FAR Flashcards
Who is the source of authoritative nongovernmental U.S. GAAP?
FASB codification
What is the goal of the PCC?
To establish alternatives for U.S. GAAP to make private company financial statements more relevant, less complex, and cost-beneficial
Can you apply the Conceptual Framework to specific accounting issues for IFRS or U.S. GAAP?
IFRS
What do the users of the financial statements use the information for?
To assess the reporting entity’s prospects for future net cash inflows to the entity (estimate the entity’s value)
Information that is capable of making a difference in the decisions made by users
Relevance (Passing confirms money)
Information that is complete, neutral, and free from error is what?
Faithful Representation (Reliable)
Compare and verify in time to understand
Enhancing Qualitative Characteristics
What is the only fundamental assumption that the IASB Framework outlines?
Going concern
Increases in assets from transfers of cash, property, or services from owners are what?
Investments by Owners
Estimate of future cash flow, expectations about timing variances, time value of money, price for bearing uncertainty, liquidity issues are all what?
Elements of present value measurement
What financial statement is useful in determining profitability, value for investment purposes and credit worthiness?
Income Statement
Presentation order of the major components of an income and retained earnings statement:
I(Gross and net of tax) DEA(net of tax)
change from one acceptable method of accounting to another (GAAP to GAAP)=
Change in Accounting Principle
Part of an entity(lowest level) for which operations and cash flows can be clearly distinguished=
Component of an entity
Operations are classified as discontinued if:
Disposed of or classified as held for sale
Disposals are discontinued operations if the disposal represent a strategic shift that has or will have on an entity’s operations and financial results, what are examples of this?
Disposal of a major geographical area, equity method investment, line of business
Types of Items Included in Results of Discontinued Operations:
Results of operations of the component, gain or loss on the disposal of the component, impairment loss of the component
A component classified as what is measured at the lower of its carrying amount or fair value less costs to sell?
Held for sale
Future operating losses expected to be incurred as part of an exit or disposal activity are recognized in what period?
The period incurred
Transactions or events that are material, and unusual and infrequent are what?
Extraordinary Items (Expropriation of a plant by the government, prohibition of a product line by a newly enacted law or regulation)
Items that are not extraordinary are presented where?
Separate component of continuing operations (shown gross or before tax)
Are there extraordinary items in IFRS?
NO
Are changes in accounting estimate prospective or retrospective?
Prospective
Are changes in accounting principles prospective or retrospective?
Retrospective
If change in accounting estimate affects several future periods, they should be what?
Disclosed in the notes to the FS
Changes in accounting principle should be recognized by adjusting beginning retained earnings in the _____ period presented?
Earliest
Change in inventory cost flow assumption to LIFO is an accounting change that is handled ______
prospectively
Change in depreciation method is handled _______
prospectively
Are changes in accounting entity prospective or retrospective? (ONLY GAAP)
retrospective
Comprehensive Income (Non-owner transactions)=
PUFE R(IFRS ONLY)
Income from continuing operations, discontinued operations and extraordinary items are included in what?
Net income
Should comprehensive income be reported on a per share basis?
NO
What account is other comprehensive income closed to?
Accumulated Other Comprehensive Income
Required disclosures for OCI include:
Tax effects of each component, changes in accumulated balances, total AOCI in the balance sheet as an item of equity, reclassification adjustments
U.S. GAAP requires disclosures of significant estimates, but not ______, IFRS requires both
judgments
If an estimate is reasonably possible and material, it should be what?
Disclosed
Is interim financial reporting required under U.S. GAAP or IFRS?
NO (but required by SEC for public company)
What is the objective of segment reporting?
To provide information on the business activities and the economic environment of a company to help users of the financial statements make better decisions
Required disclosures for all public enterprises include what:
operating segments, products and services, geographic areas, major customers
Segment is reportable if: It is __ percent of reported revenue, assets, or profit or loss, and to meet the at least ___ percent of external (consolidated) revenue requirement
10, 75
Business activities and operating segments that are not reportable should be combined and disclosed in what category?
