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FAR MC > F2 > Flashcards

F2 Flashcards

1
Q

Cash Equivalent

A

Very liquid asset, short term investments that mature within 3 months since acquisition

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2
Q

IFRS requirement in statement of Accting policies

A

Statement of compliance with IFRS

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3
Q

Off balance sheet financing example

A

Operating leases

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4
Q

Statement of significant accounting policies position in notes

A

1st or 2nd item

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5
Q

What related to estimating must be disclosed?

A

Known trends and uncertainties (warnings)

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6
Q

When does a concentration make an entity vulnerable?

A

when there is a risk of loss that could be mitigated through diversification

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7
Q

Concentrations should be disclosed if the following criteria are met

A
  1. The concentrations exist
  2. Puts entity at severe risk in the near term
  3. Reasonably likely the worst could occur
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8
Q

When will an entity prepare financials under liquidation method of accounting?

A

When liquidation is imminent

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9
Q

If there is substantial doubt about going concern, what must be disclosed in the notes?

A
  1. Condition/ events that gave rise to substantial doubt about going concern
  2. Management’s evaluation
  3. Management’s plan to either alleviate substantial doubt (if they believe it will be) or how they intend it mitigate (if they believe it won’t)
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10
Q

Difference between IFRS and GAAP disclosure of judgements and estimates in notes

A

GAAP does NOT require disclosure of judgements. IFRS does. Both require disclosure of estimates.

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11
Q

What are the 3 inputs in the hierarchy of inputs for fair value?

A
  1. Active markets
  2. Interest rates / inactive markets / similar goods
  3. Estimates
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12
Q

Management is required to evaluate the going concern of the company for the period of one year AFTER

A

The financials -issuance- date NOT the financials date

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13
Q

IFRS vs GAAP biggest difference with going concern and when to implement the liquidation basis of accounting

A

IFRS does NOT offer guidance on the liquidation basis of accounting. GAAP DOES.

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14
Q

What basis of accounting does IFRS specify if the going concern of an entity is in substantial doubt?

A

IFRS does not specify

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15
Q

When an entity’s plans to mitigate the substantial doubt of an entity’s ability to continue as a going concern are evaluated, what should NOT be factored in?

A

Whether the conditions that gave rise to the substantial doubt will continue. Only two factors are considered: whether the plan will be effectively implemented and whether it is probable the plan will be successful in mitigating

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16
Q

What two factors should be considered in evaluating an entity’s plan to mitigate the conditions or events that raise substantial doubt about going concern?

A

Whether it will be

  1. Effectively implemented and
  2. Whether it will successfully mitigate the events or conditions
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17
Q

Under IFRS when is disclosure required when an entity’s going concern is in question?

A

When management is aware of MATERIAL UNCERTAINTIES that give rise to substantial doubt

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18
Q

Under GAAP when is disclosure required when an entity’s going concern is in question?

A

When there is substantial doubt, even if management has a plan to alleviate

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19
Q

Subsequent Event

A

Event that occurs after b/s date but b4 reporting date

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20
Q

Types of subsequent events

A

Recognizable (condition existed BEFORE b/s date like lawsuit)

Nonrecognizable (condition did not exist b4 b/s date)

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21
Q

Examples of recognized subsequent events

A
  1. Settlement of litigation

2. Loss on Uncollectable Receivable (for example, customer went bankrupt)

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22
Q

Do subsequent events effect quarterly reporting?

A

Yes

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23
Q

Nonrecognizable subsequent events are reported how?

A

Footnotes.

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24
Q

Nonrecognized subsequent events

A

Didn’t exist at b/s date and occurred after b/s date. The date is the key!

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25
Q

Reissued financials should only recognize subsequent events for what period

A

Between original b/s date and financials issuance date. NOT after.

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26
Q

IFRS subsequent events differences from GAAP

A
  1. Up through date financials are AUTHORIZED for issuance

2. If entity intends to liquidate, cannot prepare under going concern basis

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27
Q

Revised financials - why created?

A

Correct and error or change in accounting principle.

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28
Q

For NON-SEC filers entity should disclose in revised financials what?

A

The dates through which subsequent events were evaluated

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29
Q

IFRS / GAAP fair value framework EXCLUDES:

A

a. Share based compensation
b. Leases
c. Measurements based on vendor-specific objective evidence of fair value

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30
Q

Fair value is an exit or entrance price

A

Exit price

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31
Q

Fair value definition

A

What can you get for selling an asset or paying off a liability in an ORDERLY TRANSACTION in the PRINCIPAL market at MEASUREMENT DATE under current market conditions

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32
Q

Fair value is market based measure or entity base measure

A

Market based

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33
Q

In fair value if principal market isn’t available use the

A

Most advantageous market

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34
Q

Does fair value include transaction costs?

