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CPA > My FAR > Flashcards

My FAR Flashcards

1
Q

What is the APB?

A

It determined GAAP from 1959 until 1973

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2
Q

What is the SEC?

A

The securities and exchange commission

Has legal authority to establish GAAP

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3
Q

What is the FASB?

A

Financial accounting standards board

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4
Q

What is the FASB accounting standards codification?

A

It is the single source of authoritative non government US GAAP
created in 2009

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5
Q

What is the authoritative literature included in the codification?

A

FEDPRIA

FASB
Emerging issues task force
Derivative implementation group
Accounting principles board opinions
Accounting research bulletins
Accounting interpretations
AICPA
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6
Q

How does the FASB update the accounting standards codification for new U.S. GAAP for amendments to the SEC?

A

With Accounting Standards Updates
But they are not authoritative literature and instead provides background information
All new GAAP AND SEC amendments are fully intergrated into existing structure of the codification.

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7
Q

What is the IASB?

A

International Accounting Standards Board

Established in 2001 as a part of IFRS (international financial reporting standards)

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8
Q

What is the purpose of the IASB?

A

To develop a single set of high-quality global accounting standards

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9
Q

What is the IFRIC?

A

International financial reporting interpretations committee
Provides guidance on newly identified financial reporting issues not addressed in IFRS and assists the IASB in achieving international convergence of accounting standards

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10
Q

What is the international convergence of accounting standards?

A

To set a single set of high quality international accounting standards that companies could use for both domestic and cross border financial reporting.
IASB and FASB work together to make this happen, like a marriage counseling

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11
Q

What is the SFAC?

A

Statements of financial concepts
Serves as a basis for all FASB pronouncements/concepts
It’s not GAAP

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12
Q

What is SFAC 8 the objective of general purpose financial reporting?

A

To disclose entity’s performance for external users and to meet the needs of intended users. Like investors, lenders and other creditors

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13
Q

What are the Qualitative Characteristics of useful financial information?

A

Relevance and Faithful Representation

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14
Q

What is included in relevance?

A

Passing confirms money

Predictive value
Confirming value
Materiality

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15
Q

What is included in Faithful Representation?

A

Completely neutral is free from error

Completeness
Neutrality
Free from error

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16
Q

What are the enhancing quantitative characteristics?

A

Cut like a v
Compare and verify in time to understand

Comparability
Verifiability
Timeliness
Understandability

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17
Q

What is the full set of financial statements?

A 
Balance sheet
Income statement 
Statement of comprehensive income
Statement of cash flows
Statement of changes in Owners equity
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18
Q

What are the measurement attributes for assets and liabilities?

A

Historical cost - op&re
Current cost - inventory
Net realizable value - a/r (less allowance for doubtful accounts)
Current market value - marketable securities
Present value of future cash flows - long term debt like bonds, leases, pensions

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19
Q

What are the fundamental assumptions?

A

Entity assumption
Going concern assumption
Monetary assumption
Periodicity assumption - years 10k and quarters 10q

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20
Q

What is historical cost?

A

Financial information is accounted for and based on cost, not on current market value

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21
Q

What is the revenue recognition principle?

A

Revenue should be recognized or recorded when it is earned (it did something to be entitled to the benefits) and when it is realized (cash) or realizable (a/r)

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22
Q

What is accrual accounting?

A

Record revenue and/or expense w/o exchange of cash

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23
Q

What is the conservatism principle?

A

Choose the GAAP method that is least likely to overstate assets and understate liabilities in the current period
Choose a method that would show less revenue and greater expenses

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24
Q

What is comprehensive income?

A

It includes all differences between beginning equity and ending equity other than transactions with owners

Net income plus other comprehensive income

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25
Q

What are the elements of the financial statements?

A

My friend REGL wants to buy some ALE but needs ID
Income Statement
Revenue
Expenses. Normal operating and recurring
Gains
Losses. Non-operating or infrequent

Balance Sheet
Assets. Capable of generating revenue in the future
Liabilities. Future sacrifice arising from a present obligation
Equity. Residual interest in the assets

Excluded from comprehensive income
Investments by owners. Not a revenue or gain
Distributions to owners. Not an expense or loss

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26
Q

What are the 5 elements of present value measurement of assets or liabilities?

