F2 - M4 & M5 - Notes to Financial Statements and Subsequent Events

Question 1

For the significant accounting policy footnote, what do these include? (Think of Note A on our financial statements)

Answer 1

Measurement bases used in the financial statements.

Specific accounting principles and methods used in the accounting period which include:

Depreciation methods, amortization, inventory pricing, use of estimates, fiscal year definition, special revenue recognition issues.

Question 2

What is the order of the footnotes on the financial statements?

Answer 2

First footnote - General Description

Second footnote - Significant accounting policies.

Question 3

What are some of the things that would not be in the significant accounting policy footnote? IMPORTANT: These are found in the footnotes, just not the significant accounting policy footnote.

Answer 3

Composition and detailed dollar amounts of account balances

Changes in accounting principles

Dates of maturity and amounts of long term debt

Computation of depreciation, depletion and amortization

Question 4

What are some examples of relevant notes information? These are anything that would be beneficial to the readers of the financial statements.

Answer 4

Material information and details about specific assets or liabilities

Information about the nature of changes in stockholders’ equity

Information about the required marketable securities disclosure

Far Value estimates

Information about contingency losses, gains, commitments, and contractual obligations.

Description related to pension plans

Segment disclosures dealing with subsequent events

Change in accounting principles or implementation of new accounting standards.

Question 5

US GAAP requires the disclosure of risk and uncertainties, what do these include?

Answer 5

Risk and uncertainties around major operations, products, and geographic distributions.

Relative importance of each business

Use of accounting estimates

Question 6

For concentrations, when would a company need to disclose this in the financial statements? This is when a company places more risk of loss in one area.

Answer 6

The concentration exists at the financial statement date

Makes the entity vulnerable, so if this did happen, they would be in trouble.

Also, we think that might actually happen.

For example: You depend on one customer of supplier, availability of materials, geographic risks.

Question 7

What is a type 1 subsequent event? Recognized subsequent events

Answer 7

This provides information that happened as of the balance sheet date. It must be recognized or adjusted in the financial statements.

So for example of this is a contingent liability. So, if you are under a lawsuit and the lawsuit settles after the balance sheet date, this would be an example of this type of event.

Or a big loss on AR.

Question 8

What are non recognized subsequent events or type 2 events?

Answer 8

These are events that happen after the balance sheet date and might need to be disclosed, but they will not adjust the financials.

So these are just the opposite of type 1, they just have to be disclosed.

Mergers and acquisition, loss due to natural disaster, settlement of litigation after balance sheet date. Just some examples.

Question 9

When would you stop looking at subsequent events for public and non public companies?

Answer 9

Public - You evaluate subsequent events for a little bit longer even after the declaration of the financial statements. You have to evaluate subsequent events through the date the financial statements are issued.

Private - Stop evaluation once the organizations declare the financial statements are available to be issued. This would be like when financial statements are done and ready to be issued, but have not been issued yet.

Public company have to evaluate a little longer than private.

Question 10

If financial statements are reissued, do you have to do subsequent events again?

Answer 10

Normally you do not, unless GAAP requires it.

Question 11

What are revised financial statements?

Answer 11

Financial statements that have been revised to correct an error or reflect the retrospective application of US GAAP.

Question 12

For public entities, do you have to disclose the date at which subsequent events were evaluated? What about private?

Answer 12

Public - You have until the date of issuance to evaluate the subsequent events, but you do not have to disclose the date to which you evaluated subsequent events.

Private - You have until the date when the financials are ready to be issued, and that date has to be disclosed.