Evaluating Financial Statements Flashcards
Define “nonmonetary items”.
The specific price of nonmonetary items can change.
Define “monetary items”.
The specific price of monetary items cannot change.
Define “purchasing power”.
The purchasing power of an asset is the amount of goods and services that can be obtained by transferring the asset to another party.
Define “specific price change”.
The change in the price of a specific good or service over a period of time.
Define “constant dollars”.
Measurements in the general price level as of a specific date.
Define “nominal dollars”.
Measurements in the price level in effect at a transaction date. These measurements are not adjusted for inflation.
Define “general prices”.
The term general prices refers to a market basket of items that the typical consumer purchases.
Define “inflation”.
It is the increase in general prices for a period of time; deflation is the decrease in general prices.
What is the Management Discussion & Analysis (MD&A) section?
Management Discussion & Analysis: a narrative written by management that is an integral part of the disclosure of the financial statements.
What is included in illegal acts for companies?
Illegal contributions and bribes.
What is the difference between errors and irregularities?
Errors are unintentional, irregularities are intentional.
What are the disclosure requirements for noncurrent liabilities?
Combined aggregate amount of maturities on borrowings 5+ years after balance sheet, sinking fund requirements; the aggregate amount of payments for unconditional obligations to purchase fixed or minimum amounts of goods or services; the fair value of each financial debt instrument in the financial statements or in the notes; the nature of the firm’s liabilities, interest rates and maturity dates, conversion options, assets pledged as collateral, and restrictions.
What is a development stage enterprise?
An enterprise placing substantially all its efforts into the establishment of a new business.
What is presented in the related party transaction disclosures?
Nature of relationship, description of all transactions for years presented, dollar amounts of transactions, and receivables to or from parties.
What does the first footnote typically cover?
Summary of significant accounting policies.
What disclosure is required by firms in hyperinflationary economies under International Financial Reporting Standards (IFRS)?
Disclosure of the impact of inflation on the financial statements is required.
Under International Financial Reporting Standards (IFRS), what should the Summary of Significant Accounting Policies include?
?Judgments and key assumptions made in applying those policies;
?Measurement bases used for recognition (e.g., historical cost, fair value);
?Information enabling an assessment of the estimation uncertainty that could result in a material adjustment to the balances of assets and liabilities, which are point estimates in many cases.
Define “purchasing power loss”.
Losses that result from holding monetary assets during inflationary times or having monetary liabilities during deflationary times.
Define “purchasing power gain”.
Gains that result from holding monetary assets during deflationary times or having monetary liabilities during inflationary times.
Development stage companies have the same disclosure requirements as other companies.
FALSE
The related party footnote must disclose the names of all related parties and affiliates.
FALSE
IFRS footnote requirements require a statement that the financial statements are in compliance with IFRS.
TRUE
