F-1 standard setting, income statement and reporting requirements

Question 1

F-1

Which body is legally authorized to establish GAAP?

Answer 1

SEC

Question 2

F-1

Since 1934 these 4 different bodies of accounting professionals have determined GAAP since 1934

Answer 2

SEC
CAP - committee on accounting procedures
APB - accounting principles board
FASB - financial accounting standards board

Question 3

F-1

What are the authoritative literature included in the codification

Answer 3

FEDPRIA

FASB (FAS, interpretations, technical bulletins, staff positions, staff implementation guides, statement 138 examples)

EITF

Derivative implementation group issues

Accounting principle board opinions

Accounting research bulletins

Accounting interpretations

AICPA (SOP, audit and accounting guides, practice bulletins, technical inquiry service)

Question 4

F-1

SEC standards included in the codification for public companies

Answer 4

Regulation For Accounting I S Emerging

Regulation s-X

Financial reporting releases (FRR)

Accounting series releases (ASR)

Interpretative release (IR)

Staff accounting bulletins (SAB)

EITF Topic D and SEC observer comments

Question 5

F-1

What is the difference between GAAP and IFRS when applying the conceptual framework?

Answer 5

IFRS directs entities to refer to and consider the applicability of the framework when developing accounting policies in the absence of standards or interpretation that specifically applies to an item.

Under GAAP, the conceptual framework cannot be applied to specific accounting issues.

Question 6

F-1

What is the objective of general purpose financial reporting (SFAC no 8) - not GAAP

Answer 6

Provide financial info about the entity that is useful to the primary users for the herbal purpose financial report in making decisions for:

External decisions - investors/ lenders/creditors

Determine resources of an entity, claims against the entity, and how efficiently and effective the entity’s management and governing board have discharged their responsibilities to use the entity’s resources.

Financial info used to assess the reporting entity’s prospects for future net cash inflow to the entity.

Question 7

F-1

What are the fundamental qualitative characteristics that must be present for the financial information to be useful?

Answer 7

(1) relevance
- predictive value
- confirming value
- materiality

(2) faithful representation
- completeness
- neutrality
- freedom from error

Question 8

F-1

What are enhancing qualitative characteristics?

Answer 8

(1) comparability and consistency
(2) verifiability
(3) timeliness
(4) understandability

Question 9

F-1

What are the 10 fundamental assumptions for the recognition and measurements in the financial statements?

Answer 9

Entity assumption (separate from owner)

Going concern assumption (Will continue operating)

Monetary unit assumption (should be measured in money)

Periodicity assumption (meaningful time period)

Historical cost principle

Revenue recognition principle (revenue should be recognized when it is earned and when it is realized or realizable)

Matching principle

Accrual accounting

Full disclosure principle (footnotes part of completeness requirement)

Conservatism principal

Question 10

F-1
Under IFRS the IASB framework for the preparation and presentation of financial statement outlines what fundamental assumption?

Answer 10

Going concern

Question 11

F-1

What is the purpose of the income statement?

Answer 11

Help users of the financial statement understand the performance of the company over a period of time. Performance equals the assets productivity did they create revenue and profit.

Question 12

F-1

What concepts are used to generally report revenues and expenses

Answer 12

Gross concept

Question 13

F-1

What concepts are used to generally defined gains and losses

Answer 13

Net concepts

Question 14

F-1

What is the presentation order of the major components of an income and retained earnings statement

Answer 14

IDEA

Income or loss from continuing operations and non-operations before tax

Income or loss from discontinued operations (net of tax)

Extra ordinary items (net of tax)

Accounting principle changes (net of tax in retained earnings)

Question 15

F-1

What are included in the inventory costs

Answer 15

Purchase price and freight in

Question 16

F-1

What are included in selling expenses

Answer 16

Freight out
Salaries and commissions
Advertising

Question 17

F-1

What expenses are included in general and administrative

Answer 17

Officers salaries
accounting and legal
insurance

Question 18

F-1

What expenses are included in non-operating

Answer 18

Auxiliary activities

Interest expense

Question 19

F-1

What are the benefits of the single step income statement presentation

Answer 19

Simple design and the fact that the presentation of types of revenues or expenses do not appear to the user to be classified as more important than others

Question 20

F-1

What are the three calculations associated with discontinued operations?

Answer 20

Impairment loss
Gain/loss from operations before sale
Gain/loss on disposal after sale

Question 21

F-1

What is the components of an entity

Answer 21

A component of an entity is a part of it entity at the lowest level for which operations and cash flow’s can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the entity.

