FAR 1 - Std Setting, IS, and Reporting Requirements Flashcards
What is SFAC No. 8, Chapter 1?
[Hint - The Objective of General Purpose Financial Reporting]
SFAC No. 8, Chapter 1 - The Objective of General Purpose Financial Reporting is to provide financial information about the reporting entity that is useful to the primary users of general purpose financial reports in making decisions about providing resources to the reporting entity.
In short, to disclose entity’s performance to external users.
What are the fundamental qualitative characteristics of useful information?
[Hint - Think Boyfriend]
Relevant and Faithful Representation!
1) Relevance - Capable of making a difference in decisions made by users. (Think “Passing Confirms Money”)
2) Faithful Representation - To best represent economic phenomena. (Think “Completely Neutral is Free From Error”)
Financial Information must have what values to be Relevant?
“PASSING _C_ONFIRMS _M_ONEY”
1) Predictive Value - Information has predictive value if it can be used by users to predict future outcomes.
2) Confirming Value - Information has confirming value if it provides feedback about evaluations previously made by users.
3) Materiality - INformation is material if an omission or misstatekement of the information could affect the decisions made by the users based on financial information.
Financial information must have what values to be a faithful representation?
“_C_OMPLETELY _N_EUTRAL IS _F_REE FROM ERROR”
1) Completeness - A complete depiction of financial information includes all information necessary for the user to understand the reported economic phenomena, including descriptions and explanations.
2) Neutrality - Free from bias in selection or presentation.
3) Freedom from Error - There are no errors in the selection or application of the process used to produce reported financial information and that there are no errors or omissions in the description of economic phenomena.
What are the Enhancing Qualitative Characteristics of Useful Financial Information?
“COMPARE & VERIFY IN TIME TO UNDERSTAND”
- Comparability - Ability to allow users to compare.
- Verifiability - Different knowledgeable and independent observers can reach consensus that a particular depiction is faithfully represented.
- Timeliness - Information is available to users in time to be capable of influencing their decisions.
- Understandability - Information is understandable if it is classified, characterized, and presented clearly and concisely.
What is included in a Full Set of Financial Statements per SFAC No. 5?
Full Set of Financial Statement contains:
- Statement of Financial Position [Balance Sheet]
- Statement of Earnings [Income Statement]
- Statement of Comprehensive Income
- Statement of Cash Flows
- Statement of Changes in Owner’s Equity
Describe the Elements of the Financial Statements for the Income Statement, Balance Sheet, and Comprehensive Income.
REGL ALE needs ID
Income Statement
- Revenue (Operating)
- Expense (Operating)
- Gains (Non-Operating)
- Losses (Non-Operating)
Balance Sheet
- Assets
- Liabilities
- Equity
Comprehensive Income
Items to be EXCLUDED from Comprehensive Income
- Investment by Owners
- Distributions to Owners
Presentation Order of the Major Components of an Income and Retained Earning Statement.
IDEA
Income Statement
- Income from Continuing Operations (Before Tax/Gross of Tax)
- Discontinued Operations (After Tax/Net of Tax)
- Extraordinary Items (After Tax/Net of Tax)
Retained Earnings
- Accounting Principal Change (After Tax/Net of Tax)
What is included in Operating portion of the Income from Continuing Operations?
Income (Loss) from Operations consists of:
Net of Sales
Cost of Sales
Selling Expenses
General and Administrative Expenses
Depreciation Expenses
What is included in Selling Expenses VS General and Administrative Expenses?
Selling Expenses - Freight out, Salaries & Commisions, Advertising
General and Administrative Expenses - Officer’s salaries, accounting and legal, insurance
What is included in the Non-Operating portion of the Income from Continuing Operation?
Non-Operating portion of the Income from Continuing Operations is made up of:
Income before Unusual Items and Income Tax:
- Other Revenues and Gains:
- Interest Income
- Gain on Sale of Fixed Assets
- Other Income
- Other Expenses and Losses
- Interest Expense
- Loss on Sale of Fixed Assets
What is the Layout of a Multiple Step Income Statement’s Income from Continuing Operation?
Operating
- Income (Loss) From Operations:
- Gross Margin = Net Sales - COGS
- Selling Expenses
- G&A Expenses
- Depreciation Expenses
Non-Operating
- Other Revenues and Gains
- Interest Income
- Gain from Sales of Fixed Asset
- Other Expenses and Losses
- Interest Expense
- Loss from Sales of Fixed Asset
Unusual or Infrequent Items
Extraordinary Items in IFRS?
NO EXTRAORDINARY ITEMS ALLOWED UNDER IFRS!!!
List type of Accounting Changes and how they are treated.
The type of Accounting Changes are:
- Changes in Accounting Estimate (Prospective)
* Make changes in IS for future periods based upon accounting estimate change. MUST DISCLOSE IN FOOTNOTES. - Changes in Accounting Principal (Retrospective)
* Change is recognized via an adjustment beginning retained earnings in the EARLIEST PERIOD. - Changes in Accounting Entity (Restate)
- Restate to relection for new entity on all previous FS that are available for comparative. FULL DISCLOSURE.
- DOES NOT EXIST IN IFRS
- Error Correction (Prior Period Adjustment)
- Correct information in current Year.
- Adjust Retained Earning for Prior Year Errors.
- US GAAP VS IFRS: IFRS estimate until practical. US GAAP no impracticality exemption.