FAR 2 Module 4

Question 1

identify the contents of the Summary of Significant Accounting Policies note to the financial statements

Answer 1

1) measurement bases used in preparing financial statements
2) specific accounting principles and methods used

Question 2

what are the U.S. GAAP disclosure requirements for risks and uncertainties?

Answer 2

1) nature of operations
2) use of estimates in preparing the financial statements
3) significant estimates
4) current vulnerability due to certain concentrations

Question 3

remaining notes to the financial statements

Answer 3

-contain all other relevant info to decision makers
-notes used to disclose facts not presented in either the body of financial statements or Summary of Significant Accounting Policies

Question 4

types of specific accounting principles and methods

Answer 4

1) basis of consolidation
2) depreciation methods
3) amortization of intangibles
4) inventory pricing
5) use of estimates
6) fiscal year definition
7) special revenue recognition issues (leasing, LT construction contracts)

Question 5

items not included in summary of significant accounting policies

Answer 5

1) composition and detailed dollar amts of account balances
2) details relating to changes in accounting policies
3) dates of maturity and amounts of LT debt
4) yearly computation of depreciation, depletion, and amortization

Question 6

types of remaining notes to financial statements

Answer 6

1) material info related to PPE, inventory, and other asset/liability balances that require specific disclosures
2) changes in stockholder’s equity
3) required marketable securities disclosure, including carrying value and gross unrealized gains and losses
4) fair value estimates
5) contingency losses
6) contingency gains (if highly probable)
7) contractual obligations, including restrictions on assets or liabilities
8) pension plan description
9) segment reporting
10) subsequent events
11) changes in accounting principles or implementation of new ASUs

Question 7

nature of operations

Answer 7

-footnotes include description of entity’s major products or services and its principal markets and market locations
-if multiple businesses, disclosure describes importance of each business

Question 8

certain significant estimates

Answer 8

-if reasonably possible that an estimate will change soon or have a material impact, effect of change should be disclosed

Question 9

significant estimates that are sensitive to change

Answer 9

1) inventory or tech susceptible to obsolescence
2) deferred tax asset valuation allowances
3) capitalized computer software
4) loan valuation allowances
5) litigation-related obligations
6) amts reported for LT obligations, such as pension and postretirement benefits
7) amts reported in LT contracts

Question 10

vulnerability due to concentrations

Answer 10

-arises when entity is exposed to risk of loss that could be mitigated through diversification

Question 11

disclosure requirements for vulnerability due to concentrations

Answer 11

1) concentration exists at financial statement date
2) concentration makes entity vulnerable to risk in near future and have severe impact
3) at least reasonably possible that events could cause severe impact will occur in near term

Question 12

examples of concentrations

Answer 12

1) concentrations in volume of business transacted with particular customer, supplier, lender, grantor or contributor
2) concentrations in revenue from particular products, services, or fundraising events
3) concentrations in available supply of resources, such as materials, labor or services
4) concentrations in market or geographic area