F2 Flashcards
1
Q
Cash Equivalent
A
Very liquid asset, short term investments that mature within 3 months since acquisition
2
Q
IFRS requirement in statement of Accting policies
A
Statement of compliance with IFRS
3
Q
Off balance sheet financing example
A
Operating leases
4
Q
Statement of significant accounting policies position in notes
A
1st or 2nd item
5
Q
What related to estimating must be disclosed?
A
Known trends and uncertainties (warnings)
6
Q
When does a concentration make an entity vulnerable?
A
when there is a risk of loss that could be mitigated through diversification
7
Q
Concentrations should be disclosed if the following criteria are met
A
- The concentrations exist
- Puts entity at severe risk in the near term
- Reasonably likely the worst could occur
8
Q
When will an entity prepare financials under liquidation method of accounting?
A
When liquidation is imminent
9
Q
If there is substantial doubt about going concern, what must be disclosed in the notes?
A
- Condition/ events that gave rise to substantial doubt about going concern
- Management’s evaluation
- 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)
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.
11
Q
What are the 3 inputs in the hierarchy of inputs for fair value?
A
- Active markets
- Interest rates / inactive markets / similar goods
- Estimates
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
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.
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
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
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
- Effectively implemented and
- Whether it will successfully mitigate the events or conditions
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
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
19
Q
Subsequent Event
A
Event that occurs after b/s date but b4 reporting date
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)
21
Q
Examples of recognized subsequent events
A
- Settlement of litigation
2. Loss on Uncollectable Receivable (for example, customer went bankrupt)
22
Q
Do subsequent events effect quarterly reporting?
A
Yes
23
Q
Nonrecognizable subsequent events are reported how?
A
Footnotes.
24
Q
Nonrecognized subsequent events
A
Didn’t exist at b/s date and occurred after b/s date. The date is the key!
25
Reissued financials should only recognize subsequent events for what period
Between original b/s date and financials issuance date. NOT after.
26
IFRS subsequent events differences from GAAP
1. Up through date financials are AUTHORIZED for issuance
| 2. If entity intends to liquidate, cannot prepare under going concern basis
27
Revised financials - why created?
Correct and error or change in accounting principle.
28
For NON-SEC filers entity should disclose in revised financials what?
The dates through which subsequent events were evaluated
29
IFRS / GAAP fair value framework EXCLUDES:
a. Share based compensation
b. Leases
c. Measurements based on vendor-specific objective evidence of fair value
30
Fair value is an exit or entrance price
Exit price
31
Fair value definition
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
32
Fair value is market based measure or entity base measure
Market based
33
In fair value if principal market isn't available use the
Most advantageous market
34
Does fair value include transaction costs?
NO! Exemption: transportation costs allowed if location is an attribute of the asset / liability
35
How are transaction costs used in fair value MC?
To calculate the most advantageous market
36
Fair value of a non financial asset (PP+E) assumes
The highest and best use
37
Orderly transaction
Not by force
38
Market participants
Independent (unrelated) parties
39
Principal market
Market with greatest volume of activity
40
Most advantageous market
Market with best price of asset or minimizes pmt to transfer liability AFTER considering transaction costs. Use if NO principal market
41
Highest and Best use (for fair value measurement)
Only applies to NON-FINANCIAL assets such as PP+E
42
Valuation Techniques for fair value measurement
MIC
Market Approach
Income approach
Cost approach
43
Market Approach (MIC) - fair value valuation technique
An exchange (such as NYSE)
44
Income Approach (MIC) - fair value valuation approach
Present value of future cash flows (discounted cash flow)
45
Cost Approach (MIC) - fair value valuation technique
Replacement cost
46
Level 2 inputs for fair value measurement
Can be an similar asset in an active market or an identical asset in an inactive market
47
Level 3 inputs (fair value)
Discounted cash flows (future cash flows) - amount and timing has uncertainty.
Unobservable
48
Fair value disclosures
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
49
Sensitivity in estimating
If we change an input a little, how big is the change in output
50
When picking fair value, choose the highest or lowest value?
HIGHEST value
51
IFRS vs GAAP difference for segment reporting
IFRS required disclosure of segment liabilities (if such info is provided to CEO), GAAP does NOT
52
Are intercompany transactions eliminated for segment reporting
NO!
