Cpa Review- Far 1-5 (Interim Financial Statements)

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Interim Financial Reporting (3)

Back 1

-Not required under GAAP or IFRS but both provide guidance when interim information is presented.

-US GAAP is generally concerned with quarterly reports that public companies must file with the SEC.

-Use same accounting principles that were used in the most recent annual report unless a change is adopted in the current year.

Front 2

IFRS vs. U.S. GAAP

Interim Financial Reporting

Back 2

-IFRS requires that F/S's be prepared using the same principles used in the preparation of the most recent annual F/S's.

-U.S. GAAP allows certain practices to be modified when preparing the interim F/S's.

Front 3

Interim Financial Reporting

Matching of Revenues and Expenses (2)

Back 3

-General rule is that costs and expenses that clearly benefit more than one period should be properly allocated to the periods affected.

-Total for CI in condensed F/S's of interim periods issue to shareholders should be reported.

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Interim Financial Reporting

Timeliness (1)

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-For interim reporting only, timeliness is emphasized over reliability.*

Hint 4

*Interim reports are unaudited.

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Interim Financial Reporting

Integral Part of the Financial Statements

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-Interim F/S's must be viewed as an integral part of the annual F/S's.

-Each statement should be marked "unaudited."

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IFRS vs. U.S. GAAP

Interim Financial Reporting Requirements (4)

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-IFRS Statements must include at a minimum:

1. Condensed B/S of the current interim period and the end of the immediately preceding year.

2. Condensed statements of CI for current interim period and the cumulative year-to-date w/ comparative statements for the comparable periods of the immediately preceding year.

3. Condensed statements of changes in equity cumulatively for the current and comparable preceding year.

4. Condensed statement of CF's for current and comparable preceding year.

-GAAP doesn't establish presentation minimums for interim reporting although guidance is provided by the SEC.

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Interim Financial Reporting

Income Taxes

Back 7

-Income tax expense is estimated each quarter.

-General rule is to multiply the year-to-date income by the estimated effective tax rate and subtract the result from the provision included in the previous quarter.

-The estimate of the effective tax rate is made with the best information available at that time and is expected to be applicable for the full fiscal year.

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IFRS vs. U.S. GAAP

Interim Financial Reporting- Income Taxes

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-IFRS allows the effective tax rate to be estimated using enacted or substantially enacted changes in tax rates.

-U.S. allows the use of enacted tax rates only.

Front 9

Interim Financial Reporting

Inventory Valuation- Estimation Method

Back 9

Inventory Estimation Method-

1. Companies should disclose their inventory valuation method used at the interim date and any material difference when reconciled w/ the annual physical inventory.

Front 10

Interim Financial Reporting

Inventory Valuation- Liquidation of a LIFO Base Layer

Back 10

-US GAAP only

-Liquidation of a base-period LIFO layer at an interim date that apparently will be corrected by the end of the annual period should be valued at the expected cost of replacement.

-Costs of sales for the period should include the expected cost of replacement and not the cost of the base-period LIFO inventory.

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Interim Financial Reporting

Inventory Valuation- Permanent and Temporary Declines in Market Value

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1. Permanent inventory losses from market declines should be reflected in the interim period in which they occur. Market increases in subsequent interim periods should be recognized in the recovery interim period not to exceed the losses included in prior interim periods.

2. Temporary market declines that are expected to reverse before the end of the annual period should not be recognized in the interim period statements.

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Other Interim Reporting Issues

Seasonal Revenue Variations

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-Companies w/ material seasonal variations should ensure their interim F/S's don't become misleading.

-Disclosure of material seasonal variations should be made and if large variations usually occur, it's desirable to disclose the results for the full year, which ends at the interim date.

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Other Interim Reporting Issues

Unusual and Infrequent Transactions

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Unusual and infrequent items that are material and not designated as extraordinary items, should be reported separately.

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Other Interim Reporting Issues

Minimum Disclosure Requirements (U.S. GAAP) (14)

Back 14

1. Gross sales/revenues, provision for income taxes, extraordinary items, and net income.
2. Basic and diluted EPS
3. Material seasonal variations of revenues, costs, or expenses
4. Significant changes in estimates or provisions for income taxes
5. Disposal of a component of business and extraordinary, unusual, or infrequently occurring items
6. Contingent items
7. Changes in accounting principles or estimates
8. Significant changes in financial position
9. Reportable operating segment disclosures
10. Defined benefit pension and post-retirement benefit plan disclosures
11. FV measurement disclosures for assets and liabilities, including financial instruments
12. Derivative disclosures
13. Disclosures for certain debt and equity securities
14. Disclosures about other-than-temporary impairments.

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Other Interim Reporting Issues

Minimum Disclosure Requirements (IFRS) (10)

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1. Statement that the accounting policies and methods of calculation used in the most recent annual F/S's are followed in the interim F/S's or if those policies have changed, a description of the change
2. Explanations of seasonal or cyclical interim operations
3. Nature and amount of unusual items affecting assets, liabilities, equity, net income, or CF's*
4. Changes in accounting estimates and error corrections
5. Issuances, repurchases, and repayments of debt and equity securities
6. Dividends paid in total or per share
7. Segment disclosures
8. Material subsequent events not reflected in the interim F/S's
9. The effect of changes in the composition of the entity during the interim period
10. Changes in contingent assets or liabilities

Hint 15

*1. Inventory write-downs and reversals
2. Impairment losses and reversals
3. Reversal of any provisions for restructuring costs
4. Acquisitions and disposals of fixed assets
5. Fixed asset purchase commitments
6. Litigation settlements
7. Un-remedied loan defaults or breaches of loan arrangements
8. Related party transactions