Final Flashcards
Six reasons for worldwide accounting diversity
Legal system taxation political and economic ties culture inflation financing systems
What is harmonization?
Reducing differences in accounting practices across countries
IASB is solely responsible for establishing
IFRS
IFRS has NO what?
enforcement authority
In 2002 at the Norwalk Agreement, FASB and IASB agreed to…
use their best efforts to make existing financial reporting standards compatible as soon as practicable and to coordinate efforts to ensure that once achieved, compatibility is maintained
The idea behind convergence is to…
have similar but not necessarily identical standards
convergence has resulted in
changes made to us gaap, ifrs, or both
What do you have to do to adopt IFRS?
Company would prepare an opening balance sheet at the “transition date” and present re-stated comparative statements also prepared under iFRS
differences between International GAAP & US GAAP
Recognition, presentation, disclosure, measurement, etc. see slides
5 facts of the SEC
- Independent agency of the fed. Govt
- Est. by SEA of 1934
- Direct authority applies to publicly held companies
- Major influence on the development of US GAAP
- Mandate is to ensure that complete and reliable information is available to investors
Securities Act 33
regulates the initial offering of securities by a company or underwriter
Securities Act 34:
regulates the subsequent trading of securities through brokers and exchanges
SARBOX
- Designed as a response to the corporate accounting scandals
- Established the public company accounting oversight board
PCAOB is in charge of:
- Establishing auditing, quality control, and independence standards
- Performing periodic inspections of registered public accounting firms
- Could potentially replace the auditing standards board of the aicpa
how many members are in the PCAOB? And what stipulations are behind them?
5
Only 2/5 can be CPAs, past or present
Remaining 3 must NOT be accountants
how is the PCAOB funded?
funded through mandatory fees levied on all publicly traded companies
Accounting firms, domestic and foreign, must register with the board and pay fees
SEC authority
-Congress has assigned GAAP-setting authority to the SEC, this authority only extends to publicly traded companies, the SEC allows the FASB to set GAAP, FASB’s standards can be overridden by the SEC
S-1
usually used by new registrants when no other form is prescribed
S-3
used by large companies with a significant following in the stock market; has reduced disclosure requirements
S-4
used for securities issued in connection with business combination transactions
S-8
used for employee stock plans
S-11
used by certain real estate companies
involuntary bankruptcy
creditors file petition with the court, can force company into liquidation under chapter 7 or receiving protection under chapter 11
voluntary bankruptcy
company files a petition with courts requesting bankruptcy, when facing prospect of severe losses or a difficult operating environment, companies will seek voluntary chapter 11
net realizable value of the collateral exceeds the amount of the obligation. These creditors are completely protected by the pledged property
fully secured creditors
the value of the collateral covers only a portion of the obligation. The remainder is considered unsecured.
partially secured creditors
all other liabilities are unsecured; creditors have no legal right to any of the debtor’s specific assets. They are entitled to share only in any funds that remain after all secured claims have been settled.
unsecured creditors
Prioritization of unsecured creditors
Administrative costs related to liquidation, debts arising between the filing date and the issuance of an order of relief, employee claims for wages earned and/or benefit plan contributions earned during the 180 days prior to filing, customer deposits(lmtd to $2,775/customer), govt. claims for unpaid taxes
liquidation
under chapter 7, the debtor’s assets will be liquidated and the proceeds distributed to creditors
reorganization
under chapter 11, the debtor will be permitted to reorganize and continue operations
1) interim trustee is appointed by court, 2) a committee of 3-11 unsecured creditors is appointed to help protect the group’s interest
chapter 7
company is temporarily protected from its creditors, control is normally maintained by the owners(debtor in possession), creditors are encouraged to negotiate new terms with the company and may take over as new owners, workers keep their jobs, suppliers keep their customers, customers maintain their source of supply
chapter 11
liquidation financial reporting
must include a stmt of changes in net assets in liquidation to investors and other claimants, an income stmt or a stmt of comprehensive income serves little purpose
what statement must a liquidating company issue to allow all interested parties the same information before distribution?
statement of net assets
FASB’s ASCT 852 requires FS to be prepared:
during the reorganization and when entity emerges from reorganization
IS during reorganization
gains, losses, revenues and expenses of the reorganization are reported separately from normal ops on the IS; interest doesn’t usually accrue on the debt owed as of the date of reorganization; interest revenue that wouldn’t have been earned except for bankruptcy is reported separately as a reorganization item
BS during reorganization:
assets are still reported at BV, current versus noncurrent classification not applicable for liabilities subject to reduction by the court’s acceptance of the plan, these liabilities should be reported separately at the amount of the claims; liabilities not subject to reduction(secured) are all shown as current versus non-current
When a company emerges from chapter 11, GAAP permits fresh start reporting if what two conditions are met?
