FASB 1 Flashcards
(127 cards)
1
Q
What does the Securities and Exchange Commission (SEC) strive to do?
A
Ensure that there is adequate information in the public domain before a company issues or trades securities.
2
Q
Does the Securities and Exchange Commission (SEC) have legal authority to prescribe accounting standards to public companies?
A
Yes, it has that authority.
3
Q
Define “Financial Reporting Releases (FRR)”.
A
Formal pronouncements that rank the highest in authority for public companies.
4
Q
Define “Staff Accounting Bulletins (SAB)”.
A
Bulletins that provide the Security and Exchange Commission’s current position on technical issues.
5
Q
How many divisions does the Securities and Exchange Commission (SEC) have?
A
Four (The Division of Corporation Finance, The Division of Enforcement, The Division of Trading and Markets, and The Division of Investment Management).
6
Q
When the Securities and Exchange Commission (SEC) finds an accounting irregularity, what happens?
A
The SEC sends a “deficiency” letter to a registrant when an accounting irregularity is found.
7
Q
Does the Securities and Exchange Commission (SEC) have the authority to penalize firms when financial statements are not in accordance with Generally Accepted Accounting Principles?
A
Yes, they may penalize firms.
8
Q
What purpose does Accounting and Auditing Enforcement Releases (AAER) serve?
A
Report the enforcement actions taken against accountants.
9
Q
Regulations S-X governs the form and content of financial statements and financial statement disclosures. These include:
A
- Income Statement;
- Balance sheet;
- changes in shareholders equity;
- Cash flow statement;
- Footnotes to financial statements; and
- qualification of accountants (independence rules)
10
Q
What does the Securities Act of 1934 do?
A
Regulates the trading of securities after they are issued and requires periodic reporting.
11
Q
What are the steps in the offering process?
A
Issuer, underwriter, dealer, public.
12
Q
What information does Management Discussion & Analysis (MD&A) provide?
A
A discussion of important aspects of the firm from the viewpoint of management.
13
Q
What does registration with the Securities and Exchange Commission (SEC) require?
A
Extensive disclosures about the company, management, and the intended use of the proceeds from the issue.
14
Q
What information does the 8-K provide?
A
Significant events affecting the company.
15
Q
What law prohibits the bribing of foreign officials?
A
The Foreign Corrupt Practices Act of 1977.
16
Q
Where are the Securities and Exchange Commission (SEC) formal rules found?
A
The Code of Federal Regulations.
17
Q
What information does Management Discussion & Analysis (MD&A) cover?
A
The firm’s financial condition, changes in financial condition, results of operations, liquidity, capital resources and operations, and indications in trends, significant events, and uncertainties.
18
Q
Within how many days after the end of the quarter does a company need to file the 10-Q?
A
Forty days for large accelerated filers and accelerated filers; forty-five days for non-accelerated filers.
19
Q
Within how many days after the fiscal year end of a large accelerated filer does a 10-K need to be filed?
A
Sixty days.
20
Q
How many years of income statement data are required by the Securities and Exchange Commission (SEC)?
A
Three years are required.
21
Q
How many years of cash flow data are required by the Securities and Exchange Commission (SEC)?
A
Three years are required.
22
Q
How many years of selected financial data are required by the Securities and Exchange Commission (SEC)?
A
Five years are required.
23
Q
Does the Sarbanes-Oxley Act allow auditors to complete non-audit services for clients?
A
No, the Sarbanes-Oxley Act does not allow this.
24
Q
How many years of balance sheet data are required by the Securities and Exchange Commission (SEC)?
A
Two years are required.
25
Describe the formula for quick or acid test ratio.
(Cash + short-term investments + Accounts Receivable)/Current Liabilities.
26
Define "measurement base".
The attribute of an account being measured and
| reported.
27
What is another name for the balance sheet?
The statement of financial position.
28
What is the operating cycle?
The period of time from the purchase of inventory, to payment of the payable on inventory purchase, to the sale of goods, to the collection of receivable, and then to purchasing inventory all over again.
29
What is a valuation account used for?
Used to increase or decrease the book value of an item to a measure of current value.
30
Define "net realizable value".
The amount the firm expects to receive from the sale or collection of an item.
31
How are current assets listed on the balance sheet?
Declining order of liquidity.
32
Define "current liability".
A liability expected to be extinguished with current assets or another within one operating cycle or year.
33
Measurement Attributes in Balance Sheet
Historical cost - Land, prepaid insurance
Amortized historical cost - Fixed assets
Market value - Marketable securities, derivatives
net realizable value - Accounts receivable, inventory
Present value - bonds
34
What are the steps of the accounting cycle?
