F2 Flashcards
Where would an explanation of a company’s revenue recognition policy be located in the financials?
Notes, summary of significant accounting policies disclosure.
In general, what kind of information should be disclosed in the summary of significant accounting policies?
Treatment in management’s financial statements of certain items, methods, estimates, etc.
Management is required to evaluate whether an entity will be able to continue as a going concern for how long?
A reasonable period of time no longer than one year after the FS are ISSUED.
What is a major difference between GAAP & IFRS regarding going concern?
IFRS does not offer guidance on the liquidation basis of accounting, while GAAP does.
If an entity has a substantial doubt about it’s ability to continue as a going concern, the FS should be prepared using what basis of accounting?
Liquidation basis.
Under IFRS, if an entity does not have plans to mitigate the substantial doubt of ability to continue as a going concern, the FS should be prepared under what basis of accounting?
NOT the liquidation basis (GAAP only). IFRS does not specify which basis to use.
Under IFRS, when is disclosure required regarding substantial doubt of an entities ability to continue as a going concern?
When management is aware of material uncertainties that give rise to the doubt.
Do you agree with this statement?
Management is required to evaluate if substantial doubt about ability to continue as a going concern within one year of the balance sheet date.
NO. Issued date, not balance sheet date.
If management’s plan to mitigate substantial doubt make the doubt alleviated, do you need a disclosure still under IFRS?
YES.
What is a type 1 subsequent event? What is the treatment?
Recognized sub. event. Happened during period but discovered later. Record JE & disclosure.
What is a type 2 subsequent event? What is the treatment?
Unrecognized sub. event. Happened after the period and discovered after. Disclosure only.
How long should public companies evaluate subsequent events?
Through the date the FS are issued.
How long should private companies evaluate subsequent events?
Through the date the FS are available to be issued.
What does “recognition” mean in terms of subsequent events.
Booking a JE, happened during the period and discovered later, must accrue.
For fair value, which level is most reliable - level 1 or level 3?
Level 1 - quoted prices in active markets for identical assets/liabilities.
FV includes what kind of costs?
Transportation costs, but not transaction costs.
When there is no principal market, what price should be considered FV?
The price in the most advantageous market.
$price - Costs = Highest price possible
For FV, what is a level 3 input?
Unobservable input, based on entity’s assumptions of DCF.
What is a principal market regarding FV?
The market with the highest volume.
What does “most advantageous market” mean?
After transaction costs, which quoted price is the highest? That is the most advantageous, and you would take only the quoted price as the FV. But you need to back out transaction costs to determine the most advantageous.
The FV of a non financial asset (land) is the value at:
It’s highest value and best use. FV is highest price available to get for land.
What level of input & valuation technique would require a discount rate regarding FV?
Level 3, income approach.
What are level 2 inputs?
Similar assets/liabs in active markets, or identical assets in inactive markets.
What is the 10% test regarding segment reporting?
If segment is 10% or more of any of the following:
- ) Revenue (include IC)
- ) Profit/Loss
- ) Assets
According to revenue only, which of the following must be considered to determine which segments need to be reported?
- ) Sales to unaffiliated customers
- ) IC sales
Both. Total revenues including IC revs.
Which of the following would meet the test for segment reporting?
Co. A = ($200,000)
Co. B = $60,000
Co. C = $1,140,000
Co. A & Co. C.
A segment meets the size test if the absolute amount is 10% or greater.
Even if one is a loss.
If any customer accounts for over what % of the revenue should an entity disclose it as a major customer?
10% or more.
What is the 75% test in segment reporting?
Reporting sufficiency test, all reported segments = 75% or more of total. Based on external revenue.
IFRS requires disclosure of which FS element that GAAP does not regarding segment reporting?
Segment Liabilities.
Can you name the required disclosures for public companies regarding segment reporting?
- ) Operating segments
- ) Products/services
- ) Geo areas
- ) Major customers (concentrations)
If one segments is greater than which % does it take for segment reporting to not be necessary?
90%
For interim reporting purposes, what costs should be allocated equally among Q’s?
Costs that benefit each Q.
Ex: Payroll taxes paid in Q1 benefit entire calendar year.
If an entity sold a piece of equipment in Q3, what amount should be reported in Q3 interim FS?
The full amount. G/L from sale of FA s/b reporting during period incurred.
