F2 - FINANCIAL REPORTING & DISCLOSURES Flashcards
For entities that file FS with the SEC
The subsequent event evaluation period runs through the date the FS are issued
FS are considered issued on the date when the FS are in a form and format that comply w/GAAP and by which the FS have been distributed to the FS users
NO REQUIREMENT for any shareholder to have acknowledged receipt of the FS
Financial Stmts of all prior periods presented should be restated when there is a ‘change in entity’
- Changing companies in consolidated financial stmts
- Consolidated financial stmts versus previous individual financial stmts
When a change in accounting principle is inseparable from
A change in accounting estimate
It should be reported as a component of income from continuing operations
WHICH really means that it should be handled as PROSPECTIVELY, instead of Retroactively meaning restating the FS
Change in Accounting Principle
From LIFO to FIFO
Difference in Inventory = FIFO Inventory - LIFO Inventory
If it is NOT possible to tell if something is a change in accounting principle or a change in estimate, it is treated as a change in estimate
Inventory LIFO requires maintaining detailed layers of inventory costs
Retrospectively - Prior period FS are adjusted to reflect the new principle
You have to:
Recalculating prior inventory values and adjusting retained earnings for the cumulative difference between old and new methods
ERROR CORRECTION ARE TREATED
RETROSPECTIVELY
Prior period FS are restated as if the error had never occurred
An expense that is Understated means that
Income is overstated that year
- MUST MINUS
Rule: An amount of the gain on sale of equipment should be reported during the period incurred
A “cumulative effect” type accounting change is not included in the net income of the period of change; instead, the beginning of the year retained earnings is restated
Financial Stmts are considered issued on the date when the financial stmts are in
A Form and format that comply with GAAP
By which the financial stmts have been widely distributed to FS users
There is no requirement for any shareholders to have acknowledged receipt of the FS
The subsequent event evaluation period for all other entities is through the date that the financial statements are available to be issued.
The date that financial statements are available to be issued is the date that its financial statements are in a form and format that comply with GAAP and all approvals for issuance have been obtained
Entities that do not file their financial statements with the SEC are required to disclose both the date through which subsequent events have been evaluated along with whether that date is the date that the financial statements were issued or the date that the financial statements were available to be issued.
BB + Accrued Revenue - Collections = Ending Balance
BASE formula to set up equation
When a company recognizes revenue at a point in time to account for a long-term construction contract, revenue is recognized when the job is completed, not when progress billings are collected or when they exceed recorded costs.
When revenue is recognized over time, engineering estimates of completion or “costs incurred to date” vs. “total estimated costs” is the basis for recognizing revenue, not progress billings.
3 Approaches to measure FV
Market Approach - Market prices
Income Approach - Discounted Cash Flows
Cost Approach - replacements cost adjusted for depreciation and obsolescence
Highest & Best Use
Use of a financial assets that maximizes its value considering what is physically possible, legally permissible, and financially feasible
Market Participants
Independent
Knowledgeable
Willing buyers and sellers, acting in their economic best interest in the principal or most advantageous market
Most Advantageous Market
When no principal market exists,
One that provides the highest net proceeds
OR
Lowest net cost
Transaction costs are excluded from the FV measurement
For an entity that does NOT file with the SEC
A subsequent event evaluation period runs through the date that the FS are available to be issued.
The date that financial statements are available to be issued is the date that its financial statements are in a form and format that comply with GAAP and all approvals for issuance have been obtained
Entities that do not file their financial statements with the SEC are required to disclose both the date through which subsequent events have been evaluated along with whether that date is the date that the financial statements were issued or the date that the financial statements were available to be issued.
Modified Cash Basis
Revenues are recognized when cash is received
Expenses are recognized when cash is paid
Accrual Modifications to:
Capitalizing Inventory - Inventory is recorded as an asset
When to recognize Refund Liability?
Anticipates having to refund a portion or all of that consideration
Refund Liability Represents - The amount an entity does not expect to be entitled to receive
Record until allotted time has passed
