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FAR > F2 - Financial Reporting and Disclosures > Flashcards

F2 - Financial Reporting and Disclosures Flashcards

1
Q

What does the Summary of Accounting Policies should disclose?

A
  1. Criteria for which investments are cash equivalents.
  2. Basis of consolidation.
  3. Depreciation methods.
  4. Amortization of intagibles.
  5. Inventory pricing (LIFO, FIFO).
  6. Use of estimates.
  7. Fiscal year (Calendar, June 30)
  8. Special revenue recognition issues (POC vs Completed, LT construction contracts).
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2
Q

What items are NOT include in the the Summary of Accounting Policies?

A
  1. Account balances or $ amounts.
  2. Changes in accounting principles.
  3. Maturity dates and LT debt amounts.
  4. Deprec, Amort, and Depletion yearly computations.
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3
Q

What are two key items of the Summary of Accounting Policies?

A
  1. Included as an integral part of the FS.
  2. Policies presented are not duplicated in other notes.
  3. Usually first or second note (discuss the “why”, before the “what”).
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4
Q

What is the CRITERIA that needs to be met for disclosing certain concentrations based on the risk of loss?

A
  1. The concentration exists at the FS date.
  2. The concentration makes the entity vulnerable.
  3. Severe impact from the concentration will happen soon.
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5
Q

What are the concentrations that should be disclosed based on the risk of loss?

A
  1. Concentrations in the volume of business. (client represents a big % of my sales).
  2. Concentrations in revenue (one product represents a big % of my sales)
  3. Concentrations in the supply chain availability (COVID hit Chart hard because there is no supplies).
  4. Concentrations in market or geographic area.
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6
Q

What are the two types of subsequent events?

A
  1. Recognized Subsequent Events

2. Nonrecognized Subsequent Events

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7
Q

What are recognized subsequent events?

A

Things that happened/existed at the balance sheet date. Examples are:

  1. Settlement of Litigation, if it happened at the BS date.
  2. Loss on an Uncollectible Receivable.
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8
Q

What are nonrecognized subsequent events?

A

Things that happened/existed after the balance sheet date, but before the date the FS are issued or available to be issued. Examples are:

  1. Settlement of Litigation, if it happened after the BS date.
  2. Loss of plant of inventory due to fire or natural disaster.
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9
Q

What is the subsequent event evaluation period?

A 
Filers = Through the date that the FS are issued. 
Nonfilers = Through the date that the FS are available to be issued.
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10
Q

When are FS considered to be issued?

A

When they have been widely distributed to FS users in a form and format that complies with GAAP.

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11
Q

When are FS considered to be available to be issued?

A

When they are in a form and format that complies with GAAP, and all approvals for issuance have been obtained.

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12
Q

What are the disclosure requirements for a nonfiler regarding Subsequent Event Evaluation Periods?

A

The company must disclose the date through which subsequent events have been evaluated, including whether that date is the date that FS were issued or were available to be issued.

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13
Q

What are the disclosure requirements for a filer regarding Subsequent Event Evaluation Periods?

A

None.

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14
Q

What is Fair Value?

A

FV is the price that would be RECEIVED to SELL an asset or PAID to transfer a liability between market participants under current market conditions. FV is an EXIT price not an entrance price.

Marketers marketing in a market because they want to trade!!!!!!!!!!!! (Not forced).

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15
Q

What is a principal market?

A

The market where you sell more volume, or asset/liability has more activity.

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16
Q

What is the most advantageous market?

A

Always choose the FV gross price of the item that after transaction costs have been deducted, results in the highest profit.

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17
Q

What is highest and best use?

A

FV of a nonfinancial (i.e PPE) asset at its best use.

Ex = Yellowstone! If I have a farm that is worth $1, but someones wants to buy it for a mall, then FV IS HIGHEST!!!!

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18
Q

What is the FV framework established by US GAAP?

A
  1. Valuation techniques.

2. Hierarchy (who’s the boss bitch?)

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19
Q

What are the valuation techniques? MIC DROP!

