FAR 1: Interim Financial; Segment; SEC Reporting Requirements

Question 1

What are the guidelines for interim reporting?

Answer 1

1. Use same accounting principles that were used in the most recent annual report.
2. Allocate expenses to the interim period benefited
3. Revenues are recognized in the period in which they are earned and realized or realizable.
4. A total for comprehensive income in condense F/S of interim period.

Question 2

What income tax rate is used in interim financial reporting?

Answer 2

Use best estimate of effective tax rate to be applicable for full fiscal year on quarterly statements.

Question 3

Name the 4 required disclosures for segments of an enterprise.

Answer 3

1. Operating segments
2. Products and services
3. Geographic area
4. Major Customers

Question 4

Define operating segment.

Answer 4

Distinct revenue-producing components of the enterprise about which separate financial information is produced internally, and whose operating results are regularly reviewed by the enterprise.

Determined using a “management approach”

Question 5

Name 2 quantitative thresholds used in identifying reportable operating segments.

Answer 5

1. 10% “Size” Test

2. 75% Reporting Sufficiency Test

Question 6

Describe the 10% test for identifying reportable segments.

Answer 6

Revenue - Reported revenue, including both sales to external customers and intersegments sales or transfer, is 10% or more of the combined revenue, internal and external, of all operating segments.

Reported profit or loss - The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of:

1. The combined reported profit of all operating segments that did not report a loss.
2. The combined reported loss of all operating segments that did report a loss.

Asset - Asset are 10% or more of the combined assets of all operating segments.

Note: must meet only one of the above

Question 7

What is the 75% test for identifying reportable segments?

Answer 7

Combined external (consolidated) revenue of all reportable segments must be at least 75% of the total consolidated revenue of the entity.

The practical limit is 10% segment, but this is not a precise limit.

Question 8

What are the disclosure requirements for reportable operating segments?

Answer 8

For each reportable segment, the entity must report:

1. Identifying factor
2. Products or service
3. Profit or loss details
4. Asset details
5. Liability details (IFRS only)
6. Measuring criteria
7. Reconciliations

Question 9

Describe the Form 10-K and the Form 10-Q. What level of assurance must be provided with the financial statement submitted in these forms?

Answer 9

Form 10-K: Filed annual by U.S. registered companies. Includes a summary of financial data, MD&A and audited F/S prepared using US GAAP.

Form 10-Q: Filed quarterly by US registered companies. Includes unaudited (reviewed) financial statement, interim MD&A and certain disclosures.