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FAR > F1: Standard Setting, Income Statement, and Reporting Requirements > Flashcards

F1: Standard Setting, Income Statement, and Reporting Requirements Flashcards

1
Q

US Standard Setting Bodies

A

SEC: allowed self-regulation by profession
FASB: determined GAAP since 1973

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2
Q

Codification

A

-single source of authoritative nongov’t GAAP
-contents: FEDPRIA
F – FASB releases (but not Statements of Financial Accounting Concepts)
E – EITF
D – Derivative Implementation Group
P – acc’t Principles Board Opinions
R – acc’t Research Bulletins
I – acc’t Interpretations
A – AICPA releases
-also includes relevant portions of SEC rules

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3
Q

FASB Codification Update Process

A
  • new Accounting Standards Updates

- majority vote of FASB board to issue Exposure Draft (for public comment) and then to amend the Codification

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4
Q

International Standards

A
  • IASB determines IFRS

- 9 members of IASB vote to issue Exposure Draft and then to approve new standard

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5
Q

Conceptual Framework

A
  • not IFRS or GAAP
  • IFRS: entities can consider framework concepts when no direct IFRS standard on point
  • GAAP: framework can’t be applied to specific issues
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6
Q

Objective of Financing Reporting

A
  • provide info useful to primary users
  • primary users: investors, lenders, creditors
  • financial info: entity resources, claims against entity and effectiveness of mgt use of entity resources
  • info used to assess future cash flow prospects
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7
Q

Characteristics of Useful Financial Info

A
  • fundamental characteristics: relevance (predictive value, confirming value, materiality) and faithful representation (completeness, neutrality, free from error)
  • enhancing characteristics: comparability/ consistency, verifiability, timeliness, understandability
  • benefits of info must exceed costs of obtaining/presenting it
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8
Q

Fundamental Assumptions

A
  • GAAP: entity assumption, going concern, monetary unit, periodicity, historical cost, revenue recognition, matching principle, accrual accounting, full disclosure, conservatism
  • IFRS: accrual accounting and going concern
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9
Q

Elements of Financial Statements

A
  • I/S: revenues and expenses (operating), gains and losses (non-operating, peripheral transactions)
  • B/S: assets (probable future economic benefits), liabilities (probable future sacrifices of economic benefits from a present obligation), equity (residual interest in assets)
  • investments by/distributions to owners (excluded from comprehensive income)
  • IFRS: also capital maintenance adjustments (changes in equity from assets/liability revaluation)
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10
Q

Present Value Measurements

A
  • elements: estimate of future cash flows, timing of cash flows, time value of money, price of bearing uncertainty, other factors (liquidity, etc.)
  • traditional approach (scheduled known payments) or expected cash flow approach (uncertain future payments, weighted average expected cash flows)
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11
Q

Income Statement

A

-revenues and expenses (gross amounts less returns/discounts), gains and losses (net amounts)
I – Income from continuing operations
D – Discontinued operations net of tax
E – Extraordinary items net of tax
A – cumulative effect of Accounting principle change net of tax (on statement of Retained Earnings)

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12
Q

Multiple Step Income Statement

A

Normal operations: Net sales – COGS = Gross Margin, minus Selling Exp, G&A Exp, Deprec Exp = Income from Operations
Non-operating: other revenues/gains/ expenses/losses, unusual OR infrequent items
Income before tax – taxes = Net Income
-COGS includes freight in
-Selling Exp includes freight out, advertising

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13
Q

Single Step Income Statement

A

-all revenues, minus all expenses (including taxes) = net income

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14
Q

Income from Discontinued Operations

A
  • impairment loss (any subsequent increase in value), gain/loss from operations, gain/loss on disposal – net of tax
  • held for sale: plan to sell, available for immediate sale, sale probable, no significant continuing involvement
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15
Q

Exit or Disposal Liabilities

A
  • involuntary worker termination benefits, costs to terminate contract other than capital lease, costs to consolidate facilities/relocate employees
  • criteria: obligating event, present obligation to transfer assets or provide services, little discretion to avoid obligation
  • liability measured at fair value
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16
Q

Extraordinary Items

A
  • material, unusual and infrequent
  • natural disasters (infrequent), expropriation/ prohibition of product line, gain/loss on retirement of debt (if unusual and infrequent)
  • not extraordinary: gain/loss of property abandonment, write-offs, foreign currency transaction gains/losses, employee strike, debt retirement if not unusual and infrequent
  • if unusual OR infrequent: in income from continuing operations and not net of tax
  • IFRS: no extraordinary items
17
Q

Change in Accounting Estimate

A
  • reported prospectively

- includes change in principle inseparable from change in estimate

18
Q

Change in Accounting Principle

A
  • change from one principle to another acceptable principle, okay if change required or new principle more fairly presents info
  • general rule: adjust beginning retained earnings for earliest period presented for cumulative impact of change (net of tax) and restate prior period statements in comparative presentation
  • prospective if change to LIFO inventory or change depreciation method (treated as both change in principle and change in estimate)
19
Q

Change in Accounting Entity

A
  • entity being reported on changes composition: consolidation instead of individual, or changes in entities that are consolidated
  • all presented statements retrospectively restated to show information for new reporting entity
  • IFRS does not have concept of change in accounting entity
20
Q

