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Becker FAR Cards > FAR Chapter# 1 > Flashcards

FAR Chapter# 1 Flashcards

1
Q

FAR 1-1 - CONCEPTUAL FRAMEWORKS | Name the single source of authoritative nongovernmental U.S. GAAP

A

The FASB “Accounting Standards Codification” (ASC).

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2
Q

FAR 1-2 - CONCEPTUAL FRAMEWORKS | The term “International Financial Reporting Standards” includes what standards?

A

International Accounting Standards (IAS)

International Financial Reporting Standards (IFRS)

IFRIC Interpretations

SIC Interpretations

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3
Q

FAR 1-3 - CONCEPTUAL FRAMEWORKS | Who are the primary users of general purpose financial reports?

A

Existing and potential:

  • Investors
  • Lendors
  • Other creditors
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4
Q

FAR 1-4 - CONCEPTUAL FRAMEWORKS | 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 information.

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5
Q

FAR 1-5 - CONCEPTUAL FRAMEWORKS | Name the FUNDAMENTAL qualitative characteristics of useful financial information.

A

Relevance and Faithful Representation

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6
Q

FAR 1-6 - CONCEPTUAL FRAMEWORKS | Name the three elements of Relevance.

A

Predictive Value

Confirming Value

Materiality

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7
Q

FAR 1-7 - CONCEPTUAL FRAMEWORKS | Name the three elements of Faithful Representation.

A

Neutrality

Completeness

Freedom from error

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8
Q

FAR 1-8 - CONCEPTUAL FRAMEWORKS | Name the ENHANCING qualitative characteristics of financial information.

A

Comparability, Verifiability, Timeliness, and Understandability

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9
Q

FAR 1-9 - CONCEPTUAL FRAMEWORKS | According to SFAC #5, what should a full set of financial statements include?

A

Statement of Finacial Position (balance sheet)

Statement of Earnings (income statement)

Statement of Comprehensive Income

Statement of Cash Flows

Statement of Changes in Owners’ Equity

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10
Q

FAR 1-10 - CONCEPTUAL FRAMEWORKS | 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

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11
Q

FAR 1-11 - CONCEPTUAL FRAMEWORKS | List the 10 elements of financial statements according to SFAC #6. CREG and LALEID

A 
C - comprehensive income
R - revenue
E - expenses
G - gains
and 
L - losses
A - assets
L - liabilities
E - equity (of net assets)
I - investments by owners
D - distributions to owners
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12
Q

FAR 1-12 - CONCEPTUAL FRAMEWORKS | List the six elements of financial statements according to the IASB Framework.

A

Assets
Liabilities
Equity

Income (revenue and gains)
Capital maintenance adjustments
Expenses (expenses and losses)

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13
Q

FAR 1-13 - CONCEPTUAL FRAMEWORKS | Name the five elements of present value measurement per SFAC #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)

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14
Q

FAR 1-14 - CONCEPTUAL FRAMEWORKS | Describe the expected cash flow approach for present value computations.

A

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

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15
Q

FAR 1-15 - REPORTING NET INCOME | 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

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16
Q

FAR 1-16 - DISCONTINUED OPERATIONS | The gain (loss) from discontinued operations can consist of what?

A

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

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17
Q

FAR 1-17 - DISCONTINUED OPERATIONS | 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 whch they occur.

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18
Q

FAR 1-18 - DISCONTINUED OPERATIONS | 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
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19
Q

FAR 1-19 - DISCONTINUED OPERATIONS | 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.

20
Q

FAR 1-20 - EXIT OR DISPOSAL ACTIVITIES | What type 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

Other costs associated with exit or disposal activities

21
Q

FAR 1-21 - EXTRAORDINARY ITEMS | Define extraordinary items.

A

Material in nature

Of character significantly different from the typical or customary business activities (unusual)

Not expected to recur in 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.

22
Q

FAR 1-22 - EXTRAORDINARY ITEMS | 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.

23
Q

FAR 1-23 - ACCOUNTING CHANGES | Name the three types of accounting changes.

