of extraordinary items

A

The abandonment of or damage to a plant due to an infrequent earthquake or an infrequent flood
An expropriation of a plant by the government
A prohibition of a product line by a newly enacted law or regulation

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24
Q

Name the three types of accounting changes

A

Accounting principle, estimate, & entity

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25
Q

How is a change in accounting principle reported

A

Cumulative effect of change is included in the retained earnings as an adjustment of the beginning retained earnings balance of earliest year presented
Prior period financial statements are restated if presented

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26
Q

What are the special changes in an accounting principle? How are these changes in accounting principles reported?

A

A change to LIFO from another method inventory pricing under US GAAP
Any other change in which a cumulative effect adjustment is considered impractical to calculate
Special changes are reported prospectively (like a change in estimate)

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27
Q

How is a change in an accounting estimate reported?

A

Prospectively, effect is shown in the current and/or future periods that are affected by the change, financial statements are not restated

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28
Q

Under US GAAP how is a change in accounting entity reported?

A

All current and prior period financial statements presented are restate

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29
Q

How are error corrections reported

A

Reported as prior period adjustments to retained earnings and all comparative financial statements presented are restated

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30
Q

Define comprehensive income

A

Change in equity (net assets) that results from revenue, expenses, gains, and losses during a period, as well as any other recognized changes in equity that occur for reasons other than investments by owner owners and distributions to owners

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31
Q

Identify five items included in other comprehensive income (PUFER)

A

Pension adjustments
Unrealized gains and losses on available for sale securities
Foreign currency translation adjustments and gains/losses on foreign currency transactions that are designated as economic hedges of a net investment in a foreign entity
Effective portions of cash flow hedges
Revaluation surpluses (IFRS only)

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32
Q

List the two formats acceptable for reporting comprehensive income. How does this compare with IFRS?

A

(Single-Statement) Statement of Comprehensive Income
(Two-Statement) Statement of income followed by separate statement of comprehensive income
US GAAP & IFRS allow same two presentation

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33
Q

List some disclosure requirement for comprehensive income

A

Tax effect of each component included in current “OCI”
Changes in accumulated balances of components of “OCI”
Total accumulated “OCI”
Reclassification adjustments between “OCI” and net income

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34
Q

Identify the contents of the summary of significant accounting policies note to the financial statements

A 
Identify and describe: Measurement bases used in preparing the financial statements
Principles and methods
Criteria
Policies
Pricing
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35
Q

Describe the related party disclosures required under US GAAP & IFRS

A

Material related party transactions, related party notes/accounts receivable, control relationships (IFRS requires disclosure of key management compensation. US GAAP does not require this)

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36
Q

What are the US GAAP disclosure requirements for risks and uncertainties

A

Nature of operations, use of estimates in preparing the financial statements, significant estimates, current vulnerability due to certain concentrations

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37
Q

What are the guidelines for interim reporting

A

Use same accounting principles that were used in the most recent annual report, allocate expenses to the interim period benefited, revenues are recognized in the period in which they are earned and realized or realizable, total for “OCI” in condensed financial statements of interim periods

38
Q

What income tax rate is used in interim financial reporting

A

Use best estimate of effective tax rate to be applicable for full fiscal year on quarterly statements

39
Q

Name the four required disclosures for segments of an enterprise

A

Operating segments, products and services, geographic areas, major customers

40
Q

Define operating segment

A

Distinct revenue-producing components of the enterprise about which separate financial information is produced internally, and whose operating results are regularly reviewed by the enterprise
Determined using a “management approach”.

41
Q

Name two quantitative thresholds used in identifying reportable operating segments

A

10% “Size” test

75% “Reporting Sufficiency” test

42
Q

Describe the 10% test for identifying reportable segments

A

Revenue - Reported revenue including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segment
Reported profit or loss - Absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount of: (1) Combined reported profit of all operating segments that did not report a loss. (2) Combined reported loss of all operating segments that did not report a loss
Assets - Assets are 10% or more of the combined assets of all operating segments
(ONLY HAS TO MEET ONE OF THESE)

43
Q

What is the 75% for identifying reportable segments?

