F1-NOTES Flashcards
What is the single source of authoritative nongovermental US GAAP?
FASB Accounting Standards Codification
What is the goal of IFRS and GAAP?
Single Set of high-quality international accounting standards that companies can use for both domestic and crossboard financial reporting.
Under Conceptual Framework-
Who are the primary users of Financial reporting?
External- Investors, Lenders, and other creditors
What are the fundamental qualitative characteristics?
Relevence and Faithful Representation
What are the characteristics of relevence?
Predictive Value
Confirming Value
Materiality
What are the characteristics of Faithful Representation?
Completeness
Neutrality
Freedom from Error
“Completely Neutral is free from error”
What are the enhancing qualitative characteristics?
Comparability
Verifiability
Timeliness
Understandability
“Compare & Verify in Time to Understand”
What is a full set of F/S?
Statement of Financial Position (B/S)
Statement of earnings (I/S)
Statement of Comprehensive Income
Statement of Cash Flows
Statement of Changes in Owners’ Equity
What GAAP method is least lilely to overstate assets and understate liabilitiies?
Conservatism Principle
What are the elements of F/S?
Comprehensive Income
Revenues
Expenses
Gains
Losses
Assets
Liabilities
Equity
Investments by Owners
Distributions by Owners
What are the 2 fundamental assumptions according to the IASB?
Accrual Basis Accounting
Going Concern
What are the five elements of Present Value Measurement?
- Estimate of future cash flows
- Expectations about timing variations of future cash flows
- Time value of money
- Price of bearing uncertainity
- Other factors (liquidity issues and market imperfections)
What is historical costs?
Is the actual exchange value in dollars at the time of the transaction
Example: PP&E
What is current cost?
is the cost athat would be incurred at the present time to replace an asset, the replacement cost or the lower recoverable amount.
Example: Inventory
What is Net Realizable Value?
the net realizable value of accounts receivable is the balance of the accounts receivable account less the allowance for uncollectible accounts.
What is the presentation order of the major componenets of an income and retained earnings statement
Income from Continuing Operations
Income from Discontinued Operations
Extraordinary Items
Cumulative Effect of change in Accounting Principle
What are the normal losses from discontinued operations?
Impairment loss
A g/l from actual operations
A g/l on actual disposal
Under GAAP-
a componenet of an entity may be
Operating Segment
Reportable Segment
Reporting Unit
Subsidiary
Asset Group
Under IFRS-
a component of an entity may be-
Major line of business or geographical area of operations
A subsidiary acquired exclusively with a view to resale
What is the critieria to be held for sale under GAAP and IFRS?
- Managmenet commits to a plan to sell the component
- The componenet is available for immediate sale in its present condition
- An active program to locate a buyer has been initiated
- The sale of the component is probable and the sale is expected to be complete within one year
- The sale of the component is being actively marketed
- Actions required to complete the sale make it unlikely that significant changes to the plan will be made or that the plan will be withdrawn
- Under IFRS- before a componenet can be classified as held for sale, the individual assets and liabilites of the component must be measured in accordance with applicable standards and any resulting gains and losses must be recognized.
When are the future operating losses expected to be incurred as part of an exit or disposal activity recognized?
In the period they occur
What is the definition of extraordinary items?
Material in Nature
Unusual and Infrequent
How are Non-extraordinary items presented?
As a separate component of “continuing operations”
Gross-Before Tax
What are some examples of Non-extraordinary items?
G/L from slae or abandonment of PP&E used in the business
Large Write downs or writeoffs
G/L from foreign currency transactions or translation
Losses from major strike
LTD extinguishments that are part of a common management stategy
Under IFRS - How are extraordinary items recorded?
They are not. Extraordinary items don’t exist in IFRS.
What are the 3 types of accounting changes?
- Changes in accounting estimate
- Changes in accounting principle
- Changes in accounting entity
How are changes in accounting principle accounted for?
