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
