9807 ch 1 Flashcards
(22 cards)
SEC
The SEC has the statuatory authority to establish finacial accounting and reporting standards for public held companies under the securities exchange act of 1934. The SECs goal is to protect the general public.
- established by Securities Exchange act of 1934
- All companies that issue securities in the US are subject to SEC rules and regulation
- The SEC has issues public co. specific accounting rules in Regulation S-X, Financial Reporting Release (FRR), Accounting Series Releases (FSR) Interpretive Release (IR) Staff accounting Bulletins (SAB)
- Committee on Sccounting Procedure (CAP)- 1939-59
- Accounting Principles BOard (APB) - 1959-1973
- Finacial Accounting Standards Board- 1973–>
- Form 10-k: annual reports that public companies have to file with the SEC
Form 10-Q: quarterly report
Form 8k: Specific events happen that the SEC needs to know about
FASB
In 1973 the FASB was established to establish and improve standards of fin acc and reporting for nongovernmental entities. FASB maintains the ASC which represents the source of authoritative standards of acc and reporting, other that those issued by the SEC, recognized the FASB to b applied by nongovernmental entities.
The FASB is part of a structure that is independent of all other business and professional organizations.. The structure includes the Finacial Accounting Standards Advisory Council (FASAC- guides FASB on technical issues) the Governmental accounting Standards Board (GASB- set standards for state and local governemnts) and the GOvernmental ASccounting stnadards Advisory Council (GASAC-guides GASB)
Since 1973 the FASB has determined GAAp
Through 2009 the FASB issues Statements of Financial Accounting Standards (SFAS), FASB Interpretaions (FIN) Emerging issues task force interpreations (EITF)
7 full time members who serve 5 year terms
Standard Setting Process: Identify issues based on steakholders requests, public meetings, Issues Exposure Draft, Issues ASU describing amendments to the ASC
Authoritative Literature includes
FEDPRIA
- Financial accounting standards Board
- SFAS
- Interpretations
- SP - Emerging issues task force
- Dervative Implementation Group Issues
- accounting Principles Board Opinions (PBO)
- accounting Research Bulletins (ARB)
- accounting Interpreations
- American Institure of Certified public accountants
- SOP
- Auditing and accounting guides
SEC:
Financial Reporting Release FRR- rules on accounting and finacial reporting matters
SAB- used to disseminate administrative interpretations and practices used by the staff of the SEC. They are not rules or interpretations os the SEC nor are the publishes as bearking the SEC official approavla. very siliar to sec staff positions. Starts with facts, then a question, then a response. usually response is no
Private Company Coucil
The Finacial Accounting Foundation (FAF) Board of Trustees established a new body/group to improve the standard setting process for private companies, the Private Company Council will b overseen by the trustees and will replace existing Private COmpany Finacial Reporting Committee.
The PCC decides differences 4 public vs nonpublic companies
Conceptual Framework
a coherent system of interrelated objectives and fundamentals that prescribes the nature, function, and limitation of fin rep. The objectives represent the goals of fin rep. These concepts provide guidance in selecting transaciton, events, and circumstances to be accounted for, how they should be recognized and measured, and how they should b summarized and reported.
The FASBs efforts to develope a conceptual framwork has resulted in 7 concept statements.
The FASB is the most apparant beneficiary of the framework. It provides the FASB with a foundation for setting standards and concepts to use as tools for resolving acconting and reporting issues.
Does it qualify to be treated as an asset on the BS? The conceptual framework will tell you.
