F2 OLD Flashcards
Identify the contents of the Summary of Significant Accounting Policies note to the financial statements.
Summary of Significant Acconting Policies
Identify and describe:
* Measurement bases used in preparing the financial statements
* Specific accounting principles and methods used
What are the U.S. GAAP disclosure requirements for risks and uncertainties?
[ N U S C ]
- Nature of operations
- Use of estimates in preparing the financial statements
- Significant estimates
- Current vulnerability due to certain concentrations
What is a subsequent event and what are the two categories of subsequent events?
An event or transaction that occurs after the balance sheet date but before the financial statements are issued or are available to be issued.
1) Recognized subsequent events - Provide additional information about conditions that existed at the balance sheet date.
2) Nonrecognized subsequent events - Provide information about conditions that occurred after the balance sheet date and did not exist on the balance sheet date.
Define fair value.
Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
Describe the valuation techniques that can be used to measure the fair value of an asset or liability.
1) Market approach - Uses prices and other relevant information from the market transactions involving identical or comparable assets or liabilities to measure fair value.
2) Income approach - Converts future amounts, including cash flows or earnings, to a single discounted amount to measure the fair value of assets or liabilities.
3) Cost approach - Uses current replacement cost to measure the fair value of assets.
Describe the hierarchy of fair value inputs. Which inputs have the highest priority?
1) Level 1 inputs - Quoted prices in active markets for identical assets or liabilities.
2) Level 2 inputs - Inputs other than quoted market prices that are direclty or indirectly observable for an asset or liability.
3) Level 3 inputs - Unobservable inputs for the asset or liability that reflect the entities’ assumptions and are based on the best available information.
Note: Level 1 inputs have the highest priority.
Name the four required disclosures for segments of an enterprise.
- Operating segments
- Products and services
- Geographic areas
- Major customers
What are the characteristics of an operating segment?
Common characteristics of an operating segment include:
* the nature of the products and services;
* the nature of the production processes;
* the type or class of customer for the products and services;
* the methods used to distribute the products or provide the services; and
* if applicable, the nature of the regulatory environment (e.g., banking, insurance, or public utilities).
Name two quantitative thresholds used in identifying reportable operating segments.
- 10 percent “size” test
- 75 percent “reporting sufficiency” test
Describe the 10 percent test for identifying reportable segments.
REVENUE: Reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent 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.
* The combined reported loss of all operating segments that did report a loss.
ASSETS: Assets are 10% or more of the combined assets of all operating segments.
note: must meet only one of the above
What is the 75 percent 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?
[ I P P A M R ]
For each reportable segment, the entity must report:
* Indentifying factors
* Products and services
* Profit or loss details
* Asset details
* Measurement criteria
* Reconciliations
Describe form 10-K and form 10-Q. What level of assurance must be provided with the financial statements submitted in these forms?
FORM 10-K: Form filed annually by U.S. registered companies. Includes a summary of financial data, MD&A, and audited financial statements prepared using U.S. GAAP.
FORM 10-Q: Form filed quarterly by U.S. registered companies. Includes unaudited financials statements, interim MD& A, and certain disclosures.
** MD&A = managment discussion and analysis **
What are the guidelines for interim reporting?
- Use the same accounting principles that were used in the most recent annual report.
- Allocate expenses to the interim period benefitted.
- Revenues are recognized in the period in which they are earned and realized or realizable.
- A total for comprehensive income in 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 applicable for full fiscal year on quarterly statements.
