F1 Flashcards
What is the presentation order of the major components of the income and retained earnings statement? IDEA
Income statement - income(loss) from continuing ops, income (loss) from discontinued ops, extra ordinary items / retained earnings stmnt - cumulative effect of a change in accounting principle
Name the single source of authoritative nongovernmental US GAAP
The FASB “accounting standards codification” (ASC)
The term international financial reporting stds includes which stds?
International accounting stds (IAS) / international financial reporting stds (IFRS) / IFRIC interpretations / SIC interpretations
The gain (loss) from discontinued ops can consist of…
An impairment loss, a gain(loss) from actual ops, and a gain(loss) from disposal
Who are the primary users of general purpose financial reports?
Existing and potential investors, lenders, other creditors
In what period are the following reported: an impairment loss? A gain(loss) from actual operations? A gain(loss) on disposal?
All are reported in the period in which they occur.
Name the persuasive constraints on the information provided in financial reporting?
Cost constraint : the benefit of reporting financial information must be greater than the costs of obtaining and presenting the information.
In reporting discontinued ops how is a “component” of an entity defined under US GAAP & IFRS?
US GAAP - 1. An operating segment 2. A reportable segment 3. A reporting unit 4. A subsidiary 5. An asset group
IFRS- 1. A separate major line of business or geographical area of operations 2. A subsidiary acquired exclusively with a view to resale
Name the fundamental qualitative characteristics of useful financial information
Relevance & Faithful representation
How do we account for subsequent increases in the fair value of a discontinued ops?
A gain is recognized for the subsequent increase in fair value minus costs to sell(but not in excess of the previously recognized cumulative loss) the gain is reported in the period of increase.
Name the three elements of relevance
Predictive value, confirming value, and materiality
What type of costs are associated with exit and disposal activities?
Involuntary employee termination benefits, costs to terminate a contract that is not a capital lease, other costs associated with exit or disposal activities
Name the three elements of faithful representation
Neutrality completeness and freedom from error
Define extraordinary items
Material in nature, of a character significantly different from the typical, not expected to happen again . UNUSUAL & INFREQUENT . Remember: extraordinary items are not allowed under IFRS
Name the enhancing characteristics of financial information
Understandability, comparability, timeliness, verifiability
List some examples of extraordinary items
The abandonment of or damage to a plant due to infrequent earthquake/flood, an expropriation of a plant by the govt, a prohibition of a product line by a newly enacted law/regulation
According to Sfac no 5 what should a full set of financial statements include?
Statement of financial position (balance sheet), statement of earnings (income statement), statement of comprehensive income, statement of cash flows, and statement of changes in owners equity
Name the three types of accounting changes
Change in an accounting principle, change in accounting estimate, and change in accounting entity
What is the difference between realization and recognition
Realization : when sold and converted to cash (or claims to cash) / Recognition: when recorded in the financial statements
How is a change in accounting principle reported?
Cumulative effect of change is included in the retained earnings statement as an adjustment of the beginning retained earnings balance of the earliest year presented. Prior periods financial statements are restated if presented.
List the 10 elements of financial statements according to SFAC NO. 6 CREG & LALEID
Comprehensive income, revenues, expenses, gains & losses, assets, liabilities, equity(of net assets) investment by owners and distributions by owners.
What are the special changes in an accounting principle? How are special changes in accounting principle reported?
A change to LIFO from another method of inventory pricing under US GAAP. / Any other change in which a cumulative effect adjustment is considered impractical to calculate. Special changes are reported prospectively like a change in estimate.
List the six elements of financial statements according to the IASB framework
Asset, liabilities, equity, income (revenue & gains), expenses(expenses & losses), capital maintenance adjustments
How is a change in accounting estimate reported?
Prospectively - the effect is shown in the current & or future periods that are affected by the change. Financial statements are not restated
Name the five elements of present valuation measurements per Sfac No. 7 EVTUO
Estimate of future cash flow, expectations about timing variation of future cash flows, time value of money (the risk free rate of interest) the price for bearing uncertainty, other factors (liquidity issues and market imperfections)
Under US GAAP how is a change in the accounting entity reported?
