Financial Statement Components

Question 1

Valuation Allowance

Answer 1

• Difference between cost and fair value
  ○ Would lower the cost to fair value if impaired
  
  • Adjunct or contra account of marketable equity securities and accounts receivable
  • A/R and Securities classified as trading - included in determination of Net Income
• Securities classified as AFS - included in separate component of stockholder’s equity

Question 2

Fair Value

Answer 2

price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date

Question 3

Total Stockholders’ Equity

Answer 3

• Total residual ownership in a corporation
  
  • Contributed Capital (Capital stock - common, preferred - less treasury stock (par method))
  • Other contributed Capital (APIC on common and preferred), Donated Capital, Contributed Capital from treasury stock on (par or cost) method
  • Retained Earnings (appropriated, unappropriated)
  • Unrealized Capital
    Less - Treasury Stock (under cost method)
    Deficits - reported as stock equity

Question 4

Accumulated Other Comprehensive Income

Answer 4

• Other Comprehensive Income is transferred here
• Reported as part of equity on the balance sheet
• subtract from stock equity

Question 5

IFRS vs GAAP Income Statement Differences:

Answer 5

• BS - IFRS you can present PPE first
  
  • Companies may classify expenses by either nature or function
  • If company uses functional method, it must disclose expenses by nature in the notes to financial statements
  • Net Income or Net Loss = just income or loss
    IFRS definition of discontinued operations is narrower than GAAPs
• since GAAP is more rules based and IFRS is more principle based, IFRS requires more disclosures than GAAP. Including footnote disclosures for accounting policies

Question 6

Intraperiod Tax Allocation

Answer 6

• Apportionment of income tax expense between liability and asset
  
  • Only affects the reporting and not the recording of income tax expense
• Tax effect is reported along with particular item which gives rise to the effect

Question 7

Interperiod Tax Allocation

Answer 7

• Apportionment of the income tax expense for the current year between the tax payable in the current year and a deferred tax liability that may or may not become payable in future years
  Amount accounting periods and is necessitated by differences in the treatment of certain items under GAAP for financial reporting and under tax law for income tax purposes

Question 8

Statement of Equity - IFRS vs GAAP

Answer 8

tement of Equity:
- IFRS and GAAP
- Both use retained earnings
○ IFRS includes a revaluation surplus related to the revaluation of PPE, mineral resources, and intangible assets
○ IFRS uses different stock account titles than GAAP
IFRS accounts for T/s by charging excess to purchase price and issue cost to PI

Question 9

SEC Rulemaking Process

Answer 9

• Normally process begins with rule proposal, but sometimes issue is so unique SEC seeks out public input where regulatory approach is appropriate - so it starts with Concept Release
  
  • Concept Release - describing the area of interest and SEC’s concerns, identifying different approaches to addressing the problem, followed by a series of questions that seek the views of public on the issue
  • Rule Proposal - unlike a concept release, a rule proposal advances specific objectives and methods for achieving them
    Rule Adoption - SEC consider what they have learned from public exposure of rule, and seek to agree on specifics of a final rule. If final measure is adopted by vote of full commission, it becomes part of the official rules that govern securities industry

Question 10

Gain Contingencies

Answer 10

• Should not be reported in the accounts, but disclosed in the notes to financial statements
  Probable - should be disclosed

Question 11

Loss Contingencies

Answer 11

• Probable - disclosed in the notes to financial statements and accrued for most likely amount or the lowest estimated range given
  
  • Reasonable Possible - do not accrue loss but disclose in notes to financial statements
    Remote - auditor should document the rationale for decision and no adjustment or disclosure is required