FAR2 M1 - Financial Reporting & Disclosures

Question 1

Summary of significant accounting policies position in the financials

Answer 1

1st or second note to the financial statements

Question 2

Summary of significant accounting policies includes disclosures of:

Answer 2

1. Measurement bases used in preparing financials
2. Specific accounting principles and methods used during the period (basis of consolidation, depreciation methods, amort of intangibles, inventory pricing, use of estimates, fiscal year definition, special revenue recognition issues, and criteria for which investments are cash equivalents)

Question 3

What should not be included in the Summary of Significant Accounting Policies?

Answer 3

1. Composition/detail of dollar amounts of account balances
2. Details relating to changes in accounting principles
3. Dates of maturity and amounts of long term debt
4. Yearly computation of deprec, depletion, and amort

Question 4

Remaining Notes to the Financials

Answer 4

The remaining notes to the financial statements contain all other information relevant to decision makers.

Question 5

Disclosures of risks and uncertainties

Answer 5

GAAP requires disclosures of risks and uncertainties existing at the date of the financial statements in the following areas:

1. Nature of Operations - entity’s major products, services, principal mkts, locations of mkts, multiple business lines
2. Use of Estimates in the preparation of financial statements - assumptions made to estimate assets, liabilities, revenues and expenses
3. Significant Estimates - when it is reasonably possible that an estimate will change in the near term and the effect of the change will be material, an estimate of hte effect should be disclosed (technological obsolescence, deferred tax valuation allowances, capitalized software costs, loan valuation svcs, litigation obligations, long term contracts/pensions)
4. Vulnerability Due to Concentrations - exposure to risk of loss that could have been mitigated through diversification. Requires disclosure when the concentration exists at financial statement date, concentration makes the entity vulnerable to risk of a near term severe impact, it is at least reasonably possible that the event s could cause the severe impact in the near term