Asset
CPA: Assets are PROBABLUE FUTURE ECONOMIC BENEFITS, TO BE RECIEVED BY THE COMPANY, AS A RESULT OF PAST TRANSACTIONS OR EVENTS
- probable future economic benefits obtained or controlled by a particular entity as a result of past transacitons or events
3 characteristics:
- embodies a PROBABLE FUTURE BENEFIT that involves a capacity to contribute directly or indirectly to future net cash flows
- a particular entity can obtain the benefit and control others access to it
- the transaction or other event giving rise to the entitys right to or control of the benefit has already occured
Liability
CPA: PROBABLE FUTURE SACRAFICES OF ECONOMIC BENEFITS arising from PRESENT OBLIGATIONS OF THE COMPANY, to transfer assets or provide services to other entities in the future as a result of PAST TRANSACTIONS OR EVENTS
are probable sacrafices of future economic benefit arising form present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transaction or events
3 characteristics
- embodies a PRESENT DUTY OR RESPONSIBILITY to one or more other entities that entails settlment by probable future transfer or use of assets at a specified or determinable date
- the duty or responsibility obligates a particular entity, leaving it little or no discretion to acoid the future sacrafice
- the transaction or event obligating the entity has already occured
ex: You cant book an expense or liabilit that has not happened yet such as a tornado. It can only be booked once the transaction or event obligating the entity has occured.
Contingencies
Provision for loss contingency should be accrued by a charge to income, providing that both of the following conditions exist
- PROBABLE that an asset has been impaired
- the amount of loss can be REASONABLY ESTIMITABLE
- If remote, do nothing
- If REASONABLY POSSIBLE you should make a finacial statement disclose
- If probable and estimatable you should accrue
CANNOT BE REPORTED IN STOCKHOLDERS EQUITY SECTION
Convertable Debt/Warrants
- Debt instruments with detachable warrants or call options shall be allocated to two elements based on the relative FAIR VALUE of the debt instrument without the warrant and the warrants themselves at the TIME OF ISSUANCE
EX: $1 million debt plus warrants to buy 10,000 shares of common stock for 10$ per share
D. Cash $1m
C. APIC 100k
C. Debt/note pay 900k
- If the stock purchase warrants are not detachable from the debt instrument and then debt instrument must be surrendered to exercise the warrant, the two instrument taken together are substantially equivelent to a convertable debt instrument.
D. Cash 1m
C. note pay 1m
when converted
D. note payable 1m
C. CS 1m
Inventory Impairment
MARKET = REPLACEMENT COST
In the term lower of cost or market the term market refers to the current REPLACEMENT COSTS. The market amount (or replacement cost) is constrained or limited by two amounts, the upper limit or cieling and lower limit or floor.
1 Cieling: The cieling is the net realizable value. If the market is higher the NRV then the NRV is used as the market amount.
- Floor: If the replacement cost is lower then the NRV LESS THE NORMAL PROFIT MARGIN the NRV - the normal profit is used as the market amount.
The NRV is defined as the SELLING PRICE LESS COSTS NECESSARY FOR COMPLETION OR DISPOSAL
Accounting for writing down inventory from cost to market
d. loss in applying LCM 1000
c. Allowance to reduce Inventory to market 1000
Inventory at cost - allowance = markert
76000-1000=75000
Emerging Issues Task Force
The EITF was formed in 1984 in response to the recomendations of the FASB task force on timely finacial reporting guidance and on FASB invitation to comment on those recomendations. The mission of EITF is to assist the FASB in improving finacial reporting.
One of the standard setters in the codification.
staff announcements: examples: leagal costs, issuance of fin st.
“Consensus” reached when not more the 3 out of 14 memebers object- there are over 400 of them
Reedemable Preffered Stock
redeemable at the option of the issuee not the issuer. These cannot be preseneted in the stockholders equity section of the BS.