GAAP - a component may be:
Ops segments
Reportable segment
Reporting unit
Subsidiary
Asset group

IFRS - a component may be:
Separate major line of business or geographical area.
Subsidiary.

Question 22

F-1

What is the definition of a business

Answer 22

The business is an integrated set of activities and assets that is conducted and manage for the purpose of providing return to investors or other owners members.

Question 23

F-1

What is the definition of a nonprofit activity

Answer 23

Productivity is an integrated set of activities and assets that is conducted and manage for the purpose of providing benefits, other than goods or services at a profit, to fill an entity’s purpose or mission.

Question 24

F-1
What are all the criteria is that have to be met to classify a component of the business (GAAP) or disposal group (IFRS) as “held for sale”

Answer 24

1) management has a plan to sell
2) available for immediate sale
3) active program to locate buyer
4) sale is probable and expected in a year
5) actively marketed
6) actively trying to complete the sale

Question 25

F-1 | What are the major differences in the valuation process for component held for sale between GAAP and IFRS

Answer 25

IFRS - Before a components can be classified as held for sale, the individual assets and liabilities of the component must be valued GAAP - Does not require remeasurement of individual assets and liabilities before classification is held for sale, but the classification of a component of health for sale does trigger an impairment analysis of the entire component

Question 26

F-1 | When should the results of operation of a component of an entity be reported in discontinued operation

Answer 26

If it has been disposed of; or is classified as held for sale Condition that must be present: If the disposal represents a strategic shift that has or will have a major effect on an entity's operations and financial results Examples of strategic shifts: "GEL" Geographic area Equity method investment Line of business

Question 27

F-1 | What types of calculations are included in the results of discontinued operations

Answer 27

1) Results of operation of the components for the entire period (i.e. If a component was determined to be held for sale in June 30th you would still need to take the hole operation amount for the full year at 12/31 and classify it under disc ops) 2) gain/loss on disposal (upon sale) 3) impairment loss - initial and subsequent impairment losses - subsequent increases in FV (gain cannot exceed cumulative loss) 4) depreciation and amortization is no longer required.

Question 28

F-1 How are adjustments to amounts previously reported in discontinued operations that are directly related to the disposal a component of an entity in the prior classified?

Answer 28

Classified as a change in estimate and recorded in the current period (not retroactively restate). Definition of directly related: - demonstrates cause-and-effect relationship - occurs no later than one year after the date of the disposal transaction

Question 29

F-1 A liability associated with an exit or disposal activity should be recognized only when all of the following criteria are met:

Answer 29

Obligating event Present obligation to transfer assets Entity stops providing goods or services Ops losses are booked in period incurred. The liability is recorded based on the present value of the future cost to exit or disposal activity.

Question 30

F-1 All of the following must be disclosed in the notes to the following financial statements in the period the Exit or disposal activity is initiated and all subsequent period Until the activities completed:

Answer 30

Description and expect completion date Major costs associated with the activity FSLI Expected cost to be incurred If FV cannot be determined...reason why should be disclosed

Question 31

F-1 | Accounting changes are probably classified as:

Answer 31

Changes in accounting estimate Changes in accounting principle Changes in accounting entity

Question 32

F-1 | When is the change in accounting estimate occur when...

Answer 32

It is determined that the estimate previously used by the company is incorrect. This is not an error you were not to restate. Prospectively. Changes in asset lives Adjustment to YE accrual Write down of obsolete inventory No recurring IRS adjustments Settlement of litigation Changes in acct principles that are inseparable from a change in estimate

Question 33

F-1 | What is a change in accounting principle

Answer 33

A change in accounting principle is a change in accounting from one county principal to another accounting principle (i.e. GAAP to GAAP or IFRS to IFRS)

Question 34

F-1 | What are the three effects of the change in accounting principle

Answer 34

Direct effect - change in accounting principle or adjustments that would be necessary to restate the financial statements of prior. Indirect effect - change in accounting principles are differences in nondiscretionary items based on earnings that would have occurred if the new principal had been used in prior. Cumulative effect - if non-comparative financial statements are being presented the change in accounting principle is equal to the difference between the amount of beginning retain earning in the period of change and what the routine earning would have been. If comparative financials are being presented then the cumulative the fact is equal to the difference between the earliest period presented.

Question 35

F-1 | What are the exceptions to the general rule for changes in accounting principle

Answer 35

Changes to LIFO and change in depreciation methods are done prospectively and not retro

Question 36

F-1 | Under US GAAP a change in accounting entity occurs when?

