FAR-F2-M1-Notes to the financial statements

Question 1

Is the following statement true or false? The significant accounting policies segment of the footnotes to the financial statements is usually presented as the first or second note and is separate from all other footnotes.

Answer 1

True. The summary of significant accounting policies must be PRESENTED SEPARATELY FROM THE REST OF THE NOTES.

Question 2

Is The Management Discussion and Analysis is required by the SEC?

Answer 2

Yes

Question 3

What is the concentration of credit risk?

Answer 3

An example of concentration of credit risk: Concentration of the volume of business transacted with a particular customer

Question 4

When should a change in estimate be disclosed in the footnotes?

Answer 4

When it is REASONABLY POSSIBLE that an estimate will change in the near term and that the effect of the change will be material, an estimate of the effect of the change should be disclosed.

Question 5

Where is the Management Discussion and Analysis located in the financial statements?

Answer 5

MDA is presented separately at the very top of the financial statements and not foot disclosures.

Question 6

What is included in the summary of significant accounting policies?

Answer 6

The summary of significant accounting policies will include components such as measurement bases, accounting principals and methods, criteria and policies such as basis of consolidation, deprecation methods, revenue recognition etc.

Question 7

Can policies be duplicated in the notes?

Answer 7

Policies presented in other notes should not be duplicated.

Question 8

When should concentrations be disclosed in the financial statements?

Answer 8

Concentrations should be disclosed if ALL are met:
1. Concentrations exist as of the financial statement date
2. Concentration makes the entity vulnerable to the risk of a near term severe impact.
3. It is REASONABLY POSSIBLE that event will occur.

Question 9

When should an estimate be disclosed in the notes financial statements?

Answer 9

When it is REASONABLY POSSIBLE that an estimate will change in the near term and that the effect of the change will be MATERIAL, an estimate of the effect of the change should be disclosed in the notes to the financial statements. Remember, if the estimate was PROBABLE AND CAN BE REASONABLY ESTIMATED, then it would be accrued for in the balance sheet.