A

Combined external (consolidated) revenue of all reportable segments must be at least 75% of the total consolidated revenue of the entity, practical limit is 10 segments this isn’t a precise limit

44
Q

What are the disclosure requirement for reportable operating segments

A 
For each reportable segment the entity must report:
Identifying factors
Products or services
PRofit or loss details
Asset details
Liability details (IFRS only)
Measurement criteria
Reconciliations
45
Q

Define developement stage enterprise

A

Enterprise that devotes substantially all of its efforts to establishing a new business and either planned principal operations have not commenced or no significant revenue has been generated therefrom

46
Q

Indicate any special accounting treatment for development-stage enterprises

A

Same GAAP as established operating enterprises, with additional disclosures:
Identify statements as those of a development stage enterprise, accumulated losses identified as deficit accumulated during development stage, in the income statement show revenue and expenses, and cumulative total of both amounts from company’s inception, statement of cash flows include cumulative amounts of cash inflows and outflows from enterprises inception and current amounts of cash inflows and outflows for each period presented, issue a separate statement of stockholders equity, indicating shares issued, date of issuance, dollar amounts assigned, and noncash consderation, if any

47
Q

What is the date of an entity’s transition to IFRS

A

Date of opening balance sheet

48
Q

Describe form 10-K and 10-Q, what level of assurance must be provided with the financial statements submitted in these forms

A

10-K: Filed annually by US registered companies, includes summary of financial data MD&A, and AUDITED F/S

10-Q: Filed quarterly by US registered companies, included unaudited (reviewed) F/S, interim MD&A, and certain disclosures

49
Q

In general, what are the criteria for revenue recognition under U.S. GAAP

A

Earned and realized or realizable, meet the following four criteria; (1) Persuasive evidence of an arrangement exists (2) Delivery has occurred or services have been rendered (3) Price is fixed and determinable (4) Collection is reasonably assured

50
Q

What are the four categories of revenue transactions under IFRS and what are the common revenue recognition criteria for those catgories

A

Sales of goods, rendering of services, revenue from interest, royalties, and dividends, construction contracts
Common revenue recognition criteria include: Revenues and costs can be reliably measured, and it is probable that economic benefits will flow to entity. Each category has additional criteria

51
Q

When should revenue from the performance of services be recognized under US GAAP and IFRS

A

US GAAP - Period in which services have been rendered and are able to be billed

IFRS - Using percentage of completion method when the out come of the transaction can be estimated reliably

52
Q

What are the conditions for revenue recognition when the right of return exists?

A

Sales price is substantially fixed, buyer assumes all risks of loss, buyer has paid some form of consideration, product sold is substantially complete, amount of future returns can be reasonably estimated

53
Q

Name an example of both 1) accelerated 2) deferred revenue recognition relative to normal recognition when revenue is recognized at the time goods are transferred

A

Percentage of completion method is a long term construction is an example of accelerated

Installment method (cost recovery) is an example of deferred revenue recognition

54
Q

How are purchased intangible assets and internally developed intangible assets recorded under US GAAP and IFRS

A

Purchase Intangible Assets - Recorded at cost, including legal and registration fees, under GAAP & IFRS

Internally Developed Intangible Assets - Legal fees, costs of successful defense, registration fees, consulting fees, and design fees can be capitalized under GAAP & IFRS

Under US GAAP R&D costs must be expensed, under IFRS, research costs must be expensed but development costs may be capitalized if they meet certain criteria

55
Q

How are intangible assets reported under US GAAP and IFRS?