Answer 36

When the entity being reported on has changed composition. Example includes consolidated or combined financial statements that are presented in place of statements of the individual companies and changes in the company is included in the consolidated statements from year-to-year Note that IFRS does not have this concept.

Question 37

F-1 | What isComprehensive income?

Answer 37

The change in Equity (net assets) of a business during a period From transactions and other events and circumstances from non-owner sources.

Question 38

F-1 | What are the classifications of OCI?

Answer 38

PUFRR ``` P - pension adjustment U - unrealized gains and losses F - FX translations (unrealized) E - effective portion of cash flow hedges R - revaluation surplus (IFRS only) ```

Question 39

F-1 | How's your comprehensive income be reported

Answer 39

Comprehensive income and its components she'll be displayed in the financial statements with the same prominence as other financial statements. Comprehensive income should not be reported on a per share basis

Question 40

F-1 | How should OCI be reported

Answer 40

OCI maybe reported either net of taxes or before related taxes that with one amount shown for the aggregate income tax expense. The income tax amount needs to be as close to either of these of the financial statement or in the notes

Question 41

F-1 | Does comprehensive income need to be reported on an interim basis

Answer 41

Yes it shall be reported and condensed financial statements of interim. Issued to shareholders

Question 42

F-1 | What are they required disclosures of accumulated OCI

Answer 42

1- Tax effect of each component 2- Changes in the accumulated balance (fave or notes) 3- total AOCI in BS as equity 4- reclassification adjustments Disclose reclasses and current period OCI May b present before or net of tax May be on face or notes

Question 43

F-1 | An entity cannot describe financial statements is complying with IFR S unless they comply with what?

Answer 43

I FRS requires an explicit and unreserved statements of compliance with I FRS in the notes of the financial statements

Question 44

F-1 | What are the differences between US GAAP estimate disclosure and IFRS estimate disclosure

Answer 44

I FRS requires disclosure of judgments and estimates that management has made in the process of applying accounting policies and I have a significant effect on the financial statements US GAAP requires disclosure of significant estimates but does not require the disclosure of judgments

Question 45

F-1 | What is the definition of a related party

Answer 45

Affiliates of an entity Entities accounted for using the equity method Parent or subsidiary Trust for the benefit of employees such as pension and profit sharing trusts Management of an entity and their immediate family members Owners of more than 10% of the voting interest of an entity (not mentioned in IFRS)

Question 46

F-1 | What should be disclosed for a material related party transaction under US GAAP

Answer 46

Material related party transactions under US GAAP does not include compensation arrangements expense allowance and other similar items in the course of business ``` Nature of the relationship Description of the transaction Dollar amount Due to due from Name of the related party if necessary ``` Disclosure should not imply that the related party transactions action is arm's-length

Question 47

F-1 | What are the disclosure requirements for a related party transactions for IFRS?

Answer 47

Material related party transactions includes compensation arrangements ``` Nature of the relationship Description Dollar amount Due to or from Allowance for bad debt Bad debt write off ```

Question 48

F-1 | Under IFR S what should be included in the disclosure for key management personnel compensation

