F-1 standard setting, income statement and reporting requirements Flashcards
F-1
Which body is legally authorized to establish GAAP?
SEC
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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
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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
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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.
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What concepts are used to generally report revenues and expenses
Gross concept
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What concepts are used to generally defined gains and losses
Net concepts
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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)
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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
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What expenses are included in general and administrative
Officers salaries
accounting and legal
insurance
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What expenses are included in non-operating
Auxiliary activities
Interest expense
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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.
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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.
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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.
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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
F-1
Accounting changes are probably classified as:
Changes in accounting estimate
Changes in accounting principle
Changes in accounting entity
F-1
When is the change in accounting estimate occur when…
It is determined that the estimate previously used by the company is incorrect. This is not an error you were not to restate. Prospectively.
Changes in asset lives
Adjustment to YE accrual
Write down of obsolete inventory
No recurring IRS adjustments
Settlement of litigation
Changes in acct principles that are inseparable from a change in estimate
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What is a change in accounting principle
A change in accounting principle is a change in accounting from one county principal to another accounting principle (i.e. GAAP to GAAP or IFRS to IFRS)
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What are the three effects of the change in accounting principle
Direct effect - change in accounting principle or adjustments that would be necessary to restate the financial statements of prior.
Indirect effect - change in accounting principles are differences in nondiscretionary items based on earnings that would have occurred if the new principal had been used in prior.
Cumulative effect - if non-comparative financial statements are being presented the change in accounting principle is equal to the difference between the amount of beginning retain earning in the period of change and what the routine earning would have been. If comparative financials are being presented then the cumulative the fact is equal to the difference between the earliest period presented.
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What are the exceptions to the general rule for changes in accounting principle
Changes to LIFO and change in depreciation methods are done prospectively and not retro
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Under US GAAP a change in accounting entity occurs when?
When the entity being reported on has changed composition. Example includes consolidated or combined financial statements that are presented in place of statements of the individual companies and changes in the company is included in the consolidated statements from year-to-year
Note that IFRS does not have this concept.
F-1
What isComprehensive income?
The change in Equity (net assets) of a business during a period From transactions and other events and circumstances from non-owner sources.
F-1
What are the classifications of OCI?
PUFRR
P - pension adjustment U - unrealized gains and losses F - FX translations (unrealized) E - effective portion of cash flow hedges R - revaluation surplus (IFRS only)
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How’s your comprehensive income be reported
Comprehensive income and its components she’ll be displayed in the financial statements with the same prominence as other financial statements. Comprehensive income should not be reported on a per share basis
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How should OCI be reported
OCI maybe reported either net of taxes or before related taxes that with one amount shown for the aggregate income tax expense.
The income tax amount needs to be as close to either of these of the financial statement or in the notes
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Does comprehensive income need to be reported on an interim basis
Yes it shall be reported and condensed financial statements of interim. Issued to shareholders
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What are they required disclosures of accumulated OCI
1- Tax effect of each component
2- Changes in the accumulated balance (fave or notes)
3- total AOCI in BS as equity
4- reclassification adjustments
Disclose reclasses and current period OCI
May b present before or net of tax
May be on face or notes
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An entity cannot describe financial statements is complying with IFR S unless they comply with what?
I FRS requires an explicit and unreserved statements of compliance with I FRS in the notes of the financial statements
F-1
What are the differences between US GAAP estimate disclosure and IFRS estimate disclosure
I FRS requires disclosure of judgments and estimates that management has made in the process of applying accounting policies and I have a significant effect on the financial statements
US GAAP requires disclosure of significant estimates but does not require the disclosure of judgments
F-1
What is the definition of a related party
Affiliates of an entity
Entities accounted for using the equity method
Parent or subsidiary
Trust for the benefit of employees such as pension and profit sharing trusts
Management of an entity and their immediate family members
Owners of more than 10% of the voting interest of an entity (not mentioned in IFRS)
F-1
What should be disclosed for a material related party transaction under US GAAP
Material related party transactions under US GAAP does not include compensation arrangements expense allowance and other similar items in the course of business
Nature of the relationship Description of the transaction Dollar amount Due to due from Name of the related party if necessary
Disclosure should not imply that the related party transactions action is arm’s-length
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What are the disclosure requirements for a related party transactions for IFRS?
Material related party transactions includes compensation arrangements
Nature of the relationship Description Dollar amount Due to or from Allowance for bad debt Bad debt write off
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Under IFR S what should be included in the disclosure for key management personnel compensation
Total amount Short term employee benefits Post employment benefits Long-term benefits Termination benefits Shared-based payments
F – 1
For interim financial reporting companies income tax provision for the second-quarter should be determined using the:
Effective tax rate expected to be applicable for the full year as estimated at the end of the second-quarter
F-1
Our interim financial reporting’s required?
