For conservatism, what are three examples of being cautious: 1. Expense & Liability 2. Revenue & Asset 3. Valuation

1. Expense and Liabilities should be recognized ASAP when there is uncertainty Revenues and Assets should be recognized when they're assured of being received LCM theory should be applied to inventory & certain securities

FAR Sec 1 Vid Notes Flashcards by Adam Herron

FASB Conceptual Framework establish concepts that underly financial reporting: What are they?

Objective
Qualitative Characteristics : Fundamental/Enhancing Qualities, Elements

Assumptions/Principles/Constraints

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What is the objective of the Fasb Conceptual Framework?

Provide info thats useful to present & potential investors/creditors as capital providers

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Qualitative characteristics are what: (3)

Fundamental qualities/Enhancing qualities/Elements

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What are the Two fundamental qualities for qualitative characteristics?

Relevance / Faithful Representation

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What is Relevance and what is faithful rep?

Relevance - info. that is helpful

Faithful Rep - Numbers and descriptions of what actually happened.

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Relevance consists of three parts:

Predict value / Confirm Value / Materiality

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What is confirmatory value?

Relevant information helps users confirm/correct prior expectations

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What is predictive value?

Relevant information used by investors to form own expectations about future

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Faithful Rep consists of three parts:

Completeness / Neutrality / Free from Error

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What are the Qualitative characteristics - Enhancing Qualities? (4)

Comparability , Verifiability, Timeliness, Understandability

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What does Comparability, verifiability, timeliness, and understandabillity mean?

Comparability: Info is reported in similar manner for different companies
Verifiability: Independent measures using same methods obtain similar results
Timeliness: Info avail to users before it loses ability to influence decisions
Understand-ability: quality of info that lets informed users see significance

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What are the elements under FASB conceptual framework?

Similar to what you would see in a B/S or Income Statement

Asset/Liability/Equity
Investment By owner/Distribution to Owner
Comprehensive Income
Rev/Exp/G&L

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What are the assumptions under FASB conceptual framework? and what are they (4)

Assumptions are G.E.M.P

Economic Entity: Company keeps activity separate from owners
Going Concern: Company to last long enough to fulfill objective/commitment
Monetary Unit: Money = common denominator
Periodicity: Company can divide economic activities into time periods

G.E.M.P

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What are the principles under FASB conceptual Framework?

Principles are FERM (school reference)

Full disclosure: Provides info thats important to users
Expense Recognition: Expense follows revenues
Revenue Recognition: Realized/Realizable & Earned
Measurement Principle: Most common measurements are based on historical cost and Fair value?

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What are the most common measurements Based off of?

Historical Cost & Fair Value

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What are the Constraints under FASB Conceptual Framework?

I/C deals with Constraints

Industry Practice: Unique Nature of some industries and business concerns sometimes requires departure from basic accounting theory

Cost Constraint: Cost of providing info. must be weighed against the benefits

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What is the most OBJECTIVE measure of value used in accounting?

Historical Cost

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What is the Matching Principle?

Match Revenues w/ Expense in the SAME period to properly report profitability

Can match expired costs

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What are the 4 modifying conventions?

MISC

Materiality
Industry Practices: May be necessary to depart from strict compliance w/ GAAP due to unique nature of industry
Substance over Form: Report econmoic substance over legal form
Conservatism: Practice of being cautious when there is uncertainty

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For conservatism, what are three examples of being cautious:

Expense & Liability
Revenue & Asset
Valuation

Expense and Liabilities should be recognized ASAP when there is uncertainty
Revenues and Assets should be recognized when they’re assured of being received
LCM theory should be applied to inventory & certain securities

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FASB establishes standards of financial accounting that governs financial reports by what kind of organizations

What does FASB stand for?

Non governmental

Financial Accounting Standards Board

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What is the codification for FASB?

What is codification?

What are the updates for FASB to update ASC?

ASC - Accounting Standards Codifications

Codification is authoritative rules. In this case, its authoritative GAAP

ASU - Accounting Standards Update

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What is the process for issuing an ASU? (8)

Identify Issue
Add project to Technical Agenda
Discuss issues @ meeting
Exposure Draft (can issue a discussion paper)
Roundtable Meeting on Exposure Draft
Analyze Comments
Consider provisions
Issue ASU

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IASB Stands for what?

What is IASB principal objective? (2)

International Accounting Standards Board

Develop globally accepted internationally financial reporting standards (IFRS)
Converge national accounting standards and IFRS

GAAP vs IFRS How does the SEC treat foreign companies that trade in US markets?

GAAP is rule based IFRS is principles based Allows foreign companies to file their IFRS F/S w/o recon to GAAP

What does IFRS label their B/S? GAAP? What are the three required disclosures for both standards? (3)

Balance Sheet or Statement of Financial Position 1. Accounting Polices 2. Judgments (estimates) made by management 3. Key Assumptions/Estimates

How should F/S be presented and how often (applies for both GAAP & IFRS) How are current assets listed under GAAP? IFRS?

Comparatively and annually CA IFRS: Least Liquid to Most Liquid GAAP: Most Liquid to Least Liquid

What is Single-Step Income Statement? Multi-step Note: Break down. Dont verbally explain.

Single: Rev - Exp = Net Income Multi: Sales-COGS= GP - Op Exp = Income from Op + Other Revenue/Expense = Net Income

Unusual Gain/Loss 1. How should they be reported? 2, Shown net of tax?

