Notes to Financial Statements Flashcards
T/F: U.S. GAAP requires that a description of all significant policies be included as an integral part of the financial statements
True; the preferred presentation is to include the Summary of Significant Accounting Policies as the first or second note to the financial statements; policies presented in other notes should not be duplicated
the summary of significant accounting policies includes disclosures of measurement bases used in preparing the financial statements and specific accounting principles and methods used during the period
the remaining notes contain all other information relevant to decision makers (investors, creditors, etc.); these notes are used to disclose facts not presented in either the body of the financial statements or in the Summary of Significant Accounting Policies
Facts on disclosures of risks and uncertainties
U.S. GAAP requires the disclosure of risks and uncertainties existing at the date of the financial statements in the following areas:
nature of operations - description of the entity’s major products or services and its principal markets and their locations; if the entity operates in multiple businesses, the disclosure should describe the relative importance of each business
use of estimates in the preparation of the financial statements - management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and actual results could differ from those estimates
certain significant estimates - when it is reasonably possible that an estimate will change in the near term and that the effect of the change will be material, an estimate of the effect of the change should be disclosed
current vulnerability due to certain concentrations - vulnerability due to concentrations arise when an entity is exposed to risk of loss that could be mitigated through diversification
concentrations should be disclosed if all of the following criteria are met: the concentration exists at the financial statement date, the concentration makes the entity vulnerable to the risk of a near-term severe impact (a significant financially disruptive effect on the normal functioning of an entity), and it is at least reasonably possible that the events that could cause the severe impact will occur in the near term
