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FAIS 3 > Ch 24 > Flashcards

Ch 24 Flashcards

0
Q

Full disclosure principle

A

Financial reporting of any financial facts significant enough to
Influence the judgement of an informed reader

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1
Q

In the 10 K, what is subject to FASB rules?

A

1 Financial statements

2 notes to financial statements

3 supplementary info

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2
Q

Information overload

A

Reporting is so detailed users have difficult time absorbing the
Info

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3
Q

3 reasons for increase in disclosures on 10 K’s

A

1 complexity of business environment
2 necessity for timely info
3 accounting as control and monitoring device

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4
Q

Interim data

A

Published financial forecasts recommended by SEC

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5
Q

Accounting as a control and monitoring device

A

The government has sought public disclosure of managment
Compensation, off balance sheet financing and related party
Transactions

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6
Q

Differential disclosure

A

Different disclosure for public companies vs. Non public

Ex. Non public companies don’t need to disclose FMV of
Financial instruments

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7
Q

Notes of financial statements

A

Means of amplifying or explaining the items presented in

Main body of financial statements

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8
Q

Accounting policies

A

Specific accounting principles and methods company
Currently uses

And considers most appropriate to present fairly its financial
Statements

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9
Q

Major note disclosures: inventory

A

Companies should report basis of amount of inventory stated
(Lower cost or market)

And method used to determine cost (FIFO, LIFO, avg. cost)

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10
Q

Major note disclosures: Property, Plant, Equipment. 4 disclosures companies must make

A

1 basis of valuation, balances of assets by nature and function
2 depreciation expense for period
3 ACC. Depreciation
4 description of depreciation method used

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11
Q

Major note disclosures: creditor claims

A

Financial statements must disclose for each following 5 years
Following date of statements, the aggregate amount of maturities

And sinking fund requirements for Longterm borrowings

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12
Q

Major note disclosures: Equity holders’ claims

A

Disclosure relates to contracts and senior securities and
restrictions involving earnings available for dividend distr.

Ex. Description of convertible debt and stock options

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13
Q

Major note disclosures: contingencies and commitments

A

Company may have Gain or loss contingencies not disclosed
In Main body of financial statements

Ex. from litigation, debt, Tax assessments, renegotiation of gov contracts, sales of receivables, recourse, dividend restrictions, purchase agreements, hedge contracts, employment contracts

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14
Q

Major note disclosures: Fair Values

A

Companies that have assets and liabilities measured at FMV
must disclose both cost and FMV of financial instruments in
Notes

Gives 3 levels on how to measure fair value on fair value hierarchy

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15
Q

Major note disclosures: deferred taxes, pensions and leases

A

Extensive disclosure on off balance sheet commitments, future financing needs and quality of companies earnings

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16
Q

Major note disclosures: changes in accounting principles

A

Companies summarize significant accounting policies

Or changes in accounting principles (as well as changes in
Estimates and corrections of errors)

17
Q

Related party transactions

A

transactions where one of The parties has ability to significantly influence policies of The other

Ex. Parent companies and subsidiaries, company and trusts for benefit of employees, company and management, owners, immediate family and affiliates

18
Q

Post balance sheet events

A

Notes on financial statements that explain significant financial

Events that took after formal balance sheet date but before issuance

19
Q

What kinds of transactions signify related party transactions took place?4 things

A

1 Low interest/high interest borrowing
2 real estate sales that differ from appraised value significantly
3 exchanges of nonmonetary assets
4 transactions with entities that have no economic substance(She’ll corporations)

20
Q

Errors

A

Unintentional mistakes

21
Q

4 GAAP Requirements of related party transaction disclosures (Disclosure of Special Transactions or Events)

A

1 nature of relationship involved
2 description of transaction for period transacted
3 dollar amounts of transactions for each periods income statements are presented
4 amounts due from or to related parties as of date each balance Sheet presented

22
Q

Fraud

A

Misappropriation of assets and fraudulent financial reporting

Intentional distortions of financial statements

23
Q

Illegal acts

A

political contributions, bribes, kickbacks and violations of laws and regulations

24
Q

The full disclosure principle, as adopted by the accounting profession, is best described by which of the following?
A. All information related to an entity’s business and operating objectives is required to be disclosed in the financial statements.
B. Information about each account balance appearing in the financial statements is to be included in the notes to the financial statements.
C. Enough information should be disclosed in the financial statements so a person wishing to invest in the stock of the company can make a profitable decision.
D. Disclosure of any financial facts significant enough to influence the judgment of an informed reader.

A

D. Disclosure of any financial facts significant enough to influence the judgment of an informed reader.

25
Q

Which of the following should be disclosed in a Summary of Significant Accounting Policies?
A. Types of executory contracts
B. Amount for cumulative effect of change in accounting principle
C. Claims of equity holders
D. Depreciation method followed

A

D. Depreciation method followed

26
Q

If a business entity entered into certain related party transactions, it would be required to disclose all of the following information except the
A. nature of the relationship between the parties to the transactions.
B. nature of any future transactions planned between the parties and the terms involved.
C. dollar amount of the transactions for each of the periods for which an income statement is presented.
D. amounts due from or to related parties as of the date of each balance sheet presented.

A

B. nature of any future transactions planned between the parties and the terms involved.

27
Q

Post Balance Sheet Events (Subsequent Events)

A
  • Events that provide additional evidence about conditions that existed at the balance sheet date.
  • Events that provide evidence about conditions that did not exist at the balance sheet date.
28
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end.

A

adjust the financial statements

29
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Introduction of a new product line.
A

neither adjust nor disclose

30
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Loss of assembly plant due to fire
A

disclose in notes to the financial statements

31
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Sale of a significant portion of the company’s assets
A

disclose in notes to the financial statements

32
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Retirement of the company president

A

neither adjust nor disclose

33
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Issuance of a significant number of shares of common stock.

A

disclose in notes to the financial statements

34
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Loss of a significant customer

A

neither adjust nor disclose

35
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Prolonged employee strike.

A

neither adjust nor disclose

36
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Material loss on a year-end receivable because of a customer’s bankruptcy

A

adjust the financial statements

37
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Hiring of a new president

A

neither adjust nor disclose

38
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Settlement of prior year’s litigation

A

adjust the financial statements

39
Q

of the following subsequent (post-balance-sheet) events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose:

Merger with another company of comparable size

A

disclose in notes to the financial statements

FAIS 3 (17 decks)

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