Prospective- Implement in current period and continue in future periods
What happens if a change in accounting priniciple is inseparable from change in estimate?
Treat as a change in accounting estimate
Affects current and future income from continuing operations
How are changes in accounting principle accounted for?
GR: Retrospective Application
Direct effects of a change in accounting principle are adjustments that would be necessary to restate the F/S of prior periods.
What is the cumulative effect if non-comparative financial statements are presented for the change in accounting principle?
The cumulative effect of a change in accounting principle is equal to the difference between the amount of beginning RE in the period of change and what the RE would have been if the accounting change had been retroactively applied to all prior affected periods.
What is the cumulative effect if comparative FS are being presented of a change in accounting principle?
The cumulative effect is equal to the difference between beginning RE in the first period presented and what RE would have been if the new principle had been applied to all prior periods.
What are the exceptions to the GR for accounting for change in accounting pinciple?
- Impractible to Estimate- Ex LIFO - too difficult to recalculate layers of inventory
- Change in depreciation method
How do you account for a chang in accounting entity?
Retrospective Application
-If comparative FS are presented - Restatement to reflect information for the new entity
How do you account for an Error Correction?
RESTATE
What is included in OCI?
“PUFER”
P-Pension adjustments
U- Unrealized gains and losses (available-for-sale securities)
F-Foreign currency items
E-Effective portion cash flow hedges
R- Revaluation surplus (IFRS only)
What is comprehensive income?
Is the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.
What is a reclassification adjustment?
Move OCI items from AOCI to the I/S.
What is AOCI?
Accumulated Other Comprehensive Income-
Is a component of equity that includes the total of OCI for the period and previous Periods.
Under GAAP and IFRS - how can CI be presented?
Single Statement of CI
Two-Statement Approach - an income statement followed by a separate statement of CI that begins with net income
US GAAP ONLY - A statement of changes in equity
What does both US GAAP and IFRS require as an integral part of the F/S?
Description of all significant policies
What accounting policies are commonly described in the description of significant policies?
Basis of consolidation
Depreciation Method
Amortizaton of intangibles
Inventory Pricing
Accounting for Recognition of profit on LT construction contracts
Recognition of revenue from franchising or leasing operations
What are some items not included in the footnote of accounting policies?
Composition of accounts and amounts in dollars of account balances
Details relating to changes in accounting principles
Dates of maturity and amounts of LTD
Yearly computation of depreciation, depletion and amortization
What are some of the other notes to the F/S not presented in the body of the F/S or the Summary of Significant Accounting Policies?
Changes in Stockholders equity
Required marketable securities (carrying value & gross unrealized G/L)
Contingency Losses
Contractual Obligations (including restrictions on specific assets or liabilities)
Pension Plan Descriptions
Post-Balance Sheet Disclosures
What are some examples of Related Party Transactions?
Sales, puchases and transfers of real or personal property
Services received or furnished - such as acccounting, management, engineering and legal
Use of property and equipment by lease or otherwise
Borrowings, ledings and guarantees
Maintenance of compensating bank balances for the benefit of a related party
Intra-entity billings based on allocations of common costs
Filings of consolidated tax returns
Iterim Fiancial Reporting
-Just some information
- Not required under US GAAP or IFRS
- Public companies must file with the SEC
- Timeliness over Reliability (Unaudited)
- An integral part of Annual F/S
- Income tax expense is estimated each quarter
How does Segment Reporting help users of F/S?
- Better understand the enterprises’s performance
- better assess its prospects for future net cash flows
- Make more informed judgements about the enterprise as a whole
What are the required disclosures for all Public Enterprises?
- Operating Segments (annual and interim)
- Products and Services
- Geographic Areas
- Major Customers
What accounting principles do you use for segment reporting?
Use the same accounting principles as the Main F/S
What is the Quantitative Thresholds for Reportable Segments?