“All other segments”
Segment Profit or Loss Formula:
Revenues
Less: Directly traceable costs
Less: Reasonably allocated costs
=Operating Profit (or loss) for that Segment
Form 20-F must be filed when and by whom?
Annually by foreign private issuers
What regulation sets forth the form and content and requirements for interim and annual financial statements to be filed with the SEC?
Regulation S-X
What form is required to be filed semi-annually by foreign private issuers?
Form 6-K
Audited financial statements must include BS for the ____ most recent fiscal years and IS/CF for each of the ____ most recent years
2, 3
SEC Interactive Data Rule=
Required GAAP and IFRS to present financial statements in an exhibit prepared using XBRL
What are the four criteria for revenue recognition under GAAP?
Persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, price is fixed and determinable, collection is reasonably assured
Franchisor should report revenue from initial franchise fees when all conditions of the sale have been _____ ______
“Substantially performed”
What costs associated with intangibles that are specifically identifiable can be capitalized?
Legal fees and other costs related to a SUCCESSFUL defense of the asset, registration or consulting fees, design costs, direct costs to secure the asset
The cost of internally intangible assets not acquired from others should be expensed, what are examples of this?
Trademarks, goodwill from advertising, cost of developing, maintaining, or restoring goodwill
A patent is amortized over the _____ of its estimated life or remaining legal life
Shorter
What should happen if the intangible asset becomes worthless during the year?
Write off the entire remaining cost to expense
Intangible assets that have a finite life should be what?
Amortized over useful economic life (Two Step Test for U.S. GAAP)
Under IFRS, a revaluation loss that reverses a previously recognized revaluation gain is recognized in ____
OCI
Under IFRS, a revaluation gain is reported on the ____ _____ to the extent that they reverse a previously recognized revaluation loss
Income Statement
Initial franchise fees are recognized as a ____ _____ and _____
intangible asset, amortized
Continuing franchise fees are what?
Expensed as incurred
Start up costs and organizational expenses are what?
Expensed immediately
Goodwill is what?
Impaired
Under GAAP, what are the only R & D costs that can be capitalized?
materials, equipment, or facilities that have alternate future uses, R & D costs of any nature undertaken on behalf of others under a contractual arrangement
For computer software developed to be sold, leased or licensed, what is the point where costs can be capitalized?
AFTER technological feasibility (upon completion of detailed program design or completion of a working model)
Amortization of capitalized software costs is the greater of:
Percentage of revenue or straight line
Computer software developed for internal use only is amortized over what?
Straight line basis
For intangible assets with finite lives, what is the two step impairment test?
Determine the impairment-use undiscounted future net cash flows
Amount of impairment-use Fair Value (Discounted cash flow)
For intangible assets with indefinite lives, what is the only step used? (Also only step used for IFRS)
Amount of Impairment -use FV (Discounted cash flow)
Where is an impairment loss reported in the income statement?
Income from continuing operations
Under GAAP, for a private company, how is goodwill accounting for?
Amortized on a straight line basis over 10 years
Excess of costs over billing is reflected in the balance sheet as what?
Current asset
Excess of accumulated billings over related costs should be reflected as what?
Current liability
Is the completed contract method under IFRS permitted?
NO
Under the percentage of completion method, any previous gross profit or loss reported in prior years must be adjusted for when calculating what?
Total estimated loss
When may the cost recovery method be used?
When receivables are collected over an extended period and there is no reasonable basis for estimating their collectibility
Under cost recovery method, cash collections are first applied to the recovery of product costs, what are collections after costs have been recovered recognized as?
Profit
Commercial substance=
Future cash flows will significantly change
Exchanges that have commercial substance and exchanges of dissimilar assets=
Gain/loss recognized
For exchanges lacking commercial substance (fair value cannot be determined or no change in cash flows), losses are what?