Loss on a sale of a component of the business should be reported:
a. ) In the period incurred
b. ) Evenly for all periods that benefit/lose
a.) In the period incurred.
What form is required to be reported annually with the SEC? Quarterly?
10K & 10Q.
What is the threshold to be considered a large accelerated filer with the SEC?
$700 mil. and over.
What is the threshold to be considered an accelerated filer with the SEC?
$75m - $700 mil.
What is form 20-F?
Non-U.S (10k) annual report.
What is form 11k?
Employee benefit plans.
What is form 40-F?
Canadian annual report.
What is form 6-K?
Semi-annual report for foreign private issuers (unaudited)
What is form 8-K?
For major events.
What are forms 3, 4, & 5?
For 10% or more owners.
Under IFRS & GAAP annual reporting requirements, how many income statements does each require?
GAAP = 3 IFRS = 2
What does XBRL stand for and what is it?
eXtensible Business Reporting Language. Links FS data into machine readable code.
What is taxonomy?
Specific links used for individual items.
What major disclosure may be omitted in form 10-Q?
Summary of significant accounting policies.
Which report requires subsequent events disclosure?
a. ) 10-K
b. ) 10-Q
Both.
What are they different kinds of ratios?
- ) Liquidity
- ) Activity
- ) Profitability
- ) Coverage
To determine the “reporting sufficiency test” in segment reporting, what is included in the determination?
Requires that all reportable segments (looking at EXTERNAL sales only) have at least 75% of the total external sales.
IFRS determines reportable segments a little differently from GAAP, what is the main difference?
IFRS also looks at segment liabilities.
Within how many days after the end of the period is a large accelerated filer required to file Form 10-Q?
What about 10-K?
10-Q = 40 days 10-K = 60 days
Within how many days after the end of the period is an accelerated filer required to file Form 10-Q?
What about 10-K?
10-Q = 40 days 10-K = 75 days
Within how many days after the end of the period are all other filers (not large or accelerated) required to file Form 10-Q?
What about 10-K?
10-Q = 45 days 10-K = 90 days
Is fair value an exit or entrance price?
Meaning, is it the amount you can buy an asset at? Or sell an asset at?
Exit price - how much you can sell an asset for.
GAAP requires that estimates made in the FS be disclosed in the notes, and so does IFRS.
What is something else that IFRS requires in the notes, but GAAP does not?
- ) Judgements made (ex: classifying an investment as held to maturity vs. held for sale)
- ) Statement of compliance with applicable accounting policies
Does IFRS offer guidance on the liquidation basis of accounting when there is substantial doubt about an entity’s ability to continue as a going concern?
No - only GAAP offers guidance on the liquidation basis of accounting.
IFRS does not specify the basis of accounting to be used when the doubt exists.
Under IFRS, when is disclosure required for substantial doubt of going concern?
What about GAAP?
IFRS: when management is aware of material uncertainties that may give rise to the doubt of the ability to continue as a going concern
GAAP: when it is probable the entity cannot continue within one year of issuance of the FS
When must an issuer evaluate subsequent events through?
What about a nonissuer?
Nonissuer - evaluate sub. events until FS ready to be issued
Issuer - evaluate sub. events until FS are issued
What should be included in the disclosure of the FS for an issuer about the date which subsequent events have been evaluated through?
Trick question - issuers do not disclose the date through which sub. events were evaluated (which would be the date the FS are issued)
Nonissuers, however, are required to disclose the date through which sub. events were evaluated (which would be the date the FS are available to be issued)
What is the difference between an exit and entrance price?
Price to buy vs. sell something.
PP&E - entrance = historical cost
Exit = Fair value
A change from a level 1 input to a level 2 input would be considered what kind of change?
Change in estimate. A change in the valuation technique would be considered a change in estimate.
Change in valuation technique would fall into the category of a change in accounting estimate.
How do you determine the principle market for a product?
The market with the greatest volume.
*not to be confused with the calculation of accounting for transaction costs and product price to determine the most advantageous market. You do that when there is no principal market. But if the question asks you to identify the principal market, then its the one with the greatest volume
What are some common modifications to prepare modified cash basis FS?
- Capitalizing inventory
- Accrual for income taxes
- Recognizing LT debt
*Recording revenues when earned would not be a common modification, as this would make the FS accrual based