Under US GAAP or IFR S interim financial reporting is not required however public companies must file with the SEC interim quarterly reports
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What are two major differences between an interim report versus an annual report
For interim reporting only timeliness is emphasized over liability
Interim financial reports are on audited while annual reports are audited
F-1
Under IFR S interim financial statements are required to include At a minimum:
Condense balance sheet
Condensed statement of comprehensive income
Condition statement of changes in equity cumulatively for the current financial year
Condense statement of cash flow
Note: US GAAP does not establish presentation minimum for interim reporting
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How are income taxes expense estimated each quarter for interim financial statements
The general rule is to multiply the year to date income by the estimated effective tax rate for the year and subtract the results from the provision included in the previous quarter
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What is the objective of segment reporting
To provide information on the business activities and economic environment of a company to help users of the financial statements:
1) better understand enterprises performance
2) better assess its prospects for future net cash flow
3) make it more informed judgments
What are required disclosures for all public companies as it relates to segment reporting
Operating segment annual and interim
Products and services
Geographic area
Major customers
** intercompany transactions are not eliminated for segment reporting
** applies to public companies only
F-1
What is the definition of an operating segment
And operated segment is component of an enterprise that engages in the business activities from which it may earn revenue and Incurr expenses
Also whose iperaring results are regularly reviewed by the enteprise CEO or management approach method
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What part of the enterprise is not considered an operating segment or part of an operating
Corporate headquarters and pension plan
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What are reportable segments
Reportable segments are operating segments of an enterprise that meets the criteria for separate reporting basically breaking out what is material.
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What are the quantitative thresholds for reportable segments
1) 10% size test (of revenue/net income/or assets) (can be internal and external)
2) 75% reporting sufficiency test (of consolidated revenue)
Both have to be met
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Whawhat is the formula for segment profit or loss
Revenue
- directly traceable costs
- reasonably allocated costs
= ops profit (or loss) before tax
Excluded from segment NI:
- General Corp rev
- general Corp expenses
- interest expense
- income tax
- disc ops
- extraordinary items
- MI
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What is XBRL?
Extensible business reporting language that are data tags to describe financial information for business and financial reporting.
F-1
What do the XBRL tags include?
The machine readable codes include description labels, definitions, references to GAAP, and other elements that provide contextual information that allow data to be recognized and processed by software.
F-1
When a company issues new securities, it is required to submit to the SEC what form
A registration statement that includes disclosures about the securities being offered for sale; the relationship of the new securities to the companies other securities; information similar to that filed in the annual filing; audited financial statements; a description of business risk factors
F-1
What forms does the SEC required to be filed on an annual basis
Form 10-k for US public companies
Form 20F and 40F for foreign private issuers (may be prepared in GAAP/IFRS/local accounting, but reconciliation to GAAP is required)
F-1
What interim filings are required by the SEC?
Form 10-q for Us public companies filed quarterly
Form 6-k for foreign private issuers filled semi annually
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What is filled with the SEC to report employee benefit plans?
For 11-k
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What is filled with the SEC to disclose major events?
Form 8-k
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What are Forms 3,4, and 5 used for?
These forms are required to be filled by directors officers or beneficial owners of more than 10% of the class of equity securities registered company
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Under regulation S – ask what are the requirements for interim financial statements
Unaudited financials
Balance sheet income statement statement of cash flow
A accrual and match
Condense financial statements are OK
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What are the requirements for regulation S – K for the annual financial statements
It needs to be audited
Report to your balance sheet three years for Steven of income equity and cash flow
*I FRS requires only two years for all
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What are the costs associated with exit or disposal activities include:
Involuntary employee termination benefits
Cost 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.
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And entities commitment to an exit or dispose of plan by itself is not enough to result in liability recognition. A liability associated with an exit or disposal activity should be recognize only when all of the following criteria are met
1) An obligating event has occurred.
2) The event results in a present obligation to transfer assets or to provide services in the future.
3) The entity has little or no discretion to avoid the future transfer of assets or providing of services.
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Where will the costs associated with an exit or disposal activity related to discontinue operation be presented
The costs associated with an exit or disposal activity as a relates to a discontinued operation will be reported in discontinued operations
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Where will the cost associated with an exit or disposal and Tuesday not related to a discontinued operation
Income from continuing operations
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Under IFRS how should an entity record a change in accounting principle on the ballot sheet of retained earnings
Under IFRS, when an entity records a change in accounting principle, the entity must (at a minimum) present three balance sheets (end of current period, end of prior period, and beginning of prior period) and two of each other financial statement (current period and prior period). The cumulative effect adjustment is shown as an adjustment to beginning retained earnings on the balance sheet for the beginning of the prior period, which would be January 1 of the prior year.
