FAR1 Flashcards
Single source of authoritative nongovernmental US GAAP
FASB Codification
International Financial Reporting Standards includes what standards?
- International Accounting Standards (IAS)
- International Financial Reporting Standards(IFRS)
- IFRIC Interpretations
- SIC Interpretations
Primary users of general purpose financial reports
Existing and potential investors, lenders, and other creditors
Pervasive constraint on the information provided in financial reporting
Cost Constraint: the benefits of reporting financial info must be greater than the costs of obtaining and presenting.
Name the fundamental qualitative characteristics of useful financial information
Relevance and Faithful Representation
The 3 elements of Relevance
Predictive value, Confirming value and Materiality
The 3 elements of Faithful Representation
Neutrality, Completeness and Freedom from Error
Name the enhancing qualitative characteristics of financial information
Comparability, Verifiability, Timeliness, and Understandability
A full set of financial statements includes?
- Statement of Financial Position (Balance sheet)
- Statement of Earnings (Income Stmt)
- Statement of Comprehensive Income
- Statement of Cash Flows
- Statement of Changes in Owners Equity
Difference between realization and recognition
Realization = when sold and converted to cash Recognition = when recorded in the financial stmts
List the 10 elements of financial stmts (CREG and LALEID)
Comprehensive income Revenues Expenses Gains and Losses Assets Liabilities Equity Investments by owners Distributions to owner
List the 6 elements of financial stmts according to IASB Framework
Assets Liabilities Equity Income Expenses Capital maintenance adjustments
List the 5 elements of present value measurement (EVTUO)
Estimate of future cash flows Variations of future cash flows Time value of money Uncertainty price Other factors (liquidity issues and market imperfections)
Describe the expected cash flow approach for present value computations
Consider a range of possible cash flows and assigns a probability to each cash flow in the range to determine the weighted-average of expected future cash flow
Presentation order of the major components of an income and retained earnings statement (IDEA)
Income from continuing operations
Income from Discontinued operations
Extraordinary items
Cumulative effect of a change in Accounting principle
The gain (loss) from discontinued operations can consist of…
An impairment loss, and gain (loss) from actual operations and a gain (loss) on disposal
In what period is an impairment loss recorded? gain/loss from actual operations? gain/loss on disposal?
All reported in the period in which they occur
In reporting discontinued operations, how is a “component” of an entity defined under US GAAP and IFRS?
US GAAP = an operating segment, a reportable segment, a reporting unit, a subsidiary, or an asset group
IFRS = a separate major line of business or geographical area of operation or a subsidiary acquired exclusively with a view to resale
How do we account for subsequent increase in the fair value of a discontinued operation?
A gain is recognized 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 capital lease, and other costs associated with exit or disposal activities.
Define extraordinary items
Material in nature, unusual and infrequent.
Note: IFRS does not recognize them.
Examples of extraordinary items
- Abandonment of, damage to, a plant due to an infrequent earthquake of flood
- Expropriation of a plant by the gov’t
- Prohibition of a product line by a law or regulation
List 3 types of accounting changes
Change in accounting principle, estimate, or entity
How is a change in accounting principle reported?
Cumulative effect of change is included in the retained earning stmt as an adjustment to the beginning retained earnings balance of the earliest year presented. Prior-period financial statements are restated if presented.