If unusual, report it in a separate section -- above income from continuing operations BEFORE income tax

What changes does the comprehensive income statement include? Two ways to report Comp Income Statement:

ALL equity changes during a period EXCEPT those from investment by owner/distribution to owners 1. One-statement (combined approach) 2. Two-Statement Approach

One-statement Approach: List 1 of each Advantage Disadvantage

Adv: Creation of new f/s is not necessary Disadvantage: Net income gets buried

Two-Statement Approach, how is it reported? How are G&L treated?

reports Net income in a separate statement G&L identified as other comp income have the same status as traditional G&L

IFRS statement of Comp Income Two options to report: What is odd about this statement?

Two options -- same as GAAP Under IFRS, revaluation of PPE & intangible assets is reported as other comp. income .... This results in more transactions affecting equity, but NOT net income

How is the SCF (statement of cash flow) used?

identify trends in business performance thats not apparent in other F/S

How is the SCF related w/ Accrued net income and cash net income Provides info about an entity's ability to (2):

Shows the difference between accrued net income and cash net income 1. Generate future cash flow 2. Meet obligation and pay dividend

What are companies now supposed to explain the SCF?

changes in total cash/cash equivalent & restricted cash/restrict cash equivalent

Op activities show what: Investing Activities show what: Financing Activities show what:

Op: Income Statement transactions Invest: Change in investments/Long-term Assets Finance: Change in long-term liabilities and stockholders' equity

Example of non cash activities:

Bonds converted to stock Exchange of debt for property Exchange of stock for property

Where are the following located: Stock Dividend Stock Split Cash Flow Per Share

NO WHERE BRO

IFRS - SCF IFRS allows the use of what methods? Where can cash dividends PAID go to? What about Cash Dividends Received? Where does Cash received for Interest go to? Interest Expense is called what and goes where? Sig. Noncash invest/financing activities are reported where?

Direct and Indirect Method Cash dividends paid go to finance or operating ONLY if it is consistent Cash dividend Received go to Investing or Operating Cash Received for Interest can go to Invest/Operating Interest Expense is called Finance Cost, goes to Finance or Operating Sig. Noncash is reported as separate note to the F/S

What three things happen during a main elimination entry?

1. Write subsidiary net assets to fair value 2. Eliminate Capital Structure of Subsidiary 3. Record Goodwill & Noncontrolling Interest (NCI)

AFV will SPICE up your GOODNIght

AFV - Assets to Fair Value SPICE - Stock, Paid-in Capital, Retained Earnings GOODNIght- Record Goodwill & Noncontrol Interest, eliminates investment account

NON CONTROLLING INTEREST How should NCI be classified in the statement of finacnial position (B/S) of the consolidated F/S? On statement of Earnings (INC STMT), consolidated net income is adjusted to disclose what? Comp income is adjusted to include what?

Equity Disclose income/loss of dividends attributed to NCI Adjusted to include comp income attributed to NCI

IFRS - Goodwill & NCI Goodwill - must make an election to: (2) NCI - must make an election to : (2)

Goodwill : Record goodwill at full FV OR record parent's hare of goodwill. NCI - Record at full FV or record their share of net assets

How is discontinued operations reported, tax or net of tax? A component of an entity is what (3)

Net of Tax 1. Segment 2. Reporting Unit 3. Asset Group (not a part of a line of business)

Exit/Disposal Activities include: T/F Termination of benefits provided to current employees that are involuntarily terminated Costs to terminate a contract that isn't a capital lease Costs to consolidate facilities or relocate employees

t t t

How should exit/disposal costs be recognized when the entity has little or no discretion to avoid future transfer/use of assets to settle the liability?

Fair Value

Exit/Disposal Costs are include in income from

Continuing operations

Who establishes most standards for NFP?

FASB

4 Types of NFP organizations

1. Voluntary Health & Welfare Organizations - Provide services to general public for low/no fee. Supported through contributions 2. Health Care organization: Hospital/nursing home/hospice 3. Education: college/universities 4. Other NFP - all other nonbusiness entities EXCEPT a. State & Local govs b. Entities that are for profit

What method do NFP use? How do NFP's report? Reporting Emphasis:

FASB NFP method Full accrual basis The sources of resources and how those resources were expended

Do NFP resemble business F/S or Gov F/S more? | What three statements are required to be issued for NFP?

Resemble Business F/S more 1. Statement of Position (B/S) 2. Statement of Activities (I/S) 3. Statement of Cash Flow

Do NFP have traditional equity accounts like R/E and Common stock? What do NFP use to utilize the equity portion? How are they classified (2)

no Net Assets 1. Net assets w/ donor restriction 2. Net asset w/o donor restriction

How do NFP provide info about the nature and amt of different type of donor-imposed restrictions

1. Report their amt. on the face of the statement of financial position 2. Include details in Notes to the F/S

NFP must also disclose the amount and purpose of ____ either on the face of statement of financial position or in the notes (Not donor-imposed restriction)

Board-designated net assets

NFP Cash/Investment/Other asset restricted for plant asset purposes or endowment purposes are reported as ____ Investments in equity securities w/ readily determinable mkt value are reported at ___ Investment gain/loss are reported as changes in

a separate line item Fair value Net asset w/o donor erstrction, unless they're restricted.

How are works of Art and Historical treasures treated under NFP contributions?

1. Capitalize collections purchased/donated & recognize contribution revenue equal to fair value. 2. Don't capitalize if the donation meets the below criteria a. Held for public education/research/non-investment purpose b. Protected and preserved (like a museum) c. Sale proceeds must be used to acquire other collection items (restriction)

NFP | When are conditional promises to give recorded?

When the conditions have been met or when the likelihood of NOT being met is remote