My FAR Flashcards
What is the APB?
It determined GAAP from 1959 until 1973
What is the SEC?
The securities and exchange commission
Has legal authority to establish GAAP
What is the FASB?
Financial accounting standards board
What is the FASB accounting standards codification?
It is the single source of authoritative non government US GAAP
created in 2009
What is the authoritative literature included in the codification?
FEDPRIA
FASB Emerging issues task force Derivative implementation group Accounting principles board opinions Accounting research bulletins Accounting interpretations AICPA
How does the FASB update the accounting standards codification for new U.S. GAAP for amendments to the SEC?
With Accounting Standards Updates
But they are not authoritative literature and instead provides background information
All new GAAP AND SEC amendments are fully intergrated into existing structure of the codification.
What is the IASB?
International Accounting Standards Board
Established in 2001 as a part of IFRS (international financial reporting standards)
What is the purpose of the IASB?
To develop a single set of high-quality global accounting standards
What is the IFRIC?
International financial reporting interpretations committee
Provides guidance on newly identified financial reporting issues not addressed in IFRS and assists the IASB in achieving international convergence of accounting standards
What is the international convergence of accounting standards?
To set a single set of high quality international accounting standards that companies could use for both domestic and cross border financial reporting.
IASB and FASB work together to make this happen, like a marriage counseling
What is the SFAC?
Statements of financial concepts
Serves as a basis for all FASB pronouncements/concepts
It’s not GAAP
What is SFAC 8 the objective of general purpose financial reporting?
To disclose entity’s performance for external users and to meet the needs of intended users. Like investors, lenders and other creditors
What are the Qualitative Characteristics of useful financial information?
Relevance and Faithful Representation
What is included in relevance?
Passing confirms money
Predictive value
Confirming value
Materiality
What is included in Faithful Representation?
Completely neutral is free from error
Completeness
Neutrality
Free from error
What are the enhancing quantitative characteristics?
Cut like a v
Compare and verify in time to understand
Comparability
Verifiability
Timeliness
Understandability
What is the full set of financial statements?
Balance sheet Income statement Statement of comprehensive income Statement of cash flows Statement of changes in Owners equity
What are the measurement attributes for assets and liabilities?
Historical cost - op&re
Current cost - inventory
Net realizable value - a/r (less allowance for doubtful accounts)
Current market value - marketable securities
Present value of future cash flows - long term debt like bonds, leases, pensions
What are the fundamental assumptions?
Entity assumption
Going concern assumption
Monetary assumption
Periodicity assumption - years 10k and quarters 10q
What is historical cost?
Financial information is accounted for and based on cost, not on current market value
What is the revenue recognition principle?
Revenue should be recognized or recorded when it is earned (it did something to be entitled to the benefits) and when it is realized (cash) or realizable (a/r)
What is accrual accounting?
Record revenue and/or expense w/o exchange of cash
What is the conservatism principle?
Choose the GAAP method that is least likely to overstate assets and understate liabilities in the current period
Choose a method that would show less revenue and greater expenses
What is comprehensive income?
It includes all differences between beginning equity and ending equity other than transactions with owners
Net income plus other comprehensive income
What are the elements of the financial statements?
My friend REGL wants to buy some ALE but needs ID
Income Statement
Revenue
Expenses. Normal operating and recurring
Gains
Losses. Non-operating or infrequent
Balance Sheet
Assets. Capable of generating revenue in the future
Liabilities. Future sacrifice arising from a present obligation
Equity. Residual interest in the assets
Excluded from comprehensive income
Investments by owners. Not a revenue or gain
Distributions to owners. Not an expense or loss
What are the 5 elements of present value measurement of assets or liabilities?
Estimate of future cash flow Expectations about timing variations of future cash flows Time value of money (risk-free rate of interest) The price for bearing uncertainty (risk) Other factors (liquidity issues and market imperfections)
What are the present value computations?
Traditional approach - PV of bonds, scheduled known payments
Expected cash flow approach - PV of warranties, uncertain future payments.
What is the purpose of the income statement?
To provide information about the uses of funds in the income process
Like expenses, losses, revenues and gains
It is useful in determining profitability, value for investment purposes and credit worthiness
What are unexpired costs?
It’s an asset
It’s a cost that will expire in future periods, can generate revenue in future
Goes on the balance sheet
What is gross concept?
Revenues - selling price for service or inventory less allowance for returns and discounts
Expenses - cost of goods sold or SG&A
What are net concepts?
Gains - proceeds less net book value
Losses - proceeds less net book value
These are infrequent or unusual
What is the presentation order of the income statement?
IDE- net income
Income from continuing operations
Individual items show “gross of tax” (before tax) then “net of tax” (after tax)
Includes operating activities and non-operating activities
Income from discontinued operations “net of tax”
Extraordinary items “net of tax”
What is cumulative effect of change in accounting principle?
It’s the change from one acceptable method of accounting to another bc the new method presents the financial information more fairly than the old method
What are the steps in a multiple step income statement?
Net sales
Less cogs
Totals gross margin
Less operating expenses of
Selling
General and admin
Depreciation
Totals income from operations
Plus other revenues and gains
Interest income
Gain on sale of fixed assets
Other income
Less other expenses and losses
Interest expense
Loss on sale of fixed asset
Totals income before unusual items and income tax
Less unusual or infrequent items
Totals income before taxes
Less taxes
Totals net incomeWhat is included in Inventory cost?
Purchase price and freight in
What is included in selling expense?
Freight out, salaries and commissions, advertising
What is included in general and administrative expense?
Officers salaries, accounting, legal and insurance
What are included in non operating expenses?
Auxiliary activities and interest expense
What are discontinued operations?
It can consist of an impairment loss, a gain/loss from actual operations and a gain/loss on disposal
These have to be included in the period in which they occur, not before
What is a component of an entity under U.S. GAAP?
Operating segment Reportable segment Reporting unit Subsidiary Asset group
What is a component of an entity under IFRS?
A separate major line of business or geographical area of operations
Or
A subsidiary acquired exclusively with a view to resale
What is held for sale?
A complement is considered held for sale if:
Management commits to a plan to sell
It is available for immediate sale in its present condition
An active program to locate a buyer has been initiated
The sale of the component is probable and the sale is expected to be compete within one year
The component is being actively marketed
It is unlikely that significant change stints plan will be made or that the plan will be withdrawn
When should a component be reported in discontinued operations?
It has been disposed of
Or
It’s classified as held for sale
What types of items are included in discontinued operations?
Results of operations of the component
Gain or loss on disposal of component
Impairment loss
Do discontinued operations get depreciated or amortized?
No
When would anticipated future gains or losses be recognized in discontinued operations?
A gain or loss not previously recognized that results from the sale of the component is recognized at the date of sale and not before
How is a component classified as held for sale measured in valuation?
It’s measured at lower of its carrying amount or fair value less costs to sell
What costs are associated with exit and disposal activities required by U.S. GAAP?
Involuntary employee termination benefits
Costs to terminate a contract that is not a capital lease.
When should a liability associated with an exit or disposal activity be recognized?
When all criteria are met:
An obligating event has occurred
The event results in a present obligation to transfer assets or to provide services in the future
The entity has little or no discretion to avoid the future transfer of assets or providing of services
How should the liability be measured in a commitment to an exit or disposal plan?
It should be measured at fair value
What is considered an extraordinary item?
When an item is unusual and infrequent
They are transactions that are
Material in nature
Of a character significantly different from the typical or customary business activities
Not expected to recur in the foreseeable future and infrequent
How are extraordinary items disclosed?
They are disclosed in the income statement, net of any tax affects after discontinued items
What are some examples of extraordinary items?
The abandonment 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
Certain gains or losses from extinguishment of long term debt, provided they are not part of the entity’s recurring operations
What are some nonexrtraoedinary items?
Long term securities (permanent decline)
Gain or loss from foreign currency
Losses from a major strike by employees
Long term debt extinguishments
What do you do if you have an item that is unusual OR infrequent?
If material, these items should be reported as a separate line item as part of income from continuing operations and not net of tax
What are accounting changes broadly classified as?
Accounting estimate (prospective) Accounting principle (retrospective) Accounting entity (restate)
What are some reasons there are changes in an accounting estimate?
Lives of a fixed asset
Adjustments of year end accrual of officers salaries and/or bonuses
Write downs of obsolete inventory
Material non-recurring IRS adjustments
Settlement of litigation
Changes in accounting principle that are inseparable from a change in estimate
Why would there be a change in accounting principle?
If the alternative principle is preferable and more fairly presents the information (retrospective)
What is a non-cumulative effect of a change in accounting principle?
If non-comparative financial statements are being presented then the cumulative effect of a change in accounting principle is equal to the difference between the amount of beginning retained earnings in the period of change and what the retained earnings would have been if the accounting change had been retroactively applied to all prior periods affected
What is a change in depreciation method considered?
It’s considered to be both a change in accounting principle and a change in estimate
What is the general rule for cumulative effect of changes reported in retained earnings?
It’s the difference between
Retained earnings at the beginning of the earliest period presented
And retained earnings that would have been reported at the beginning of the earliest period presented if the new accounting principle had been applied
What do you have to do if you have changes in accounting equity?
Restatement to reflect information for the new entity
Full disclosure
If there are corrections to be made on the financial statements, what do you do?
If the financial statements are presented - correct the information with the earliest year presented
If the financial statements are not presented - the error should be reported as an adjustment to the opening balance of retained earnings (net of tax)
In comprehensive income, what does PUFER mean?
Pension adjustment Unrealized gains and losses (afs securities) Foreign currency items Effective portion cash flow hedges Revaluation surplus (IFRS only)
What are the steps to get to comprehensive income on the income statement?
Step 1
Income from continuing operations
Discontinued operations
Extraordinary items
Step 2
Other comprehensive income
Pension adjustments
Unrealized gains and losses
Foreign currency items
Cash flow hedge
Revaluation Surplus (IFRS only)What is accumulated other comprehensive income?
It’s shown in stock holders equity and includes the total of other comprehensive income for the period and previous periods
At the end of each accounting period, what is comprehensive income close to, net income closed to, and other comprehensive income closed to?
Comprehensive income closed to balance sheet
Net income closed to retained earnings
Other comprehensive income closed to accumulated other comprehensive income
What is a 10k form?
It is a form that is filed annually by U.S. registered companies
What is a form 10q?
It is a form filed quarterly which contains unaudited financial statements and certain disclosures
What is for 11k?
It is the annual report of a company’s employee benefits
What are forms 20f and 40f?
They are forms that are filed annually by foreign private issuers.
What is form 8k?
This form is filed to report major corporate events sucks as asset acquisition or disposal, changes in securities and trading markets, changes to accountants or financial statements and changes to corporate governance or management
How should the financial statements be presented in the interim?
Balance sheet
Income statement
Statement of cash flows
