F1: standard setting, income statement, and reporting requirements Flashcards
(123 cards)
1
Q
who has the authority to established US GAAP?
A
the SEC (estb. in 1934)
2
Q
who is subject to SEC rules?
A
all companies that issue securities in the united states
3
Q
what is the Committee on accounting procedure (CAP)?
A
was a part time committee of the AICPA that promulgated accounting research bulletins (ARB) which determined GAAP from 1939-1959
4
Q
what is APB (accounting principles board)?
A
another part time committee of the AICPA which determined GAAP from 1959 to 1973
5
Q
explain what FASB is
A
established in 1973, independent full time organization which has determined GAAP since then. Seven full time members who serve for 5 years and can be elected one add’l 5 year term
6
Q
Effective in 2009, what became the single source of authoritative nongovernmental US GAAP?
A
FASB accounting standards codification
7
Q
Pnemonic for authoritative literature in the codification:
A
F: FASB E: emerging issues task force (EITF) D: derivative implementation group ideas P: accounting principles board opinions R: accounting research bulletins I: accounting interpretations A: AICPA
8
Q
are Accounting Standards Updates authoritative literature?
A
no, but instead provide background info, update the codification, and describe the basis for conclusions on changes in the codification.
9
Q
Define the IASB - international accounting standards board
A
est 2001 as part of IFRS foundation. replaced predecessor: BIASC, which was created in ‘73.
Purpose of IASB to develop a single set of high quality global accounting standards
10
Q
how many members does IASB have?
A
15 full time members and two part time members who are selected to provide a mix of practical experience among auditors, preparers users and academics
11
Q
PASS KEY: under IFRS entities are directed to refer and consider the applicability of the concepts in the framework when developing accounting policies in the absence of a standard or interpretation that specifically applies to an item.
In GAAP:
A
in GAAP, the conceptual framework cannot be applied to specific accounting issues.
12
Q
what serves as the basis for FASB?
A
SFAC - statements of financial accounting concepts. Not GAAP but provide a basis for fin’l accounting concepts. (basic reasoning)
13
Q
what is the objective of the SFAC’s conceptual framework for financial reporting?
A
disclose an entity’s performance
14
Q
who are the primary users of financial reports?
A
external users: potential investors, lenders, and other creditors
15
Q
what are the “qualitative characteristics of useful financial information”?
A
useful info for potential investors, lenders and other creditors in making decisions about the reporting entity based on financial information
16
Q
name the 2 Fundamental Qualitative Characteristics
A
Relevance and faithful
Relevance (passing confirms money)
Faithful = reliable
17
Q
What makes something “relevant”?
A
“passing confirms money”
P: predictive value
C: confirming value - feedback
M: materiality
18
Q
describe a “faithful representation”?
A
“completely neutral is free from error”
Complete - all info necessary to understand
Neatrality: free from bias
Freedom from error: does not require perfect accuracy
19
Q
Steps to apply the fundamental qualitative characteristics (3)
A
- identify phenomena that has potential to be useful
- identify most likely to be relevant
- determine if info is available and can be faithfully represented
20
Q
ENHANCING qualitative characteristics
A
“compare and verify in time to understand”
C: comparability
V: verifiability (does not req complete agreement)
T: timeliness
U: understandability
21
Q
whats the cost constraint of financial reporting?
A
the benefits of financial information must be greater than the costs of obtaining and presenting the information
22
Q
what makes up a “full set” of F/S?
A
Statement of Fin'l Position (BS) Statement of Earnings (IS) Statement of Comprehensive Income Statement of Cash Flows Statement of Changes in Owners Equity
23
Q
Measurement attributes for assets and liabilities (5)
A
- historical cost (PP&E)
- current cost (inventory)
- NRV (a/r)
- current market value (mkt securities)
- present value of future cash flows (LT debt, bonds)
24
Q
Fundamental Assumptions of GAAP (10)
A
Entity assumption, going concern, measured in money, periodicity, historical cost principle, revenue recognition (booked when earned), matching principle, accrual accounting, full disclosure, conservatisim principle
25
Conservatism Principle
if in doubt when selecting from alternative GAAP methods, choose the method least likely to overstate assets and understate liabilities. Recognize revenue when earnings process is complete, and recognize expense immediately.
26
IFRS framework outlines only 2 fundamental assumptions. name them
Accrual basis of accounting and going concern.
27
Elements of Financial statements (pneumonic)
REGL ALE needs ID
| Revenues, expenses, gains, losses, assets, liabilities, equity, investments by owners, distributions by owners
28
whats a "Capital maintenance adjustment"?
increases and decreases in equity that arise from the revaluation of assets and liabilities.