A

US GAAP: Reported at cost less amortization (finite life intangibles only) and impairment

IFRS: Reported using cost model or revaluation model, under revaluation model reported at fair value on revaluation date less subsequent amortization and impairment

56
Q

How should the contractual amounts of future services to be performed under a franchise agreement be accounted for by (1) Franchisor (2) Franchisee

A

Both should be recorded at their present value as unearned revenue by the franchisor until earned and as an intangible asset by the franchisee

57
Q

Define start-up costs; What is the accounting treatment of start-up costs?

A

Costs incurred for one-time activities to start a new operation. Start-up costs include costs incurred in the formation of a corporation.

Start-up costs are expensed in the period incurred

58
Q

Define goodwill

A

Excess of fair value of a subsidiary over the fair value of the subsidiary’s net assets, costs of maintaining and/or developing goodwill cannot be capitalized

59
Q

What is the maximum period over which an identifiable intangible asset (not goodwill) should be amortized?

A

Shorter of estimated useful economic life and its remaining life

Goodwill not amortized must be tested at least annually for impairment

60
Q

What is the proper treatment of research and development costs under US GAAP and IFRS

A

US GAAP: R&D expensed as incurred, unless expenditure is for capital assets that have alternative future uses or for research and development undertaken on behalf of others under a contractual arrangement

IFRS: Research costs must be expensed, development costs may be capitalized if certain conditions are met

61
Q

List some items not considered research and development costs

A

Routine periodic design changes
Marketing Research
Quality Control testing
Reformulation of a chemical compound

62
Q

When should the costs of developing computer software for resale, leases, or licensing be capitalized under US GAAP?

A

After technological feasibility has been established and before the product is released for sale

63
Q

How should the costs of capitalized computer software developed for resale be amortized under US GAAP

A

Annual amortization is the greater of: Percent of revenue method (Total capitalized amount X (current gross revenue / total projected gross revenue) or Straight Line (Total capitalized amount X (1/estimate of economic life)

64
Q

Outline the treatment of computer software developed internally or obtained for internal use only under US GAAP

A

Expense costs incurred in the preliminary project state and costs incurred in training and maintenance
Capitalize costs incurred after preliminary project state and for upgrades and enhancements
Capitalized costs should be amortized on a straight-line basis

65
Q

What is the test of recoverability for the impairment of long-lived assets other than goodwill under US GAAP

A

Finite Life: If undiscounted future cash flows expected from use of asset and eventual disposal is less than carrying value, recognize loss on impairment

Indefinite life: If FV is less than CV, recognize loss on impairment

66
Q

How is impairment of long lived assets other than goodwill analyzed under IFRS?

A

Compare carrying value of asset to assets recoverable amount, recoverable amount is greater than FV less costs to sell and assets value in use (PV of FCF)

67
Q

What is the calculation for impairment loss under GAAP and IFRS

A

GAAP: Amount by which carrying amount exceeds FV

IFRS: Amount by which carrying exceeds recoverable amount

68
Q

How is goodwill impairment analyzed under US GAAP

A

Goodwill impairment is analyzed at the reporting unit level using a two-step process:
Identify potential impairment by comparing FV of each reporting unit with its CV including goodwill
Measure amount of GW impairment by comparing implied fair value of reporting unit’s goodwill to it’s carrying amount
(Under US GAAP GW impairment test has been simplified by allowing companies to test qualitative factors first to determine whether it is necessary to perform two step test)

69
Q

How is goodwill impairment analyzed under IFRS

A

GW Impairment is done at cash-generating unit level using a one step test that compares CV of CGU to CGU’s recoverable amount, impairment losses are first allocated to GW and then allocated on a pro rata basis to other CGU assets

70
Q

Identify two methods of revenue recognition for long-term construction-type contracts under GAAP & IFRS

A

GAAP: Percentage of completion & completed contract

IFRS: percentage of completion & cost recovery

71
Q

For long-term construction type contracts when are losses recognized?

A

Immediately when discovered regardless of the method used for revenue recognition

72
Q

State the formula for recognizing the gain/loss on long term construction type contracts under percentage of completion method

A

(Total cost to date/Total Estimated Cost of Contract) x Total Estimated gross profit - GP recognized to date

73
Q

State the formula for calculating gross profit realized on installment sales

A

Cash recieved x (total gross profit/sales price)

74
Q

When are profits recognized under cost recovery method?