(1) Analyze source documents, (2) Post to ledger, (3) Make adjusting entries, (4) Prepare trial balance, (5) Prepare income statement, balance sheet, and cash flow statements, (6) Close temporary accounts.
35
What is the classification for an asset that is held for trading?
Current Asset.
36
FASB Assumptions and IASB Assumptions
FASB 4 Assumptions:
1. Entity
2. Going concern
3. Unit of measurement
4. Time period
37
What do control accounts report?
The aggregate balance of several subsidiary accounts.
38
What is the classification for an asset that is held for trading?
Current Asset.
39
What is the principal purpose of posting?
The purpose of posting is to enter transactions directly into the ledger. Posting distributes the information from the journals to the accounts in the ledger, and is performed on a periodic basis. After posting, the account balances are updated, but adjusting entries still need to be recorded before a trial balance is prepared.
40
What does "intraperiod tax allocation"?
Income tax expense is attributable only to income from continuing operations. The tax effects of items below continuing operations are shown along with the item itself in a process called intraperiod tax allocation.
41
How are unusual or infrequent items reported?
They must be separately reported if material as a component of income from continuing operations.
42
What items are not shown on the income statement?
1. Prior period adjustments;
2. Foreign currency translation adjustments;
3. Unrealized gains and losses on available for sale (AFS) securities;
4. Unrecognized pension items;
5. Cumulative effect of changes in accounting principle;
6. Unrealized gains and losses on cash flow hedges.
43
What is economic income?
The change in the net worth of a business enterprise during an accounting period.
44
Does accounting income take a transactions-based determination of income or a change in net worth?
Accounting income is transaction based.
45
What is the order of income statement presentation?
1. Income from Continuing Operations;
2. Income from Discontinued Operations (net of tax);
3. Extraordinary Items (net of tax);
4. Net Income.
46
Define "gains".
Increases in equity or net assets from peripheral or incidental transactions.
47
Define "expenses".
Decreases in net assets or incurrence of liabilities through the provision of goods or services.
48
Define "losses".
Decreases in equity or net assets from peripheral or incidental transactions.
49
What represent increases in net assets or settlements of liabilities by providing goods and services?
Revenues.
50
Other Comprehensive Income Items (OCI) include:
1. Foreign currency translation adjustments
2. Unrealized holding gains and losses on securities available for sale;
3. Pension and other post retirement benefit plan cost adjustments
4. Certain deferred derivative gains and losses
51
What is Comprehensive income?
Net Income + Other Comprehensive Income = Comprehensive Income
52
What items are included in intra-period income allocation?
1. Discontinued operations;
2. Extraordinary items;
3. Other Comprehensive Income items;
4. Adjustment for retroactive accounting principle changes
5. Prior period adjustments
53
What is cost of goods manufactured?
Cost of goods manufactured is the cost of goods brought to completion during the year.
Cost of goods manufactured + finished goods beginning inventory - finished goods ending inventory = cost of sales
54
What are other comprehensive income items?
Unrealized gains and losses on securities available for sale, unrecognized pension gains and losses, foreign currency translation adjustments, certain derivative gains and losses.
55
What is comprehensive income?
Net income plus or minus unrealized gains and losses on securities available for sale, unrealized pension cost, certain unrealized gains and losses on derivatives, and foreign currency translation adjustments.
56
What type of account is accumulated other comprehensive income (AOCI)?
Owner's equity.
57
Does International Financial Reporting Standards (IFRS) allow revaluation of plant assets and intangibles to fair value as a other comprehensive income item?
Yes, allows this.
58
What are the types of statements of other comprehensive income?
1) Single statement of net income and comprehensive income; and 2) two separate statements: a statement of net income and a statement of comprehensive income.
59
What is the main purpose of disclosing comprehensive income?
To report the net change in equity in a single amount.
60
What are the two ways of reporting comprehensive income?
As a separate statement of comprehensive income or as part of the income statement.
61
What is other comprehensive income (OCI) reclassification adjustment?
When an OCI item from previous year is removed from accumulated other comprehensive income (AOCI).
62
What is net income plus or minus other components of comprehensive income?
Comprehensive income.
63
What is the different between US GAAP and IFRS GAAP for comprehensive income?
```
US GAAP
No revaluation of PPE through OCI
Per share measures are prohibited
IFRS GAAP
Permits revaluation of PPE through OCI (note: Reclassification of PPE revaluation must also flow through OCI and no NI_
Per share measure are not prohibited
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64
What do vertical format statements allow accountants to do?
Check accuracy by comparing total Owner's Equity (OE) computed as (1) the sum of each transaction affecting OE and (2) the sum of individual OE account balances.
