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CPA review > FAR1 > Flashcards

FAR1 Flashcards

1
Q

Name the single source of authoritative nongovernmental U.S. GAAP.

A

FASB Accounting Standards Codification

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2
Q

The term “international FInancial Reporting Standards” includes what standards?

A

International Accounting Standards
International Financial Reporting Standards
IFRIC Interpretations
SIC Interpretations

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3
Q

Who are the primary users of general purpose financial reports?

A

Existing and potential:
Investors
Creditors
and other Lenders

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4
Q

Name the pervasive constraint on the information provided in financial reporting

A

Cost Constraint:

The benefits of the reporting financial information must be greater than the costs of obtaining the information

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5
Q

Name the fundamental qualitative characteristics of useful financial information

A

Relevance and Faithful Representation

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6
Q

Name the three elements of relevance

A

Confirming Value
Predictive Value
Materiality

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7
Q

Name the three elements of faithful representation

A

Neutrality
Completeness
Freedom of error

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8
Q

Name the enhancing qualitative characteristics of financial information

A

Timeliness, Understandability, Verifiability, Comparibility

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9
Q

According to SFAC #5, what should a full set of financial statements include?

A

Statement of Financial Position (the balance sheet)
Statement of Earnings (the income statement)
Statement of Cash Flows
Statement of Changes in Stockholder’s Equity
Statement of Comprehensive Income

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10
Q

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

List the 10 elements of financial statements according to SFAC #6.
CREG and LALEID

A 
Comprehensive Income 
Revenues 
Expenses
Gains
Loses
Assets 
Liabilities
Equity
Investments by Owners
Distributions to Owners
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12
Q

List the six elements of financial statements according to the IASB Framework

A 
Assets 
Liabilities
Equity
Income 
Expenses
Capital Maintenance Adjustments
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13
Q

Name the five elements of present value measurement per SFAC #7

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 (liquidity issues and market imperfections

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14
Q

Describe the expected cash flow approach for present value computations

A

Considers a range of possible cash flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted average or expected future cash flow

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15
Q

What is the presentation order of the major components of an income and retained earnings statement?

A

Income from continuing operations
Discontinued operations
Extraordinary Items
Cumulative effect of a change in accounting principle

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16
Q

The gain (loss) from discontinued operations can consist of…

A

an impairment loss, an operating loss, or a loss on disposal

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17
Q

In what period are the following reported:
An impairment loss?
A gain (loss) from acutal operations?
A gain (loss) on disposal?

A

in the period in which they occur

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18
Q

In reporting discontinued operations, how is a component of an entity defined under US GAAP and IFRS?

A 
US 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

How would we account for subsequent increase in the fair value of a discontinued component

A

a gain is recognized for the subsequent increases in fair value minus the cost to sell (but not in excess of the previously recognized cumulative loss). The gain is reported in the period of increase.

20
Q

What types 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

Define extrordinary items

A

Material in nature
Of a character significantly different from the typical or customary business activities (unusual)
Not expected to recur in the 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 US GAAP but not under IFRS

22
Q

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

Name the three types of accounting changes

A

Changes in estimate
Changes in principle
Change in Accounting Entity

24
Q

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

What are the special changes in an accounting princple?

How are special changes in accoutning 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

How is a change in 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

Under US GAAP, how is a change in the accounting entity reported?

A

All current and prior period financial statements presented are restated

28
Q

How are error corrections reported?

A

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

29
Q

Define comprehensive income

A

change in equity (net assets) that results from revenue, expenses, gains, losses during a period, as well as any other recognized changes that occur for reasons than investments by owners and distributions to owners

30
Q

Identify five items included in other comprehensive income.

PUFER

A

Pension adjustments

Unrealized gains and loses on available for sale securities

Foreign currency translation adjustments and gains/losses on foreign currency transactions that are designed as economic hedges of a net investment in a foreign entity

Effective portions of cash flow hedges

Revaluation surpluses (IFRS only)

31
Q

List the three formats acceptable for reporting comprehensive income. Which format is prohibited under IFRS?

A

Statement of Comprehensive Income (single-statement approach)

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

Component of the Statement of Owners’ Equity (prohibited under IFRS, will be prohibited under US GAPP for public companies as of 12/15/11 and for nonpublic companies as of 12/15/12)

32
Q

List some disclosure requirements for comprehensive income

A

Tax effects of each component included in the current “Other Comprehensive Income”

Changes in the accumulated balances of components of “other comprehensive income”

Total accumulated other comprehensive income

reclassification adjustments between other comprehensive income and net income

33
Q

Identify the contents of the Summary of SIgnificant Accounting Policies note to the financial statements

A

Identify and describe:

measurement bases used in preparing the financial statements
principles and methods
criteria 
policies
pricing
34
Q

Describe the related party disclosures required under US GAAP and IFRS.

A

material related party transactions

related party notes/accounts receivable

Control relationships

Note: IFRS requires disclosure of key management compensation. US GAAP does not require this disclosure.

35
Q

What are the US 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

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 of comprehensive income in condensed financial statements for interim periods

37
Q

What income tax rate is used in interim financial reporting?

A

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

38
Q

Name the four required disclosures for segments of an enterprise

A

operating segments

products and services

geographic areas

major customers

39
Q

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.

Determine using a “management approach”

40
Q

Name two quantitative thresholds used in identifying reportable operating segments.

A

10% “Size” test

75% “Reporting Sufficiency” test

41
Q

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% 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 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 loss

Assets

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

Note: Must meet only one of the above

42
Q

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 practical limit is 10 segments, but that is not a precise limit.

43
Q

What are the disclosure requirements for reportable operating segments?

A

FOr each segment, the entity must report,

Identifying factors
Products or services
Profit or loss
Asset details
Liability details (IFRS only)
Measurement criteria
Reconciliations
44
Q

Define development-stage enterprise,

A

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

45
Q

Indicate any special accounting treatment for development-stage enterprise.

A

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

Identify statements as those of developmental stage enterprise

Accumulated losses identified as “deficit accumulated during developmental stage”

In the income statement, show revenue and expenses, and cumulative total of both amounts from company’s inception

In the statement of cash flows, include cummulative amount of cash flows and outflows from enterprise’s inception and current amount of cash inflows and outflows for each period presented.

Issue a separate statement of stockholder’s equity, indicating shares issued, date of issuance, dollar amounts assigned and non-cash considerations, if any.

46
Q

What is the date of an entity’s transition to IFRS?

A

The date of the opening balance sheet.

47
Q

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 US registered companies. Includes a summary of financial data, MD&A and AUDITED financial statements prepared using US GAAP.

Form 10-Q: Filed quarterly by US registered companies, includes unaudited (reviewed) financial statements, interim MD&A and certain disclosures.

CPA review (6 decks)

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