Answer 48

``` Total amount Short term employee benefits Post employment benefits Long-term benefits Termination benefits Shared-based payments ```

Question 49

F – 1 | For interim financial reporting companies income tax provision for the second-quarter should be determined using the:

Answer 49

Effective tax rate expected to be applicable for the full year as estimated at the end of the second-quarter

Question 50

F-1 | Our interim financial reporting's required?

Answer 50

Under US GAAP or IFR S interim financial reporting is not required however public companies must file with the SEC interim quarterly reports

Question 51

F-1 | What are two major differences between an interim report versus an annual report

Answer 51

For interim reporting only timeliness is emphasized over liability Interim financial reports are on audited while annual reports are audited

Question 52

F-1 | Under IFR S interim financial statements are required to include At a minimum:

Answer 52

Condense balance sheet Condensed statement of comprehensive income Condition statement of changes in equity cumulatively for the current financial year Condense statement of cash flow Note: US GAAP does not establish presentation minimum for interim reporting

Question 53

F-1 | How are income taxes expense estimated each quarter for interim financial statements

Answer 53

The general rule is to multiply the year to date income by the estimated effective tax rate for the year and subtract the results from the provision included in the previous quarter

Question 54

F-1 | What is the objective of segment reporting

Answer 54

To provide information on the business activities and economic environment of a company to help users of the financial statements: 1) better understand enterprises performance 2) better assess its prospects for future net cash flow 3) make it more informed judgments

Question 55

What are required disclosures for all public companies as it relates to segment reporting

Answer 55

Operating segment annual and interim Products and services Geographic area Major customers ** intercompany transactions are not eliminated for segment reporting ** applies to public companies only

Question 56

F-1 | What is the definition of an operating segment

Answer 56

And operated segment is component of an enterprise that engages in the business activities from which it may earn revenue and Incurr expenses Also whose iperaring results are regularly reviewed by the enteprise CEO or management approach method

Question 57

F-1 | What part of the enterprise is not considered an operating segment or part of an operating

Answer 57

Corporate headquarters and pension plan

Question 58

F-1 | What are reportable segments

Answer 58

Reportable segments are operating segments of an enterprise that meets the criteria for separate reporting basically breaking out what is material.

Question 59

F-1 | What are the quantitative thresholds for reportable segments

Answer 59

1) 10% size test (of revenue/net income/or assets) (can be internal and external) 2) 75% reporting sufficiency test (of consolidated revenue) Both have to be met

Question 60

F-1 | Whawhat is the formula for segment profit or loss

Answer 60

Revenue - directly traceable costs - reasonably allocated costs = ops profit (or loss) before tax Excluded from segment NI: - General Corp rev - general Corp expenses - interest expense - income tax - disc ops - extraordinary items - MI

Question 61

F-1 | What is XBRL?

Answer 61

Extensible business reporting language that are data tags to describe financial information for business and financial reporting.

Question 62

F-1 | What do the XBRL tags include?

Answer 62

The machine readable codes include description labels, definitions, references to GAAP, and other elements that provide contextual information that allow data to be recognized and processed by software.

Question 63

F-1 | When a company issues new securities, it is required to submit to the SEC what form

Answer 63

A registration statement that includes disclosures about the securities being offered for sale; the relationship of the new securities to the companies other securities; information similar to that filed in the annual filing; audited financial statements; a description of business risk factors

Question 64

F-1 | What forms does the SEC required to be filed on an annual basis

Answer 64

Form 10-k for US public companies Form 20F and 40F for foreign private issuers (may be prepared in GAAP/IFRS/local accounting, but reconciliation to GAAP is required)

Question 65

F-1 | What interim filings are required by the SEC?

Answer 65

Form 10-q for Us public companies filed quarterly Form 6-k for foreign private issuers filled semi annually

Question 66

F-1 | What is filled with the SEC to report employee benefit plans?

Answer 66

For 11-k

Question 67

F-1 | What is filled with the SEC to disclose major events?

Answer 67

Form 8-k

Question 68

F-1 | What are Forms 3,4, and 5 used for?

Answer 68

These forms are required to be filled by directors officers or beneficial owners of more than 10% of the class of equity securities registered company

Question 69

F-1 | Under regulation S – ask what are the requirements for interim financial statements

Answer 69

Unaudited financials Balance sheet income statement statement of cash flow A accrual and match Condense financial statements are OK

Question 70

F-1 | What are the requirements for regulation S – K for the annual financial statements

Answer 70

It needs to be audited Report to your balance sheet three years for Steven of income equity and cash flow *I FRS requires only two years for all

Question 71

F-1 | What are the costs associated with exit or disposal activities include:

Answer 71

Involuntary employee termination benefits Cost to terminate a contract that is not a capital lease Other costs associated with exit or disposal activities, including costs to consolidate facilities or relocate employees.

Question 72

F-1 And entities commitment to an exit or dispose of plan by itself is not enough to result in liability recognition. A liability associated with an exit or disposal activity should be recognize only when all of the following criteria are met

Answer 72

1) An obligating event has occurred. 2) The event results in a present obligation to transfer assets or to provide services in the future. 3) The entity has little or no discretion to avoid the future transfer of assets or providing of services.

Question 73

F-1 Where will the costs associated with an exit or disposal activity related to discontinue operation be presented

Answer 73

The costs associated with an exit or disposal activity as a relates to a discontinued operation will be reported in discontinued operations

Question 74

F-1 | Where will the cost associated with an exit or disposal and Tuesday not related to a discontinued operation

Answer 74

Income from continuing operations

Question 75

F-1 | Under IFRS how should an entity record a change in accounting principle on the ballot sheet of retained earnings

Answer 75

Under IFRS, when an entity records a change in accounting principle, the entity must (at a minimum) present three balance sheets (end of current period, end of prior period, and beginning of prior period) and two of each other financial statement (current period and prior period). The cumulative effect adjustment is shown as an adjustment to beginning retained earnings on the balance sheet for the beginning of the prior period, which would be January 1 of the prior year.