Week 1 Flashcards
(40 cards)
Regarding proposed accounting standards, what does the term ‘negative economic consequences’ mean?
A firm’s reduced ability to raise capital or higher costs of capital associated with maintaining the new standard.
When a firm changes from cash basis to accrual basis and cannot determine BB Supplies Inventory, what is the effect on Net Income and OE in that first year of the change?
Supplies Expense will be understated, causing net income to be overstated. However, OE is unaffected because the ending inventory is determinable.
What is encompassed by ‘relevance’ when referring to accounting information?
Relevant information is predictive and confirmatory
Faithful information is complete, neutral, and free from error
Comparability pertains to each of the above characteristics
What is the objective of interim reporting?
To present reasonable information in a timely fashion, vs. exact information.
What is the difference between deferral and accrual adjustments?
Deferral adjustments (depreciation, deferred revenue, and even adjustments from PPD Rent) occur after payment or receipt. Accrual adjustments accrue for items that are yet to be paid.
What are some examples of items recorded at net realizable value or settlement rate?
Warranty obligations, AR; used for inventory when applying LCM
Define realization.
The process of converting noncash resources and rights into cash or claims to cash.
What is the common essential quality that all assets share, per SFAC 6 (Elements of Financial Statements)?
Service potential or future economic benefit - an asset must provide a future benefit in order to be recorded as such.
Define revenue per SFAC 6 (Elements of Financial Statements).
Inflows of assets or settlements of liabilities as a result of primary operations.
According to SFAC 7 (Using Cash Flow Information & PV in Accounting Measurements), what is the objective of using PV in an accounting measurement?
To capture the economic difference between sets of future cash flows. When used at initial measurement, the objective is to estimate fair value. Entity specific measurements (Value in Use) attempt to capture value in the context of the entity.
What is one of the main exclusions for use of ASC 820 (Fair Value Measurement)?
Inventory is one of the main items excluded from the application of ASC 820
What is the determination of FV based upon?
A hypothetical transaction, an exit price, and the highest and best use of an asset by market participants.
Is a change in valuation approach to determine fair value considered a change in estimate or a change in principle?
Change in estimate; but the disclosures for change in estimate are not required in this instance.
What is the appropriate basis for determining fair value for an asset or liability?
Exit Price: The price that would be received to sell the asset under current market conditions, or paid to be rid of the liability.
When an entity uses fair value measurement, what type of disclosure is encouraged but not required?
Combined disclosures about fair value measurements required by all pronouncements.
The majority of FV measurement disclosures must be made in both interim and annual reports. True or False?
False.
Methods and significant assumptions are only required to be included in annual reports.
Are FV disclosures required intended to replace the kind and amount of information that would have been provided if the FV option was not being used?
No. FV disclosures should provide the same kind and amount of information that would have otherwise been provided.
What is the purpose of the SEC’s enforcement of the corporate registration requirements of the ‘33 Act?
The enforcement is intended to provide information allowing SEC to ensure that investors are provided adequate information to base their decisions upon.
When a company is required to report FS’ on Form 10-Q, in addition to the current Quarter-End, the entity must report a Balance Sheet(s) for what period(s)?
The last audited Balance Sheet (the preceding fiscal year-end) is required to be presented with the current quarter.
What is the max time allotted for accelerated and large accelerated filers to file the required 10-K Forms?
Accelerated Filers - aggregate WW market value of $75M-700M and has 75 days to file 10-K
LARGE AF’s - aggregate value >$700M and have 60 days to file.
What is the max time allotted for accelerated and large accelerated filers to file the required 10-Q Forms?
Accelerated Filers - aggregate WW market value of $75M-700M and has 45 days to file 10-Q
LARGE AF’s - aggregate value >$700M and have 40 days to file.
What is the prime objective of the IFRS Foundation?
To take account, as appropriate, of the needs different sizes and types of entities in diverse economic settings.
As defined by IFRS, what is an SME (small-medium sized entity)?
The entity doesn’t have public accountability and publishes general purpose financial statements for external users.
How does the CIP account function for Percentage of Completion and Completed Contract methods of revenue recognition?
Current asset/inventory account that is debited only when costs are incurred (pg 411 in bookshelf)