A

Change in an accounting principle

Change in accounting estimate

Change in reporting entity

24
Q

FAR 1-24 - ACCOUNTING CHANGES | 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.

25
Q

FAR 1-25 - ACCOUNTING CHANGES | 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).

26
Q

FAR 1-26 - ACCOUNTING CHANGES | 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

27
Q

FAR 1-27 - ACCOUNTING CHANGES | Under U.S. GAAP, how is a change in reporting entity reported?

A

All current and prior period financial statements presented are restated.

28
Q

FAR 1-28 - ACCOUNTING CHANGES | How are error corrections reported?

A

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

29
Q

FAR 1-29 - COMPREHENSIVE INCOME | 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 distributions to owners.

30
Q

FAR 1-30 - COMPREHENSIVE INCOME | Identify five items included in other comprehensive income. PUFER

A

Pension adjustments

Unrealized gains and losses on AFS securities

Foreign currency translation adjustments and gains/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)

31
Q

FAR 1-31 - COMPREHENSIVE INCOME | List the two formats acceptable for reporting comprehensive income.

A

Statement of Comprehensive Income (single-statement approach)

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

32
Q

FAR 1-32 - COMPREHENSIVE INCOME | 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 - AOCI

Reclassification adjustments between other comprehensive income and net income

33
Q

FAR 1-33 - BALANCE SHEET AND DISCLOSURES OVERVIEW | Identify the contents of the first 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
34
Q

FAR 1-34 - BALANCE SHEET AND DISCLOSURES OVERVIEW | 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.

35
Q

FAR 1-35 - BALANCE SHEET AND DISCLOSURES OVERVIEW | 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.

36
Q

FAR 1-36 - INTERIM FINANCIAL REPORTING | 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.

37
Q

FAR 1-37 - INTERIM FINANCIAL REPORTING | What income tax rate is used in interim financial reporting?

A

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

38
Q

FAR 1-38 - SEGMENT REPORTING | Name the four required disclosures for segments of an enterprise.

A

Operating segments

Products and services

Geographic areas

Major customers

39
Q

FAR 1-39 - SEGMENT REPORTING | 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. “

40
Q

FAR 1-40 - SEGMENT REPORTING | Name two quantitative thresholds used in indentifying operating segments.

A

10% “Size” test

75% “Reporting Sufficiency” test

41
Q

FAR 1-41 - SEGMENT REPORTING | 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.

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 segments that did not report a loss, or
- The combined reported loss of all operating segments that did not report a gain.

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

Note: must meet only one of the above.

42
Q

FAR 1-42 - SEGMENT REPORTING | 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 practicle limit is 10 segments, but noa precise limit.

43
Q

FAR 1-43 - SEGMENT REPORTING | 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
44
Q

FAR 1-44 - DEVELOPMENT-STAGE ENTERPRISES | Define development-stage enterprise.

A

Enterprise that devotes substantially all of its efforts to establishing a new business and either planned principal operations or have not commenced or no significant revenue has ben generated therefrom.

45
Q

FAR 1-45 - DEVELOPMENT-STAGE ENTERPRISES | Indicate any special accounting treatment for development-stage enterprises.

A

Same generally accepted accounting principles as established operating enterprises, with additional disclosures:

  • Identify statements as those of development stage enterprise.
  • Accumulated losses identified as “deficit accumulated during development stage”.
  • In the income statement, show revenue and expenses, and cumulative tot of both amounts from company’s inception.
  • In the SCF, include cumulative amounts of cash inflows and outflows from enterprise’s inception and current amounts of cash inflows and outflows for each period presented.
  • Issue a separate statement of stockholders equity, indicating shares issued, date of issuance, dollar amounts assigned, and noncash consideration, if any.
46
Q

FAR 1-46 - FIRST-TIME ADOPTION OF IFRS | What is the date of an entity’s transition to IFRS?

A

The date of the opening balance sheet.

47
Q

FAR 1-47 - SEC REPORTING REQUIREMENTS | 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. Includeds 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 reviewed financial statements, interim MD&A, and certain disclosures.

Becker FAR Cards (10 decks)

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