Error Correction

A
  • include change from non-GAAP to acceptable GAAP method of accounting
  • adjust beginning retained earnings of earliest year presented, net of tax
  • IFRS: if impracticable to determine cumulative effect, restate prospectively from earliest practicable date
21
Q

Other Comprehensive Income

A

P – Pension adjustments (GAAP: gains/losses, prior service costs, net transition assets/liabilities, in OCI until part of net periodic benefit cost; IFRS: actuarial gains/losses, not reclassified to NI)
U – Unrealized gains/losses on available for sale securities (and on debt reclassified from held to maturity to AFS)
F – Foreign currency items (translation adjustments, until sale of investment in foreign entity)
E – Effective portion of cash flow hedge (until cash flows realized)
R – Revaluation surplus (IRFS only, may transfer to Retained Earnings when asset used/sold)
-OCI closed to Accumulated OCI (part of shareholder’s equity)

22
Q

Reporting of Comprehensive Income

A
  • single statement: calculations of Net Income and OCI on one statement, totaling Comprehensive Income
  • two statement approach: start w/ Net Income (determined in prior statement) add OCI, to get Comprehensive Income
  • previously under GAAP: comprehensive income presented on Statement of Owners’ Equity
  • OCI reported net of tax or before tax w/ separate aggregate tax expense or benefit
23
Q

Significant Accounting Policies Note

A
  • integral part of financial statements
  • IFRS: explicit statement of compliance w/ IFRS
  • IFRS (disclosure of judgments and estimates), GAAP (disclosure of estimates)
24
Q

Related Party Disclosures

A
  • nature of relationship, transactions, amounts paid/due

- IFRS: also bad debt allowance/expense/write-offs, disclosure of key mgt compensation

25
Q

GAAP Risks/Uncertainties Disclosures

A

-nature of operations, use of estimates, significant estimates (probable will change and change will be material), risks due to concentrations

26
Q

Interim Reporting

A
  • not required under GAAP/IFRS, required by SEC for public companies, integral part of annual financial statements (and marked unaudited)
  • use accounting principles used in last annual report
  • timeliness emphasized over reliability
  • tax expense: use estimated annual effective tax rate
  • inventory decline: permanent (reflect during period, subsequent increase not to exceed prior losses), temporary (don’t recognize if expected to reverse before end of annual period)
27
Q

Segment Reporting

A
  • required for public companies
  • intercompany transactions not eliminated
  • operating segment: earns revenues, results reviewed by COO, discrete financial info available (not corporate headquarters or pension plan)
28
Q

Reportable Segment Tests

A
  • revenue test: 10% of combined revenue, internal and external, of all segments
  • profit or loss: absolute value of profit or loss is 10% of greater of combined profit of profitable segments or combined loss of loss segments
  • assets: 10% of combined assets of all segments
  • 75% reporting sufficiency: add segments until 75% of external (consolidated) revenue is reported
29
Q

Segment Disclosures

A
  • segment profit = revenue – traceable costs – allocated costs (as allocated by COO)
  • profit or loss, assets, liabilities (IFRS only, if provided to COO)
  • entity-wide disclosures: revenues from each product line, revenues/assets from geographic areas, major customers (10% of revenues)
30
Q

Development Stage Enterprise

A
  • GAAP, start-up company
  • expense start-up/org costs immediately
  • same financial statements as others, additional disclosures (cumulative accumulated deficit, losses, cash outflows)
31
Q

IFRS Adoption

A
  • first annual statement adopting IFRS and make explicit statement of compliance w/ IFRS
  • three B/S, 2 of all others
  • date of transaction is date of opening balance sheet
  • recognize all assets/liabilities per IFRS, revaluations made directly to beginning retained earnings
  • may value financial assets or liabilities or long-term assets at fair value
  • must use same accounting policies in opening balance sheet and all periods shown in first set of IFRS statements
  • disclose reconciliation of GAAP and IFRS equity and comprehensive income, recognition or reversal of impairment losses
32
Q

SEC Forms

A
  • Form 10-K: US annual report; w/in 60 days for large accelerated filers, 75 days for accelerated filers, 90 days otherwise
  • Form 10-Q: US quarterly report; w/in 40 days for accelerated filers or 45 days otherwise
  • Form 40-F (Canada) or Form 20-F (other): foreign annual report; GAAP, IFRS or OCBOA
  • Form 6-K: foreign semi-annual reports
  • Form 8-K: major corporate events
  • Forms 3/4/5: filed by directors/officers/10% owners
33
Q

SEC Financial Statement Requirements

A
  • Reg S-K: form and content of interim and annual statements
  • interim: review report, B/S (end of quarter and end of prior year), I/S (quarter, end of prior year to end of quarter, same periods for prior year), Cash Flow (end of prior year to end of quarter, same period from prior year)
  • annual: audited, 2 B/S, 3 of I/S, changes in equity, cash flows (IFRS: 2 of everything)
34
Q

XBRL Requirements

A
  • required for US/foreign issuers
  • tagging of financial statements, footnotes, other financial statement schedules
  • modified liability for first 2 years

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