A
  1. Market approach = Based on prices from the market on identical assets/liabilities.
  2. Income approach = Uses future cash flows or earnings converted to a discount amount.
  3. Cost approach = Based on replacement cost. Applies to assets only. (You can’t replace a liability, duh).
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20
Q

What is the hierarchy to measure FV?

A
  1. Level 1 Inputs = Boss Bitch!!!! - Mel Based on quoted prices from the market on identical assets/liabilities. KEY = Identical!
  2. Level 2 Inputs = 2nd Boss Bitch - Cassi!!!! Based on quoted prices from the market on similar assets/liabilities. KEY = Similar!
  3. Level 3 Inputs = Only used when Mel and Cassi are not available. Non trustworthy, based on the best available info, not facts. Literally, like fake news.
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21
Q

What type of companies does segment reporting apply?

A

Public companies only.

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22
Q

What is the 10% test?

A

Segment requires disclosure if one of the following tests is met:

  1. Revenue = Revenue > 10% combined revenue or combined loss (ABSOLUT VODKA).
  2. Reported Profit or Loss = Reported profit or loss > 10% combined reported profit or loss or combined loss (ABSOLUT VODKA).
  3. Assets = Assets > 10% combined assets.
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23
Q

How do you calculate segment profit (loss)?

A

Revenues
(-) Directly traceable costs
(-) Reasonably allocated costs
(=) Operating Profit (Loss)

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24
Q

What items are excluded from segment profit (loss)?

A
  1. General corporate revenues and expenses.
  2. Interest expense.
  3. Income taxes.
  4. Gains (losses) of discontinued ops.
  5. Equity in earnings and losses of an unconsolidated subsidiary.
  6. Minority interest.
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25
Q

What is a large accelerated filer (LAF) and an accelerated filer (AF)?

A 
LAF = Equity >$700M
AF = Equity >$75M
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26
Q

What are the filing deadlines for 10K?

A 
LAF = 60 days after YE. 
AF = 75 days after YE. 
Others = 90 days after YE.
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27
Q

What are the filing deadlines for 10Q?

A 
LAF = 40 days after YE. 
AF = 40 days after YE. 
Others = 45 days after YE.
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28
Q

What is Form 20-F and Form 40-F?

A

Similar to 10K, and it can be GAAP or IFRS.
40F = Canadian companies registered with SEC.
20F = ROW companies registered with SEC.

29
Q

What is Form 6K?

A

Similar to 10Q, but filed twice a year.

30
Q

What is the difference between a 10K (40F, 20F) and a 10Q (6K)?

A

10K (40F, 20F) have AUDITED FS.

10Q (6K) have UNAUDITED FS.

31
Q

What is the difference between Reg S-X and S-K?

A

Reg S-X sets the form and content of and requirements for interim and annual financial statements to be filed with the SEC.
Reg S-K sets forth non-financial reporting reporting.

32
Q

Under Reg S-X, how many periods should we have in qtrly FS?

A 
BS = PY and YTD.
IS = PY, YTD, Qtr. 
CF = PY, YTD, Qtr.
33
Q

Under Reg S-X, how many periods should we have in annual FS?

A

BS = Last 2 years.

IS, EQ, CF = Last 3 years.

34
Q

What are Special Purpose Frameworks (SPF)?

A

SPFs are non-GAAP presentations that include other bases of accounting like cash basis, etc.

35
Q

What is the formula to convert Cash Basis Revenue to Accrual Basis Revenue?

A 
Cash Basis Revenue
(-) Beg AR
(+) End AR
(+) Beg Unearned Revenue
(-) End Unearned Revenue
(=) Accrual Basis Revenue
36
Q

What is the formula to convert Cash Paid for Purchases to COGS?

A 
Beg Inv
(+) Cash Purchases
(-) End Inv
(-) Beg AP
(+) End AP
(=) COGS
37
Q

What is the formula to convert Cash Paid for Operating Expenses to Accrual Basis Operating Expenses?

A 
Cash Paid for Op Exp
(+) Beg Prepaid Exp
(-) End Prepaid Exp
(-) Beg Acrued Liab
(+) End Accrued Liab
(=) Accrual Basis Op Exp
38
Q

What does an increase/decrease of AR represent for the cash basis method of accounting?