A 
Estimate of future cash flow
Expectations about timing variations of future cash flows
Time value of money (risk-free rate of interest)
The price for bearing uncertainty (risk)
Other factors (liquidity issues and market imperfections)
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27
Q

What are the present value computations?

A

Traditional approach - PV of bonds, scheduled known payments

Expected cash flow approach - PV of warranties, uncertain future payments.

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28
Q

What is the purpose of the income statement?

A

To provide information about the uses of funds in the income process
Like expenses, losses, revenues and gains
It is useful in determining profitability, value for investment purposes and credit worthiness

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29
Q

What are unexpired costs?

A

It’s an asset
It’s a cost that will expire in future periods, can generate revenue in future
Goes on the balance sheet

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30
Q

What is gross concept?

A

Revenues - selling price for service or inventory less allowance for returns and discounts

Expenses - cost of goods sold or SG&A

31
Q

What are net concepts?

A

Gains - proceeds less net book value

Losses - proceeds less net book value

These are infrequent or unusual

32
Q

What is the presentation order of the income statement?

A

IDE- net income

Income from continuing operations
Individual items show “gross of tax” (before tax) then “net of tax” (after tax)
Includes operating activities and non-operating activities

Income from discontinued operations “net of tax”

Extraordinary items “net of tax”

33
Q

What is cumulative effect of change in accounting principle?

A

It’s the change from one acceptable method of accounting to another bc the new method presents the financial information more fairly than the old method

34
Q

What are the steps in a multiple step income statement?

A 
Net sales 
Less cogs 
Totals gross margin
Less operating expenses of 
    Selling
     General and admin
     Depreciation
Totals income from operations
Plus other revenues and gains
     Interest income
     Gain on sale of fixed assets
     Other income 
Less other expenses and losses
     Interest expense
     Loss on sale of fixed asset
Totals income before unusual items and income tax 
Less unusual or infrequent items 
Totals income before taxes 
Less taxes
Totals net income
35
Q

What is included in Inventory cost?

A

Purchase price and freight in

36
Q

What is included in selling expense?

A

Freight out, salaries and commissions, advertising

37
Q

What is included in general and administrative expense?

A

Officers salaries, accounting, legal and insurance

38
Q

What are included in non operating expenses?

A

Auxiliary activities and interest expense

39
Q

What are discontinued operations?

A

It can consist of an impairment loss, a gain/loss from actual operations and a gain/loss on disposal
These have to be included in the period in which they occur, not before

40
Q

What is a component of an entity under U.S. GAAP?

A 
Operating segment
Reportable segment 
Reporting unit
Subsidiary
Asset group
41
Q

What is a component of an entity under IFRS?

A

A separate major line of business or geographical area of operations

Or

A subsidiary acquired exclusively with a view to resale

42
Q

What is held for sale?

A

A complement is considered held for sale if:
Management commits to a plan to sell
It is available for immediate sale in its present condition
An active program to locate a buyer has been initiated
The sale of the component is probable and the sale is expected to be compete within one year
The component is being actively marketed
It is unlikely that significant change stints plan will be made or that the plan will be withdrawn

43
Q

When should a component be reported in discontinued operations?

A

It has been disposed of
Or
It’s classified as held for sale

44
Q

What types of items are included in discontinued operations?

A

Results of operations of the component
Gain or loss on disposal of component
Impairment loss

45
Q

Do discontinued operations get depreciated or amortized?

A

No

46
Q

When would anticipated future gains or losses be recognized in discontinued operations?

A

A gain or loss not previously recognized that results from the sale of the component is recognized at the date of sale and not before

47
Q

How is a component classified as held for sale measured in valuation?

A

It’s measured at lower of its carrying amount or fair value less costs to sell

48
Q

What costs are associated with exit and disposal activities required by U.S. GAAP?

A

Involuntary employee termination benefits

Costs to terminate a contract that is not a capital lease.

49
Q

When should a liability associated with an exit or disposal activity be recognized?

A

When all criteria are met:
An obligating event has occurred
The event results in a present obligation to transfer assets or to provide services in the future
The entity has little or no discretion to avoid the future transfer of assets or providing of services

50
Q

How should the liability be measured in a commitment to an exit or disposal plan?

A

It should be measured at fair value

51
Q

What is considered an extraordinary item?

