F2 M1 Flashcards

1
Q
A

Nature of Operations: This can be the first FN, it includes a description of the entity’s
major products or services and its principal markets

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2
Q
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The second note is a description of all significant policies called Summary of
Significant Accounting Policies

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3
Q
A

Disclosures within this section should not be duplicates disclosed elsewhere in the FS

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4
Q
A

Disclosures within this section should not be duplicates disclosed elsewhere in the FS

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5
Q
A

Summary of Significant Accounting Policies includes disclosures of measurement bases
used in preparing FS and specific accounting principles and methods used during the
period

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6
Q
A

Examples of specific accounting principles and methods used during the period: Basis of
consolidation, depr methods, amort of intangibles, inv pricing (LIFO and FIFO), use of
estimates, fiscal year definition (dec 31, sept 30, or other), revenue recognition issues
(long-term construction contracts), and criteria for which investments are cash
equivalents

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7
Q
A

Items not included: Detailed dollar amounts of account balances, details relating to
changes in accounting principles, dates of maturity and amounts of long-term debt, and
yearly computation of depr, amort, and depletion (basically, it does not contain extremely
specific criteria)

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8
Q
A

Remaining Notes to FS: These notes are used to disclose facts not presented in either
the body of the FS or in the Summary of Significant Accounting Policies

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9
Q
A

Use in Estimates in the Preparation of the FS: The preparation of FS in conformity
with GAAP requires mgt to make estimates and assumptions that affect the reported
amts of assets and liabilities at the date of the FS, and the reported amts of rev and exp
during the reporting period. Actual results could differ from those estimates (this entire
statement or something similar should be included in the FN)

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10
Q
A

Certain Significant Events: When it is reasonably possible (not probable) that an
estimate will change in the near term and that the effect of the change will be material
(not immaterial), an estimate of the effect of the change should be disclosed (ex: It is
reasonably possible that a contingency will be incurred this year)

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11
Q
A

Finally, a section called Current Vulnerability Due to Certain Concentrations is made

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12
Q
A

Concentrations should be disclosed if all of the following 3 criteria are met: The
concentration exists at the FS date, the conc makes the entity vulnerable to the risk of a
near-term financially severe impact, it’s at least reasonably possible that the events that
could cause the severe impact will occur in the near term

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13
Q
A

Examples of concentration: Concentration in market or geographic area (ex: you live in a
town where war happens very often), concentrations in rev from particular products or
services, concentrations in the volume of business transacted with a particular cust,
supplier, lender, or grantor

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14
Q
A

4 Disclosures of risk and uncertainties in the FN: Nature of Operations, Use in Estimates
in the Preparation of the FS, Certain Significant Events, and Current Vulnerability Due to
Certain Concentrations

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15
Q
A

The amt of an entity’s revenue from each of their significant customers should be
reported in the Vulnerability due to Certain Concentrations Section (NEVER names of
the companies)

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