Cpa Review- Far 1-4 (Balance Sheet And Disclosures Overview)

Front 1

Balance Sheet Overview

Back 1

Entities may present a classified B/S that distinguishes current/noncurrent assets and liabilities. When appropriate, a B/S presentation based on liquidity is also permissible.

Front 2

Notes to the Financial Statements

Summary of Significant Accounting Policies

Back 2

GAAP and IFRS require that a description of all significant policies be included as an INTEGRAL part of the F/S's. Preferred presentation is to include "Summary of Significant Accounting Policies" as the first or second note to the F/S's.

Front 3

IFRS vs. U.S. GAAP

Summary of Significant Accounting Policies

Back 3

-IFRS requires an explicit unreserved statement of compliance with IFRS in the notes to the F/S's.

-U.S. GAAP does not have a similar requirement

Front 4

Notes to the Financial Statements

Identify and Describe (5)

Back 4

1. Measurement bases used in preparing the F/S's.
2. Accounting principles and methods
3. Criteria
4. Policies
5. Pricing

Front 5

IFRS vs. U.S. GAAP

Identify and Describe

Back 5

-IFRS requires disclosure of judgements and estimates

-GAAP only requires disclosure of significant estimates.

Front 6

Accounting Policies Commonly Described in this Footnote (6)

Back 6

1. Basis of consolidation
2. Depreciation methods
3. Amortization of intangibles
4. Inventory pricing
5. Accounting for recognition of profit on long-term construction contracts
6. Recognition of revenue from franchising or leasing operations

Front 7

Items Not Included in this Footnote (4)

Back 7

1. Composition of accounts and amounts in dollars of account balances
2. Details relating to changes in accounting principles
3. Dates of maturity and amounts of long-term debt
4. Yearly computation of depreciation, depletion, and amortization

-All not policies

Front 8

Remaining Notes to the Financial Statements (definition and 6)

Back 8

-Remaining notes contain all other information relevant to decision makers. Used to disclose facts not presented in either the body of the F/S's or in the "Summary of Significant Accounting Policies."

1. Changes in stockholder's equity
2. Required marketable securities disclosures
3. Contingency losses
4. Contractual obligations (off-balance sheet financing ex: operating leases)
5. Pension plan description
6. Post-balance sheet disclosures of certain events that occurred before the F/S's were issued (ex: discontinued segment outside the ordinary course of business)

Front 9

Related Party Disclosures

Related Party Defined

Back 9

-GAAP and IFRS require the disclosure of related party transactions. Related Parties include-

1. Affiliates of an entity
2. Entities accounted for using the equity method (investments in affiliates and joint ventures)
3. Parent or subsidiary entities or subsidiaries of a common part
4. Trusts for the benefit of employees such as pension and profit-sharing trusts that are managed under the trusteeship of management.
5. Management of an entity and their immediate family members
6. Owners of more than 10% of the voting interest of an entity (principal owners*) and their immediate family members.

Hint 9

*Principal owners are not mentioned as related parties in IFRS

Front 10

Related Party Disclosures (GAAP)

Material Related Party Transactions (5)

Back 10

Requires the disclosure of material party transactions excluding compensation arrangements, expense allowances, and other similar items. Should include-
1. Nature of the relationship
2. Description of the transactions for each period presented
3. Dollar amounts of the transactions for each period presented.
4. Amounts due to or from the related parties at each balance sheet date.
5. Name of the related party

Front 11

Related Party Disclosures (GAAP)

Notes/Accounts Receivable

Back 11

Notes or A/R from officers, employees, or affiliated entities must be shown separately from general notes and A/R.

Front 12

Related Party Disclosures (GAAP)

Control Relationships

Back 12

-Control relationships between the reporting entity and one or more other entities should be disclosed even if there were no transactions between the entities.