A

When an item is unusual and infrequent
They are transactions that are
Material in nature
Of a character significantly different from the typical or customary business activities
Not expected to recur in the foreseeable future and infrequent

52
Q

How are extraordinary items disclosed?

A

They are disclosed in the income statement, net of any tax affects after discontinued items

53
Q

What are some examples of extraordinary items?

A

The abandonment or damage to a plant due to an infrequent earthquake or an infrequent flood

An expropriation of a plant by the government

A prohibition of a product line by a newly enacted law or regulation

Certain gains or losses from extinguishment of long term debt, provided they are not part of the entity’s recurring operations

54
Q

What are some nonexrtraoedinary items?

A

Long term securities (permanent decline)
Gain or loss from foreign currency
Losses from a major strike by employees
Long term debt extinguishments

55
Q

What do you do if you have an item that is unusual OR infrequent?

A

If material, these items should be reported as a separate line item as part of income from continuing operations and not net of tax

56
Q

What are accounting changes broadly classified as?

A 
Accounting estimate (prospective)
Accounting principle (retrospective)
Accounting entity (restate)
57
Q

What are some reasons there are changes in an accounting estimate?

A

Lives of a fixed asset
Adjustments of year end accrual of officers salaries and/or bonuses
Write downs of obsolete inventory
Material non-recurring IRS adjustments
Settlement of litigation
Changes in accounting principle that are inseparable from a change in estimate

58
Q

Why would there be a change in accounting principle?

A

If the alternative principle is preferable and more fairly presents the information (retrospective)

59
Q

What is a non-cumulative effect of a change in accounting principle?

A

If non-comparative financial statements are being presented then the cumulative effect of a change in accounting principle is equal to the difference between the amount of beginning retained earnings in the period of change and what the retained earnings would have been if the accounting change had been retroactively applied to all prior periods affected

60
Q

What is a change in depreciation method considered?

A

It’s considered to be both a change in accounting principle and a change in estimate

61
Q

What is the general rule for cumulative effect of changes reported in retained earnings?

A

It’s the difference between
Retained earnings at the beginning of the earliest period presented
And retained earnings that would have been reported at the beginning of the earliest period presented if the new accounting principle had been applied

62
Q

What do you have to do if you have changes in accounting equity?

A

Restatement to reflect information for the new entity

Full disclosure

63
Q

If there are corrections to be made on the financial statements, what do you do?

A

If the financial statements are presented - correct the information with the earliest year presented

If the financial statements are not presented - the error should be reported as an adjustment to the opening balance of retained earnings (net of tax)

64
Q

In comprehensive income, what does PUFER mean?

A 
Pension adjustment
Unrealized gains and losses (afs securities)
Foreign currency items 
Effective portion cash flow hedges
Revaluation surplus (IFRS only)
65
Q

What are the steps to get to comprehensive income on the income statement?

A 
Step 1
   Income from continuing operations 
   Discontinued operations 
   Extraordinary items
Step 2
    Other comprehensive income
        Pension adjustments
        Unrealized gains and losses
        Foreign currency items
        Cash flow hedge 
        Revaluation Surplus (IFRS only)
66
Q

What is accumulated other comprehensive income?

A

It’s shown in stock holders equity and includes the total of other comprehensive income for the period and previous periods

67
Q

At the end of each accounting period, what is comprehensive income close to, net income closed to, and other comprehensive income closed to?

A

Comprehensive income closed to balance sheet
Net income closed to retained earnings
Other comprehensive income closed to accumulated other comprehensive income

68
Q

What is a 10k form?

A

It is a form that is filed annually by U.S. registered companies

69
Q

What is a form 10q?

A

It is a form filed quarterly which contains unaudited financial statements and certain disclosures

70
Q

What is for 11k?

A

It is the annual report of a company’s employee benefits

71
Q

What are forms 20f and 40f?

A

They are forms that are filed annually by foreign private issuers.

72
Q

What is form 8k?

A

This form is filed to report major corporate events sucks as asset acquisition or disposal, changes in securities and trading markets, changes to accountants or financial statements and changes to corporate governance or management

73
Q

How should the financial statements be presented in the interim?

A

Balance sheet
Income statement
Statement of cash flows

CPA (7 decks)

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