A 
Increase = Less cash receipts, less revenue.
Decrease = More cash receipts, more revenue.
39
Q

What does an increase/decrease of AP represent for the cash basis method of accounting?

A 
Increase = Less cash expenses, more revenue.
Decrease = More cash expenses, less revenue.
40
Q

What is the key to calculate Cash to Accrual Revenues?

A 
Assets = (Beginning) + Ending
Liabilities = Beginning - Ending
41
Q

What is the key to calculate Cash to Accrual Op Expenses?

A 
Assets = Beginning - Ending
Liabilities = (Beginning) + Ending
42
Q

What is the key to calculate Cash Purchases to COGS?

A

Inventory Equation - Beg AP + End AP

43
Q

What is an alternative way to calculate cash to accrual basis revenue?

A 
Beg AR
- Accrued Revenue
- Cash Collections
- Writeoff
= End AR
44
Q

What is the debt ratio formula?

A

Total Liabilities / Total Assets

45
Q

What is the debt-to-equity formula?

A

Total Liabilities / Equity

Measures protection to creditors in case of insolvency.

46
Q

What is the current ratio formula?

A

Current Assets / Current Liabilities

47
Q

What is the quick ratio formula?

A

(Current Assets - Inventory - PPs) / Current Liabilities

OR

(Cash + Cash Equivalents + Marketable Securities + AR, net) / Current Liabilities

48
Q

What is the formula for AR Turnover?

A

Sales / Avg AR, net

49
Q

What is the working capital formula?

A

Current Assets - Current Liabilities

50
Q

What is the days in inventory (inventory conversion period) formula?

A

Ending Inventoy / (COGS/365)

51
Q

What is the inventory turnover formula?

A

COGS / Avg Inventory

52
Q

What is the asset turnover formula?

A

Sales, net / Avg Total Assets

53
Q

What is the return on equity formula?

A

(Net income - Preferred Dividends) / Avg Equity

54
Q

What is the return on assets formula?

A

Net income / Avg Total Assets

55
Q

What is the net profit margin formula?

A

Net Income / Net Sales

56
Q

What is the times interest earned formula?

A

PBT + Interest Expense / Interest expense

Measures the ability of a company to cover interest expense.

57
Q

What is the formula for working capital turnover?

A

Sales / Avg Working Capital

58
Q

What is the formula for Days Sales in AR?

A

Ending Net AR / (Net Sales / 365)

59
Q
A
60
Q

What happens if my numerator increases?

A

Ratio increases.

61
Q

What happens if my denominator increases?

A

Ratio decreases.

62
Q

How do you calculate new equity when admitting a new partner under the Equal to Book Value method?

A

Total New Equity = Partnership Equity + New Partner % * Total New Equity

Treat it like Algebra! Clear X!

63
Q

How do you calculate new equity when admitting a new partner under the Bonus method?

A
  1. Total Partnership Equity = Old partner’s capital accounts + New Partner’s Contribution
  2. New partner’s capital account = Total Partnership Equity * New partner’s %
  3. Bonus to existing partners = (New partner’s contribution - New partner’s capital account) * Old partner’s %
64
Q

What is the AJE for bonus method if existing partner receives prorata allocation?

A

Cash
New partner’s adjusted capital balance
Difference to be adjusted to old partner’s capital

65
Q

What is the AJE for bonus method if new partner receives bonus?

A

Cash
Difference to be adjusted to old partner’s capital
New partner’s adjusted capital balance

66
Q

How do you calculate new equity when admitting a new partner under the Goodwill method?

A
  1. Implied value = New partner’s contribution / New Partner’s %
  2. Goodwill = Implied value - Total partners’ capital accounts
67
Q

What is the AJE for goodwill method if new partner receives bonus?

A

Cash
Goodwill
Old Partner’s Capital account - Goodwill pro rata
New partner’s contribution

68
Q

What ratios are better when increased/higher YoY?

A
  1. Times Interest Earned
69
Q

What ratios are better when decreased/lower YoY?

A
  1. Debt-to-equity Ratio

2. Days sales in AR

FAR (12 decks)

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