Flashcards in F1 - Standard Setting, Income Statement, and Reporting Requirements Deck (47):
Name the single source of authoritative nongovernmental U.S. GAAP.
The FASB "Accounting Standards Codification" (ASC).
The term "International Financial Reporting Standards" includes what standards?
~International Accounting Standards (IAS)
~International Financial Reporting Standards (IFRS)
Who are the primary users of general purpose financial reports?
Existing and potential:
Name the pervasive constraint on the information provided in financial reporting.
The benefits of reporting financial information must be greater than the costs of obtaining and presenting the information.
Name the fundamental qualitative characteristics of useful financial information.
Relevance and Faithful Representation
Name the three elements of relevance.
~ Confirming value
Name the three elements of faithful representation.
~ Freedom from error
Name the enhancing qualitative characteristics of financial information.
Timeliness, Verifiability, Understandability, and Comparability.
According to SFAC #5, what should a full set of financial statements include?
~Statement of Financial Position (the balance sheet)
~Statement of Earnings (the income statement)
~Statement of Comprehensive Income
~Statement of Cash Flows
~Statement of Changes in Owners' Equity
What is the difference between realization and recognition?
Realization: When sold and converted to cash (or claims to cash)
Recognition: When recorded in the financial statements
List the 10 elements of financial statements according to SFAC #6.
(REGL ALE ID)
Investment by Owners
Distributions to Owners
List the six elements of financial statements according to the IASB Framework.
Income (revenue and gains)
Expenses (expenses and losses)
Capital maintenance adjustments
Name the five elements of present value measurement per SFAC #7.
~Estimate of future cash flow
~Expectations about timing Variations of future cash flows
~Time value of money (the risk-free rate of interest)
~The price for bearing Uncertainty
~Other factors (e.g., liquidity issues and market imperfections)
Describe the expected cash flow approach for present value computations.
Considers a range of possible csh flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted-average, or "expected," future cash flow.
What is the presentation order of the major components of an income and retained earnings statement?
~Income (or loss) from continuing operations
~Income (or loss) from Discontinued operations
Retained Earnings Statement:
~Cumulative effect of a change in Accounting principle
The gain (loss) from discontinued operations can consist of...
An impairment loss, a gain (loss) from actual operations, and a gain (loss) on disposal.
In what period are the following reported:
An impairment loss?
A gain (loss) from actual operations?
A gain (loss) on disposal?
All are reported in the period in which they occur.
In reporting discontinued operations, how is a "component" of an entity defined unde U.S. GAAP and IFRS?
1. An operating segment
2. A reportable segment
3. A reporting unit
4. A subsidiary
5. An asset group
1. A separate major line of business or geographical area of operations
2. A subsidiary acquired exclusively with a view to resale
How do we account for subsequent increases in the fair value of a discontinued component?
A gain is recoginized for the subsequent increase in fair value minus costs to sell (but not in excess of the previously recognized cumulative loss). The gain is reported in the period of increase.
What types of costs are associated with exit and disposal activities?
~Involuntary employee-termination benefits
~Costs to terminate a contract that is not a capital lease
~Other costs associated with exit or disposal activities
Define extraordinary items?
~Material in nature
~Of a character significantly different from the typical or customary business activities (unusual)
~Not expected to recur in the foreseeable future (infrequent)
~Not normally considered in evaluating the ordinary operating results of an enterprise
Key words: Unusual and Infrequent
Remember: Extraordinary items are recognized under U.S. GAAP but not IFRS.
List some examples of extraordinary items.
~The abandonment of, or damage to, a plant due to an infrequent earthquake or an infrequent flood.
~An expropriation of a plant by the government.
~A prohibition of a product line by a newly enacted law or regulation.
Name the three types of accounting changes.
~Change in an accounting principle
~Change in accounting estimate
~Change in accounting entity
How is a change in accounting principle reported?
~Cumulative effect of change is included in the retained earnings statement as an adjustment of the beginning retained earnings balance of the earliest year presented.
~Prior-period financial statements are restated, if presented.
What are the special changes in an accounting principle?
How are special changes in accounting principle reported?
~A change to LIFO from another method of inventory pricing under U.S. GAAP
~Any other change in which a cumulative effect adjustment is considered impractical to calculate
Special changes are reported prospectively (like a change in estimate).
How is a change in an accounting estimate reported?
