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FAR > Public Company Reporting Topics (SEC, EPS, Interim, and Segment) > Flashcards

Public Company Reporting Topics (SEC, EPS, Interim, and Segment) Flashcards

1
Q

What agency enforces GAAP?

A

The Securities and Exchange Commission (SEC)

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2
Q

What does the Securities Act of 1934 do?

A

It regulates the trading of securities after they are issued and requires periodic reporting.

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3
Q

Define “Staff Accounting Bulletins (SAB).”

A

Bulletins that provide the SEC’s current position on technical issues.

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4
Q

Define “Financial Reporting Releases (FRR).”

A

Formal pronouncements that rank the highest in authority for public companies.

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5
Q

Within how many days after the fiscal year end of a large accelerated filer does a 10-K need to be filed?

A

60 Days

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6
Q

Does the SEC have the authority to penalize firms when financial statements are not in accordance with GAAP?

A

Yes, it may penalize firms.

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7
Q

Where are the formal rules of the SEC found?

A

In the Code of Federal Regulations

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8
Q

Does the SEC have legal authority to prescribe accounting standards to public companies?

A

Yes, it has that authority.

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9
Q

What does the SEC strive to do?

A

Ensure that there is adequate information in the public domain before a company issues or trades securities.

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10
Q

What information does management discussion and analysis (MD&A) provide?

A

A discussion of important aspects of the firm from the viewpoint of management.

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11
Q

How many years of income statement data are required by the SEC?

A

Three years are required.

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12
Q

What law prohibits the bribing of foreign officials?

A

The Foreign Corrupt Practices Act of 1977

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13
Q

How many years of selected financial data are required by the SEC?

A

Five years are required.

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14
Q

What information does the 8-K provide?

A

Significant events affecting the company

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15
Q

When the SEC finds and accounting irregularity, what happens?

A

The SEC sends a “deficiency” letter to a registrant when an accounting irregularity is found.

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16
Q

Within how many days after the end of the quarter does a company need to file the 10-Q?

A
  • 40 days for large accelerated filers and accelerated filers
  • 45 days for non-accelerated filers
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17
Q

Does the Sarbanes-Oxley Act allow auditors to complete nonaudit services for clients?

A

No, the Sarbanes-Oxley Act does not allow this.

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18
Q

How many years of cash flow data are required by the SEC?

A

Three years are required.

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19
Q

What purpose do Accounting and Auditing Enforcement Releases (AAER) serve?

A

They report the enforcement actions taken against accountants.

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20
Q

How many divisions does the SEC have?

A

Five:

  1. The Division of Corporation Finance
  2. The Division of Enforcement
  3. The Division of Trading and Markets
  4. The Division of Investment Management
  5. Division of Economic and Risk Analysis
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21
Q

What does registration with the SEC require?

A

Extensive disclosures about the company, management, and the intended use of the proceeds from the issue.

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22
Q

How many years of balance sheet data are required by the SEC?

A

Two years are required.

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23
Q

What are the steps in the offering process?

A
  1. Issuer
  2. Underwriter
  3. Dealer
  4. Public
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24
Q

Which potential common stock (PCS) is the most dilutive when there are multiple PCSs?

A

The one with the lowest ratio of numerator effect/denominator effect

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25
Q

How is basic earnings per share calculated if common stock and nonconvertible preferred stock are outstanding?

A

(Net Income - Preferred Dividends) / (Weighted Average Common Shares Outstanding)

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26
Q

Are diluted potential common stock incorporated into diluted earnings per share (EPS)?

A

Yes, they are incorporated.

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27
Q

What amount of preferred dividends is subtracted for cumulative preferred stock?

A

One full year’s dividends regardless of the amount declared or paid.

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28
Q

What does diluted earnings per share (EPS) include?

A

Includes securities that may become common stock in the future, such as convertible stock and stock options, in addition to actual shares of common outstanding.

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29
Q

How is basic earnings per share calculated?

A

(Net Income - Preferred Dividends) / (Weighted Average Common Shares Outstanding)

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30
Q

When bonds are sold at premiums, what will interest expense reflect?

A

It will reflect periodic amortization

31
Q

What is the order of inclusion of preferred common stock into diluted earnings per share (EPS)?

A

In order of most dilutive first.

32
Q

When is the dilution potential of diluted earnings per share (EPS) determined for ordinary shares under the IFRS?

A

They are determined independently each year.

33
Q

List the two types of earnings per share.

A
  1. Basic

2. Diluted

34
Q

What is a simple capital structure?

A

One in which the corporation has outstanding only:

  • Common Stock OR
  • Common Stock and Nonconvertible Preferred Stock
35
Q

What is an antidilutive potential common stock?

A

One that increases earnings per share (EPS) when added into basic EPS.

36
Q

What does a complex capital structure include?

A

Typically includes common stock, along with equity contracts and convertible securities.

37
Q

What is the general rule for stock splits and dividends in the weighted average share calculation?

A

Treat as outstanding from inception of firm (“AS IF”)

38
Q

What is the term that refers to the following concept?

If a year’s preferred dividend is not paid (skipped), no other dividends may be paid before the skipped dividends (dividends in arrears) are paid.

A

Cumulative

39
Q

What is the tax effect for preferred stock dividends?

A

There is no tax effect

40
Q

Describe the diluted earnings per share (EPS) formula.

