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FAR > Reporting: Special Areas > Flashcards

Reporting: Special Areas Flashcards

1
Q

What are subsequent events?

A

Events occurring between the balance sheet date and the issuance date

Can be recognized or nonrecognized

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2
Q

To what subsequent events does GAAP guidance on subsequent events not necessarily apply?

A

Events covered by other GAAP rules (e.g. contingent liabilities)

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3
Q

What must be the case for statements to be considered issued or available for issuance?

A

They must comply with GAAP

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4
Q

When is the period for evaluating subsequent events?

A

For SEC filers and conduit debt obligors: up until issuance date

For others: up until statements are available to be issued

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5
Q

What are conduit debt obligors?

A

Private companies for whom governments issue debt securities

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6
Q

What is the general rule for recognizing or not recognizing subsequent events?

A

Whether the events are relevant to conditions before the balance sheet date

Examples:
-litigation for an event prior to the BS date and for an amount different from the recorded liability

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7
Q

When should subsequent events affecting the realization of assets be recognized?

A

Whenever they are the culmination of conditions going on for a long time

E.g. if a customer goes bankrupt due to his progressively worsening financial state, and his A/Rs become uncollectible

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8
Q

What disclosures should be made regarding subsequent events?

A

For non-SEC filers, the dates through which subsequent events were evaluated

Nonrecognized events, the absence of which would be misleading

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9
Q

What count as related-party transactions?

A
  • between parent and subsidiaries
  • between subsidiaries
  • between enterprise and principal owners, management, or immediate families
  • between affiliates
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10
Q

What related-party transactions should be disclosed?

A

All material ones that are outside the ordinary course of business (e.g. compensation of officers)

Transactions eliminated in preparing consolidated statements (e.g. intercompany sales) are not required

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11
Q

How does a business count as a development stage enterprise?

A

If “substantially all” of its efforts are devoted to establishing a new business

Either ordinary operations haven’t begun, or if they have, any revenue produced is insignificant

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12
Q

How should development stage enterprises be presented?

A

According to GAAP, just like others

Still must provide additional information

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13
Q

What would be different on a development stage enterprise’s balance sheet?

A

Cumulative net losses are reported in stockholders’ equity with some term like “deficit accumulated during development stage”

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14
Q

What would be different on a development stage enterprise’s income statement?

A

Includes cumulative revenues and expenses from beginning of development stage

Basically the same on statement of cash flows

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15
Q

What would be different on a development stage enterprise’s statement of stockholders’ equity?

A

From the date of inception:

  • number of shares/warrants issued and when
  • cash/property received for shares
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16
Q

What should development stage enterprises disclose?

A
  • that they are in the development stage
  • what their ordinary business is
  • (in their first year of ordinary operations) that they were in the development stage
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17
Q

What is the method used for identifying operating segments?

A

Management Approach Method

Based on how managers organize segments to make decisions and assess performance

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18
Q

What segment information must be reported?

A
  • profit or loss
  • assets and related items

NOT cash flow or liabilities

Only public businesses need to do so

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19
Q

What are three characteristics of operating segments?

A

Has activities which produce revenue and incur expenses

Results are reviewed by entity’s chief operating decision maker

Discrete financial info is available for it

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20
Q

Who is the chief operating decision maker for a segment?

A

Not necessarily a title

Identified by function of allocating resources and assessing performance for a segment

May be a group

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21
Q

What is important to know about the segment manager?

A
  • identified by function, not title
  • directly responsible to chief operating decision maker
  • can be chief operating decision maker
  • can be segment manager for another segment
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22
Q

What are the quantitative thresholds that require a segment to be reported?

A
  • its sales are 10% (or more) of total sales (includes intersegment sales)
  • its absolute value of profit/loss is at least 10% of (a) the total profit of segments reporting a gain or (b) the total loss of segments reporting a loss – whichever is greater
  • its assets are 10% of total assets

Any of these make a segment reportable

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23
Q

When may operating segments be aggregated?

A

If they are economically similar – what, to whom, and how they sell

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24
Q

When can operating segments be combined to make a reportable segment?

A

If the segments fulfill a majority of the aggregation criteria

The new segment is reportable even if it doesn’t pass any quantitative thresholds

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25
Q

What is the minimum number of reportable segments required?

A

Revenue reported by operating segments must be 75% or more of total revenue

Otherwise more operating segments must be identified to surpass 75%

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26
Q

What is the “all other” category?

A

Non-reportable segments must be combined into this category

The different revenue sources must be described

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27
Q

How can an operating segment be reportable even if it does not meet criteria for reportability?

A

Management judgment

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28
Q

How do separate operating segments affect prior-period-reporting (e.g. for comparison)?