29
5 Elements of Present Value measurement for asset or liability
1. Estimate of FCF
2. expectations for timing variations of FCF
3. TVM
4. Price for bearing uncertainty (credit risk)
5. other factors (liquidity and market)
30
2 types of present value computations
Traditional and Expected Cash flow approach (complex)
| Traditional is PV bonds - scheduled known payments.
31
uses of the income statement
useful in determining profitability, value for investing purposes, and credit worthiness. as well as predicting info on FCF
32
presentation order of the major components of an income and retained earnings statement (must know)
I: income (or loss) from CONTINUING operations
D: Income/loss from DISCONTINUING operations
E: extraordinary items
A: cumulative effect of change in ACCOUNTING PRINCIPLES
(DEA are net of tax)
33
Income (loss) from Continuing Operations (I in IDEA)
individual line items shown gross of tax, then total reported net of tax. operating and non operating are both included
34
when is it ok to change your accounting principle?
ok if it more fairly presents financial information
35
Multiple step income statement
reports operating revenues and expenses separately from non-operating revenues and expenses and other gains and losses. Benefit is enhanced fin'l information.
36
Single Step Income Statement
total expenses are subtracted from total revenues. simple design and fact that presentation of types of revenues and expenses do not appear to the user to be classified as more important than others are the benefits.
37
Discontinued Operations (full definition)
reported separately from continuing ops.
The (NORMALLY) loss from a discontinued operations can consist of an:
impairment loss, gain/loss from actual operations, gain/loss on disposal.
included in PERIOD WHICH THEY OCCUR, not before
38
name three items of discontinued operations:
1. impairment
2. g/l actual operations
3. g/l on disposal
39
under US GAAP, what are the 5 components of an entity?
1. operating segment
2. reportable segment
3. reporting unit
4. subsidiary
5. asset group
40
under IFRS, whats a component of an entity
1. major line of business or geographical area of operation
| 2. subsidiary acquired exclusively with a view to resale
41
a component of a business (USGAAP) or a disposal group (IFRS) is classified as "HELD FOR SALE" in the period in which ALL of the following are met?
1. plan to sell component
2. available for immediate sale
3. active program to locate buyer (advertise)
4. probable sale complete within one year
5. sale of component being actively marketed
6. unlikely signif changes or that it will be withdrawn
42
when are results of a component of an entity reported in DISCONTINUED OPERATIONS? (2)
1. has been disposed of
| 2. is classified as held for sale
43
2 conditions must be present to report in DISCONTINUED OPERATIONS
Eliminated from ongoing operations and no significant continuing involvement
44
Types of items included in results of discontinued operations for that period:
1. results of operations of the component
2. gain or loss on disposal of the component
3. impairment loss (and subsequent increases in fairvalue)
45
Subsequent increases in fair value of discontinued operations
gain is recognized up to previous loss taken.
46
how does depreciation and amortization fit within discontinued operations?
assets within the component are no longer depreciated or amortized! STOP DEPRECIATION!
47
when do we recognized anticipated future gains or losses?
not until they occur
48
As part of its convergence w/ IFRS, US GAAP requires recognition of a liability for the costs associated w/ an exit or disposal activity.
Exit and disposal costs:
- involuntary employee termination benefits
- costs to terminate a contract that is not a capital lease
- other costs associated w/ exit or disposal activities, including costs to consolidate facilities or relocate employees
49
A liability associated w/ an exit or disposal activity should be recognized ONLY when ALL of the following criteria are met:
1. an obligated EVENT has occurred
2. event results in a present obligation to transfer assets or to provide services in the future, and
3. the entity has little or no discretion to avoid the future transfer of assets or providing of services
50
Future operating losses expecting to occur from disposal activity are recognized....
WHEN they occur. not until they happen
51
Disposal loss liabilities should be measured at:
fair value
52
Exit or disposal activity disclosure
all of the following must be disclosed in the notes:
1. description of activity
2. for each major cost: amount incurred and a reconciliation
3. line items in which costs are aggregated
4. for each reportable segment: total amount of costs expected to occur and incurred to date. adjustments w/ reasons.
5. reasons a liability for cost with the activity is not recognized because the fair value cannot be reasonably obtained.
53
what is an extraordinary item?
unusual and infrequent (GAAP) and material
54
How are extraordinary items determined?
informed professional judgement, taking into consideration all facts involved in a particular situation
55
Give some examples of extraordinary items....
abandonment due to infrequent earthquake or infrequent flood, expropriation of a plant by the gov't, prohibition of product line by new regulation.