A

(Net Income Available to Common Adjusted for effects of potential common shares) / (Weighted average common shares plus shares issuable from potential common shares)

41
Q

When are options antidilutive?

A

When the option price exceeds the market price.

42
Q

What is the accounting effect of a stock split dividend between balance sheet date and issuance?

A

Adjustment of all earnings per share (EPS) amounts for stock split or dividend.

43
Q

When are contingent shares considered outstanding?

A

When their conditions have been met.

44
Q

What is the treatment of antidilutive preferred common stock in earnings per share (EPS)?

A

It is ignored.

45
Q

Define “contingent shares.”

A

Shares issuable for little or no cash consideration upon satisfaction of certain conditions

46
Q

Where must earnings per share (EPS) be disclosed?

A

On the face of the financial statements

47
Q

What amount of preferred dividends is subtracted for noncumulative preferred stock?

A

Amount declared

48
Q

How is diluted earnings per share calculated?

A

(Net Income available to common adjusted for effects of potential common stock) / (weighted average common shares + Shares issuable from potential common stock)

49
Q

Describe the 75% rule for segments.

A

The total external revenue reported by reportable segments must be at least 75% of the company’s total consolidated revenues.

50
Q

Describe the revenue test for operating segments.

A

The operating segment’s revenue from all sources (internal and external) is 10% or more of the combined (internal and external) revenues of all of the company’s operating segments.

51
Q

Describe the operating profit or loss test for operating segments.

A

The operating segment’s operating profit or loss (absolute value) is 10% or more of the greater of the next two amounts (absolute value):

  1. Combined operating profit of all segments not reporting losses
  2. Combined loss of all segments that reported operating losses
52
Q

List the quantitative tests for operating segments.

A
  • Revenue
  • Operating profit or loss
  • Identifiable assets
53
Q

List the requirements for aggregation of segments.

A

Similar in each of these areas:

  • The nature of products and services
  • The nature of the production processes
  • Customer type or class
  • Distribution methods for products and services
  • The nature of the regulatory environment
54
Q

List the three characteristics of operating segments.

A
  1. The segment is involved in revenue producing and expense-incurring activities.
  2. The operating results of the operating segment are reviewed by the company’s chief operating decision maker on a regular basis.
  3. There is discrete financial information available for the operating segment.
55
Q

Describe the identifiable asset test for operating segments.

A

The operating segment’s identifiable assets are 10% or more of the combined assets of all reported operating segments.

56
Q

What are permanent declines in inventory?

A

Inventory declines that are not expected to reverse in the current year.

57
Q

Describe the general rule for expense recognition in interim reporting when an expense is not directly related to revenue.

A
  • If the cost or expense has no relationship to other quarters, recognize the entire expense in the quarter in which the cost was incurred.
  • If the cost or expense benefits other quarters, allocate the cost to those other quarters and recognize the appropriate amount of expense in those quarters.
58
Q

When are revenues recognized in interim reporting?

A

Revenues are recognized in each interim period as they would be in an annual period.

59
Q

Describe the general rule for expense recognition in interim reporting when an expense is directly related to revenue.

A

The expense is recognized in the same period as the related revenue.

60
Q

Is the gross margin method acceptable for annual reporting?

A

The gross margin method is acceptable for interim reporting but not for annual reporting.

61
Q

How is last in first out (LIFO) liquidation in an interim period accounted for when restoration is not expected?

A

The interim period cost of goods sold should reflect the actual cost of the layer liquidated.

62
Q

Describe the overall guideline for interim reporting under U.S. accounting standards.

A

Integral view. Interim periods are an integral part of the annual period.

63
Q

List the steps in estimating income tax for interim reporting.

A
  1. Annual rate is re-estimated.
  2. Rate is applied to the total interim income through the end of the current period.
  3. The income tax reported in previous periods is subtracted from the results in step 2 to yield the income tax expense for the current period.
64
Q

Describe the overall guidelines for interim reporting under international accounting standards.

A

Discrete view. Interim periods are stand-alone periods.

65
Q

How is a change in estimate accounted for during an interim period?

A

It is accounted for in the interim period in which it is made.

66
Q

How are cost accounting variances accounted for in interim reporting?

A

Those expected to be absorbed by the end of the current year are deferred.

67
Q

List the required interim information that must be reported for segments.

A
  • External revenues (other than from intersegment sales)
  • Intersegment revenues
  • Segment profit or loss
68
Q

How is last in first out (LIFO) liquidation in an interim period accounted for when restoration is expected?

A

The interim period cost of goods sold should reflect the estimated cost of replacement.

69
Q

What are temporary declines in inventory?

A

Inventory declines that are expected to reverse by year-end.

70
Q

How are accounting principle changes accounted for in interim reporting?

A

Accounting is the same as for an annual period. Disclosures are required for the interim period of change and for subsequent interim periods.

71
Q

How are temporary declines reported at interim?

A

They are not recognized as losses in the interim periods in which they occur.

72
Q

When is the gross margin method for inventory permitted?

A
  • It is permitted for interim reporting but not annual reporting.
  • Use must be disclosed in footnote.
73
Q

How are permanent declines in inventory value accounted for?

A
  • They are recognized as losses in the interim periods in which they occur.
  • Later recoveries are recognized as gains only to the extent of previous losses.
  • They cannot be written up above cost.

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