A

NO! Exemption: transportation costs allowed if location is an attribute of the asset / liability

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35
Q

How are transaction costs used in fair value MC?

A

To calculate the most advantageous market

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36
Q

Fair value of a non financial asset (PP+E) assumes

A

The highest and best use

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37
Q

Orderly transaction

A

Not by force

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38
Q

Market participants

A

Independent (unrelated) parties

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39
Q

Principal market

A

Market with greatest volume of activity

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40
Q

Most advantageous market

A

Market with best price of asset or minimizes pmt to transfer liability AFTER considering transaction costs. Use if NO principal market

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41
Q

Highest and Best use (for fair value measurement)

A

Only applies to NON-FINANCIAL assets such as PP+E

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42
Q

Valuation Techniques for fair value measurement

A

MIC
Market Approach
Income approach
Cost approach

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43
Q

Market Approach (MIC) - fair value valuation technique

A

An exchange (such as NYSE)

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44
Q

Income Approach (MIC) - fair value valuation approach

A

Present value of future cash flows (discounted cash flow)

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45
Q

Cost Approach (MIC) - fair value valuation technique

A

Replacement cost

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46
Q

Level 2 inputs for fair value measurement

A

Can be an similar asset in an active market or an identical asset in an inactive market

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47
Q

Level 3 inputs (fair value)

A

Discounted cash flows (future cash flows) - amount and timing has uncertainty.

Unobservable

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48
Q

Fair value disclosures

A
  1. What techniques (MIC) and inputs (123)

2. If level 3 inputs are being used, effect on earnings or changes in comprehensive income for period

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49
Q

Sensitivity in estimating

A

If we change an input a little, how big is the change in output

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50
Q

When picking fair value, choose the highest or lowest value?

A

HIGHEST value

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51
Q

IFRS vs GAAP difference for segment reporting

A

IFRS required disclosure of segment liabilities (if such info is provided to CEO), GAAP does NOT

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52
Q

Are intercompany transactions eliminated for segment reporting

A

NO!

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53
Q

Is segment reporting required for private companies?

A

No - optional

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54
Q

Operating segment definition

A

Financially and operationally distinct and operating results are regularly reviewed by CEO or equivalent

**Dependent on how management uses information

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55
Q

What are NOT a component of an operating segment

A

Pension plans and

Corporate HQ

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56
Q

10% size test for segment reporting

A

Must report if any of the following are greater than 10%

10% total revenue, profit/loss
10% of company assets

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57
Q

75% percent reporting sufficiency test - segment test

A

Need to report 75% of company revenues (as segments). I.e. Only allowed an other category with a max size of 25%

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58
Q

If one segment is over >90% then what is needed for segment reporting?

A

No segment reporting needed

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59
Q

Comparative reporting for segment reporting

A

A component may be broken out if being compared against a period where it was broken out, OPTIONAL

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60
Q

Segment PnL

A

Revenues - direct costs (don’t eliminate) - allocated costs by CEO =
Earnings before interest and tax

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61
Q

Items excluded from segment profit or loss

A
  • Interest and tax
  • Gains / losses from discontinued ops
  • Equity method investment revenue
  • Non-controlling interest
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62
Q

IFRS only disclosure for segment reporting

A

Liabilities for each segment are NOT required by GAAP, but ARE required by IFRS

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63
Q

Segment Reporting Disclosures

A

You’ll want to reconcile the differences between the consolidated entity and the segment

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64
Q

Must disclose major customer for segments - how defined?

A

Generates 10% of entity revenue

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65
Q

How are gain contingencies handled in subsequent events?

A

Gain contingencies are NEVER journalists

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66
Q

In an unrecognized subsequent event - what should be disclosed?

A

If a loss is reasonably likely and an estimate is available, disclose the loss and estimate.

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67
Q

When are financials considered issued?

A

When financials are GAAP compliant and widely distributed to financial users

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68
Q

When are financials considered “available” to be issued?

A

When they are GAAP compliant and approved to be issued

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69
Q

Private vs GAAP subsequent events evaluation end date

A

Public: date of issuance
Private: date available

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70
Q

Significant estimates should be disclosed in the notes when

A

It is reasonably possible (not probable!) that estimate will change in the near term and that change will be material

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71
Q

Would management’s estimates of sales or analysis of competitors or future projections of the market be included in the footnotes?

A

No!