56
Some items are that are NOT extraordinary:
```
Large write downs or write offs:
a. receivables
b. inventories
c. intangibles
d. LT securities
Gains or losses from foreign currency transactions
strike losses
```
57
when an item is unusual OR infrequent, it is:
not extraordinary, but if material should be reported as separate line item as part of income from continuing operations (non operating)
58
when is an item extraordinary for IFRS?
never... none for IFRS, only GAAP
59
This change is not an error. Prior periods are not restated and it is prospective. Name it.
Changes in accounting ESTIMATES
60
what kinds of events result in estimate changes?
changes in the lives of fixed assets
adjustments of year end accrual of officers salaries and/or bonuses
write downs of obsolete inventory
material nonrecurring IRS adjustments
settlement of litigation
*changes in accounting principle that are INSEPARBLE from a change in estimate
61
Reporting a change in accounting estimates:
report is prospectively only (current and future periods) and disclose in the notes to the financial statements
62
this change is retrospective in nature, can be made only to more fairly present info, and a restatement is necessary. name it:
Changes in Accounting principle
63
Effects of a change in changes to accounting principle (3)
Direct: adjustments that would be necessary to restate the F/S of prior periods
Indirect: differences in nondiscretionary items based on earnings that would have occurred if new principle had been used in prior periods
Cumulative: comparative - all prior periods adjusted, and if non comparative: simple adjust beg RE net of tax
64
Cumulative effects of change in accounting principle. Comparative vs. non comparative
comparative: all prior periods need to be adjusted
noncomparative: simply adjust the beginning retained earnings net of tax
65
Exceptions to general rule of changes in accounting principle
Impracticable to estimate: if impractical to estimate effect adjustment, handle prospectively. i.e "to LIFO" and change is depreciation method prospective. "inseparable"
66
change in depreciation method
considered both a change in accounting principle and change in estimate. Handled PROSPECTIVELY
67
This change is retrospective, restatement is necessary, is unique to GAAP, and full disclosure is needed. name it.
Changes in Accounting Entity
68
Changes in Accounting Entity
occurs when the entity being reported on has change composition. Examples include consolidated or combined financial statements that are presented in place of statements of the ind. companies.
1. restatement (if comparative)
2. full disclosure
69
Change is Accounting entity for IFRS
IFRS does not include the concept of a change in accounting activity
70
This change is a prior period adjustment in which items need to be restated. name it.
Error correction. Non GAAP to GAAP.
correct the information if the year is presented.
adjustment beg. RE for earliest year presented
71
statement of retained earnings include dividends if they are:
declared
72
PUFE likes to revalue his income!
```
Comprehensive Income penemonic
P: pension adjustments
U: unrealized gains and losses (avail for sale)
F: foreign currency items
E: effective portion cash flow hedges
R: revaluation surplus (IFRS only)
```
73
what is comprehensive income?
the change in equity (net assets) of a business enterprise during a period from transactions and other events and circumstances from NON OWNER sources. includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.
74
Comprehensive Income is: (simple calc)
Net Income
+OTHER comprehensive income
=comprehensive income
75
Step 1 is Net income.
Step 2 is Other comprehensive income.
elaborate:
net income: IS to RE to equity
OCI: direct to equity
5 transactions (PUFER)
76
Comprehensive Income: Reclassification Adjustments
avoids double counting.
| move other comprehensive income items from accumulated other comprehensive income to the income statement.
77
what is the underlying concept governing the recording of "gain contingencies"?
conservatism.
contingent loss: immediate recog
contingent gain: when process of gain is complete
78
what is recognition?
the process of reporting
79
Describe the Realization concept:
revenues and gains are REALIZED when assets are exchanged for cash or claims to cash
80
Elements of PV measurement:
```
U: price bearing for UNCERTAINTY
V: expectations for VARIATIONS of FCF
O: OTHER factors
T: TVM
E: ESTIMATE of FCF
```
81
managerial vs. financial accounting. GAAP applies to whom?
financial only. managerial is just internal reporting.
do whateva ya please!
82
An accounting standards update is issued only after:
a majority vote of the members of FASB
83
Relevant pnemonic
P: predictive
C: confirming
M: material
passing confirms money
84
new IFRS requires what vote
9 of 15 members
85
are extraordinary costs reported gross or net of tax?
net of tax
86
cash basis to accrual accounting change is what:
correction of an error bc cash basis is not gaap.