53
Is segment reporting required for private companies?
No - optional
54
Operating segment definition
Financially and operationally distinct and operating results are regularly reviewed by CEO or equivalent
**Dependent on how management uses information
55
What are NOT a component of an operating segment
Pension plans and
| Corporate HQ
56
10% size test for segment reporting
Must report if any of the following are greater than 10%
10% total revenue, profit/loss
10% of company assets
57
75% percent reporting sufficiency test - segment test
Need to report 75% of company revenues (as segments). I.e. Only allowed an other category with a max size of 25%
58
If one segment is over >90% then what is needed for segment reporting?
No segment reporting needed
59
Comparative reporting for segment reporting
A component may be broken out if being compared against a period where it was broken out, OPTIONAL
60
Segment PnL
Revenues - direct costs (don't eliminate) - allocated costs by CEO =
Earnings before interest and tax
61
Items excluded from segment profit or loss
* Interest and tax
* Gains / losses from discontinued ops
* Equity method investment revenue
* Non-controlling interest
62
IFRS only disclosure for segment reporting
Liabilities for each segment are NOT required by GAAP, but ARE required by IFRS
63
Segment Reporting Disclosures
You'll want to reconcile the differences between the consolidated entity and the segment
64
Must disclose major customer for segments - how defined?
Generates 10% of entity revenue
65
How are gain contingencies handled in subsequent events?
Gain contingencies are NEVER journalists
66
In an unrecognized subsequent event - what should be disclosed?
If a loss is reasonably likely and an estimate is available, disclose the loss and estimate.
67
When are financials considered issued?
When financials are GAAP compliant and widely distributed to financial users
68
When are financials considered "available" to be issued?
When they are GAAP compliant and approved to be issued
69
Private vs GAAP subsequent events evaluation end date
Public: date of issuance
Private: date available
70
Significant estimates should be disclosed in the notes when
It is reasonably possible (not probable!) that estimate will change in the near term and that change will be material
71
Would management's estimates of sales or analysis of competitors or future projections of the market be included in the footnotes?
No!
72
Requirements for notes on a concentration of sales on one customer
The associated revenue for the customer
73
What is NOT required to be disclosed about a concentration of a customer in the notes? (Say 50% of sales come from one customer)
Name of customer / pmt terms / financial condition of customer NOT required
74
Should information be repeated in the footnotes?
No
75
Should going concern be tested for quarterly reporting?
Yes
76
When is going concern in doubt? When possible we'll go out of biz or probable?
Probable
77
GAAP vs IFRS difference in period tested for going concern
```
GAAP = within one year
IFRS = at LEAST one year
```
78
When disclosing a recognized subsequent event, what is the testing see if you must make a note?
Will NOT disclosing the event make financial statements misleading?
79
What is the exemption to not including transaction costs in fair value measure?
Transportation costs if location is a condition of the asset
80
What is the measurement basis of held to maturity bonds?
Amortized cost
81
GAAP and IFRS cost model vs revaluation model differences
IFRS allows revaluation of assets (Surplus), but GAAP does NOT
82
Is land depreciated?
No
83
Is goodwill amortized?
No - tested for impairment
84
Fair value includes ___ but not transaction costs
Transportation costs
85
Is fair value specific to the entity making the measurement?
No - it's a market based measure (objective)
86
Change from market approach of measuring fair value to cost approach is what kind of change?
Change in accounting estimate
87
If the principal market is inaccessible, what market should be used?
Principal market that is accessible
88
True / false Fair Market valuation does not consider risk
False - all assumptions that are normally made by market participants are considered
89
What three items is the 10% tested applied for determining is a segment must be reported?
Sales
Profit
Assets
90
Should operating loss be included in segment reporting?
No - only if operating profit is a loss. In that case exclude all profitable segments and only count loss segments
91
Does the 75% test include intercompany transactions or only external revenue?
75% of external revenue
92
For segment reporting - should intracompany sales be disclosed?
Yes - separately
93
Are discontinued operations included in segment profit?
No
94
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?
10% of entity revenue = major customer
95
What type of entity is required to report on biz segments?