65
List the other names for Statement of Changes in Equity.
Statement of Changes in Owners' Equity, Owners' Equity Statement, Statement of Shareholders' Equity, and Statement of Owners' Equity.
66
Is the Statement of Changes in Equity required under International Financial Reporting Standards (IFRS)?
Yes, it is required.
67
How many years of Owners' Equity (OE) must be reported by Securities and Exchange Commission (SEC) registrants?
Three years of OE statements.
68
In what type of format does the Statement of Changes in Equity appear?
The format is vertical and horizontal.
69
Does accumulated other comprehensive income (AOCI) have its own column in the vertical format?
Yes, it has its own column.
70
How are accounts listed in the vertical format?
They are listed in separate columns.
71
How does changes in owners' equity presented?
1. In the footnotes;
2. Supplemental schedules;
3. As a separate statement
72
What is the major different presentation between US GAAP and IFRS GAAP?
US GAAP
1. Permits 3 forms of presentation
2. No required separation of non-owner changes
IFRS GAAP
1. Must present as a separate statement
2. Requires separation of non-owner changes
73
What is the average issue price formula?
The sum of the par value and the additional paid-in capital
74
What is the purpose of Statement of Cash Flow (SCF)?
The purpose of the SCF is to provide information so that users can:
1. Assess past ability to generate and control cash inflows and outflows
2. Assess probable future ability of the company to generate cash inflows sufficient to meet future obligations
3. Assess the likelihood of future borrowing
75
What is reported on the Statement of Cash Flows?
1. Information about the cash receipts and cash payments for an entity;
2. The difference between net income and net operating cash flows;
3. Information about investing and financing activities which do not involve cash inflows or outflows.
76
List the required categories for the Statement of Cash Flows.
1. Net cash inflow or outflow from Operating Activities;
2. Net cash inflow or outflow from Investing Activities;
3. Net cash inflow or outflow from Financing Activities;
4. Effects of Foreign Currency Translation;
5. Reconciliation of net cash inflows/outflows with the reported change in cash and cash equivalents on the Balance Sheet;
6 Non-cash Investing and Financing Activities.
77
What is the reporting basis of the statement of cash flows?
The reporting basis is cash and cash equivalents.
78
Name the two formats permitted for the statement of cash flows.
1. Indirect.
| 2. Direct.
79
What is the cash flow category for interest paid and received?
This category is Operating Activities.
80
What is the basic purpose of the statement of cash flows?
The basic purpose is to provide information about the cash receipts and cash payments for an entity to help investors, creditors, and others.
81
Name the four major sections in the direct method cash flow statement.
Operating cash flows;
Investing cash flows;
Financing cash flows.
Reconciliation of net income and net operating cash flows.
82
When is a Statement of Cash Flows required?
For all business enterprises that report both financial position (Balance Sheet) and results of operations (Income Statement) for a period.
83
What is the direct method on the statement of cash flows?
This method presents actual inflows and outflows from cash operations. Must also disclose the indirect method (reconciliation of net income to cash flows from operations) as a supporting schedule.
84
What is the indirect method on the statement of cash flows?
Reconciles net income to cash flows from operating activities.
85
What is the cash flow category for collections of principal amounts on loans made to other entities?
The category is Investing.
86
Cash Balance at the end of the year?
Cash Balance at the end of the year
| = B.Balance + net sum of three Categories of Cash flows
87
What is the cash flow category for dividends paid?
The category is Financing.
88
What is the cash flow category for principal payments on short-term and long-term loans from financial institutions made to acquire inventory for resale?
The category is Financing.
89
What are some examples of cash inflows classified as Financing Activities?
1. Sale of own stock;
| 2. Proceeds from borrowing.
90
What is the cash flow category for principal payments on short-term and long-term loans from suppliers made to acquire inventory for resale?
The category is Operating.
91
What is the cash flow category for loans made to other entities?
The category is Investing.
92
Where are non-cash investing and financing activities reported?
They are reported on the face of the Statement of Cash Flows or as a separate disclosure.
93
What is the cash flow category for purchases of securities available for sale?
The category is Investing.
94
What are some examples of cash inflows classified as Investing Activities?
1. Sale of long-term assets;
2. Collection of loan principal;
3. Disposal of held to maturity (HTM) and available for sale (AFS) debt and equity securities;
4. Sale of productive assets (not inventory).
95
Where is the cash effect on foreign currency translation reported?
It is reported as a separate part of the reconciliation of the change in cash and cash equivalents during the period.
96
What is the cash flow category for purchases of trading securities?
The category is Operating.