A

Profits are recognized only after costs have been recovered

75
Q

How are gains/losses on nonmonetary exchanges recognized under US GAAP

A

Commercial substance - Always on exchange equal to difference between FV and CV of given up items

No commercial - No gain, full losses

Boot received - Greater than 25% of consideration all gains/losses

76
Q

How are gains/losses on nonmonetary exchanges recognized under IFRS

A

Exchange of similar assets - No gain recognized, loss recognized in full

Exchange of dissimilar assets - All gains and losses recognized

77
Q

When will an asset exchange have commercial substance under US GAAP

A

Asset exchange has commercial when expects a change in future cash flows change is relative to FV of assets exchanged

78
Q

In a nonmonetary exchange what is the basis of the new asset under US GAAP?

A

Record at fair value + cash paid (-cash received) or FV of asset received (for commercial)

net book value of asset given up +/- cash in/out (non commercial)

79
Q

What are monetary items

A

Assets & liabilities that are fixed in amount by contract or in terms of number of dollars

Examples include cash, A/R, N/R, A/P and N/P

Items already stated in constant dollars

80
Q

What are nonmonetary items

A

Assets and liabilities fluctuate in value with inflation/deflation

Ex: inventories, PPE, capital stock, these items need to be restated to constant dollars

81
Q

Identify the two foreign currency activities

A

Foreign currency translations & transactions

82
Q

What is entity’s functional currency under US GAAP

A

Functional currency is the currency of primary economic environment in which entity operates, all of these conditions must be met:

Foreign operations are relatively self-contained and integrated within the county
The day-to-day operations do not depend on the parent’s or investor’s functional currency
Local economy of the foreign entity is not highly inflationary

83
Q

When is the translation method used?

A

Translation is used to restate financial statements denominated in the functional currency to the reporting currency

84
Q

When is the remeasurement method used?

A

Used to restate F/S from foreign currency to entity’s functional currency when:
Reporting currency is the functional currency & F/S must be restated in the entity’s functional currency prior to translating from the functional currency to the reporting currency

85
Q

Identify the exchange rate to be used when translating different components of the balance sheet and I/S

A

Assets & Liabilities - Current Exchange Rate

Common Stock & APIC - Historical Rate

Revenues & Expenses - Weighted Average exchange rate for the period

86
Q

Identify the exchange rate to be used when remeasuring different components of the B/S and I/S

A

B/S - Monetary (Current exchange rate) Nonmonetary (historical rate)

I/S - Balance sheet item (Historical Rate Non-balance sheet related (weighted average)

87
Q

Where are remeasurement gains/losses reported in the F/S

A

Remeasurement gains or losses are recognized on the I/S

88
Q

Where are translation adjustments reported in the F/S

A

Translation gains or losses are reported in OCI, treated as unrealized gain or losses

89
Q

State two types of foreign currency transactions

A

Operating transactions - importing, exporting, borrowing, lending, and investing

Forward exchange contracts - Agreements to exchange two different currencies at a specific future date and at a specific rate

90
Q

Where are foreign currency translations gains or losses reported in the F/S

A

Foreign currency transaction gains or losses are included in determining net income for the period

91
Q

For operating transactions in foreign currency, detail the recording process

A

Record original transaction at exchange or spot rate on date of transaction, at B/S date compute G/L on transaction by recalculating using current exchange or spot rate, on payment date compute G/L on transaction by using the exchange rate on payment date

92
Q

What are the general guidelines for OCBOA F/S presentation

A 
Different titles from accrual basis F/S
Required F/S are the equivalent of accrual basis B/S and I/S
F/S should explain changes in equity
Statement of Cashflows is not required
Disclosures should be similar to GAAP

Becker FAR (1 decks)

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