Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

FAR > FAR 1 - Standard Setting, Income Statement, and Reporting Requirements > Flashcards

FAR 1 - Standard Setting, Income Statement, and Reporting Requirements Flashcards

1
Q

Name the single source of authoritative nongovernmental U.S. GAAP.

A

The FASB “Accounting Standards Codification (ASC).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

The term “International Financial Reporting Standards” includes what standards?

A
  • International Accounting Standards (IAS)
  • International Financial Reporting Standards (IFRS)
  • IFRIC Interpretations
  • SIC Interpretations
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the Private Company Council?

A
  • The Financial Accounting Foundation (FAF) created the Private Company Council (PCC) to improve standard setting for privately held companies in the U.S.
  • The goal of the PCC is to establish alternatives to U.S. GAAP, where appropriate, to make private company financial statements more relevant, less complex, and cost-beneficial.
  • Accounting alternatives for private companies are incorporated into the relevant sections of the ASC.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Who are the primary users of general purpose financial reports?

A

Existing and potential:

  • Investors
  • Lenders
  • Other creditors
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Name the pervasive constraint on the information provided in financial reporting.

A

Cost Constraint:

The benefits of reporting financial information must be greater than the costs of obtaining and presenting the information.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Name the fundamental qualitative characteristics of useful financial information.

A

Relevance and Faithful Representation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Name the three elements of relevance.

A
  • Predictive value
  • Confirming value
  • Materiality
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Name the three elements of faithful representation.

A
  • Neutrality
  • Completeness
  • Freedom from error
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Name the enhancing qualitative characteristics of financial information.

A

Comparability, Verifiability, Timeliness, and Understandability

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

According to SFAC No. 5, what should a full set of financial statements include?

A
  • Statement of Financial Position (the balance sheet)
  • Statement of Earnings (the income statement)
  • Statement of Comprehensive Income
  • Statement of Cash Flows
  • Statement of Changes in Owners’ Equity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the difference between realization and recognition?

A
  • Realization*: When sold and converted to cash (or claims to cash)
  • Recognition*: When recorded in the financial statements
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

List the 10 elements of financial statements according to SFAC No. 6.

CREG and LALEID

A

Comprehensive Income

Revenues

Expenses

Gains

and

Losses

Assets

Liabilities

Equity (of Net Assets)

Investments by Owners

Distributions to Owners

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

List the six elements of financial statements according to the IASB Framework.

A

Assets

Liabilities

Equity

Income (revenue and gains)

Expenses (expenses and losses)

Capital maintenance adjustments

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Name the five elements of present value measurement per SFAC No. 7.

EVTUO

A

Estimate of future cash flow

Expectations about timing Variations of future cash flows

Time value of money (the risk-free rate of interest)

The price for bearing Uncertainty

Other factors (e.g. liquidity issues and market imperfections)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Describe the expected cash flow approach for present value computations.

A

Considers a range of possible cash flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted average, or “expected,” future cash flow.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the presentation order of the major components of an income and retained earnings statement?

IDEA

A
  • Income Statement
    • Income (or loss) from continuing operations
    • Income (or loss) from Discontinued operations
    • Extraordinary items
  • Retained Earnings Statement
    • Cumulative effect of a change in Accounting principle
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

The gain (loss) from discontinued operations can consist of…

A

An impairment loss, a gain (loss) from actual operations, and a gain (loss) on disposal.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

In what period are the following reported:

An impairment loss?

A gain (loss) from actual operations?

A gain (loss) on disposal?

A

All are reported in the period in which they occur.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

In reporting discontinued operations, how is a “component” of an entity defined under U.S. GAAP and IFRS?

A

U.S. GAAP

  1. An operating segment
  2. A reportable segment
  3. A reporting unit
  4. A subsidiary
  5. An asset group

IFRS

  1. A separate major line of business or geographical area of operations.
  2. A subsidiary acquired exclusively with a view to resale
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Define the following terms as they are used in reporting discontinued operations:

  • Business*
  • Nonprofit activity*
A

A business is an integrated set of activities and assets that is conducted and managed for the purpose of providing a return to investors or other owners, members, or participants.

A nonprofit activity is an integrated set of activities and assets that is conducted and managed for the purpose of providing benefits, other than goods or services at a profit, to fulfill an entity’s purpose or mission.

21
Q

Name the types of entities that may be considered for reporting according to the rules for discontinued operations.

A
  • Component of an entity
  • Group of components of an entity
  • Business
  • Nonprofit activity
22
Q

What conditions must be present for a disposal to be reported in discontinued operations?

A

A disposal of a component, group of components, business activity, or nonprofit activity is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.

23
Q

How do we account for subsequent increases in the fair value of a discontinued component?

A

A gain is recognized for the subsequent increase in fair value minus costs to sell (but not in excess of the previously recognized cumulative loss). The gain is reported in the period of increase.

24
Q

What types of costs are associated with exit and disposal activities?

A
  • Involuntary employee termination benefits
  • Costs to terminate a contract that is not a capital lease
  • Costs to consolidate facilities
  • Costs to relocate employees
25
Q

Define extraordinary items.