1. 10% “Size” Test
a. Revenue- Segment’s reported revenue is 10% or more of the combined revenue, internal and external, of all operating segments
b. Reported P&L - 10% more of profit or loss of combinted operating segments
c. Assets - Segment’s assets are 10% more of combined assets
2. 75% “Reporting Sufficiency” Test - If the total of external (consolidated) revenue reported by operating segments constitutes less than 75% of external (consolidated) revenue, additional operating segments need to be identified as reportable segments, even if they do not meet the above 3 tests, until at least 75% of external (consolidated) revenue is included in reportable segments
What happens during a development stage?
A company devotes most of its activities and resources toward establishing the business -
Start-up, Organizational Costs=expense immediately under GAAP
What happens at the first time adoption of IFRS?
An entity’s first IFRS F/S are the first annual F/S in which the entity adopts IFRS and makes an explicit and unreserved statement in those F/S of compliance with IFRS.
What must the entity’s first IFRS F/S include?
3 B/S
2 Statements of CI
2 I/S
2 Statement of Cash Flows
2 Statements of Changes in Equity
Related Notes
What should an entity dislcose?
How the transitition from previouse GAAP to IFRS affected its reported financial position, financial performance, and cash flows.
When a company issues new securities, it is required to submit a registration statement to the SEC that includes:
- Disclosures about the secuitities being offered for sale
- The relationship of the new securities to the company’s other securities
- Information similar to that filed in the annual filing
- Audited F/S
- A description of business risk factors
What is the form 10-K?
Must be filed annually by US registered companies.
The filing deadline for Form 10-K is 60 days after the end of the fiscal year for large accelerated filers, 75 days after the end of the fiscal year for accelerated filers, and 90 days after the end of the fiscal year for all other registrants.
These forms contain financial disclosures, including cummary of financial datat, management’s discussion and analysis (MD&A), and audited F/S prepared using GAAP.
What is the form 10-Q?
Form 10-Q must be filed by US Registered companies (issuers). The filing deadline for Form 10-Q is 40 days after the end of fiscal quarter for large accelerated fileres and acceleraged filers, and 45 days after the end of the fiscal quarter for all other registrants.
This form contains unaudited F/S prepared using US GAAP, interim period MD& A and certain disclosures
What is form 11-K?
This is the annual report of a company’s employee benefit plan(s).
What are forms 20-F and 40-F?
These forms must be filed annually by foreign private issuers.
Form 40-F is filed by specific Canadian companies registered witht he SEC and Form 20-F is filed by other non-US Registrants.
These forms are similar to Form 10-K and contain financial disclosures, including a summary of financial data, managements discussion and analysis (MD&A), and audited F/S.
The F/S may be prepared using GAAP, IFRS or a comprehensive body of accounting principles other than GAAP or IFRS.
What is Form 6-K?
This form is filed semi-annually by foreign private issures. This form is similar to the Form 10-Q and contains unaudited F/S, interim period MD&A, and certain disclosures.
What is Form 8-K?
This form is filed to report major corporate events such as corporate asset acquisitions or disposals, changes in securities and trading markets, changes to accountants or FS, and changes in corporate governance or management.
What are Forms 3, 4 and 5?
These forms are required to be filed by directors, officers, or beneficial owners of more than 10% of a class of equity securities of a registered company.
What is the Regulation S-X?
The SEC sets forth the “form and content” of and requirements for interim and annual FS to be filed with the SEC.
What are XBRL?
XBRL is a royalty free, open specification for software that use XML (Extensible Markup Language) data tags to describe financial information for business and fnancial reporting.
What is an XBRL Tag?
A machine readable code that gives a standard definition for each line in an IS, cash flow statement, BS or other financial or non-financial data, including data contained in the notes to the FS.
Recognized and processed by software
What is taxomony?
A taxonomy defines the specific tags used for individual items of business and financial data.
What is the SEC Interactive Data Rule?
The SEC’s Interactive Data Rule requires US public companes and foreign private issuers to present FS and any applicable FS schedules in an exhibit prepared using XBRL.