Always recognized
If no boot is received=
No gain
If boot is paid=
No gain
If boot is received =
Recognize proportional gain if less than 25%
If boot is 25% or more of total consideration=
Entire gain recognized
Historic Cost and Current Cost=
Appreciation
Nominal dollars and Constant dollars=
Inflation
Monetary assets and Purchasing Power Gains=
During a period of deflation
Monetary assets and Purchasing Power Losses=
During a period of inflation
Monetary liabilities and Purchasing Power Gains=
During a period of inflation
Monetary liabilities and Purchasing Power Losses=
During a period of deflation
Foreign Currency Translation=
Functional
Foreign Currency Remeasurement=
Dysfunctional
Remeasurement Method=
Balance Sheet to Income Statement, Income Statement Plug (Gain/Loss)
Translation Method=
Income Statement to Balance Sheet, Balance Sheet Plug
Where is the translation adjustment plugged to?
OCI
Is a statement of cash flows required for OCBOA presentation?
NO
In personal financial statements, what are the assets and liabilities value at?
Fair Value
When recording the acquisition of a sub using parent common stock, the FV at what date is used?
The date the transaction closes
Finder’s fees and legal fees are capitalized under _____ _____, but are expensed under _____ _____
equity method, acquisition method
Noncontrolling interest must be reported at fair value in what section of the consolidated BS?
Equity section (Separate from Parent’s)
Intangible assets that have an indefinite life should be what?
Impaired (One Step Impairment Test)
FV of Net Assets=
Assets-Liabilities
Trading and available for sale securities must be reported after what?
Fair value
Unrealized holding gains and losses on trading securities are included in what?
Earnings (Income Statement)
Unrealized holding gains and losses on available for sale securities are reported in what?
OCI
Held to maturity securities are valued at what?
Amortized cost
The sale of a security from any category results in a realized gain or loss ad is reported in what?
Income Statement
If a REALIZED loss is considered permanent, what does this result in?
Write down to fair value and included in Income Statement
Under GAAP, significant transactions during the gap period require what?
disclosure
Under IFRS, the significant transactions for the subsidiary during the gap period require what?
Adjustment
No significant Influence (
Cost Method
Significant Influence but 50% or Less Ownership=
Equity Method
Greater than 50% ownership and control=
Consolidate
Under the cost method, the portion of the dividends received this year that were not in excess of the investor’s share of investee’s undistributed earnings since the date of investment, should be reported where?
Investor’s income statement
Under the cost method, the cost basis investment account is reduced if:
Shares of stock are sold, cumulative dividends exceed cumulative earnings (a return of capital), or the subsidiary incurs losses that substantially reduced net worth.
When changing from the cost method to equity method, the investment and retained earnings accounts are adjusted how?
Retrospectively
For an additional investment made, the new method (equity) should be apply to what percentage?
Prior period
Under the ____ method, receipt of a dividend is recorded as income and does not affect the investment account.
cost
Louis, Inc. acquired 40% of the outstanding non-voting preferred stock of Rich Co. What method for recording the investment should Louis use?
Cost method
Finder’s fee or legal fee are what?
Expensed
Stock registration and issuance costs such as filing fees are a direct reduction of the value of the stock issued, the parent should what?
Debit APIC account
The consolidated income statement will include 100% of the subsidiary’s revenue and expenses when?
After the date of acquisition
In process research and development should be what?
Carried as an asset/amortized if project success/ impair if project failure
Stockholders Equity=
Common Stock + APIC +Retained Earnings +NCI (If applicable)
Consolidated retained earnings/ net income are the same as the parent company’s, when financial statements are consolidated under the what method?
Acquisition
Use parent’s ___ when consolidating, and the Subs ___
BV, FV
FV of subsidiary × % acquired =
Purchase Price
Do you eliminate intercompany accounting is you do not consolidate?
NO
Are dividends paid by sub eliminated in consolidation?
YES