~The effect is shown in the current and/or future periods that are affected by the change
~Financial statements are not restated
Under U.S. GAAP, how is a change in the accounting entity reported?
All current and prior period financial statements presented are restated.
How are error corrections reported?
Reported as prior period adjustments to retained earnings and all comparative financial statements presented are restated.
Define comprehensive income.
Change in equity (net assets) that results from revenue, expenses, gains, and losses during a period, as well as any other recognized changes in equity that occur for reasons other than investments by owners and distributions to owners.
Identify five items included in other comprehensive income.
~Unrealized gains and losses on available-for-sale securities
~Foreign currency translation adjustments and gains/losses on foreign currency transations that are designated as economic hedges of a net investment in a foreign entity
~Effective portions of cash flow hedges
~Revaluation surpluses (IFRS only)
List the three formats acceptable for reporting comprehensive income. Which format is prohibited under IFRS?
~Statement of Comprehensive Income (single-statement approach)
~Statement of Income followed by separate Statement of Comprehensive Income (two-statement approach)
~Component of the Statement of Owners' Equity (prohibited under IFRS, will be prohibited under U.S. GAAP for public companies as of 12/15/11 and for nonpublic companies as of 12/15/12)
List some disclosure requirements for comprehensive income.
~Tax effects of each component included in current "Other Comprehensive Income"
~Changes in the accumulated balances of components of "Other Comprehensive Income"
~Total accumulated other comprehensive income
~Reclassification adjustments between other comprehensive income and net income
Identify the contents of the Summary of Significant Accounting Policies note to the financial statements.
Summary of Significant Accounting Policies
Identify and describe:
~Measurement bases used in preparing the financial statements
~Principles and methods
Describe the related party disclosures required under U.S. GAAP and IFRS.
~Material related party transactions
~Related party notes/accounts receivable
Note: IFRS requires disclosure of key management compensation. U.S. GAAP does not require this disclosure.
What are the U.S. GAAP disclosure requirements for risks and uncertainties?
~Nature of operations.
~Use of estimates in preparing financial statements.
~Current vulnerability due to certain concentrations.
What are the guidelines for interim reporting?
~Use same account principles that were used in the most recent annual report.
~Allocate expenses to the interim period benefited.
~Revenues are recognized in the period in which they are earned and realized or realizable.
~A total for comprehensive income n condensed financial statements of interim periods.
What income tax rate is used in interim financial reporting?
Use best estimate of effective tax rate to be applied for full fiscal year on quarterly statements.
Name the four required disclosures for segments of an enterprise.
~Products and services
Define operating segment.
Distinct revenue-producing components of the enterprise about which separate financial information is produced internally, and whose operating results are regularly reviewed by the enterprise.
Determined using a "management approach."
Name two quantitative thresholds used in identifying reportable operating segments.
~10% "Size" test
~75% "Reporting Sufficiency" test
Describe the 10% test for identifying reportable segments.
Reported revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments.
~Reported profit or loss
The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of
~The combined reported profit of all operating segments that did not report a loss, or
~The combined reported loss of all operating segments that did report a loss
Assets are 10% of more of the combined assets of all operating segments.
Note: Must meet only one of the above.
What is the 75% test for identifying reportable segments?
Combined external (consolidated) revenue of all reportable segments must be at least 75% of the total consolidated revenue of the entity.
The practical limit is 10 segments, but this is not a precise limit.
What are the disclosure requirements for reportable operating segments?
For each reportable segment, the entity must report:
~Products or services
~Profit or loss details
~Liability details (IFRS only)
Define development-stage enterprise.
Enterprise that devotes substantially all of its efforts to establishing a new business and either planned principal operations have not commenced or no significant revenue has been generated therefrom.
Indicate any special accounting treatment for development-stage enterprises.
Same generally accepted accounting principles as established operating enterprises, with additional disclosures:
~Identify statements as those of a developemnt-state enterprise.
~Accumulated losses identified as "deficit accumulated during development stage."
~In the Income Statement, show revenue and expenses, and cumulative total of both amounts from company's inception.
~In the statement of cash flows, include cumulative amounts of cash inflows and inflows and outflows for each period presented.
~Issue a separate statement of stockholders' equity, indicating shares issued, date of issuance, dollar amounts assigned, and noncash consideration, if any.
What is the date of an entity's transition to IFRS?
The date of the opening balance sheet.