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72
Q

Requirements for notes on a concentration of sales on one customer

A

The associated revenue for the customer

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73
Q

What is NOT required to be disclosed about a concentration of a customer in the notes? (Say 50% of sales come from one customer)

A

Name of customer / pmt terms / financial condition of customer NOT required

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74
Q

Should information be repeated in the footnotes?

A

No

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75
Q

Should going concern be tested for quarterly reporting?

A

Yes

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76
Q

When is going concern in doubt? When possible we’ll go out of biz or probable?

A

Probable

77
Q

GAAP vs IFRS difference in period tested for going concern

A 
GAAP = within one year
IFRS = at LEAST one year
78
Q

When disclosing a recognized subsequent event, what is the testing see if you must make a note?

A

Will NOT disclosing the event make financial statements misleading?

79
Q

What is the exemption to not including transaction costs in fair value measure?

A

Transportation costs if location is a condition of the asset

80
Q

What is the measurement basis of held to maturity bonds?

A

Amortized cost

81
Q

GAAP and IFRS cost model vs revaluation model differences

A

IFRS allows revaluation of assets (Surplus), but GAAP does NOT

82
Q

Is land depreciated?

A

No

83
Q

Is goodwill amortized?

A

No - tested for impairment

84
Q

Fair value includes ___ but not transaction costs

A

Transportation costs

85
Q

Is fair value specific to the entity making the measurement?

A

No - it’s a market based measure (objective)

86
Q

Change from market approach of measuring fair value to cost approach is what kind of change?

A

Change in accounting estimate

87
Q

If the principal market is inaccessible, what market should be used?

A

Principal market that is accessible

88
Q

True / false Fair Market valuation does not consider risk

A

False - all assumptions that are normally made by market participants are considered

89
Q

What three items is the 10% tested applied for determining is a segment must be reported?

A

Sales
Profit
Assets

90
Q

Should operating loss be included in segment reporting?

A

No - only if operating profit is a loss. In that case exclude all profitable segments and only count loss segments

91
Q

Does the 75% test include intercompany transactions or only external revenue?

A

75% of external revenue

92
Q

For segment reporting - should intracompany sales be disclosed?

A

Yes - separately

93
Q

Are discontinued operations included in segment profit?

A

No

94
Q

The requirement to disclose a major customer that constitutes more than 10% of company revenue is required for each segment or the entity as a whole?

A

10% of entity revenue = major customer

95
Q

What type of entity is required to report on biz segments?

A

Publicly traded enterprises

96
Q

MD and A

A

Management’s discussion and analysis

97
Q

Large Accelerated Filer

A

> $700M in outstanding equity held by nonaffiliates

98
Q

Accelerated filer

A

> 75M outstanding equity held by non-affiliates

99
Q

Filing Deadlines for 10-K

A

Large Accelerated - 60 days
Accelerated - 75 days
All others - 90 days

100
Q

Filing deadline for 10-Q

A

Large Accelerated - 40 days
Accelerated - 40 days
All others - 45 days

101
Q

Biggest difference between 10-K and 10-Q requirements

A

10-K requires AUDITED financials, 10-Q contains UNAUDITED financials

102
Q

11-K

A

EE benefit plans

103
Q

20-F

A

Foreign 10-K

104
Q

40-F

A

Canadian 10-K

105
Q

20-F and 40-F can be prepared under what basis of Accting

A

GAAP or IFRS

106
Q

6-K

A

Semi-annual form filed by foreign private issuers

107
Q

8-K

A

Major events, any major change. Change in entity composition, auditors, CEO

108
Q

Forms 3, 4, 5

A

10% owners filings, filed by owners

109
Q

Regulation S-X

A

Guidance for interim and annual financial statements to be filed with SEC

110
Q

10-Q and 6-K financials must be

A

Reviewed by independent public accountant

111
Q

When are interim financials issued for US and Foreign companies?

A

US - quarterly - 10-Q

Foreign - semi-annually - 6-K

112
Q

Adjustments for fair presentation in interim financials are

A

Adjustments to fairly state interim financials, note added for adjustments, and if adjustments are normal recurring, note that too

113
Q

Can interim financials be condensed?

A

Yes

114
Q

Omitted disclosures for interim reporting

A

Summary of significant accounting policies and details of accounts that have not changed significantly

115
Q

Definitely Required disclosures for interim reporting

A

Material contingencies and material events / changes that occurred

116
Q

of each financial required by SEC for 10-K

A

2 BS

3 IS / Cash Flow

117
Q

IFRS vs GAAP # of each financials required for filing

A

IFRS only requires 2 of each (unless restatement, then they require 3 BS and 2 everything else).