Publicly traded enterprises
96
MD and A
Management's discussion and analysis
97
Large Accelerated Filer
>$700M in outstanding equity held by nonaffiliates
98
Accelerated filer
>75M outstanding equity held by non-affiliates
99
Filing Deadlines for 10-K
Large Accelerated - 60 days
Accelerated - 75 days
All others - 90 days
100
Filing deadline for 10-Q
Large Accelerated - 40 days
Accelerated - 40 days
All others - 45 days
101
Biggest difference between 10-K and 10-Q requirements
10-K requires AUDITED financials, 10-Q contains UNAUDITED financials
102
11-K
EE benefit plans
103
20-F
Foreign 10-K
104
40-F
Canadian 10-K
105
20-F and 40-F can be prepared under what basis of Accting
GAAP or IFRS
106
6-K
Semi-annual form filed by foreign private issuers
107
8-K
Major events, any major change. Change in entity composition, auditors, CEO
108
Forms 3, 4, 5
10% owners filings, filed by owners
109
Regulation S-X
Guidance for interim and annual financial statements to be filed with SEC
110
10-Q and 6-K financials must be
Reviewed by independent public accountant
111
When are interim financials issued for US and Foreign companies?
US - quarterly - 10-Q
| Foreign - semi-annually - 6-K
112
Adjustments for fair presentation in interim financials are
Adjustments to fairly state interim financials, note added for adjustments, and if adjustments are normal recurring, note that too
113
Can interim financials be condensed?
Yes
114
Omitted disclosures for interim reporting
Summary of significant accounting policies and details of accounts that have not changed significantly
115
Definitely Required disclosures for interim reporting
Material contingencies and material events / changes that occurred
116
of each financial required by SEC for 10-K
2 BS
| 3 IS / Cash Flow
117
IFRS vs GAAP # of each financials required for filing
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
XBRL
eXtensible Business Reporting language
119
XBRL tagging levels
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
10-K vs 10-Q financials
10-K audited
| 10-Q reviewed
121
True/False: Revenue should be smoothed for season fluctuations for quarterly filings
False
122
If there are seasonal fluctuations, what balance sheets should be reported for 10-Q
Quarterly on last year and ending last year's. If no fluctuations than last year's end bal will suffice
123
The effective income tax rate includes
Foreign tax rates and anticipated tax planning alternatives
124
If cash basis, a decrease in accounts payable has what effect on converted accrual net income?
It decreases it because current period payments exceeded current period expenses
125
How is the non deductible portion of expenses such as meals and entertainment reported on financial statements prepared on an income tax basis?
In the expenses category in the determination of income
126
A net decrease in AR means what on the actual basis
that cash collected exceeded revenues recognized on the accruals basis
127
A net decrease in accrued expenses means what in the accrual method?
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
Acid Test / Quick Ratio
Cash + Cash Equivalents + Marketable Securities + Net AR / Current Liabilities
129
Current Ratio
Current Assets / Current Liabilities
130
Inventory Turnover
Cogs / Average inventory
131
Receivables Turnover
Net Sales / Recievables
132
Turnover Ratio - how to figure out?
Whatever is being turned over is averaged and put into the denominator
133
Turnover ratio in days - how to figure out?
365 / turnover ratio
134
What does turnover in days mean?
Average number of days for turnover
135
Cash ratio
Quick ratio but without net Receivables, more conservative
136
Asset Turnover
Net sales / average assets
137
Working capital turnover
Sales / average working capital
138
Operating Cycle
AR turnover in days + inventory turnover in days
139
Return on total assets
Net income / average total assets
140
DuPont return on assets
Net profit margin * total asset turnover
= Effective use of generating sales
141
Return on common equity
(Net income - preferred dividends) / (average common equity)
142
Times interest earned ratio
[ Recurring income b4 interest and taxes ] / interest Payable
* Add interest exp to EBIT
143
Does AR Turnover use net Receivables or gross?
Net Receivables
144
What is common equity? How calculated?
All equity excluding preferred dividends
145
If assets and liabilities are increased by the same amount of $, how does that effect the debt-to-assets ratio?
