Chapter 1 Conceptual framework and IFRS Flashcards
Roger Is PC
Fence-Faithful Representation
Relevance
Predictive Value
Confirmatory Value
Materiality
FENCE
Free From Error
Neutral
Completeness
CUT like an AV-
Comparablity
Understandablity
TImeliness
Verifyablity
Constraint
Cost/Benefit
IDEA
I: Income from continuing operations
D: Income from discontinued operations
E: Extraordinary items
A: Accounting principle changes (to retained earnings)
IDE are in the income statement
A is in retained earnings
Changes in Accounting Estimate
Prospective approach. Affects Current and future income from continued operations. Adjustments are made in current and future accounting periods. They do not affect previous periods. EX. Change in Useful life change in salvage value Etc.,
Change in Accounting entity
Retrospective Application (IFRS does not include the concept change in entity)
Change in Principle
GR-NON GAPP to Gaap=Error
Cahs Basis to accrual basis-(Error)-Retrospective
Restate prior years. COmmon Method is to change retained earnings
Based on Revenue Recognition a revenue is recognized when
A binding agreement exists Services Rendered or delivery has occurred fixed or determinable price exists Collection is reasonably assured
What are the eceptions to General rule
When we change to LIFO and change in in depreciation method prospective
Authoritative Literature Included int he codification is GAAP-FED PRIA
FASB Emerging issue task force Derivative implementation of group issues Principles board opinion Accounting Research Bulletins Accounting interpertations AICPA
Future operating losses
Are expected to be incurred as part of an exit or disposal activity are recognized in the periods they incur.
Five elements of Present Value Measurement
Estimate future cash flow Expectations about timing variations of future cash flows Time value of money The price of bearing uncertainty Other factors( Liquidity issues and market imperfections)
Historical Cost
What you would pay for
Faithful Representation-Reliable
Completeness Neutral free from error
Criteria for liability recognition
An obligating event has occurred The event results in a present obligation to transfer assets or to provide services in the future The entity has little or no discretion to avoid the future transfer of assets or providing of services
FASB Accounting standerd Codification Topics
Presentation 200-299 Assets- 300-399 Liablities 400-499 Equity 500-599 Revenues 500-599 Expenses 700-799 Broad Transactions 800-899 Industry 900-999
Does the SEC support IASB/FASB Convergence project
YES
Enhancing Qualitative Charecteristics
Comparability Understandablity Timeliness Verifyablity Constraint-Cost/effect
what does general purpose framework consist of
GAAP and IFRS
Relevance
Passing confirms money-Predictive Value, Confirming Value,Materiality
Three valuation techniques to measure an item at fair value
MIC-Market, Income or cost approach
To measure in monetary terms
Historical Cost, Replacement cost,FMV-THe price that we recd to sell an asset or transfer a liablity at a particular date,NRV,PV
Gains and losses
Not part of core business
SEC
Frames accounting principles
10 Key elements that make up all financial statements
Assets,Liabilities,Equity,Investments by owners, Distribution to owners, Comprehensive Income, Revenue,expenses,gains and losses
Basis of all FASB Pronouncements
SFAC
Under IFRS when an entity applies an accounting principle retrospectively or makes retrospective statements of accounts the entity must at a minimum present three balance sheets,(end of current period, end of prior period )
US GAAP does not have a three balance sheet requirement
Change in Accounting Principle
Retrospective Application that are inseparable from a change in estimate (e.g., a change from the installment method to immediate recognition method because uncollectible accounts can now be estimated)
Error Corrections
Error Corrections requires retroactive restatement but adjusting the beginning balance of retained earnings, net of tax in the earliest year presented. UNDER IFRS when it is impracticable to determine the cumulative effect of an error the entity required to reinstate prospectiviily. US GAAP
Revenues and expenses
operating
presentation order of the major components of an Income and retained earning statement
IDEA-mnemonic I-Income from Continuing operations-Gross and net profits Income from Discontinued operations Extraordinary Items Change of Accounting Principle_GR-(IF it presents more fairly old method)
Financial reporting Objective
Disclose Entity’s performance.