GAAP requires 2 BS and 3 of everything else

118
Q

XBRL

A

eXtensible Business Reporting language

119
Q

XBRL tagging levels

A
  1. Each footnote and schedule
  2. Each significant accounting policy
  3. Each table within each footnote and schedule
  4. Each amount within each footnote and schedule
120
Q

10-K vs 10-Q financials

A

10-K audited

10-Q reviewed

121
Q

True/False: Revenue should be smoothed for season fluctuations for quarterly filings

A

False

122
Q

If there are seasonal fluctuations, what balance sheets should be reported for 10-Q

A

Quarterly on last year and ending last year’s. If no fluctuations than last year’s end bal will suffice

123
Q

The effective income tax rate includes

A

Foreign tax rates and anticipated tax planning alternatives

124
Q

If cash basis, a decrease in accounts payable has what effect on converted accrual net income?

A

It decreases it because current period payments exceeded current period expenses

125
Q

How is the non deductible portion of expenses such as meals and entertainment reported on financial statements prepared on an income tax basis?

A

In the expenses category in the determination of income

126
Q

A net decrease in AR means what on the actual basis

A

that cash collected exceeded revenues recognized on the accruals basis

127
Q

A net decrease in accrued expenses means what in the accrual method?

A

More cash was paid out than expenses recognized. If cash out exceeds expenses accrued than cash method net income will be greater than accrual method NI

128
Q

Acid Test / Quick Ratio

A

Cash + Cash Equivalents + Marketable Securities + Net AR / Current Liabilities

129
Q

Current Ratio

A

Current Assets / Current Liabilities

130
Q

Inventory Turnover

A

Cogs / Average inventory

131
Q

Receivables Turnover

A

Net Sales / Recievables

132
Q

Turnover Ratio - how to figure out?

A

Whatever is being turned over is averaged and put into the denominator

133
Q

Turnover ratio in days - how to figure out?

A

365 / turnover ratio

134
Q

What does turnover in days mean?

A

Average number of days for turnover

135
Q

Cash ratio

A

Quick ratio but without net Receivables, more conservative

136
Q

Asset Turnover

A

Net sales / average assets

137
Q

Working capital turnover

A

Sales / average working capital

138
Q

Operating Cycle

A

AR turnover in days + inventory turnover in days

139
Q

Return on total assets

A

Net income / average total assets

140
Q

DuPont return on assets

A

Net profit margin * total asset turnover

= Effective use of generating sales

141
Q

Return on common equity

A

(Net income - preferred dividends) / (average common equity)

142
Q

Times interest earned ratio

A

[ Recurring income b4 interest and taxes ] / interest Payable

  • Add interest exp to EBIT
143
Q

Does AR Turnover use net Receivables or gross?

A

Net Receivables

144
Q

What is common equity? How calculated?

A

All equity excluding preferred dividends

145
Q

If assets and liabilities are increased by the same amount of $, how does that effect the debt-to-assets ratio?

A

The ratio will increase

146
Q

Partnership Exact Method for new partners

A

New partner pays book value for 1/x share of partnership. Calculate with finger math bv / (x-1)

147
Q

Partnership Bonus Method

A

If partner pays more than bv of share, then excess is bonus to old partners (distributed based on earnings ratio)

If partner pays less than bv for share, excess goes to partner

148
Q

Partnership Goodwill Method - new partner

A

Partnership payment for share implies a value for the partnership. If they py $35 for 1/3 than 3/3 of partnership is worth 35 * 3. Distribute bonus to old partners

149
Q

If not specified partners will split Earnings how?

A

Equally

150
Q

Partnership profit / loss distribution - what is interest in capital balances?

A

% times capital balance for each partner = profit / loss distribution

151
Q

In a partnership, if interest in partner capital balance exceeds profit, what happens?

A

Netted against the profit and then distributed as a loss

152
Q

How is liquidation occur with a capital deficiency?

A

The deficiency is netted against any liabilities that are owed to the partner. If still deficient, the other partners with a positive balance “buyout” the negative partner (pro rata based on share of profit / loss)

153
Q

How does the goodwill method differ from the bonus method for admitting a new partner?

A

Bonus method is payment + existing capital balance = new basis

Goodwill method uses the payment as an implied new basis for the partnership.

154
Q

When a business is purchased for x amount. What is the starting capital balance? Fair value or purchase value?

A

Purchase value

155
Q

Major unanticipated repair that will benefit operations for remainder of calendar year - when expensed?

A

Capitalize and depreciate over course of the year

156
Q

Are SEC filers required to disclose period that subsequent events were analyzed?