87
unusual OR infrequent:
componenet of income from continuing operations
88
extraordinary items reported AFTER:
discontinued operations of a segment of a business
89
a cumulative affect from a change in estimate is shown separately. true or false?
false. not shown separately.
no sep line item.
but its if material it does require footnote disclosure
90
how does salvage value affect depr calcs?
you subtract it first before you do your depreciation calculations
91
discontinued ops are presents gross or net of tax?
net of tax
92
cant be reported in "discontinued operations" until either Held for sale
just know it damnit
93
IFRS minimum F/s requirements
3 B/s, 2 of the rest
94
COmprehensive income is what
```
net income + puffer
Pension
Unrealized holdings gains avail for sale
Foreign currency items
Effective portion of CF hedges
R (ifrs only) revaluation surplus (gains)
```
95
non owner income is emphasized in what?
comprehensive income.
no owner investments and no distributions to owners
96
required disclosures of comprehensive income:
1. tax effects of each component included
2. changes in accumulated balances of each component of compre income
* either on the face or in the notes
3. total accum other comprehensive income in the BS as an item of equity (like RE)
4. reclass adj to avoid double counting
97
Notes to fin'l statements: both GAAP and IFRS require
description of all significant policies included as an INTEGRAL part of the F/S
98
IFRS requires explicit and unreserved statement of
compliance w/ IFRS in the notes to the F/S
99
Footnote rules regarding judgements
IFRS: disclosure of judgements and estimates that management has made
GAAP: disclosure of sig estimates but does not require disclosure of judgements made in preparing the F/s
100
Other information relevant to decision maker should also be included:
in the footnotoes
101
objective of segment reporting
provide information on the business activities and the economic environment of a company to help users of the F/Ss
102
required disclosures for all PUBLIC ENTERPRISES
1. operating segments (annual & interim)
2. products and services
3. geographic areas
4. major customers
103
segment reporting applies only to ______ companies
public.
remember intercompany transactions are not eliminated for reporting
104
Quantitative thresholds for reportable segments.
| any one of the 3
1. revenue - 10% or more of the combined revenue internal and external of all operating segments
2. reported profit or loss - 10% or more of the greater, in absolute amount, of reported profit or reported loss
3. 10% or more of the combined assets of all operating segments
105
75% reporting sufficiency test
if the total of external revenue reporting by operating segments constitutes less than 75% of external consolidated revenue, additional operating segments need to be identified as reportable segments, even if they do not meet the above three tests, until at least 75% of external (consolidated) revenue is included in reportable segments.
106
all segments not reportable are lumped into a group called:
"all other segments"
107
items normally excluded from segment profit or loss
general corp revenues
general corp expenses
interest expense
equity in earnings and losses of an uncolidated subsidiary
gains or losses from discontinued operations
extraordinary items
minority interest
108
under IFRS only, an entity discloses a measure of liabilities if such an amount:
is regularly provided to the chief operating decision maker
109
Under US GAAP, a developmental-stage enterprise is one in which either:
I. principal operations have not yet commenced
| ii. principal operations have generated an insignificant amount of revenue (or a loss)
110
during the developmental stage, a company devotes most of its activities and resources towards:
establishing the business.
| start up, organizational costs - expense immediately under GAAP. forget REG
111
First time adoption of IFRS F/S requirements
3 BS, 2 of the rest
112
SEC requires that more than ___ forms be filed to comply with reporting requirements?
50
113
When is a company required to submit a registration statement to the SEC?
when that company issues new securities
114
Describe Form 10-K
- filed annually by US registered companies (issuers)
- deadline is 60 days after end of fiscal year for large accelerated filers
- 75 days after year for accelerated filers
- 90 days after year end for all other registrants
* *10-k included AUDITED F/S prepared using US GAAP
115
Describe form 10-Q
filed quarterly by US registered companies (issuers)
- due 45 days after end of fiscal quarter
- 40 days for large accelerated filers and accelerated filers
* *form contains unaudited financial statements prepared using US GAAP, interim period MD&A and certain disclosures
116
what is Form 11-K?
this is the annual report of a company's employee benefit plans
117
what are forms 20-F and 40-F?
similar to form 10-K, filed annually by foreign private users.
40-F filed by specific Canadian companies
20-F filed by other non-US registrants
118
what's form 6-K?
semi annually filed by foreign private users. similar to form 10-Q and contains unaudited F/S, period MD&A and certain disclosures
119
what's form 8-K?
filed to report major corporate events
120
what are forms 3, 4, and 5?
these forms are required to be filed by directors, officers, or beneficial owners of more than 10% of a class of equity securities of a registered company
121
may interim F/S be condensed?
yes this is ok for interim FS
122
Annual F/S requirements
1. audited
| 2. 2 BS, 3 IS/CF
123
define XBRL
royalty free, open specification for software that uses XML data tags to describe fin'l information for business and fin'l reporting.
TAG - machine readable code
