FAR 1 Flashcards
What is the SEC?
Securities and Exchange Commission - Established by the Securities and Exchange Act of 1934
What is FASB?
Financial Accounting Standards Board - Established in 1973 - charged with the responsibility for determining what U.S. GAAP is.
What is GAAP?
Generally Accepted Accounting Principles - it is the FASB accounting standards Codification.
What is IASB?
International Accounting Standards Board - The international version of FASB.
What is IFRS?
International Financial Reporting Standards - The IASB issues IFRS (GAAP’s counterpart)
What is the framework for FASB called?
Statements of Financial Accounting Concepts (“SFAC”)
What statements are included in the “Full Set of Financial Statements”
Statement of financial position (Balance Sheet) Statement of Earnings (Income Statement) Statement of Comprehensive Income Statement of Cash Flows Statement of changes in owners equity
What SFAC section are the guidelines for Recognition and Measurements in the Finacial Statements located?
Section 5
What two fundamental assumptions are found in both GAAP and in IFRS?
Accrual Basis for accounting and going concern
What is going concern?
The assumption that the entity will continue into the foreseeable future.
TRUE OR FALSE: The income statement measures performance at one point in time.
False: Over a Period of time.
What is the fundamental difference between revenue and expenses vs. gains and losses?
Gains and losses are not a part of your core business.
When can you make a change in accounting principle?
When it more fairly reports an entities position.
IDEA stands for:
I Income from continuing operation
D Income from Discontinued operations
E Extraordinary operations
A cumulative effect of change in Accounting Principals
DEA are all net of tax. Only I is gross of tax.
List the fundamental steps in a multi-step income statement
Net Sales Cost of Sales Gross Margin Selling Expenses General and Administrative Expenses Depreciation Expense Income (loss) from operations Interest Income Gain on sale of fixed assets Other income Interest Expense Loss on sale of fixed assets Unusual or infrequent items Income before income tax current taxes deferred taxes Net income
List the fundamental steps in a single-step income statement
Total Revenues
Total Expenses
Net Income
According to the FASB and IASB conceptual frameworks, completeness is an ingredient of Relevance or Faithful Representation, both or neither?
Faithful Representation
If you sell a fixed asset that is used for operations for greater than its carrying amount you should report the transaction in the income statement using the ______ (net or gross) concept showing the total gain as a part of continuing operations _______ (net or not net) of income taxes
Net; not net
Which should be included in SG&A expense: Interest, advertising, both or neither.
Neither
Are foreign currency losses included in extraordinary losses?
No
What does PUFE stand for?
P Pension adjustment
U Unrealized gains and losses
F Foreign currency items
E Effective portion cash flow hedges
What does comprehensive income include?
What is OCI
Net Income plus OCI (Other Comprehensive Income)
TRUE OR FALSE: Comprehensive income should be reported on a per share basis.
FALSE
What is a classified balance sheet?
A classified balance sheet distinguishes current vs. non-current assets and liabilities
List the major sections of the Balancesheet
Assets
Current Assets
Investments
Property Plant & Equipment ("PP&E")
Intangible Assets
Other Assets
Total Assets
Current Liabilities
Total Liabilities
Stockholders Equity
TRUE OR FALSE: Treasury Stock is a contra-equity item
True
TRUE or FALSE: The same accounting principles for subsidiaries must be match the principles used by the parent company.
TRUE
TRUE or FALSE: Intercompany transactions must be eliminated for reporting.
False: Intercompany transactions must NOT be eliminated for reporting purposes.
What information must a parent company disclose regarding its subsidiaries?
Operating segments (annual and interim)
Products and services
Greographic Areas
Major Customer
By definition what is an operating segment.
Operating Segments are entities that engage in business activities which may earn revenues and incur expenses.
They have operating results that are regular reviewed by the companies chief executives.
For which discrete financial information is available.
What are the two tests to determine if a segment is considered reportable?
10% Size Test and the 75% reporting sufficiency test
Explain the 10% size test
Must meet at least one of the three components.
Revenue: Revenue generated by this segment is greater than or equal to 10% of total parent company revenues (excluding said segment).
Reported Profit or Loss: A segment meets the size test if the absolute amount of its reported profit or loss is 1% or more of the greater, in absolute amount of the combined reported loss of all operating segments that did not report a loss or that did report a loss.
Assets, if the assets held by the segment are greater than or equal to 10% of the parents total assets (excluding said segment).
TRUE or FALSE: The same accounting principles for subsidiaries must be match the principles used by the parent company.
TRUE
How are segments reported that do not meet the 10% or 75% tests?
They are classified as “all other segments”
What information must a parent company disclose regarding its subsidiaries?
Operating segments (annual and interim)
Products and services
Greographic Areas
Major Customer
By definition what is an operating segment.
Operating Segments are entities that engage in business activities which may earn revenues and incur expenses.
They have operating results that are regular reviewed by the companies chief executives.
For which discrete financial information is available.
What are the two tests to determine if a segment is considered reportable?
10% Size Test and the 75% reporting sufficiency test
Explain the 10% size test
Must meet at least one of the three components.
Revenue: Revenue generated by this segment is greater than or equal to 10% of total parent company revenues.
Reported Profit or Loss: A segment
Explain the 75% reporting sufficiency test
At least 75% of company revenue should be included in “reportable segments” no more than 10 segments can be included in “all other segments” or non-reportable segments.
How are segments reported that do not meet the 10% or 75% tests?
They are classified as “all other segments”
What is the formula for segment reporting?
Revenues
-Directly traceable costs
-Reasonably allocated costs
=Operating Profit (loss)
Items that are normally excluded from segment reporting?
General corporate revenues/expenses
Anything after EBIT
What is a “Development-Stage Enterprise”
A company where operations have not yet commenced or where revenue is insignificant.
What type of information should a “Development-Stage Enterprise” include in addition to the typical financial statements that are required by GAAP?
Cumulative Infomration
When adopting IFRS for the first time. How many years of financial statements do you need to provide?
3 Years of Balance Sheets, 2 Years of everything else.
Where will the net adjustment hit for adjusted Assets & Liabilities when issuing IFRS statements for the firs time.
Retained Earnings
What must an entity provide along with its adjusted financials when moving to IFRS?
An explanation and summary of differences between GAAP and IFRS.
Reconciliation of Equity, Comprehensive Income, and disclosures related to the recognition or reversals that were recognized of impairment losses.
What is a 10-k?
Annual financial statements
What is a 10-Q
Quarterly financial statements (U.S. Registered Companies only) (these statements are unaudited)
What is a registration statement?
Used when entity will issue new securities.
What is an 11-K
Annual report of a company’s employee benefit plan.
What are forms 20-F and 40-F
Similar to 10-k but for foreign private issuers. These can be filed using GAAP, IFRS, or other.
What is a 6-K?
Like a quarterly report; filed by foreign issuer. Filed semi-annually
Form 8-K?
Filed when company makes incurs a major event such as a acquisition or disposal.
Forms 3,4, and 5?
Filed by persons owning 10% or more of a publically traded company.
What is Regulation S-X?
The requirements for financial reporting by the SEC
How many years of statements are required under regulation s-x?
BS -2 IS/CF -3
What is SEC XBRL?
Allows companies to use free software to make financial statements more computer friendly.
