F2 - FAR (Modules 1 - Module 9) Flashcards
(69 cards)
What items are “NOT” included in Summary of Significant Accounting Policies?
DCCL
D - Dollar Account Balances - detail of dollar account balances
C - Changes in Accounting Principles - detail of changing in Acctg Principles
C- Computation of Depreciation, Depletion, Amortization
L - Dates of maturity/ LT Debt
What are significant Estimates?
Estimates in “Notes” if Estimate is about to change in the near future.
E.G.
1. inventory subject to rapid technological decline
2. deferred tax asset valuation allowances
3. capitalized computer cost
4. Loan valuation allowance
5. Litigation obligations
6. Post retirement obligations
What is Vulnerability Due to Concentration?
When entity is exposed to risk of loss that could have mitigated through diversification
What are Disclosures requirement for Vulnerability Due to Concentration?
Disclose if meet the following criteria: RES
R - Reasonably Possible that vulnerability events will cause a severe impact in the near term
E - Exists at the financial statement date
S - Significant Financial disrupting effect on normal functioning of an entity
EG’s of Concentration
- Volume of the business with a particular customer, supplier,
What are some required disclosures under IFRS but not GAAP?
CJ - (Compliance, Disclosure of Judgement)
- Statement of Compliance with Applicable Accounting Principles
- Disclosures of Judgement Made in the Preparation of Financial Statements
What is Summary of Significant Accounting Policies
Summary of significant Accounting policies will include: …. MAC(bdr)
M - Measurement Basis
A - Accounting Principles and Methods
C - Criteria and Policies
- b - Basis of consolidation
- d- depreciation methods
- r - Revenue recognition policy etc
What will happen under US GAAP if the company will go liquidate?
If the company’s liquidation is about to happen, FS are prepared under the “Liquidation” basis of accounting
What are Going Concern Disclosures?
- No Substantial going concern doubt = NO DISCLOSURE!!
- Substantial doubt alleviated (lighten/weaker) as a result of management plan = MUST DISCLOSE!!!!
- Substantial Doubt NOT Alleviated = MUST DISCLOSE!!!!
What are Subsequent Events?
Events/ transactions that happen after the BS date but before the FS are issued
What kind of subsequent events are Recognized?
- Settle of Litigation
- Loss on uncollectible Receivable
Disclose them and make a JE for these 2
What are Non-recognize Subsequent Events?
CELL-BSS —> DISCLOSE ONLY!!!!
C - Changes in FV of assets/Liab/Forex
E - Entering into significant commitment/contingent liabilities
L - Loss of inventory due to Fire/natural disaster
L - Loss on receivables from conditions occuring after the BS date
B - Business Combination
S - Sale of bond/capital Stock
S - Settlement of Litigation arose after BS date
How are subsequent Events Evaluated?
FOR PUBLIC COMPANIES -> Evaluate through the date that FS are issued.
FOR PRIVATE COMPANIES -> Evaluate through the date the FS are “available to be issued”
FOR REVISED FS -> If the company is a SEC Filer -» Disclose -> the dates through which the events have been evaluated
if the company is NOT a SEC filer -» NO DISCLOSURES!!!!
What is a FAIR-VALUE (FV)?
- Price received to sell an asset/ or paid to transfer the liability in an “orderly transaction” in the Principal market or the most advantageous market
- is an exit price
- is a market based measure
- DOES NOT include Transaction Cost
Methods to Measure FairValue
Two Methods
- Valuation Technique (MIS)
- Hierarchy of Input (Level 1 > Level 2> Level 3)
What is the Valuation Technique to measure Fairvalue (FV)?
Valuation Technique -> MIS
M - Market Approach -> used prices and relevant information from market transactions (e.g. stock exchanges such as NYSE etc)
I - Income Approach -> Converts future amounts i.e. Cashlows to a single discounted amount. In short Present Value of Future Cash Flows (PVFCF).
C - Cost Approach -> Uses replacement cost to measure FV of assets
What is the “Hierarchy of the Input” Technique to measure Fairvalue (FV)?
Level 1 > Level 2 > Level 3
LEVEL 1:
- Quotes Prices in the active market @ measurement
date.
- Can get from dealers, stock exchange NYSE etc.
LEVEL 2:
- Prices that are directly and indirectly obervable for the
asset. E.G.
i. Quoted prices for Similar assets/liab in active
markets
ii. Quoted Price for similar asset/liab that are
NOT in the active market
LEVEL 3:
- Are unobservable inputs for assets/Liabs e.g. FUTURE
Cashflows
- Based on company’s own assumptions and should be
based on best available information
- Should ONLY be used when there’s no Level 1 or
Level 2 price.
What are some of the Fairvalue Disclosures?
Company MUST disclose the following
- Quantitative info. about significant unobservable inputs
- Discussion of the sensitivity of Level 3 measurements to changes in unobservable inputs disclosed
- Entity’s valuation Process
- Transfer between Level 1 and Level 2
- Info. about non-financial assets and liabilities for which measurements differ from highest and best use.
- Hierarchy of items that are NOT measured on BS but are disclosed in the notes to the FS
Segment Reporting - What are the Disclosures for Segment reporting
APPLIES TO PUBLIC COMPANIES ONLY! Disclose the following:
- Operating Segment (interim and Annual)
- Products and Services
- Geographic Areas
- Major Customers
Operating Segment -> Component of an entity that is regularly reviewed by Chief Operating Decision Maker (CODM) and its financial info is available.
EXAM NOTE: Corporate HQ and Pension Plans are NOT part of the operating Segment.
what is the Quantitative Threshold for Reportable Segments?
- 10% SIZE TEST —–> RAR > 10% of Consolidated #
R - Revenue
A - Assets
R - Reported Profit & Loss - 75% REPORTING SUFFICIENCY TEST —-> If total consolidated RAR is LESS than 75% of consolidated number then additional operating segments need to be identified as reporting segments even if they DO NOT meet the above criteria.
Segment Reporting Defined
Segment Profit/ (LOSS)
Revenues = XXX
Less: direct traceable Costs = (xxx)
Less: Reasonable Allocated Costs = (xxx)
OPERATING PROFIT/ (LOSS) = XXX
Items EXCLUDED from Segment Profit/ Loss
REGIIME
R - Revenues -> General Corporate Revenues
E - Expenses -> General corporated expenses
G - Gains & Losses from discontinued Operations
I - Interest Expense
I - Income tax Expense
M - Minority Interest (NCI)
E - Equity in earnings and losses of an unconsolidated subsidiary
What are some Special Purpose Frameworks for Accounting?
OCBOA -> Other Comprehensive Bases of Accounting 4 Types —> i.) Cash Basis ii.) Tax Basis iii.) Modified Cash Basis iv.) Regulatory Basis
Cash Basis Accounting?
Revenue Recognized = Cash is received
Expenses Recognized = When cash is paid
Have the following FS in this basis
Statement of Cash and Equity (B/S)
Statement of Cash Receipts (I/S)
Modified Cash Basis
Has both cash basis and Accrual Basis Accounting in it
Has Following Statements in it:
- Statement of Assets and Liabilities (B/S)
- Statement of Revenues, Expenses, & Retained Earnings (I/S)
