F-1 standard setting, income statement and reporting requirements Flashcards
F-1
Which body is legally authorized to establish GAAP?
SEC
F-1
Since 1934 these 4 different bodies of accounting professionals have determined GAAP since 1934
SEC
CAP - committee on accounting procedures
APB - accounting principles board
FASB - financial accounting standards board
F-1
What are the authoritative literature included in the codification
FEDPRIA
FASB (FAS, interpretations, technical bulletins, staff positions, staff implementation guides, statement 138 examples)
EITF
Derivative implementation group issues
Accounting principle board opinions
Accounting research bulletins
Accounting interpretations
AICPA (SOP, audit and accounting guides, practice bulletins, technical inquiry service)
F-1
SEC standards included in the codification for public companies
Regulation For Accounting I S Emerging
Regulation s-X
Financial reporting releases (FRR)
Accounting series releases (ASR)
Interpretative release (IR)
Staff accounting bulletins (SAB)
EITF Topic D and SEC observer comments
F-1
What is the difference between GAAP and IFRS when applying the conceptual framework?
IFRS directs entities to refer to and consider the applicability of the framework when developing accounting policies in the absence of standards or interpretation that specifically applies to an item.
Under GAAP, the conceptual framework cannot be applied to specific accounting issues.
F-1
What is the objective of general purpose financial reporting (SFAC no 8) - not GAAP
Provide financial info about the entity that is useful to the primary users for the herbal purpose financial report in making decisions for:
External decisions - investors/ lenders/creditors
Determine resources of an entity, claims against the entity, and how efficiently and effective the entity’s management and governing board have discharged their responsibilities to use the entity’s resources.
Financial info used to assess the reporting entity’s prospects for future net cash inflow to the entity.
F-1
What are the fundamental qualitative characteristics that must be present for the financial information to be useful?
(1) relevance
- predictive value
- confirming value
- materiality
(2) faithful representation
- completeness
- neutrality
- freedom from error
F-1
What are enhancing qualitative characteristics?
(1) comparability and consistency
(2) verifiability
(3) timeliness
(4) understandability
F-1
What are the 10 fundamental assumptions for the recognition and measurements in the financial statements?
Entity assumption (separate from owner)
Going concern assumption (Will continue operating)
Monetary unit assumption (should be measured in money)
Periodicity assumption (meaningful time period)
Historical cost principle
Revenue recognition principle (revenue should be recognized when it is earned and when it is realized or realizable)
Matching principle
Accrual accounting
Full disclosure principle (footnotes part of completeness requirement)
Conservatism principal
F-1
Under IFRS the IASB framework for the preparation and presentation of financial statement outlines what fundamental assumption?
Going concern
F-1
What is the purpose of the income statement?
Help users of the financial statement understand the performance of the company over a period of time. Performance equals the assets productivity did they create revenue and profit.
F-1
What concepts are used to generally report revenues and expenses
Gross concept
F-1
What concepts are used to generally defined gains and losses
Net concepts
F-1
What is the presentation order of the major components of an income and retained earnings statement
IDEA
Income or loss from continuing operations and non-operations before tax
Income or loss from discontinued operations (net of tax)
Extra ordinary items (net of tax)
Accounting principle changes (net of tax in retained earnings)
F-1
What are included in the inventory costs
Purchase price and freight in
F-1
What are included in selling expenses
Freight out
Salaries and commissions
Advertising
F-1
What expenses are included in general and administrative
Officers salaries
accounting and legal
insurance
F-1
What expenses are included in non-operating
Auxiliary activities
Interest expense
F-1
What are the benefits of the single step income statement presentation
Simple design and the fact that the presentation of types of revenues or expenses do not appear to the user to be classified as more important than others
F-1
What are the three calculations associated with discontinued operations?
Impairment loss
Gain/loss from operations before sale
Gain/loss on disposal after sale
F-1
What is the components of an entity
A component of an entity is a part of it entity at the lowest level for which operations and cash flow’s can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the entity.
GAAP - a component may be: Ops segments Reportable segment Reporting unit Subsidiary Asset group
IFRS - a component may be:
Separate major line of business or geographical area.
Subsidiary.
F-1
What is the definition of a business
The business is an integrated set of activities and assets that is conducted and manage for the purpose of providing return to investors or other owners members.
F-1
What is the definition of a nonprofit activity
Productivity is an integrated set of activities and assets that is conducted and manage for the purpose of providing benefits, other than goods or services at a profit, to fill an entity’s purpose or mission.
F-1
What are all the criteria is that have to be met to classify a component of the business (GAAP) or disposal group (IFRS) as “held for sale”
1) management has a plan to sell
2) available for immediate sale
3) active program to locate buyer
4) sale is probable and expected in a year
5) actively marketed
6) actively trying to complete the sale
F-1
What are the major differences in the valuation process for component held for sale between GAAP and IFRS
IFRS -
Before a components can be classified as held for sale, the individual assets and liabilities of the component must be valued
GAAP -
Does not require remeasurement of individual assets and liabilities before classification is held for sale, but the classification of a component of health for sale does trigger an impairment analysis of the entire component
F-1
When should the results of operation of a component of an entity be reported in discontinued operation
If it has been disposed of; or is classified as held for sale
Condition that must be present:
If the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results
Examples of strategic shifts: “GEL”
Geographic area
Equity method investment
Line of business
F-1
What types of calculations are included in the results of discontinued operations
1) Results of operation of the components for the entire period (i.e. If a component was determined to be held for sale in June 30th you would still need to take the hole operation amount for the full year at 12/31 and classify it under disc ops)
2) gain/loss on disposal (upon sale)
3) impairment loss
- initial and subsequent impairment losses
- subsequent increases in FV (gain cannot exceed cumulative loss)
4) depreciation and amortization is no longer required.
F-1
How are adjustments to amounts previously reported in discontinued operations that are directly related to the disposal a component of an entity in the prior classified?
Classified as a change in estimate and recorded in the current period (not retroactively restate).
Definition of directly related:
- demonstrates cause-and-effect relationship
- occurs no later than one year after the date of the disposal transaction
F-1
A liability associated with an exit or disposal activity should be recognized only when all of the following criteria are met:
Obligating event
Present obligation to transfer assets
Entity stops providing goods or services
Ops losses are booked in period incurred.
The liability is recorded based on the present value of the future cost to exit or disposal activity.
F-1
All of the following must be disclosed in the notes to the following financial statements in the period the Exit or disposal activity is initiated and all subsequent period Until the activities completed:
Description and expect completion date
Major costs associated with the activity
FSLI
Expected cost to be incurred
If FV cannot be determined…reason why should be disclosed