The ratio will increase
146
Partnership Exact Method for new partners
New partner pays book value for 1/x share of partnership. Calculate with finger math bv / (x-1)
147
Partnership Bonus Method
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
Partnership Goodwill Method - new partner
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
If not specified partners will split Earnings how?
Equally
150
Partnership profit / loss distribution - what is interest in capital balances?
% times capital balance for each partner = profit / loss distribution
151
In a partnership, if interest in partner capital balance exceeds profit, what happens?
Netted against the profit and then distributed as a loss
152
How is liquidation occur with a capital deficiency?
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
How does the goodwill method differ from the bonus method for admitting a new partner?
Bonus method is payment + existing capital balance = new basis
Goodwill method uses the payment as an implied new basis for the partnership.
154
When a business is purchased for x amount. What is the starting capital balance? Fair value or purchase value?
Purchase value
155
Major unanticipated repair that will benefit operations for remainder of calendar year - when expensed?
Capitalize and depreciate over course of the year
156
Are SEC filers required to disclose period that subsequent events were analyzed?
No - pay close attention to the company being asked about
157
10-Q number of balance sheets and what periods
No seasonal fluctuations: end of last year, otherwise include last year's corresponding quarter too
158
Does share of partnership income = share of capital balance?
No - entirely separate
159
Cash Revenue to Accrual Revenue
+ AR change
- Unearned Revenue change
= Accrual
160
Cash Cost of Sales to Accrual Cost of Sales
+ AP change
- Inventory change
= Accrual
161
Cash operating expenses to Accrual operating expenses
+ Accrued Expenses change
| - Prepaid Expenses change
162
How does decreasing AR lower Accrual income vs cash method income?
Those include previous period AR so they should not be included in Accrual method revenue
163
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?
Add the post dated check BACK to the checkbook balance
164
How to calculate allowance for discounts of gross method is used?
% 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
Loss on purchase commitments is calculated how?
(Min required to purchase * price) net of scrap value
166
When calculating lower of cost or market, which one do you pick?
The LOWER one
167
When goods are held on consignment, the holder is the
Consignor.
If the consignee is holding goods on consignment, DO NOT INCLUDE IN CONSIGNEE INVENTORY
168
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?
Higher NRV and the write down is reversed. ONLY under IFRS
169
The segment sales size test threshold is calculated from the external sales column or the total sales column?
TOTAL sales - which includes intersegment sales
170
The "reporting sufficiency" test for segment reporting is
The 75% test
171
The "reporting sufficiency" test uses which column - external sales (intercompany excluded) or total sales (includes intercompany)
External sales (unlike the 10% test that uses total sales)
172
If the 75% test for segment reporting fails and we don't have enough segments to meet the requirement, what must we do?
Add segments in descending order until we meet the requirement
173
For most financial ratios, what is better, higher or lower?
Higher
For turnover in days you want lower
174
Is debt settlement from bankruptcy proceedings of a customer a gain on your books?
No. Satisfies any outstanding AR or notes, the rest is written off. No gain
175
The two classic examples of subsequent events are
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
Can a loss of a burned down building exceed the carrying value?
No
177
Are changes in the fair value of an estimate after the b/s date a recognized subsequent event?
No - even if significant, not recognized
178
Measurement basis for cash and cash equivalents
Fair value
179
Are Dividends and interest Receivable reported under trade Receivables?
NO - reported separately
180
Withdrawal of a partner / bonus method steps
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
Withdrawal of partner - goodwill method
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
With the withdrawal of a partner - what basis is used to allocate bonus to withdrawing partner's account? (Bonus method)
Remaining partner's profit or loss ratios
183
Is sales tax included in the cost of a machine?
Yes - absolutely
184
Sales tax COLLECTED is not
An expense
But sales tax paid? Can be expensed or capitalized
185
Painting the ceiling tiles in the hallways - how to record?
Expense as a period expense for regular maintenance
186
Software is recorded where?
Intangibles - and amortized over their finite life
187
Replacing cracked office windows as a result of an explosion at a nearby plant - how recorded?
Period expense, regular maintenance. NOT extraordinary repair.
188
When you see a depreciation MC or sim, what should be your first thought?
Check the dates!!