A

Prior info must be restated to show a segment as separate, unless it is impracticable to do so

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29
Q

Is there a limit on the number of reportable segments?

A

Not specifically, but generally 10

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30
Q

What is an entity’s functional currency?

A

The currency where it primarily operates

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31
Q

When will an entity’s FC be the local currency?

A

When the foreign operation is independent of the parent company

Translation of financials into parent’s currency (usually dollar) is required

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32
Q

When will an entity’s FC be the parent’s currency?

A

When the foreign operation is basically an extension of the parent

If books are in local currency, then remeasurement to USD (or whatever) is required

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33
Q

Where does a gain or loss on currency remeasurement go?

A

Income from continuing operations

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34
Q

Can a company alter the net gain or loss from remeasurement by reporting in a particular currency?

A

No

Whether the foreign operation’s currency is local or USD, aggregate gains or losses will be the same

35
Q

What happens if a foreign operation keeps its book with the local currency but has a different foreign currency for FC?

A

Books must be remeasured to foreign currency and then translated to USD

36
Q

What is another name for local currency?

A

Recording currency

37
Q

When would inflation affect the choice of functional currency?

A

If the country’s cumulative inflation rate over the last three years was about 100%, the local currency cannot be the FC.

USD will be functional, and remeasurement will be required

38
Q

What about sales price would indicate that the parent’s currency should be the FC?

A

If sales prices for the foreign entity’s products change primarily with changes in exchange rates

39
Q

What must occur for foreign currency statements prior to being translated?

A

Must conform to GAAP and be measured in functional currency

If not in FC, must be remeasured

40
Q

What is the goal of remeasuring?

A

To make the books as if they were initially recorded in the new currency

Certain accounts must be measured at current rates, other accounts at historical rates

41
Q

What items should be remeasured at historical rates?

A
  • Securities carried at cost (not HTM)
  • Inventory carried at cost
  • Prepaid expenses
  • PPE (and acc. depr.)
  • intangible assets (and amort.)
  • Common/preferred stock carried at issuance price
  • Rev. and exp. for nonmonetary items (e.g. COGS, G&A exp.)
42
Q

How does the historical exchange rate differ for different items?

A

Depends on when they were acquired

Examples:

  • inventory acquired over year = avg. rate
  • building acquired on 2/16 = rate @ 2/16
  • common stock issued on 1/4 five years = rate @ that day
  • revenues over the year = avg. rate
43
Q

At what rates should cash and payables be remeasured?

A

Current rate

44
Q

What is the translation rate for assets and liabilities?

A

Current exchange rate (at balance sheet date)

45
Q

What is the translation rate for revenues and expenses?

A

Rate at time of revenue/expense recognition

When that is impracticable, weighted-average exchange rate for period can be used

46
Q

What is the translation rate for contributed capital?

A

Historical rate

47
Q

What is the translation rate for retained earnings?

A

Translated BRE
+ net income (at weighted-average rate)
- dividends declared (at declaration-date rate)

48
Q

Where are translation adjustments reported?

A

OCI

Different from remeasurement gain/loss, which is reported in income from continuing operations

49
Q

How are sales/disposals of foreign investments reported?

A

Accumulated translation adjustments in OCI will be removed with a reclassification adjustment and reported as gain/loss on disposal

50
Q

What are foreign currency transaction gains/losses?

A

When receivables/payables from foreign currency transactions promise a fixed amount of the foreign currency, and then the exchange rate changes

Reported as income from continuing operations

51
Q

Which foreign currency transactions should be reported in OCI, not income?

A

Hedges for foreign investments

Transactions between consolidated companies where settlement is not in the foreseeable future

52
Q

What are the two general rules for foreign currency transactions?

A

Record any transaction by translating the item at the current rate

At each balance sheet date, update rates to current rate (at that date), reporting unrealized gain/loss on difference

53
Q

What are different types of foreign currency hedges?

A

Fair Value hedge

Cash Flow hedge

Hedge of a Net Investment in a Foreign Operation

54
Q

How do you calculate the gain/loss on foreign currency fair value hedges?

A

Multiply the foreign currency amount by the difference in spot rates (between date of inception and settlement (or balance sheet) date)

Gain/loss adjusts carrying amount for hedged item

Gain/loss reported in earnings (even for AFS securities)

55
Q

How do you report gains/losses on foreign currency cash flow hedges?

A

Effective portion reported in OCI

Ineffective portion reported in earnings

56
Q

What is effectiveness for a foreign currency cash flow hedge?

A

The degree that gain/loss for the hedging instrument offsets gain/loss on the hedged item

57
Q

How do you report gain/loss on a hedge of net investment in a foreign operation?

