Notes to Financial Statements

Question 1

What are some of the basic disclosures required in the notes to financial statements?

Answer 1

1. ) Summary of significant accounting policies
2. ) Related Party Transactions
3. ) Liability Disclosures
4. ) Capital Structure
5. ) Errors and Irregularities
6. ) Illegal Acts

Question 2

Define Nominal Dollars

Answer 2

Measurements in the price level in effect at a transaction date. These measurements are not adjusted for inflation

Question 3

Define “Purchasing Power”

Answer 3

The purchasing power of an asset is the amount of goods and services that can be obtained by transferring the asset to another party

Question 4

Define “Purchasing Power Loss”

Answer 4

Losses that result from holding monetary assets during inflationary times or having monetary liabilities during deflationary times

Question 5

What is included in illegal acts for companies?

Answer 5

Illegal Contributions and Bribes

Question 6

What is presented in the related party transaction disclosures?

Answer 6

Nature of relationship, description of all transactions for years presented, dollar amounts of transactions, and receivable to or from parties

Question 7

What disclosure is required by firms in hyperinflationary economies under IFRS?

Answer 7

Disclosure of impact of inflation on the financial statements is required

Question 8

What is the Management Discussion & Analysis (MD&A) Section?

Answer 8

Management Discussion & Analysis: a narrative written y management that is an integral part of the disclosure of the financial statements.

Question 9

What is the difference between errors and irregularities?

Answer 9

Errors are unintentional, irregularities are intentional

Question 10

Define “Specific Price Change”

Answer 10

The change in the price of a specific good or service over a period of time

Question 11

Define “Constant Dollars”

Answer 11

Measurements in the general price level as of a specific date

Question 12

What are the disclosure requirements for noncurrent liabilities?

Answer 12

Combined aggregate amount of maturities on borrowings 5+ years after balance sheet, sinking fund requirements; the aggregate amount of payments for unconditional obligations to purchase fixed or minimum amounts of goods or services; the fair value of each financial debt instrument in the financial statements or in the notes; the nature of the firm’s liabilities, interest rates and maturity dates, conversion options, assets pledged as collateral, and restrictions.

Question 13

Define “Purchasing power gain”

Answer 13

Gains that result from holding monetary assets during deflationary times or having monetary liabilities during inflationary times

Question 14

Define “Inflation”

Answer 14

The increase in general prices for a period of time; deflation is the decrease in general prices

Question 15

What does the first footnote generally cover?

Answer 15

Summary of significant accounting policies

Question 16

What is a development stage enterprise?

Answer 16

An enterprise placing substantially all its efforts into the establishment of a new business

Question 17

Define “General Prices”

Answer 17

The term general prices refers to a market basket of items that the typical consumer purchases

Question 18

Under IFRS, what should the summary of significant accounting policies include?

Answer 18

1. ) Judgements and key assumptions made in applying those policies
2. ) Measurement bases used for recognition (e.g. historical cost)
3. ) Information enabling assessment of the estimation uncertainty that could result in a material adjustment to the balances of assets and liabilities, which are point estimates in many cases.

Question 19

Define “Monetary Items”

Answer 19

The specific price of monetary items cannot change. Specific price of nonmonetary can change

Question 20

What is the “Summary of Significant Accounting Policies” disclosure?

Answer 20

Includes a summary of significant account policies - the methods and principles chosen by management where GAAP allows a choice. Examples include Depreciation method, valuing inventory and basis for consoldiation

Question 21

Is “Summary of Significant Accounting Policies” disclosure required in Interim Financials?

Answer 21

No, not if the policies have not changed.