characterisics:
- redeemable at FIXED OR DETERMINABLE price or date
- reedemable at option of holder
- conditions of redemption which are not in control of issuer
International ACcounting Standards Board
Today the FASB and IASB work together on virtually all significant long term projects and have issued standards on stock options (FV) and business combinations that are substantiall the same. Many countries follow IASB standards and ahving the FASB and IASB work together to facilitate achieving high quality standards throguhout the world
completed projects:
- publicaiton of standards that r substantially converged on FV measurement
- consolidated Fin St
- joint arrangments
- OCI
upcoming
- financial instruments
- revenue recognition on leases
- accounting for insurance contracts
STANDARD SETTING BOARDS IN THE US
- SEC (securities exchange act of 1934)- all companies that issues securites in the US are subject to SEC rules and regs. SEC issued: REGULATION S-X, FINACIAL REPORTING RELEASES (FRR) ACCOUNTING SERIES RELEASES (ASR) INTERPRETATIVE RELEASE (IR) STAFF ACCOUNTING BULLETINES (SAB)
- Commitee on Accounting Procedures (CAP 1939-59)- determined gapp from 39-59: ACCOUNTING RESEARCH BULLETINS (ARB)
- Accounting Principles Board (APB)- determined Gaap from 59-73
- FASB- determined gaap since 73: issues STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS (SFAS) FASB INTERPRETAIONS (FIN) EMERGING ISSUES TASK FORCE STATEMENTS (EITF)
AUTHORITATIVE LITERATURE
FEDPRIA
FASB
EMERGING ISSUES TASK FORCE
DERIVITIVE IMPLIMENTATION GROUP ISSUES
ACCOUNTING PRINCIPLES BOARD OPINION
ACCOUNTING RESEARCH BULLITINS
ACCOUNTING INTERPRETATIONS
AICPA
IASB
IASB was established in 2001 as part of IFRs foundation.
The purpose of the IASB is to develope a single set of high quality global accounting standards
international finacial reporting interpretaions commitee (IFRIC)- assists iasb in settting ifrs. The IFRS provides guidance on newly identified financial reporting issues not addressed in the IFRRS and assists the iasb in achieving internaitonal convergence of accounting standards.
IFRS: WHen the iasb was created, it adopted international accounting standards (predecessor to iasb) that had been issues by international accounting standards commiteee. THe iasb issues IFRS and related documents, including the conceptual framework for financial reporting, exposure drafts, and other discussion documents. TIFRS includes Ifrss, IASs, and interpretaions developed by the IFRIC and the former SIC.
CONCEPTUAL FRAMEOWRK FOR FIN REPORTING
The IASB is developing the CONCEPTUAL FRAMEWORK FOR FINACIAL REPORTING in a joint project with the FASB. The purpose is to improve the FASB and IASB reporting framework. The CONCEPTUAL FRAMEWORK assists the IASB in developing future IFRS, evaluating existing IFRSs, and reducing the number of alternative accounting treatments permitted by IFRS. The conceptual framework is not an IFRS.
The IASB and FASb have been working since 2002 on a international convergence of accounting standards. The GOAL of the convergence project is a single set of high quality international standards that comapnies can use for both domestic and cross border finacial reporting.
The FASB continues to issue GAAp and the IASB continues to issue IFRS with the expectation that over time the two sets of standards will become increasingly simliar if not the same
CONCEPTUAL FRAMEWORK UNDERLYING FINACIAL ACCOUNTING
The FASB has created a conceptual framework (set forth in pronouncments called SFAC) that serves as a basis for all FASB pronouncments. The SFAC are not GAAp but provide a basis for financial reporting concepts and the basic reasononing for business and nonbusiness enterprises.
FASB STANDARD SETTING PROCESS
THE RULES OF PROCEDURES describe the FASB operating procedures, including the due process actitivities that are to be open to public participation or observation to provide transparency into the standards setting process
- FASB identitifies fin reporting issues based on requests and recomendations from stakeholder and other means
- Chairman adds project to agenda
- FASB deliberates at one or more public meetings the various reporting issues
- Board issues EXPOSURE DRAFT to solicit broad steakholder input
- Public rountable meeting on exposure draft
- FASB analyzes info through the process
- The FASb issues ASU describing amendments to the ASC
RESIDUAL INTEREST
Equity is defined as the residual interest in an entitys assets that remains after deducting its liabilities. Similarly, changes in uquity-investmesnt by owners, distributions to owners, reveneues, expenses, gains, losses, and CI-are all defined in terms of changes in assets and liabilties
SEC REPORTING REQUIREMENTS
10-K- must be filed annualy by US registered companies. If US co u will file 10-k which is annual report
10-Q- filed quarterly. Timeliness over reliability
8-K- filed to report a major corporate event
REGULATION SX- SEC has oversite of accounting standards that are processed
RGULATION SK- managments discussion and analysis section of the annual reports
