F2 - Financial Reporting and Disclosures Flashcards
What does the Summary of Accounting Policies should disclose?
- Criteria for which investments are cash equivalents.
- Basis of consolidation.
- Depreciation methods.
- Amortization of intagibles.
- Inventory pricing (LIFO, FIFO).
- Use of estimates.
- Fiscal year (Calendar, June 30)
- Special revenue recognition issues (POC vs Completed, LT construction contracts).
What items are NOT include in the the Summary of Accounting Policies?
- Account balances or $ amounts.
- Changes in accounting principles.
- Maturity dates and LT debt amounts.
- Deprec, Amort, and Depletion yearly computations.
What are two key items of the Summary of Accounting Policies?
- Included as an integral part of the FS.
- Policies presented are not duplicated in other notes.
- Usually first or second note (discuss the “why”, before the “what”).
What is the CRITERIA that needs to be met for disclosing certain concentrations based on the risk of loss?
- The concentration exists at the FS date.
- The concentration makes the entity vulnerable.
- Severe impact from the concentration will happen soon.
What are the concentrations that should be disclosed based on the risk of loss?
- Concentrations in the volume of business. (client represents a big % of my sales).
- Concentrations in revenue (one product represents a big % of my sales)
- Concentrations in the supply chain availability (COVID hit Chart hard because there is no supplies).
- Concentrations in market or geographic area.
What are the two types of subsequent events?
- Recognized Subsequent Events
2. Nonrecognized Subsequent Events
What are recognized subsequent events?
Things that happened/existed at the balance sheet date. Examples are:
- Settlement of Litigation, if it happened at the BS date.
- Loss on an Uncollectible Receivable.
What are nonrecognized subsequent events?
Things that happened/existed after the balance sheet date, but before the date the FS are issued or available to be issued. Examples are:
- Settlement of Litigation, if it happened after the BS date.
- Loss of plant of inventory due to fire or natural disaster.
What is the subsequent event evaluation period?
Filers = Through the date that the FS are issued. Nonfilers = Through the date that the FS are available to be issued.
When are FS considered to be issued?
When they have been widely distributed to FS users in a form and format that complies with GAAP.
When are FS considered to be available to be issued?
When they are in a form and format that complies with GAAP, and all approvals for issuance have been obtained.
What are the disclosure requirements for a nonfiler regarding Subsequent Event Evaluation Periods?
The company must disclose the date through which subsequent events have been evaluated, including whether that date is the date that FS were issued or were available to be issued.
What are the disclosure requirements for a filer regarding Subsequent Event Evaluation Periods?
None.
What is Fair Value?
FV is the price that would be RECEIVED to SELL an asset or PAID to transfer a liability between market participants under current market conditions. FV is an EXIT price not an entrance price.
Marketers marketing in a market because they want to trade!!!!!!!!!!!! (Not forced).
What is a principal market?
The market where you sell more volume, or asset/liability has more activity.
What is the most advantageous market?
Always choose the FV gross price of the item that after transaction costs have been deducted, results in the highest profit.
What is highest and best use?
FV of a nonfinancial (i.e PPE) asset at its best use.
Ex = Yellowstone! If I have a farm that is worth $1, but someones wants to buy it for a mall, then FV IS HIGHEST!!!!
What is the FV framework established by US GAAP?
- Valuation techniques.
2. Hierarchy (who’s the boss bitch?)
What are the valuation techniques? MIC DROP!
- Market approach = Based on prices from the market on identical assets/liabilities.
- Income approach = Uses future cash flows or earnings converted to a discount amount.
- Cost approach = Based on replacement cost. Applies to assets only. (You can’t replace a liability, duh).
What is the hierarchy to measure FV?
- Level 1 Inputs = Boss Bitch!!!! - Mel Based on quoted prices from the market on identical assets/liabilities. KEY = Identical!
- Level 2 Inputs = 2nd Boss Bitch - Cassi!!!! Based on quoted prices from the market on similar assets/liabilities. KEY = Similar!
- Level 3 Inputs = Only used when Mel and Cassi are not available. Non trustworthy, based on the best available info, not facts. Literally, like fake news.
What type of companies does segment reporting apply?
Public companies only.
What is the 10% test?
Segment requires disclosure if one of the following tests is met:
- Revenue = Revenue > 10% combined revenue or combined loss (ABSOLUT VODKA).
- Reported Profit or Loss = Reported profit or loss > 10% combined reported profit or loss or combined loss (ABSOLUT VODKA).
- Assets = Assets > 10% combined assets.
How do you calculate segment profit (loss)?
Revenues
(-) Directly traceable costs
(-) Reasonably allocated costs
(=) Operating Profit (Loss)
What items are excluded from segment profit (loss)?
- General corporate revenues and expenses.
- Interest expense.
- Income taxes.
- Gains (losses) of discontinued ops.
- Equity in earnings and losses of an unconsolidated subsidiary.
- Minority interest.