All current & prior periods financial statements presented are restated
Describe the expected cash flow approach for present value computations
Considers a range of possible cash flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted average or “expected” future cash flows
How are error corrections reported?
Reported as prior period adjustments to retained earnings and all comparative financial statements presented are restated.
Define comprehensive income.
Changes in equity (net assets) that result from revenue, expenses, gains, and losses during a period as well as any other recognized changes in equity that occur for reasons other than investment by owners and distributions to owners.
Identify five items included in other comprehensive income PUFER
Pension adjustments, unreleased gains and losses on AFS securities, foreign currency translation adjustments and gains & losses on foreign currency transactions that are designated as economic hedges of a net investment in a foreign entity, effective portion of a cash flow hedge, revaluation surplus (IFRS only)
List the two formats acceptable for reporting comprehensive income. How does this compare with IFRS?
Statement of comprehensive income(single statement approach) / Statement of income followed by separate statement of comprehensive income (two statement approach) US GAAP & IFRS both allow the same two presentations
List some disclosure requirements for comprehensive income
Tax effect of each component included in OCI. Changes in the accumulated balances of components of OCI. Total accumulated OCI. Reclassification adjustments between OCI and net income.
Identify the contents of the summary of significant accounting policies note to the financial statements
Summary of significant accounting policies - ID and describe measurement bases used in preparing financial statements, principles and methods, criteria, policies and pricing
Describe the related party disclosures required under US GAAP and IFRS
Material related party transactions, related party notes/accounts receivable, control relationships. Note: IFRS requires disclosure of key management compensation. US GAAP does not require this disclosure
What are the US GAAP disclosure requirements for risks and uncertainties?
Nature of operations, use of estimates in preparing the financial statements, significant estimates, current vulnerability due to certain concentrations
What are the guidelines for interim reprinting?
Use same principles that were used in the most recent annual report, allocate expenses to the interim periods benefited, revenues are recognized in the period in which they are earned and realized or realizable, a total for comprehensive income in condensed financial statements of interim periods
What income tax rate is used in interim financial reporting?
Use best estimate of effective tax rate to be applicable for full fiscal year on quarterly statements
Name the four required disclosures for segments of an enterprise
Operating segment, product and services, geographic areas, major customers
Define operating segments
Distinct revenue producing components of the enterprise about which separate financial information is produced internally and whose operating results are regularly reviewed by the enterprise. Determined using a “management approach”
Name the quantitative threshold used in identifying reportable operating segments
10% size test, 75% “reporting sufficency” test
Describe the 10% test for identifying reportable segments
Revenue reported revenue including both sales to external customers and inter segment sales or transfers is 10% or more of the combined revenue, internal or external of all operating segments. Reported profit or loss the absolute amount of its P&L is 10% or more of the greater, Assets. Only need to meet one requirement.
What is the 75% test for ID reportable segments?
Combined external (consolidated) revenue of all reportable segments must be 75% of the total consolidated revenue of the entity. The practical limit is 10 segments but this is not a precise limit.
What are the disclosure requirements for reportable operating segments?
For each reportable segment entity must report identifying factors, products or services, profit or loss details, asset details, liabilities (IFRS) only, measurement criteria and reconciliation
Define development stage enterprises
Enterprises that devote substantially all of its efforts to establishing a new business and either planned operations have not commenced or no significant revenue has been generated therefrom.
Indicate any special accounting treatment for development stage enterprises
Same GAAP as established. Accumulated losses, cumulative amounts. Issue separate statement of stockholders equity
What is the date of an entity’s transition to IFRS?
The date of the opening balance sheet
Describe the form 10K and 10Q what level of assurance must be provided with the financial statements submitted in these forms.
Form 10k - filed annually and audited
Form 10Q - filed quarterly and reviewed.