97
What is the cash flow category for principal payments on short-term and long-term loans (from financial institutions or dealers) made to acquire plant assets?
The category is Financing.
98
What are some examples of cash outflows classified as Financing Activities?
1. Repurchase of own stock;
2. Paying back lenders (principal only);
3. Payment of dividends.
99
What are some examples of cash outflows classified as Investing Activities?
1. Purchase of long-term assets;
2. Lending to others;
3. Investment in debt and equity securities held to maturity and available for sale);
4. Purchase of productive assets (not inventory).
100
How to calculate dividends payment in Statement of Cash Flow?
R/E B.Bal + Net Income - Dividends = R/E E.Bal
101
Using the indirect method for reporting cash flows from operations, should an increase in accounts payable be added to or subtracted from accrual based net income?
An increase in accounts payable should be added.
102
Using the indirect method for reporting cash flows from operations, should a decrease in unearned revenue be added to or subtracted from accrual based net income?
A decrease in unearned revenue should be subtracted.
103
Using the indirect method for reporting cash flows from operations, should a decrease in inventory be added to or subtracted from accrual based net income?
A decrease in inventory should be added.
104
Using the indirect method for reporting cash flows from operations, should an increase in accounts receivable be added to or subtracted from accrual based net income?
An increase in accounts receivable should be subtracted.
105
What is the purpose of the operating section of the statement of cash flows under the direct method?
The purpose is to show all cash inflows and outflows for operating activities.
106
What is the purpose of the operating section of the statement of cash flows under the indirect method?
The purpose is to adjust accrual net income to net cash flow from operating activities.
107
What is the major differences for Notes between US GAAP and IFRS GAAP?
US GAAP:
1. No designation as to order
2. No requirement to disclose proposed dividends
3. No requirement for restatement for price level
IFRS GAAP:
1. Should be in same order as financial statement items
2. Disclose the proposed dividends
3. Firms in hyperinflationary countries required to restate
108
Define "specific price change".
The change in the price of a specific good or service over a period of time.
109
Define "nominal dollars".
Measurements in the price level in effect at a transaction date. These measurements are not adjusted for inflation.
110
What is the difference between errors and irregularities?
Errors are unintentional, irregularities are intentional.
111
Define "purchasing power gain".
Gains that result from holding monetary assets during deflationary times or having monetary liabilities during inflationary times.
112
Define "monetary items".
The specific price of monetary items cannot change.
113
Under International Financial Reporting Standards (IFRS), what should the Summary of Significant Accounting Policies include?
Judgments and key assumptions made in applying those policies;
Measurement bases used for recognition (e.g., historical cost, fair value);
Information enabling an assessment of the estimation uncertainty that could result in a material adjustment to the balances of assets and liabilities, which are point estimates in many cases.
114
What are the disclosure requirements for noncurrent liabilities?
Combined aggregate amount of maturities on borrowings 5+ years after balance sheet, sinking fund requirements; the aggregate amount of payments for unconditional obligations to purchase fixed or minimum amounts of goods or services; the fair value of each financial debt instrument in the financial statements or in the notes; the nature of the firm's liabilities, interest rates and maturity dates, conversion options, assets pledged as collateral, and restrictions.
115
What is presented in the related party transaction disclosures?
Nature of relationship, description of all transactions for years presented, dollar amounts of transactions, and receivables to or from parties.
116
What is the Management Discussion & Analysis (MD&A) section?
Management Discussion & Analysis: a narrative written by management that is an integral part of the disclosure of the financial statements.
117
What disclosure is required by firms in hyperinflationary economies under International Financial Reporting Standards (IFRS)?
Disclosure of the impact of inflation on the financial statements is required.
118
Define "inflation".
It is the increase in general prices for a period of time; deflation is the decrease in general prices.
119
Define "nonmonetary items".
The specific price of nonmonetary items can change.
120
Define "purchasing power".
The purchasing power of an asset is the amount of goods and services that can be obtained by transferring the asset to another party.
121
Define "purchasing power loss".
Losses that result from holding monetary assets during inflationary times or having monetary liabilities during deflationary times.
122
Define "general prices".
The term general prices refers to a market basket of items that the typical consumer purchases.
123
The term general prices refers to a market basket of items that the typical consumer purchases.
Illegal contributions and bribes.
124
Define "constant dollars".
Measurements in the general price level as of a specific date.
125
What is a development stage enterprise?
An enterprise placing substantially all its efforts into the establishment of a new business.
126
What does the first footnote typically cover?
Summary of significant accounting policies.
127
Return on Total Assets
Return on Total Assets = (Net Income + (add back) Interest Expense (net of tax effect)) / Average Total Assets
