Notes To The Financial Statements Flashcards
What are the probability standard for going concern risk?
Reasonably possible < Probable < 50%
Substantial doubt < 70%
What should be disclosed in the summary of significant accounting policies?
ASC topic 235 states that the summary of significant accounting politician encompass those accounting policies and mess methods that involve selection from existing acceptable alternatives, (or are peculiar to the industry in which the entity operates)
Basis of consolidation would be included here
Required disclosures for PPE
Method or message used in computing depreciation
Depreciation expense for the period
Accumulated depreciation by major classes, or in total
Carrying value of depreciable assets by nature or function
Monetary versus non-monetary
Is there right/obligation to deliver a fixed/determined amount?
Yes = monetary item. Examples include cash, AR, AP, bonds (investment and bonds payable)
No = non-monetary item
Examples are PPE inventory and intangibles
What is concentration of credit risk?
Ex. a significant number of unsecured trade AR are with companies that operate in the same industry
Credit risk is the potential loss from any party to an agreement failing to perform. Credit risk must be disclosed. Off balance sheet risk occurs when the amount of the loss succeeds the related asset. Market risk disclosure is encouraged but not required.
What is the purpose of the summary of significant accounting policies?
Identify accounting principles used where gap allows alternatives and the methods of applying those principles
Summary of significant accounting policies, examples
Revenue, recognition policies
Inventory costing system, LIFO FIFO
Depreciation methods straight line or sum of the digits
Long-term contract accounting
Criteria for classification of investments
Basis of consolidation
Financial instrument disclosures
Whether recognized or unrecognized must have their fair values disclosed, if practicable to estimate and presuming amounts involved are material
Impact of monetary items on purchasing power and times of rising prices
Monetary items
Assets - cash and AR - decreases Purchasing power effect
Liabilities - AP and bones payable - increases easing power effect
During a period of inflation in which an asset account remains constant what occurs
Purchasing power loss if the item is a monetary asset
During a period of inflation in which a liability account remains constant what occurs
A purchasing power gain if the item is a monetary liability
What is concentration of market risk?
The risk that the value of an investment will change due to economic conditions
What is concentration of credit risk?
Credit risk is the risk of loss due to a particular borrowers nonpayment of a loan
What is risk of measurement uncertainty
Measurement uncertainty is the risk of using estimates in the preparation of the financial statements
Nominal dollars
Not yet adjusted for inflation
Needs to be adjusted in the footnotes
Where do you disclose the effects of changing prices?
Supplementary information to the financial statements
Required disclosures when an entity has substantial doubt to be a going concern
Conditions giving rise to substantial doubt
Management evaluation of significance of events
And management plan that alleviated the doubt about its ability to continue as it going concern
Financial statement, disclosures of accounting policies
Disclosure of accounting policies is an integral part of the financial statements
What are the financial statement disclosures?
Summary of significant accounting policies
Long-term obligations
Related party transactions
*GAAP requires The financial statement be accompanied by informative disclosures that provide more detail about the amounts presented and help users, interpret and understand the information