Assets
Propable future economic benefits
Depreciation
do it pro respectvily
Liablities
Probable future sacrifices
Comprehensive Income
All Changes in equity other than owner resources-These Items affect Comp.Income but not net income(DENT): Derivative Cash Flow Hedges Excess Adjustment of Pension PBO and FV of plan assets at year end Net unrealized gains or losses on “available for sale securities” Translation adjustment of foreign currency
Reliability-Faithful Representation-Fence
Free From Error Neutral Completeness
Exit or Disposal activities
Costs associated with exit and disposal activities include: Involuntary employee termination benefits Costs to terminate a contract that is not a capital lease Other costs associated with exit or disposal activities including costs to consolidate facilities or relocate employees.
Accountancy rules and Concepts
Consistancy,conservatism, Cost/Benefit, Matching,Allocation full disclosure Recognition and reliazation
What is Comprehensive Income
gain on trading securities
Non-Owner Transactions. They dont go on income statement . They go direct to equity. Comprehensive income should not be on per share basis. Statement of Comprehensive income could be either one or two statement approach.
Excludes owners income. If they buy ore stock and we give them sahres of stock in excahnge for cash that is not net income.
COmeprehensive income is the sum totoal of Net Income and other comprehensive income. The four main parts of other comprehensive income include,Pension changes in funded status due to gains/losses,prior service costs, and net transition assets/obligations. Unrealized gains and losses onand unrealized holding and losses on debt securities transffered from held to maturity for available sale classfication available for sale securities Foreirn currency items including translation adjustments. The minimum pension liablity adjustment is no longer required under US. GAAP.Comprehensive income is reported under Interim reporting too. Unrealized gain on trading securities is not included in IFRS
How do you show Income Tax Benefit
Change in Accumulated balances
In the foot notes
The change in Accumulated balances may be shown on the face of the financial statements or in the notes of the financial statements.
IFRS VS US GAAP
IFRS requires disclosure of judgements and estmates that management made int he process of appyling accounting policies that have significant effect on the financial statements. US GAAP require disclosure of significant estimates but does not require the disclosure of judgements made.
What are reportable segments of the company
10% Size Test-Must meet only One
Revenue-A segment must meet the size test of its reported revenue including both sales to external customers and intersegment sales or transfers (but excluding income on advances and loans to other segments), is 10% or more of the combined revenue, internal and external of all operating segments. Operating profit by segments is based onthe measure of profit reported to the chief operating decision maker.
Profit and loss
Assets
What is all other segment
Any reporting activity that is not included in the 10% will be lumped together and will be reported in all other segment.
Balance Sheet
BS must be 3 and all others must be 2
End of Current period,end of prior period begining of prior period
PUFER mnemonic
Represents the five commonly tested sources of other comprehensive income.
P: Pension adjustments
U: Unrealized gains and losses on AFS securities
F: Foreign currency translation item
E: Effective portion of cash flows hedges
R: Revaluation surpluses (gains) recognized when intangible assets and fixed assets are revalued under IFRS
What are the conditions to be met for held for sale Entity
All of the conditions must be present:
Management commits to plan to sell the component
THwe component is for slae in its present condition
An Active program to locate an buyer has been initiated
The sale of component is propable nad the sale is expected to be completed in one year
The sale of component is actively marketed
Actions required to ocmplete the sale make it unlikely that significiant changes to the plan will be made or the plan will be withdrawn
The only party releated transaction which requires disclosure is
loans to officers
Under IFRS Loans to officers and Key management compensation requires disclosures
When to record expected loss
When the loss is propable and estimable the loss must be recorded in that quarter full
What is the appropirate methodology to record interim income tax
The appropriate methodology is to calculate the incometax for the whole year and reduce the expenses recorded in the previous quarter .
Form 20-F
Form 10-K
Form 3.
Form 11-K
Forms 20-f
Forms 10K
Form 3
form 11K
Form 3 is required to fill by officers directors or beneficial owners of a class of equity securities of a registered company
Form 10k is the annual report of a us registered company and would contain financial statements
Form 20-F is the annual report of a US non registrant and would contain finnacial statements.
Form 11 k is the annual report of an employees benefit plan and would contain finnacial statemnts of the benefit plan
