F1P2-6/9- Reporting Flashcards
How are changes in accounting principle applied?
Retrospective Application:
- Prior Periods adjusted
- Retained Earnings adjusted
- Completed Contract to % Completion
Ex: LIFO to FIFO
Would a change from Completed Contract to Percentage of Completion be a change in accounting principle- or a change of estimate?
How would it be applied?
A change of principle.
Applied retrospectively.
Would a change from LIFO to FIFO be a change in accounting principle or a change of estimate?
How would this change be applied?
A change in accounting principle.
Applied retrospectively.
How is a change in accounting estimate applied?
A change in accounting estimate is applied prospectively (going forward).
No backwards adjustment is made.
Would a change from straight line depreciation to double declining balance be a change in accounting principle or a change in estimate?
How would this change be applied?
Change in depreciation method would be a change in accounting estimate.
It is applied prospectively.
How is a correction of an accounting error made?
Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements.
The correction of the error must be included in the footnotes.
What are the requirements for a prior period adjustment?
Effect is Material
Is identifiable in Prior Period
Couldn’t be estimated in Prior Periods
How is a change from a non-GAAP accounting method to a GAAP method recorded?
It is treated as a correction of an accounting error.
Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements
Correction of the error must be included in the footnotes
How does an inventory error effect the financial statements?
Effect on Ending Inventory= Effect on Net Income
- If one is overstated- both overstated.
- If one is understated- both understated.
Misstating inventory corrects itself after TWO periods.
How is a change in entity recorded?
Applied retrospectively.
All prior periods presented for comparative purposes must reflect the change
Footnote disclosures must be made
Changing to Consolidated Statements
What is the discreet view in an Interim Financial Statement?
Interim period is a separate accounting period - Quarterly.
NOT GAAP.
Same accounting principles used for annual reporting should be used.
Public Companies must file with the SEC.
What is the integral view in an Interim Financial Statement?
Interim period is a part of the annual period - GAAP
NOT audited
Gross profit method may be used to estimate COGS and inventory
Temporary declines in inventory aren’t recognized
How are Discontinued operations & Extraordinary items reported in Interim Financial Statements?
Aren’t prorated
Fully recognized in Interim Period as incurred
If it occurs in Q3 - it’s recognized in Q3
If inventory experiences a Decline in value during an interim period , the Loss is? If Temporary Loss?
- Recognized in the interim period
- Temporary: No loss is recognized
What is one of the primary problems with interim reporting?
- The matching principle gets messed up
- Expenses incurred in one period may benefit future periods
For whom is Segment Reporting required?
Publicly traded companies
Both US GAAP & IFRS
What factors cause a segment to be Significant and therefore to be reported separately?
10% or More of Total:
- Revenue of segment
- Profit
- Segment assets
75% Test:
- All segment revenues must equal 75% of total external revenues
What is the Disclosure requirement regarding sales of 10% or more for one customer?
- The segment making the sales must be disclosed
How are Cumulative Gains and Losses reported in Interim Financials?
Reported as if they occurred in the first quarter
International Convergence of Acct. Standards
- Differences of GAAP vs. IFRS
-Single set of high-quality international acct. Standards that companies can use for both domestic
&
- Cross border Financial Reporting
Multiple Step Income Statements
Operating Revenues & Expenses are Separate from
- Non-Operating Rev. & Exp.
&
- Other Gains & Loss
Discontinued Operations Losses can consist of:
- Impairment Loss
- Gain/Loss from actual operations
- Gain/Loss on Disposal
- All Amts. are included in Discontinued operations in the period they occurred (Net before)
Held For Sale
A Component of a business (US GAAP)
A Disposal Group (IFRS)
Items included in results for that Period: Discontinued Operations Calc:
- Results of operations
- Gain/Loss on disposal of the component
- Impairment Loss (subsequent increases in fair value) of the component.
Exit or Disposal Activity: Requires the recognition of?
