F2

Question 1

Order of Notes to the FS

Answer 1

1./later Nature of Operations:Description of a company’s major products/services and its principal markets (inc. locations)

1/2. Summary of Significant Acc’g Policies (always 1 or 2 depending if there is a Nature of Ops is 1., which 50% of companies do)
- includes criteria for determining which investments are treated as cash equivalents

3. All other standard notes
4. Use of Estimates - standard paragraph stating estimates are used.
5. Certain Significant Estimates - when it is reasonably possible an estimate will change in the near term
6. Current Vulnerability Due to Certain Concentrations (see other slide)

Question 2

Facts re Concentrations disclosure

Answer 2

A Concentration exists when exposed risk of loss that could be mitigated through diversification.

Disclose an existing concentration (even if no perceived near-term risk) by disclosing the amount of the entity’s revenue from each customer (or other risk source)

Disclose when it is reasonably possible that a concentration will make entity vulnerable to near-term severe impact.

Question 3

Two categories of subsequent events

Answer 3

1. Recognised Subsequent Events (record a Journal Entry in period and disclose):
   a. Settlement of Litigation (that started before BS date)
   b. Loss on an Uncollectible Receivable (in AR at BS date)
2. Unrecognised Subsequent Events (disclose only). These happened after BS date and did not exist at BS date.

N.B. if a BS classification (Current vs non-current) changes as a result of an SE then you do update the classification in he FS (not just the notes)

Question 4

Subsequent events if FS are Reissued or Revised

Answer 4

Keep original subsequent event timeline (from BS date to date of FS issue/available for issue). Don’t recognise Subsequent Events from original issue date to reissue date unless a prior period adjust is required by US GAAP.

If not an SEC filer then entity must disclose the dates through which Subsequent Events were evaluated. Not required for SEC filers

Question 5

When are non-SEC filing accounts considered “issued” and “available to be issued”

Answer 5

“issued” when:

a) the FS are in a form that complies with GAAP

b) the FS have been distributed widely to users

“available to be issued” when:

a) the FS are in a form that complies with GAAP

b) all approvals necessary for the issuance have been rec’d

Question 6

Subsequent Event periods for SEC filers vs non-filers

Answer 6

For SEC filers the period runs to the date the FS were issued.
- SEC filers don’t need to disclose the period end date

For non-SEC filers it runs to the date the FS were available to be issued.
- non-SEC filers do need to disclose the period end date

Question 7

Exceptions to standard definition of fair value

Answer 7

1. Share-based compensation
2. Leases
3. Vendor-specific objective evidence

Question 8

Standard Fair Value definition

Answer 8

Fair Value is an exit price for an orderly transaction (not a fire sale) in the principal or most advantageous market.

Does not include transaction costs but may include transportation if location is an attribute of the asset/liability.

If a physical asset then assume highest and best use.

Question 9

What is the principal market in a FV consideration

Answer 9

The market with the greatest volume or level of activity

Question 10

What is the most advantageous market in a FV consideration

Answer 10

Can only use this if there is no principal market.

= Market with the best value of asset, or that minimises a liability. Note you do consider transaction costs when assessing most adv market.

Question 11

Three Fair Valuation Techniques

Answer 11

Market approach - uses a market (e.g. exchange)
Income approach - Present Value of Future Cash
Cost approach - replacement cost

Question 12

FV Inputs

Answer 12

FV measurement with the three techniques must follow the Input hierarchy (e.g. if Level 1 is available, must use that):

1. Quoted prices in active markets for identical assets/liabs
2. External info other than 1. (E.g quotes for a similar asset)
3. Internally generated inputs - only use when 1 & 2 aren’t available or if the cost of obtaining is too high (e.g. if using PV of future cash then the discount rate)

Question 13

Fair Value measurement Disclosures

Answer 13

1. Valuation technique (MIC)
2. Inputs used inc. judgement and assumptions

Question 14

Is a change from cost to FV accounting a change in accounting estimate or principle?

Answer 14

Change in estimate

Question 15

What is a Public Company required to analyse by Segment?

Answer 15

Segment Profit & Loss
Segment Assets

Not segment cashflows

Question 16

What are the required Segments for a Public Company

Answer 16

Operating segments
Products and Services
Geographical areas
Major Customers

Question 17

Definition of Operating Segment

Answer 17

A component of an entity that:
1. engages in business activities
2. Operating results are regularly reviewed by upper management
3. Discrete financial info is available

Corportate HQ, pensions etc are components but not operating segments

Question 18

What is the Segment reporting de minimis size?

Answer 18

10%.

If a segment’s revenue, profit or assets is less than 10% of corresponding total then it doesn’t need to be reported separately.

If one segment is >90% then no segment reporting is required.

However, note 75% reporting sufficiency rule override

Question 19

What is the Segment “Reporting Sufficiency” test?

Answer 19

That the combined revenues in the Segment analysis should be at least 75% of total revenue. If less then need to add in some <10% segments to get the overall analysis up.