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Accounting 3332 > Chapter 24: Full Disclosure in Financial Reporting > Flashcards

Chapter 24: Full Disclosure in Financial Reporting Flashcards

1
Q

To report financial facts significant enough to influence the judgment of an informed reader (cost-benefit principle)

A

full disclosure principle

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2
Q

To report financial facts significant enough to influence the judgment of an informed reader (cost-benefit principle)

A

full disclosure principle

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3
Q
  • summary of significant accounting policies
  • inventory
  • property, plant, and equipment
  • creditor claims
  • equity holders’ claims
  • contingencies and commitments
  • fair values
  • items requiring extensive disclosure
  • accounting changes
  • subsequent events
  • related party transactions
  • errors and illegal acts
A

notes to the financial statements (integral part of F/S)

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4
Q
  • disclose methods to prepare financial statements

- should be the first note

A

summary of significant account policies

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5
Q
  • basis of valuation (LCM)

- cost flow assumption (FIFO, LIFO, WT’D AVE)

A

inventory

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6
Q
  • basis of valuation (historical cost)
  • pledges, liens, or other commitments related to these assets
  • balances of major classes of depreciable assets
  • current period depreciation expense
A

property, plant, and equipment

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7
Q
  • methods of financing

- timing of future cash outflows

A

creditor claims

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8
Q
  • number of shares authorized and issued; par value
  • equity instruments (stock options; convertible securities)
  • restrictions on the earnings available for dividends
A

equity holders’ claims

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9
Q

litigation, purchase commitments, sale of receivables with recourse

A

contingencies and commitments

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10
Q
  • cost and faif value for tose financial instruments; methods used to determine fair value
A

fair values

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11
Q

deferred taxes, pensions, and leases

A

items requiring extensife disclosure

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12
Q

change in principle and change in estimate, if material

A

accounting changes

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13
Q
  • financial statement date through report issue date
  • Type 1: affects condition existing at balance sheet date; requires adjustment to financial statements
  • Type 2: does not affect condition existing at balance sheet date; disclosure only
A

subsequent events

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14
Q
  • transactions not at arms length
  • GAAP requires disclosure of the nature of the relationship, a description of the transaction, and the dollar amounts invovled
A

related party transactions

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15
Q

What are the segment information categories?

A
  • identifying operating segments - a component
  • tests for significance
  • required disclosures for reportable segments
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16
Q
  • a component that earns revenues and incurs expenses
  • a component whose operating results are regularly reviewed by the chief operating decision maker to assess performance
  • a component that has discrete financial information availabe from the internal financial reporting system
A

identifying operating segments - A component

17
Q

A segment is classified as reportable if one or more of the following thresholds are met:

A
  • segment revenue >= 10% of combined segment revenue
  • segment’s absolute profit/loss >= 10% of larger of: (a) combined operating profit of all segments that did not incur a loss, (b) combined loss of all segments that did incur a loss
  • segment assets >= 10% of combined segment assets
18
Q
  • general information
  • reconciliations of the operating segment’s revenues, profits, and assets to company totals
  • product information
  • major customers
A

required disclosures for reportable segments

19
Q
  • sales, provision for taxes, and net income
  • basic and diluted EPS
  • seasonal revenue, cost, or expenses
  • significant changes in estimate
  • segment disposals
  • contingent items
  • change in accounting principle
  • significant changes in financial positon
A

required disclosures in interim (temporary) reports

20
Q
  • expenses subject to year-end adjustment
  • income taxes
  • extraordinary items
A

items to cosider in interim reports

21
Q

Should be extimated and allocated to interim periods (i.e. bad debt)

A

expenses subject to year-end adjustment

22
Q

use the estimated annual effective tax rate

A

income taxes

23
Q

recorded in the quarter it occurs

A

extraordinary items

24
Q
  • provides an independent opinion on financial statements
A

auditor’s report

25
Q
  • state whether financial statements are in accordance with GAAP
  • state those circumstances where consistency does not exist
  • disclosures are to be regarded as reasonably adequate, unless otherwise stated in the report
  • must contain an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed
A

reporting standards (GAAS)

26
Q
  • unqualified opinion: financial statements presented fairly
  • qualified opinion: except for
  • adverse opinion: financial statements are NOT presented fairly
  • disclaimer opinion: unable to express opinion
A

types of audit opinions

27
Q
  • scope of examination is limited

- lack of conformity with GAAP and/or inadequate disclosure

A

reasons for departure from unqualified opinion

28
Q
  • scope of examination is limited

- lack of conformity with GAAP and/or inadequate disclosure

A

reasons for departure from unqualified opinion

29
Q

Provides a biased but informed perspective of:

  • liquidity
  • capital resources
  • results of operations
A

management’s discussion and analysis (MD&A)

30
Q
  • asserts the responsibility of a managment for the information contained in the annual reports as well as an assessment of the company’s internal control systems
  • section 302 of Sarbanes-Oxley “Corporate Responsibilites for Financial Reports” states that “The CEO and CFO of each issuer shall prepare a statment to accompany the audit report ot certify the appropriateness of the financial statements and disclosures contained in the report adn that those financial statements and disclosures fairly present, in all material respects, the operations and financial condition of the issure.”
A

management’s responsibilites

31
Q

Current reporting issues that are reported on financial forecasts and projections

A
  • financial forecast
  • financial projection
  • controversy about whether these should be required
32
Q

prospective financial statements that present expected financial positions, results of operations and cash flows.

A

financial forecast

33
Q

prospective financial statements that present expected financial position, results of operations and cash flows given one or more hypothetical assumptions

A

financial projection

34
Q
  • improves the usefulness of financial reports

- disadvantage: reliability of information

A

internet financial reporting

35
Q
  • communicates with more users
  • use internet tools to access information for analysis
  • increase relevance by reporting more timely data
A

improves the usefulness of financial reports

36
Q

intentional or reckless conduct, whether act or omission, that results in materially misleading financial statements

A

fraudulent financial reporting

37
Q
  • situational pressures

- opportunities

A

fraudulent financial reporting

38
Q
  • sudden decreases in revenue/market share
  • unrealistic budget pressure
  • compensation tied to company performmance
A

situational pressures

39
Q
  • no board of directors/audit committee
  • lack of or weak internal control
  • unusual or complex transactions
  • significant accounting estimates
  • lack of or ineffective internal audit function
A

opportunities of fraudulent financial reporting

Accounting 3332 (10 decks)

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