US GAAP
A liability for the costs.
What are Exit & Disposal Costs?
- Involuntary employee termination benefits
- Costs to terminate a contract that is not a Capital Lease
- Other Costs: to consolidate facilities or relocate employees.
Criteria for Liability Recognition
- Obligating event has occurred
- Event results in a transfer of assets (Payment) or services in the future
- Little or no discretion to avoid the future transfer of assets or services.
What are the Major components of Comprehensive Income?
Net Income + Other Comprehensive Income (OCI):
Revenues/Expenses
Gains/Losses
Cumulative accounting adjustments
Reclassification adjustments
Non-owner changes in equity
What items are considered Cumulative Accounting Adjustments?
Foreign Currency Translation Adjustments
Unrealized gains on AFS Securities
Minimum Pension Liability adjustment for defined benefit plans
Total for the period & previous periods
What is the purpose of a Reclassification Adjustment?
Avoids double counting items that were included in both Net Income and OCI
Example: AFS Securities previously included in OCI are now sold at a loss and reported on the Income Statement
Where is Comprehensive Income reported?
Reported in a Single or Combined Income Statement
What Disclosures on accounting policies are required in financial statements?
Accounting Principles used, Basis of Consolidation
Inventory Pricing Methods, Depreciation Method
Amortization of Intangibles
What are some Major Risks and Uncertainties that must be Disclosed?
Nature of Operations
Use of Estimates and listing of Significant Estimates
Concentration vulnerability
Specific Items of Comprehensive Income
- Non-owner Transaction: PUFER:
P- Pension Adjustments U- Unrealized gains & losses F- Foreign Currency items E-Effective portion cash flow hedges R- Revaluation Surplus (IFRS ONLY)
Classified Balance Sheet
Distinguishes current & non-current assets & liabilities.
Both GAAP & IFRS require that: A description of all Significant Policies be included as?
- INTEGRAL part of Fin. Statements.
Income Taxes in Interim Fin. Statements
Expense is estimated each quarter.
Estimate of effective tax rate expected to be applicable for full fiscal year.
Segment Reporting:
Req. Disclosures for Public Companies
- Operating Segments
- Products & Services
- Geographic Areas
- Major Customers
Segment Reporting:
Intercompany Transactions
NOT eliminated for Reporting
What are Not an Operating Segment?
- Corporate Headquarters
- Pension Plans, Post retirement benefit plans.
Segment Profit/Loss Formula
Revenues
LESS: Directly traceable costs
LESS: Reasonably Allocated costs
=Operating Profit (or Loss) [EBIT]
SEC Required Forms
- Securities Offering Registration Statements
- Form 10-K & 10-Q
- Form 11-K
- Form 20-F & 40-F (Foreign Private Issuers)
- Form 6-K (not Quart.)
- Form 8K
- Forms 3,4 & 5
Requirements for Annual Financial Statements
- Audit Requirements
- Periods Presented (BS 2yrs & IS/CF@ 3yrs)
- Disclosure Requirement
XBRL Reporting Requirements
- XBRL: Extensible Business Reporting Language
- XML: Extensible Markup Language
- Both tell computers how to interpret the context of the text.
XBRL: Tags
- Machine Readable Code
-Includes:
~Descriptive labels
~Definitions
~References to GAAP
XBRL: Taxonomy
-Specific Tags used for individual items of Business & Financial data.
Required presented period for the Balance Sheet for Interim F/S?
- End of most recent Fiscal Q.
Required presented period for the Income St. for Interim F/S?
- Most recent Fiscal Q.
Required presented period for the St. of Cash Flows for Interim F/S?
- Period betwn end of preceding Fiscal yr. & end of most recent fiscal Q
Single Step Income Statement
- Total Expenses (including Income Tax Exp) are subtracted from Total Revenue.
Future Operating Losses expected to be incurred as part of an Exit or Disposal Activity are recognized?
- In the period incurred.
