Form 10-Q Flashcards
What is a Form 10-Q comprised of?
Facing page and body of report which contains two parts
- Part I: Financial Information
- Part II: Other Information
Under Regulation S-X Rule 10-01, major captions for the balance sheet may be combined for Form 10-Q disclosure if the captions are less than ______ of total assets and have not changed more than _____ since the end of the preceding fiscal year.
10%; 25%
What is the major difference in the role accountants play in conjunction with Form 10-Q filings compared to Form 10-K filings?
Form 10-K subject to audit, whereas Form 10-Q subject to review
What is the iron curtain method of assessing an income statement error?
The “iron curtain” method assesses income statement errors based on the amount by which the income statement would be misstated if the accumulated amount of the errors that remain in the balance sheet at the end of the period were corrected through the income statement during that period.
Quantifies IS errors based on amount by which the current period IS would be misstated if the accumulated amount of the error would be corrected through the IS
What is the rollover method for assessing an income statement error?
The “rollover” method assesses income statement errors based on the amount by which the income statement for the period is misstated—including the reversing effect of any prior period errors.
Focuses on the IS and quantifies an error as the amount by which the CY IS is misstated
During ABC Company’s third quarter of its year ended December 31, 20X8, it discovered an error in its financial statements that originated in the prior year. The error affects revenue, gross profit, operating income, net income, operating cash flow, and deferred income. The company evaluated the error under both the “iron curtain” method and the “rollover” method and determined that it was not material to any of the prior-year fiscal quarters or the prior year-end. The error was determined to be material to the current quarter but not to the projected results for the year.
What factors must be considered in determining whether the company’s prior-year financial statements and its quarterly reports on Form 10-Q or annual report on Form 10-K for the prior year should be amended? If it is determined that none of the prior-year periodic reports need to be amended, what disclosures, if any, should be made in the Form 10-Q for the quarter in which the error is corrected? Where in the Form 10-Q should these disclosures be made?
Share your observations about who management should involve in the discussions and communication relating to the error assessment. How would you approach conversations with these various individuals?
- Evaluate under SAB No. 108 which requires dual approach (errors must be quantified and evaluated under both rollover and iron curtain method)
1) If effect of correction would not materially impact PP FS, those PP FS may still be relied on, and the correction may be made in future filings (no amendment to PP FS)
2) If error would not result in MM of estimated income or loss for the year in which the adjustment is made or to the trend in earnings, the error can be corrected as an out-of-period adjustment (OOPA). If OOPA is material to interim FS in which it is recorded, it should be disclosed separately in FN to FS.
Based on above, ABC company can correct error prospectively, in third quarter interim FS. Because OOPA deemed material, disclose in footnotes and consider making similar disclosures in MD&A.
