301004 Vulnerability to concentrations 2G

Question 1

FASB ASC 275-10 addresses the disclosures required to facilitate a user’s evaluation of an entity’s risks and uncertainties. One of the situations requiring disclosure is vulnerability to concentrations. Vulnerability to concentrations refers to risk due to the lack of diversification. Disclosure of such risk must be made if, based on management’s information, which of the following criteria are met?

The concentration exists at the date of the financial statements.

The concentration makes the entity vulnerable to the risk of a near-term severe impact.

It is at least reasonably possible that the events that could cause the severe impact will occur in the near term.

All of the conditions listed here exist.

Question #301004

Answer 1

All of the conditions listed here exist.

Vulnerability to concentrations refers to risk due to a lack of diversification. Disclosure of such risk must be made if, based on management’s information, the following criteria are met:

The concentration exists at the date of the financial statements.
The concentration makes the entity vulnerable to the risk of a near-term severe impact.
It is at least reasonably possible that the events that could cause the severe impact will occur in the near term.
FASB ASC 275-10-50-16

Reference: 2117.20
Vulnerability to concentrations refers to risk due to a lack of diversification. Disclosure of such risk must be made if, based on management’s information, the following criteria are met:

a. the concentration exists at the date of the financial statements,
b. the concentration make the entity vulnerable to the risk of a near-term severe impact, and
c. it is at least reasonably possible that the events that could cause the severe impact will occur in the near term.

Question 2

2117.20
Vulnerability to concentrations

Answer 2

Vulnerability to concentrations refers to risk due to a lack of diversification. Disclosure of such risk must be made if, based on management’s information, the following criteria are met:

a. the concentration exists at the date of the financial statements,
b. the concentration make the entity vulnerable to the risk of a near-term severe impact, and
c. it is at least reasonably possible that the events that could cause the severe impact will occur in the near term.

Question 3

A risk due to a lack of diversification

Answer 3

Vulnerability to concentrations

Question 4

What are the criteria if met requires disclosure of a vulnerability to concentrations?

Answer 4

a. the concentration exists at the date of the financial statements,
b. the concentration make the entity vulnerable to the risk of a near-term severe impact, and
c. it is at least reasonably possible that the events that could cause the severe impact will occur in the near term.

Question 5

Criteria

Answer 5

Criteria are the benchmarks used to measure or evaluate the subject matter.

Question 6

Disclosure

Answer 6

The dictionary definition of the term “disclosure” is “revealing or uncovering.” In general, the purpose of financial reporting is to reveal an entity’s financial information. Often, the term “disclosure” relates to stating additional facts or explanations in a financial statement or auditor’s report. In financial statements, disclosure can be achieved by parenthetical or additional reporting of information after a line item by cross-referencing to another item, by footnotes, and by supplementary verbal and scheduled information. An additional explanatory paragraph can also be added to an auditor’s standard opinion for disclosure purposes.

Question 7

Materiality

Answer 7

Information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report. Consequently, the FASB cannot specify a uniform quantitative threshold for materiality or predetermine what could be material in a particular situation.

SFAC 8.3, QC11

Materiality judgments are concerned with thresholds.

Example: You would ask the following questions:

• Is an item of information, an omission, misstatement, or error large enough, considering its nature and the attendant circumstances, that it is probable that the judgment of a reasonable person relying on the information would have been changed or influenced?
• Is the item important enough to matter?

The relative, rather than absolute, size of the item determines whether or not it is material in a given situation. The auditor’s consideration of materiality is affected by the interaction of quantitative and qualitative factors.

The concept of materiality is pervasive. It is related to the relevance and faithful representation of information and is critical to audit judgments regarding audit risk and disclosure.

Question 8

Predictive Value

Answer 8

Financial information has predictive value if it can be used as an input to processes employed by users to predict future outcomes. Financial information need not be a prediction or forecast to have predictive value. Financial information with predictive value is employed by users in making their own predictions. (SFAC 8.3, QC8)

Question 9

Reasonably Possible

Answer 9

Reasonably possible is “the chance of the future event or events occurring is more than remote but less than likely.”

FASB ASC 450-20-20

Question 10

FASB ASC 275-10-50-16

Answer 10