A
  • Material in nature
  • Of a character significantly different from the typical or customary business activities (unusual)
  • Not expected to recur in the foreseeable future (infrequent)
  • Not normally considered in evaluating the ordinary operating results of an enterprise.

Key words: Unusual and infrequent

Remember: Extraordinary items are recognized under U.S. GAAP but not IFRS.

26
Q

List some examples of extraordinary items:

A
  • The abandonment of, or damage to, a plant due to an infrequent earthquake or an infrequent flood.
  • An expropriation of a plant by the government.
  • A prohibition of a product line by a newly enacted law or regulation.
27
Q

Name the three types of accounting changes.

A
  • Change in an accounting principle
  • Change in accounting estimate
  • Change in accounting entity
28
Q

How is a change in accounting principle reported?

A
  • Cumulative effect of change is included in the retained earnings statement as an adjustment of the beginning retained earnings balance of the earliest year presented.
  • Prior period financial statements are restated, if presented.
29
Q

What are the special changes in an accounting principle?

How are special changes in accounting principle reported?

A
  • A change to LIFO from another method of inventory pricing under U.S. GAAP
  • Any other change in which a cumulative effect adjustment is considered impractical to calculate

Special changes are reported prospectively (like a change in estimate).

30
Q

How is a change in an accounting estimate reported?

A
  • Prospectively.
  • The effect is shown in the current and/or future periods that are affected by the change.
  • Financial statements are not restated.
31
Q

Under U.S. GAAP, how is a change in the accounting entity reported?

A

All current and prior period financial statements presented are restated.

32
Q

How are error corrections reported?

A

Reported as prior period adjustments to retained earnings and all comparative financial statements presented are restated.

33
Q

Define comprehensive income.

A

Change in equity (net assets) that results from revenue, expenses, gains, and losses during a period, as well as any other recognized changes in equity that occur for reasons other than investments by owners and distributions to owners.

34
Q

Identify five items included in other comprehensive income.

A

Pension adjustments

Unrealized gains and losses on available-for-sale securities

Foreign currency translation adjustments and gain/losses on foreign currency transactions that are designated as economic hedges of a net investment in a foreign entity

Effective portions of cash flow hedges

Revaluation surpluses (IFRS only)

35
Q

List the two formats acceptable for reporting comprehensive income. How does this compare with IFRS?

A

Statement of Comprehensive Income (single-statement approach)

Statement of Income followed by separate Statement of Comprehensive Income (two-statement approach)

U.S. GAAP and IFRS both allow the same two presentations.

36
Q

List some disclosure requirements for comprehensive income.

A
  • Tax effects of each component included in current “Other Comprehensive Income”
  • Changes in the accumulated balances of components of “Other Comprehensive Income”
  • Total accumulated other comprehensive income
  • Reclassification adjustments between other comprehensive income and net income
37
Q

Identify the contents of the Summary of Significant Accounting Policies note to the financial statements.

A

Summary of Significant Accounting Policies

Identify and describe:

  • Measurement bases used in preparing the financial statements
  • Principles and methods
  • Criteria
  • Policies
  • Pricing
38
Q

Describe the related party disclosures required under U.S. GAAP and IFRS.

A
  • Material related party transactions
  • Related party notes/accounts receivable
  • Control relationships

Note: IFRS requires disclosure of key management compensation. U.S. GAAP does not require this disclosure.

39
Q

What are the U.S. GAAP disclosure requirements for risks and uncertainties?

A
  • Nature of operations.
  • Use of estimates in preparing the financial statements.
  • Significant estimates.
  • Current vulnerability due to certain concentrations.
40
Q

What are the guidelines for interim reporting?

A
  • Use same accounting principles that were used in the most recent annual report.
  • Allocate expenses to the interim period benefited.
  • Revenues are recognized in the period in which they are earned and realized or realizable.
  • A total for comprehensive income in condensed financial statements of interim periods.
41
Q

What income tax rate is used in interim financial reporting?

A

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

42
Q

Name the four required disclosures for segments of an enterprise.

A
  • Operating segments
  • Products and services
  • Geographic areas
  • Major customers
43
Q

Define operating segment.

A

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.”

44
Q

Name two quantitative thresholds used in identifying reportable operating segments.

A
  • 10% “Size” test
  • 75% “Reporting Sufficiency” test
45
Q

Describe the 10% test for identifying reportable segments.

A
  • Revenue

Reported revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments.

  • Assets

Assets are 10% or more of the combined assets 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:

  • The combined reported profit of all operating segements that did not report a loss
  • The combined reported loss of all operating segements that did report a loss

Note: Must meet only one of the above.

46
Q

What is the 75% test for identifying reportable segments?

A

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 segements, but this is not a precise limit.

47
Q

What are the disclosure requirements for reportable operating segments?

A

For each reportable segment, the entity must report:

  • Identifying factors
  • Products or services
  • Profit or loss details
  • Asset details
  • Liability details (IFRS only)
  • Measurement criteria
  • Reconciliations
48
Q

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

A

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

Form 10-Q:

Filed quarterly by U.S. registered companies. Includes unaudited (reviewed) financial statements, interim MD&A, and certain disclosures.

FAR (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions