New f1 - conceptual framework, IDEA, PUFE R

Question 1

Conceptual Framework - US GAAP and IFRS

and the Convergence project

Answer 1

1. FASB -> GAAP
   FASB (financial accounting standards board)
   effective 7/1/2009, FASB Codification became the single source of authoritative nongovernmental US GAAP.

ongoing standard-setting process
Exposure Drafts -> Majority Vote for public issuance -> public issuance and comments -> prepare Accounting standards update for Board -> Majority Vote ->new amendments are fully integrated into

2. IASB -> IFRS
   International accounting standards Board (IASB)
   IASB issues IFRS, exposure draft, and other disucssion documents

IFRS ongoing
similar to GAAP onging

3. Convergence project
   the goal -> a single set of high quality, international accounting standards
   expectation -> IFRS and GAAP will be very similar if not the same.

Question 2

Conceptual Framework - the framework (objective and qualitative characteristics)

Answer 2

1. SFAC No.8 Chapter 1: the objective of general purpose financial reporting
   The Objective ->provide financial information for PRIMARY USERS

The Primary Users -> investors, lenders, and credits

Financial information -> the resources of the entity, the claims against the entity, and how effectively and efficiently

2. SFAC No.8 Chapter 3: Qualitative Characteristics
   Fundamental:
   Relevance (Predictive, confirming, materiality)
   Faithful Representation (Completeness, neutrality, freedom from error)

Enhancing:
comparability/consistency, Verifiability, Timeliness, Understandability

Question 3

Conceptual Framework - the framework (Fundamental assumptions)

Answer 3

GPPA -

1. Assumptions
   a. entity assumption
   b. going concern assumption
   c. monetary unit assumption
   d. periodicity assumption
2. Principles
   historical cost principle; matching principles; accrual accounting; convervatism principles

IFRS - (only two assumptions

1) accrual basis account
2) going concern

Question 4

Conceptual Framework - Elements of financial statements

Answer 4

1. Comprehensive Income
   includes all differences between beginning equity and ending equity other than transactions with owners.
2. Revenues (inflows)
3. expenses (outflows)
4. gains (increases in equity from peripheral transactions)
5. Losses (decreases in equity from peripheral transactions)
6. Assets (future benefits)
7. Liabilities (future sacrifices)
8. Equity (net assets, residual interests remaining)
9. Investment by owners (increases in assets)
10. Distribution to owners (decreases in assets)

Question 5

Income Statement - General definitions

Answer 5

The purpose of the I/S is to provide information about the uses of funds in the income process (expenses), the uses of funds that will never be used to earn income (losses), the sources of funds created by those expenses (revenues), and others (gains).

IDEA
Income from continuing operations 
Discontinuing operations, net of tax 
Extraordinary items, net of tax
Accounting Changes, net of tax

Question 6

Income statement - (I) income from continuing operations

Answer 6

Revenue 
Total Revenue
Expense 
Total Expenses
Income from continuing operations

Question 7

Income statement - (D) Discontinued operations, net of tax

Answer 7

Held for sale criteria (must meet ALL)

1. management commits to a plan to sell the component
2. the component is available for immediate sales in its present condition
3. an active program to locate a buyer has been initiated
4. the sale of the component is probable and sale is expected to complete w/i one year
5. the sale is being actively marketed
6. not likely to withdrawal

The loss from discontinued operations = consist of 三种loss -

1. impairment loss
   1a) initial and subsequent impairment losses
   1b) subsequent increases in fair value
2. a gain/loss from disposal the component
3. results of operations (一定是整年整个period的operating loss)

Ignore - depreciation and amortization

Question 8

Discontinued Operations - exit or disposal activities, net of tax

Answer 8

Exit and Disposal Costs

1. Involuntary employee termination benefits
2. costs to terminate a contract that is not a capital lease
3. other costs associated with exit - costs to consolidate facilities or relocate employees

Criteria for Liability Recognition
** a entity’s commitment to an exit plan is not enough (by itself).
3 Criteria need to be met (MUST ALL)
1. an obligating event has occurred
2. the event results in a present obligation to transfer assets or to provide services in the future
3. The entity has little or no discretion to avoid the future transfer

Question 9

Discontinued Operations - what is a component of an entity?

Answer 9

entity - a component of an entity is a part of an entity for which operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes.

A component (US GAAP)

a. an operating segment
b. a reportable segment
c. a reporting unit
d. a subsidiary
e. an asset group

A component (IFRS)

a. A separate major line of business or geographical area of operations
b. a subsidiary acquired exclusively with a view to resale

Question 10

Income statement - Extraordinary items, net of tax

Answer 10

Unusual and Infrequent

enacted law or regulation - extraordinary item
employee strike - not extraordinary
gain or loss on foreign currency transaction or translation - not extraordinary

IFRS - no extraordinary item, only in US GAAP

Question 11

Income statement - Accounting changes, net of tax

Answer 11

1. change in accounting estimate (prospectively) - only future
   change in income from continuing operations, affect current year and future years
2. change in accounting principle (retrospective)

cumulative effect -> Beginning R/E

××特别注意 inventory method -> LIFO, 还是prospective 不都改，只改未来

3. change in accounting entity (retrospective)
4. error correction (retrospective)
   comparative financial statement presented -> 改错误年的R/E, if year presented; change beginning R/E, if year not presented

no comparative f/s -> change the opening balance of R/E

Question 12

OCI, net of tax

Answer 12

Net income (IDEA)
+ OCI
= comprehensive income

OCI (PUFE R)
Pension adjustments
unrealized gain or loss of AFS
Foreign currency items
Effective portion cash flow hedges

Revaluation surplus (IFRS only)

Question 13

Balance Sheet - Notes - Summary of significant accounting policies

Answer 13

identify and describe

a. measurement bases used in preparing the financial statement
b. accounting principles and methods
c. criteria
d. policies
e. pricing

Accounting policies includes

1. basis of consolidation
2. depreciation methods
3. amortization of intangibles
4. inventory pricing
5. accounting for recognition of profit on long-term construction contracts
6. recognition of revenue from franchising or leasing operations

Remaining notes -

1. changes in stockholders’ equity
2. required marketable securities disclosure
3. contingency losses
4. contractual obligations
5. pension plan
6. post events that occurred before the financial statements were issued.

Question 14

Interim Financial reporting

Answer 14

• *timeliness is over reliability
• *not audited

major issues -
1. income tax - use the estimated tax rate
2. Permanent and temporary declines
Permanent decline - recognized in interim, but if increase, recovery max = permanent decline amount
Temp decline = not recognized in interim
3. Extraordinary items