FAR - Specific Transactions, Events, & Disclosures - Interim Reporting

Question 1

Interim reporting principles

Answer 1

• financials issued between annual report
• reports help provide timely info
• regulators may require them
• SEC requires interim reporting (not GAAP/IFRS)
• Interim financials not audited
• interim financials = condensed
• certain methods for interim reporting are not allowed (EX: gross profit method)

Question 2

Interim reporting

Acct guideline

Answer 2

• integral part of annual reports (not stand alone)

- “discrete view” - each period viewed as a discrete independent period

Question 3

Interim Reporting

Revenue Recognition

Answer 3

• proceeds the same way as for annual reports

EX: customer advance rec’d in Q1 applies equallty to last 3 quarters evenly

Question 4

Interim Reporting

Expense Recognition

Answer 4

• expense related to more than 1 interim period, recognized in those periods rather than immediately

(EX: rent prepaid @ end of Q1 for last 3 quarters of year = recognized equally as rent expense in last 3 quarters)

• expenses related to revenue recognized in same period as revenue

Question 5

Interim Reporting

Income Tax Exp

Answer 5

• graduated annual income tax rate (more income, more tax)
• for each interim period, annual rate estimated

Cumulative Year-to-Date Income X Est. Annual Tax %
= Required Tax provision to date
- Prior Periods’ Recognized Exp.
= Current Interim Period’s Tax

Question 6

Interim Reporting

Exceptions to Integral View

Answer 6

following items are not allocated to more than 1 interim period (discrete view):

• gains/losses on disposal of equip
• gains/losses on discontinued ops

Question 7

temporary declines in inventory value

permanent declines in inventory value

Answer 7

not recognized

recognized in period incurred

Question 8

true/false

Later recoveries are recognized as gains to the extent of previous losses only. The inventory may not be marked up above cost.

Answer 8

true

Question 9

true/false

Interim financial statements generally should reflect the same accounting principles used in preparing annual financial statements

Answer 9

true

Question 10

Interim Reporting

LCM

Answer 10

• Inv written down to mkt value when mkt value

Question 11

Interim Reporting

LIFO Liquidation

Answer 11

If liquidation expected to replenish before EOY, est. replacement cost used for COGS

If replenishment not expected, liquidation recorded, COGS reflect lower cost

Question 12

Interim Reporting

Acct Principle Changes/Error Corrections

Answer 12

retrospective approach applied in period change is made

Adj. RE @ Beginning of period of change & Adj. previous interim period within the same year of change

(EX: principle change in Q3- adj. beginning Q3 RE for effect on all previous yrs & on Q1 & Q1 of current yr)

• same acct for annual period
• disclosures required for interim period of change

Question 13

Interim Reproting

GAAP vs IFRS

Answer 13

GAAP

1) based on integral view (supports annual financials)
2) allocation of costs over each Q
3) defer cost variances if recovery expected
4) defer LCM decline if recovery expected

IFRS:

1) based on discrete view (stand alone reporting period)
2) must meet definition of asset in order to allocated
3) Cannot defer cost variances
4) Cannot defer LCM decline

Question 14

gross margin method acceptable for annual reporting?

Answer 14

only for interim reporting, not annual reporting

Question 15

required interim information that must be reported for segments.

Answer 15

1) External revenues (other than from intersegment sales);
2) Intersegment revenues;
3) Segment profit or loss.

Question 16

cost accounting variances accounted for in interim reporting?

Answer 16

expected to be absorbed by the end of the current year are deferred.