A

In OCI

58
Q

What happens if an unrealized gain is recorded on a depreciable asset?

A

It is recorded to OCI, but then amortized (credit to gain) over the term of the asset

59
Q

How do foreign currency gains/losses affect income tax?

A

If included in taxable income for a year other than when they’re recognized as income, they result in temporary differences

Translation adjustments also result in temporary differences

60
Q

Are convertible securities considered monetary or nonmonetary assets?

A

Monetary if valued primarily as a bond

Nonmonetary if valued primarily as stock

61
Q

Are inventories used on contracts considered monetary or nonmonetary assets?

A

If expected cash settlement is already fixed (i.e. won’t be priced at market upon delivery), then monetary

62
Q

Are pension, sinking, and other funds considered monetary or nonmonetary assets?

A

Depends on the specific assets in the fund

63
Q

What is the distinctive feature about monetary assets or liabilities?

A

They involve rights or obligations to cash amounts that are fixed or determinable irrespective of future market prices

64
Q

Is deferred revenue a monetary or nonmonetary liability?

A

If it involves an obligation to give goods or services, then it is nonmonetary

65
Q

Why is preferred stock classified as a monetary item?

A

Because any stock which the holder can require the issuer to buy back (mandatory redemption) is monetary

66
Q

What is current cost/constant purchasing power accounting?

A

Accounting based on units of currency with uniform purchasing power (i.e. inflation is accounted for)

uses CPI-U (CPI for All Urban Consumers) to measure dollar’s purchasing power

67
Q

What is the current cost for inventory?

A

Current cost of purchasing the goods
OR:
Current cost of purchasing the resources required to produce the goods (including overhead)

^^^whichever is applicable

68
Q

What is the current cost for PP&E?

A

Cost to acquire same “service potential”

  • Current cost for a new asset with same service potential, accounting for depreciation so it’s “used”
  • Current cost for used asset of same age and condition
  • Current cost of new asset with different service potential, but price adjusted to make up for it
69
Q

What is recoverable amount?

A

Current worth of the cash expected to be recovered from an asset’s sale or use

70
Q

What are the two ways recoverable amount can be determined?

A

Value in use (if not about to be sold)

Current market value (if about to be sold)

71
Q

How does recoverable amount relate to current cost?

A

If RA is permanently lower than CC, then it should be measured instead of CC in the supplemental information on CC

72
Q

How is cost of goods sold reported at current cost?

A

Reported at lower of current cost or recoverable amount

CC = (avg. # units sold) x (avg. current cost)

Avg. current cost = end and beg. CC divided by 2

73
Q

How are depreciation, depletion, and amortization expenses reported at current cost?

A

Take the item’s average current cost for the period and divide it by the estimated useful life

E.g. building with beg. CC of $95,000 and end. CC of $105,000, with useful life of 5 years, will have a depr. exp of $100,000 / 5 = $20,000

74
Q

How are purchasing power gains/losses determined on monetary items?

A

Determine the inflation-adjusted values for the beg. balance, ending balance, and transactions

Beg. Bal.
+ Increase in account
- End. Bal.
= Gain/Loss

Gain/Loss depends on whether it is asset or liability

75
Q

What information on current cost must be reported?

A

Nothing is required – voluntary supplemental info is encouraged

76
Q

What is a required disclosure to make for a consolidated company?

A

The fact that transactions with a customer are 10% of total revenue

Identity of customer need not be disclosed

77
Q

How does an increased exchange rate affect a foreign currency receivable?

A

Gives rise to a gain

Increased exchange rate (i.e. more dollars per foreign currency) = you receive more than you would have otherwise gotten
-opposite for liabilities

78
Q

What is a general rule for choosing an exchange rate in remeasurement?

A

Anything carried at cost (e.g. all nonmonetary balance sheet items) use the historical rate, while anything carried at FV uses the current rate

79
Q

How are remeasurement and translations gains/losses reported differently?

A

Remeasurement gains/losses are reported in income from continuing operations

Translation gains/losses in OCI

80
Q

What are different purposes for entering into a forward contract?

A

As speculation on a currency

As a hedge

81
Q

How do calculate gains/losses on forward contracts used to speculate on currency?

A

Take difference in FORWARD rates between contract data and other date

“Other date” might be year-end (when gains/losses are recorded) or settlement date

82
Q

What is a forward rate?

A

The predicted future rate at an earlier date (reflected in rates for futures contracts available at that date)

83
Q

How do you calculate gains/losses on forward contracts used to hedge an investment?

A

Gain/loss depends on difference in SPOT rates, not forward rates

84
Q

How do you report gains/losses on foreign currency transactions designated as hedges in a foreign investment?

A

Gain/loss reported in OCI

FAR (26 decks)

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