F1 Flashcards
Standard Setting, Income Statement, Reporting Requirements
What is FEDPRIA? (Standard setters of authoritative liaterature.)
- Financial Accounting Standards Board (FASB)
- Emerging issues task force (ETF)
- Derivative implementation group issues
- Accouting [P]rinciples Board Opinions
- Accounting [R]esearch bulletins
- Accounting [I]nterpretations
- American Institute of Certified Public accountants (AICPA)
Fundemental Characteristic of Useful Financial Information
Relevance and Faithful representation.
Passing Confirms Money
Factors that determine relevance
PCM
- Predictive Value
- Confirming Value
- Materiality
Completely Neutral is Free from error
Factors that determine Faithful Representation
[CNF]
- Completeness
- Neutrality
- Freedom from Error
Compare and Verify in Time to Understand
Enhancing Qualitative Characteristics
CVTU
- Comparability
- Verifiability
- Timeliness
- Understandability
SFAC No. 5 Recognition and measurement in the financial Statements: The 5 statements.
- Statement of Financial Position (Balance Sheet)
- Statement of Earnings (Income statement)
- Statement of Comprehensive Income
- Statement of Cash Flows
- Statement of Changes in Owner’s Equity
MR DR
The Fundemental Recognition Criteria
MR DR
- Measurability
- Reliability
- Definitions
- Relevance
Revenue Recognition Principle
Revenue is recognized when it is Earned, and realized or realizable.
Realization vs. Recognition (Revenue)
Realization - when entity obtains cash/right to receive cash (sale of asset) convert a noncash resource to cash
Recognition - actual recording of transactions and events in the Financial Statements
5, E Gc P Hc Rr
What are the Fundamental assumptions for Financial Statements? (GAAP)
- Entity: Economic activity can be accounted for when considering an identifiable set of Activities
- Going Concern: The entity will continue to operate in the foreseeable future-Monetary Unit Assumption: It is assumed that money is an appropriate basis be which to measure Economic activity
- Periodicity
- Historical Cost principle: As a General Rule, financial information is based cost, not current market value
- Revenue realization principle
IFRS has only 2 Fundamental assumptions
- Accrual Basis Accounting
- Going Concern
REGL ALE needs ID
Elements of Financial Statements?
REGL ALE needs ID
- Revenue, Expenses, Gains, Loses
- Assets, Liabilities, Equity
- Investment by Owners, Distributions by Owners.
UVOTE
FASB SFAC no. 7 Defines 5 elements of present value Measure for Assets and Liabilities
UVOTE
- Price for Bearing Uncertaintity (credit risk)
- Expectations about timing Variations of Future Cash Flows
- Other Factors (e.g. liquidity issues)
- Time Value of Money (Risk-free Rate of Interest)
- Estimate of Future Cash Flows
The process of putting Financial Information into a statement is to?
Recognize!
Examples of Extraordinary Items?
- Loss due to Infrequent Earthquake or Flood
- An Expropriation of an Asset by Government
- A prohibition of a product line by a newly enacted law or regulation
- Certain Gains or Losses from extinguishment long-term debt, provided that they are not a part of the entity’s recurring operations and, thus, meet the criteria of Unusual and Infrequent.
PEE
What are the 3 Accounting Changes?
PEE
- Changes In Accounting Principle
- Changes in Accounting Estimate
- Changes in Accounting Entity
Changes in Accounting Estimate are reported?
Prospectively. If the change in Estimate effects future periods (depreciation) it should be reported in a footnote.
Changes in Accounting Principle are Reported?
Retrospectively.
Prior period Financial Statements need to be Restated.
Rule: Reporting Changes should be recognized by adjusting the beginning Retained Earnings in the earliest period for the cumulative effect of the change in Accounting principle.
Change in Accounting Principle? (IFRS)
Adjustment to prior year’s R/E.
Must present 3 Balance sheets and 2 of each other Financial Statements.
An Error Correction is Reported?
Prior Period adjustment. If there are no comparative financial statements, adjustment to the opening balance of retained earnings net of tax.
IDEA
The order of Income Statement Items is a Nice…?
IDEA
- Income from Continuing Operations
- Discontinued Operations
- Extraordinary Items
- Adjustment in Accounting Principle Change.
Costs associated with Exit and Disposal Activities are?
- Involuntary employee termination benefits
- Costs to terminate a contract that is not a capital lease
- Other costs associate with exit or disposal activities, including costs to consolidate facilities or relocate employees.
PUFE-R
Other Comprehensive income is?
PUFE-R
- Pension Adjustments
- Unrealized Gains and Losses
- Foreign currency Items
- Effective portion cash flow hedges
- Revaluation Surplus.
Revaluation Surplus is?
IFRS only. Gains recognized in OCI when intangible assets and fixed assets are revalued in IFRS.
Under US GAAP comprehensive Income may be present in:
- Single statement of comprehensive income (GAAP, IFRS)
- Income statement followed by a separate statement of comprehensive income that begins with net income (GAAP, IFRS)
- Statement in changes in Equity (GAAP)
Summary of Significant Accounting policies is?
Required by both GAAP and IFRS
Summary of Significant accounting policies must not include?
- Composition of accounts and amounts in dollars of account balances
- Details relating to changes in accounting principle
- Dates of maturity and amounts of long-term debt
- Yearly computation of depreciation, depletion and amortization.
4
Disclosure of Risks and Uncertainties
F1-44
- Nature of Operations (Concentration exists at F/S date)
- Use of Estimates in Preparation of Financial Statements
- Certain Significant Estimates
- Current Vulnerability due to Certain Concentrations near-term severe impact
Interim Financial reporting addresses what enhancing characteristic?
Timeliness
Interim Financial Report should be viewed as
An integral part of the annual Financial statements.
Inventory Declines Permanent and Temporary?
Permanent: Recognize in the Quarterly Statement.
Temporary: Should not be recognized.
Income Taxes in Interim Statements.
Use the Effective annual rate. Tax is YTD total income times effective rate less previously booked tax.
Enacted or Substantially enacted
IFRS both.
GAAP - Only enacted!
Segment Profit or Loss formula
Revenues
Less: Traceable Costs
Less: Reasonably Allocated Costs
= Operating profit (loss)
The 10% size test rules for reporting segments
Meet ANY of the tests to qualify as reportable segment
- Revenue - A segment (including sales to External and Intercompany customers, but excluding interest income, on advances and loans to other segments
- Profit or Loss - Only if the combined entity profit is not a loss, and Combined loss of all segments did not report a loss
- Assets - Assets of segment must report to or are review by the CEO.
Under Regulation S-X must report a minimum of 2
Balance Sheets
10-Ks must be filed withing what time Frame?
60 days for large accelerated filers
75 days for accelerated filers
90 days for all other registrants.
Form 6K
Filed semiannually by foreign private issuers. Similar to 10Q contains unaudited Financial Statements, interim period MD&A, certain disclosures.
Form 11K
Annual report of company’s employee benefit plan(s)
Forms 3, 4, 5
Required to be filed by
- Directors
- Officers
- Beneficial owners with > 10% of a class of equity securities of the registered company
Forms 20F, 40F
Filed annually by foreign private investors
20F - Other non-US registrants
40F - Canadian companies registered b SEC
Form 8K
Reports major corporate events:
- Corporate acquisitions
- Disposals
- Changes in securities & trading markets
- Changes in corporate governance
- Changes to accountants or Financial Statements
Which statements are usually included in a set of personal financial statements?
A statement of financial condition and a statement of changes in net worth.
An income statement and a statement of cash flows are normally not included in a set of personal financial statements.