A

No - pay close attention to the company being asked about

157
Q

10-Q number of balance sheets and what periods

A

No seasonal fluctuations: end of last year, otherwise include last year’s corresponding quarter too

158
Q

Does share of partnership income = share of capital balance?

A

No - entirely separate

159
Q

Cash Revenue to Accrual Revenue

A

+ AR change
- Unearned Revenue change
= Accrual

160
Q

Cash Cost of Sales to Accrual Cost of Sales

A

+ AP change
- Inventory change
= Accrual

161
Q

Cash operating expenses to Accrual operating expenses

A

+ Accrued Expenses change

- Prepaid Expenses change

162
Q

How does decreasing AR lower Accrual income vs cash method income?

A

Those include previous period AR so they should not be included in Accrual method revenue

163
Q

If a checkbook balance is determined and there is also a post dated check after the balance sheet drawn on our account (payment), how is cash measured?

A

Add the post dated check BACK to the checkbook balance

164
Q

How to calculate allowance for discounts of gross method is used?

A

% of sales that will have the discount be used * sales UNDER the aging date (2/15 would be 15 days) * discount (in this case, 2%)

165
Q

Loss on purchase commitments is calculated how?

A

(Min required to purchase * price) net of scrap value

166
Q

When calculating lower of cost or market, which one do you pick?

A

The LOWER one

167
Q

When goods are held on consignment, the holder is the

A

Consignor.

If the consignee is holding goods on consignment, DO NOT INCLUDE IN CONSIGNEE INVENTORY

168
Q

Under IFRS, if an inventory was written down to net realizable value last year (lower of cost or NRV) and the NRV is higher this year, what is the value?

A

Higher NRV and the write down is reversed. ONLY under IFRS

169
Q

The segment sales size test threshold is calculated from the external sales column or the total sales column?

A

TOTAL sales - which includes intersegment sales

170
Q

The “reporting sufficiency” test for segment reporting is

A

The 75% test

171
Q

The “reporting sufficiency” test uses which column - external sales (intercompany excluded) or total sales (includes intercompany)

A

External sales (unlike the 10% test that uses total sales)

172
Q

If the 75% test for segment reporting fails and we don’t have enough segments to meet the requirement, what must we do?

A

Add segments in descending order until we meet the requirement

173
Q

For most financial ratios, what is better, higher or lower?

A

Higher

For turnover in days you want lower

174
Q

Is debt settlement from bankruptcy proceedings of a customer a gain on your books?

A

No. Satisfies any outstanding AR or notes, the rest is written off. No gain

175
Q

The two classic examples of subsequent events are

A
  1. adjusting contingency liability based on court settlement after b/s date
  2. Adjusting bad debt expense based off of bankruptcy that occurs after b/s date
176
Q

Can a loss of a burned down building exceed the carrying value?

A

No

177
Q

Are changes in the fair value of an estimate after the b/s date a recognized subsequent event?

A

No - even if significant, not recognized

178
Q

Measurement basis for cash and cash equivalents

A

Fair value

179
Q

Are Dividends and interest Receivable reported under trade Receivables?

A

NO - reported separately

180
Q

Withdrawal of a partner / bonus method steps

A

Bonus is defined as excess of capital balance paid to withdrawing partner

  1. Revalue assets to FAIR VALUE (gain)
  2. Distribute bonus from partnership accounts and then cash out partner
181
Q

Withdrawal of partner - goodwill method

A

Excess of capital balance paid to withdrawing partner is the basis of the goodwill

Step 1: revaluation of assets (gain)
Step 2: goodwill is calculated as bonus DIVIDED BY withdrawing partners profit / loss ratio - distributed to all partners
Step 3: cash out partner

182
Q

With the withdrawal of a partner - what basis is used to allocate bonus to withdrawing partner’s account? (Bonus method)

A

Remaining partner’s profit or loss ratios

183
Q

Is sales tax included in the cost of a machine?

A

Yes - absolutely

184
Q

Sales tax COLLECTED is not

A

An expense

But sales tax paid? Can be expensed or capitalized

185
Q

Painting the ceiling tiles in the hallways - how to record?

A

Expense as a period expense for regular maintenance

186
Q

Software is recorded where?

A

Intangibles - and amortized over their finite life

187
Q

Replacing cracked office windows as a result of an explosion at a nearby plant - how recorded?

A

Period expense, regular maintenance. NOT extraordinary repair.

188
Q

When you see a depreciation MC or sim, what should be your first thought?

A

Check the dates!!

FAR MC (10 decks)

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