1) The reorganization(or market) value of the assets are less than the total of the allowed claims as of the date of the order for relief plus any subsequent liabilities
2) The original owners are left with less than 50% of the voting stock
How are assets and liabilities and retained earnings reported in fresh start accounting?
- Assets are restated to individual current value
- Liabilities (except deffered income taxes) are stated at the present value of future cash payments
- retained earnings is set to 0
Created in 1984, serves as the public sector counterpart of FASB
GASB
List the users of governmental accounting information
citizenry, legislative and oversight bodies, investors and creditors
accounting for business-type activities; assess a user fee; user charges help recover some of the costs; accounting resembles that of a for-profit- activity-accrual accounting is used to recognize assets and liabilities
proprietary funds
proprietary funds are broken into what two divisions?
enterprise funds and internal service funds
accounting for financial resources held for others as trustee; money cannot be used to support govt’s own programs; use the economic resources measurement focus and accrual accounting; funds are omitted entirely from govt-wide financial statements;
fiduciary funds
what four separate statements are are included within the fund financial statements?
investment trust, private-purpose trust, pension trust, agency funds
Report on financial affairs as a whole, assess operating accountability, help users evaluate government’s financial decisions and long-term stability
government-wide FS
Government-wide FS permit stakeholders to:
determine the govt’s overall financial position, understand cost of services, see how programs are financed, see extent govt has invested in capital assets; focus on all economic resources; utilizes accrual accounting
indicates the amount of capital assets being reported less relate debt, legal or external restrictions on the use of any assets or resources, and the total unrestricted amount
statement of net position
provides details about revenues and expenses separated into governmental activities and business-type activities
statement of activities
governments may provide improvements or services that benefit particular properties; they may assess the costs, in total or in part, to the property owners for paving and constructing certain things; usually financed by debt issuance and liens on the benefited property
special assessments
commonly used, particularly monetary transfers from the general fund; normally reported as “other financial source” an “other financing use” within the fund-based financial records;
interfund transactions
- Leases must be identified as either
capital or operating
GASB has adopted the same 4 criteria applied by FASB to identify a capital lease
1) the lease transfers ownership at the end of the lease term; 2) the lease has a bargain purchase option; 3) the lease term >= 75% of the asset’s estimated useful life; 4) the minimum lease payments >=90% of the PV of the asset
Expected closing costs of landfills
-Record a portion of the expected closing costs, pro-rated as a percentage of capacity used, each year as an expense and a liability
Govts should _ works of art, historical treasures, and similar assets at their _ or _ at date of donation
capitalize
historical cost
fair value
Capitalization of works of art is optional if what 3 criteria are met?
1) Item is held for public exhibition, education, or research in furtherance of public service, rather than financial gain
2) Item is protected, kept unencumbered, cared for, and preserved, and
3) Item is subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections
Long-lived capital assets that normally are stationary in nature and can be preserved for a significantly greater number of years than most capital assets
infrastructure assets
How are infrastructure costs recorded in government-wide FS?
as assets
How are infrastructure costs recorded in fund FS?
acquisition is recorded as an expenditure
The CAFR has what 3 distinct sections?
1) Management’s discussion and analysis
2) Financial statements: govt-wide FS, fund FS, and Notes to the FS
3) Required supplementary information
govt-wide and the fund FS are most often presented to the public as part of a
CAFR(comprehensive annual financial report)
must include all funds, activities, organizations, agencies, offices and departments that are not legally separate from it
primary government
any unit legally separate from the primary govt, but where financial accountability still exists, must be included; legally separate activities closely connected to the primary govt must be included if omission from the FS would be misleading
component units
- Differences in measurement basis and form of FS for private and public colleges or universities:
1) Private colleges and universities follow FASB accounting standards codification
2) Public colleges and universities follow the same guidelines as state and local govts(GASB)
3) Public universities may operate similarly to businesses but they are special purpose govts and accountable to the citizenry
4) Most public schools only need to prepare a single set of stmts equivalent to those of an enterprise fund