Front 13

Related Party Disclosures (IFRS)

Material Party Disclosures

Back 13

-Requires disclosure of material related party transactions, including compensation arrangements, separately for each category of related party. Should include-

1. Nature of the relationship
2. Description of the transactions for each period presented
3. Dollar amounts of the transactions for each period presented
4. Amounts due to or from the related parties at each balance sheet date
5. Allowance for bad debts related to amounts due to from related parties
6. Bad debt expense and/or write-offs of debts due from related parties

Front 14

IFRS vs. U.S GAAP

Material Party Disclosures

Back 14

-U.S. GAAP doesn't require disclosure of allowance for bad debts, bad debt expense, or write-off's related to amounts due from related parties.

Front 15

Related Party Disclosures (IFRS)

Disclosure of Compensation Arrangements (5)

Back 15

Entities are required to disclose key management personnel compensation in total and for each of the following categories:
1. Short-term employee benefits
2. Post-employment benefits
3. Other long-term benefits
4. Termination benefits
5. Share-based payments

Front 16

IFRS vs. U.S. GAAP

Disclosure of Compensation Arrangements

Back 16

U.S. GAAP doesn't require disclosure of key management arrangements. SEC regulations however, do require key management compensation arrangements outside the F/S's.

Front 17

Related Party Disclosures (IFRS)

Related Party Notes/Accounts Receivable

Back 17

Notes or A/R from related parties must be shown separately from general notes and A/R.

Front 18

Related Party Disclosures (IFRS)

Control Relationships

Back 18

Control relationships between the reporting entity and one or more other entities should be disclosed even if there were no transactions between the entities. Should also disclose the name of its parent, and if different, the ultimate controlling party.

Front 19

Disclosure of Risks and Uncertainties (U.S. GAAP) (4)

Back 19

1. Nature of Operations
2. Use of Estimates in the Preparation of the F/S's
3. Certain Significant Estimates
4. Current Vulnerability due to Certain Concentrations

Front 20

Disclosure of Risks and Uncertainties (U.S. GAAP)

Nature of Operations

Back 20

Footnotes should include a description of the entity's major products/services and its principal markets including their locations.

If entity operates multiple businesses, disclosure should describe the relative importance of each business.

Front 21

Disclosure of Risks and Uncertainties (U.S. GAAP)

Use of Estimates in the Preparation of Financial Statements

Back 21

Footnotes should include the following statement (or similar)

-"The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates."

Front 22

Disclosure of Risks and Uncertainties (U.S. GAAP)

Certain Significant Estimates

Back 22

When it is reasonably possible that an estimate will change in the near term and the effect will be material, an estimate of the effect of the change should be disclosed. Following examples that are particularly sensitive to change-

1. Inventory/equipment subject to rapid technological obsolescence.
2. Deferred tax asset valuation allowances.
3. Capitalized computer software costs.
4. Loan valuation allowances.
5. Litigation-related obligations.
6. Amounts reported for LT obligations such as pension and post-retirement benefits.
7. Amounts reported in LT contracts.

Front 23

Disclosure of Risks and Uncertainties (U.S. GAAP)

Current Vulnerability to Certain Concentrations (Def. & Examples- 4)

Back 23

-Vulnerabilities due to concentrations arise when an entity is exposed to risk of loss that could be mitigated through diversification. Examples-

1. Concentrations in the volume of business transacted with a particular customer, supplier, lender, grantor, or contributor.
2. In revenue from particular products/services.
3. In the available supply of resources.
4. In market or geographic areas.

Front 24

Disclosure of Risks and Uncertainties (U.S. GAAP)

Disclosure Requirements (3 criteria)

Back 24

-Concentrations should be disclosed if all the following criteria are met:

1. Concentration exists at the F/S date.
2. Concentration makes the entity vulnerable to the risk of a near-term severe impact
3. It is at least reasonably possible that the events that could cause the sever impact will occur in the near term.

Front 25

IFRS vs. U.S. GAAP

Risk and Uncertainty Disclosure Requirements

Back 25

-IFRS disclosure requirements are narrower and focus on sources of estimation uncertainty. State that the entity should disclose info about assumptions it makes about the future and other major sources of estimation uncertainty at the end of the period that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year. Notes should contain details of the nature and carrying amount at the end of the reporting period of these assets and liabilities.