Balance Sheet & Disclosures

Question 0

earned capital

Answer 0

retained earnings

AOCI

Question 1

contributed capital

Answer 1

capital stock (preferred and common stock + APIC)

Question 2

contra-equity accounts

Answer 2

reduces SE (i.e. treasury stock)

Question 3

notes to F/S

Answer 3

summary of significant accounting policies
remaining notes to F/S
related party disclosures
risk and uncertainties disclosures

Question 4

summary of significant accounting policies

Answer 4

required under both GAAP and IFRS

• measurement bases used in preparing F/S
• accounting principles/methods
• criteria
• policies
• pricing

Question 5

summary of significant accounting policies

GAAP vs IFRS

Answer 5

IFRS requires explicit statement of compliance with IFRS

no requirement for GAAP

Question 6

disclosure of process of applying accounting policies

GAAP vs IFRS

Answer 6

IFRS requires disclosure of judgments AND estimates in applying accounting policies

GAAP requires disclosure of significant estimates ONLY

Question 7

accounting policies in SSAP

Answer 7

basis of consolidation
depreciation methods
amortization of intangibles
inventory pricing
recognition of profit on LT construction contracts
revenue recognition from franchising or leasing operations

Question 8

remaining notes to F/S

Answer 8

contain all other information relevant to decision makers, not included in SSAP

• changes in SE
• contingency losses
• contractual obligations (operating leases, off B/S financing)
• post B/S disclosures

Question 9

related party disclosures

GAAP vs IFRS

Answer 9

both require disclosure of related party transactions…

GAAP, …excluding compensation arrangements, expense allowances, and other similar items in ordinary course of business

IFRS, …including compensation arrangements separately for each category of related party

Question 10

related parties

Answer 10

• affiliates of an entity
• entities accounted for using the equity method (investments in affiliates/joint ventures)
• parent/subsidiary entities of common parent
• trusts FBO employees
• immediate family members
• owners of more than 10% of voting interest and immediate family

Question 11

related party

GAAP vs IFRS

Answer 11

IFRS, principal owners are not mentioned as related parties

Question 12

related party transactions

Answer 12

• sales, purchases, transfers of real/personal property
• services received/furnished
• use of property/equipment by lease
• borrowings, lendings, guarantees
• maintenance of compensating bank balances
• intra-entity billings based on allocations of common costs
• filings of consolidated tax returns

Question 13

material related party disclosure

GAAP vs IFRS

Answer 13

GAAP: nature of relationship, transaction description/dollar amounts, amounts due to or from related parties, and name of related party

IFRS: same as GAAP PLUS allowance for DA, bad debt expense, and/or write offs from related parties

Question 14

related party notes/AR

GAAP vs IFRS

Answer 14

must be shown separately from general notes and AR under BOTH frameworks

Question 15

control relationships

GAAP vs IFRS

Answer 15

GAAP, should be disclosed even if there were no transactions between entities

IFRS, same as GAAP plus disclosure of parent company name and controlling party

Question 16

compensation arrangements disclosure

GAAP vs IFRS

Answer 16

GAAP: NOT required, but SEC regulations requires it outside F/S

IFRS: required for key management personnel compensation

• ST employee benefits
• post-employment benefits
• other LT benefits
• termination
• share-based payments

Question 17

disclosure of risks/uncertainties

GAAP vs IFRS

Answer 17

required under GAAP

• nature of operations
• use of estimates in preparation of F/S
• certain significant estimates
• current vulnerability due to certain concentrations

IFRS requirements focus on sources of estimation uncertainty

Question 18

nature of operations

disclosure of risks/uncertainties

Answer 18

• description of entity’s major products/services and its principal markets/location
• description of relative importance of each business (if operating multiple businesses)

Question 19

use of estimates in preparation of F/S

disclosure of risks/uncertainties

Answer 19

should include following statement:

“The preparation of F/S in conformity with GAAP requires management to make estimates and assumptions hat affect the reported amounts of assets/liabilities and disclosure of contingent assets/liabilities at the date of the F/S and the reported amounts of revenues/expenses during the reporting period. Actual results could differ from those estimates.”

Question 20

certain significant estimates

disclosure of risks/uncertainties

Answer 20

if an estimate change is reasonably possible and material, estimate of the effect should be disclosed.

i.e. inventory/equipment, deferred tax asset valuation allowances, capitalized computer software costs, loan valuation allowances, litigation-related obligations, LT obligation amounts

Question 21

vulnerability due to certain concentrations

disclosure of risks/uncertainties

Answer 21

arises when entity is exposed to risk of loss that could be mitigated through diversification

disclosed if ALL are met:

• concentration exists at F/S date
• concentration makes entity vulnerable to risk of a near-term severe impact (significant financially disruptive effect on normal functioning of entity)
• reasonably possible that events that could cause severe impact will occur in the near term

Question 22

examples of concentrations

Answer 22

• volume of business transacted with particular customer, supplier, lender, grantor, or contributor
• revenue from particular products, service, or fundraising events
• available supply of resources (materials, labor, services)
• market or geographic area

Question 23

estimation uncertainty
(disclosure of risks/uncertainties for IFRS)

Answer 23

• information about assumptions it makes about the future
• other major sources of estimation uncertainty (at end of reporting period) that have significant risk of resulting in material adjustment to the carrying amount of A&L within next financial year

notes should include details of nature and carrying amounts of A&L at end of reporting period