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101 Cards in this Set

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  • Back

How is a development-stage enterprise defined?

One in which either:
(i) Principal operations have not yet commenced, or
(ii) Principal operations have generated an insignificant amount of revenue (or a loss).

What are the disclosure requirements for development-stage enterprises?

A. Identify the financial statements as those of a development stage enterprise.

B. In the balance sheet, describe cumulative net losses as "deficit accumulated during the development stage"

C. In the income statement, show revenues and expenses for each period being presented, and present a cumulative amount from the company's inception.

D. In the cash flows, include cumulative amounts of cash inflows and outflows from the company's inception and current amounts of cash inflows and outflows for each period presented.

E. In the statement of stockholders' equity, include the numbers of shares of stock issued, dates of issuance, and dollar amounts assigned. If non-cash consideration is involved, include a description of the nature of the consideration and the basis for its valuation.

What is Form 11-K

The annual report of a company's employee benefit plan(s).

Materiality and relevance are both defined by:

Determination of materiality and relevance is based on professional judgment and is affected by the needs of those who will be using the financial statements to make decisions.

According to the FASB conceptual framework, for financial reporting to be useful, it must:

It must provide information which is useful to existing and potential investors, lenders, and other creditors in making decisions about the reporting entity based on the financial information provided.

On its opening IFRS balance sheet, an entity may NOT elect to use fair value to report:

Inventory must be reported at the lower of cost or net realizable value, with cost determined using an IFRS method (specific identification, FIFO, weighted/moving average).

On July 1, Year 4, an entity adopted IFRS. The end of the company's first IFRS reporting period is December 31, Year 4. The company will present one year of comparative information. The company's date of transition to IFRS is:

If an entity is presenting one year of comparative information, the first IFRS financial statements must include three balance sheets (end of current period, end of prior period, and beginning of prior period), and two of each other statement. The date of transition to IFRS is the opening balance sheet date, which would be the date of the beginning of the prior period. For this entity, the date of the beginning of the prior period is January 1, Year 3.

How should a first-time adopter of IFRS recognize the adjustments required to present its opening IFRS statement of financial position?

All adjustments go directly to retained earnings or if appropriate, another category of equity at the date of transition to IFRS.

What must be included in an entity's first IFRS financial statements?

An entity's first financial statements should include at least:


Three balance sheets (statements of financial position),


Two statements of comprehensive income,


Two separate income statements,


Two statements of cash flows,


Two statements of changes in equity, and


Related notes, including comparative information.

What is an entity's first IFRS financial statements?

The first annual financial statements in which the entity adopts IFRS and makes an explicit and unreserved statement in those financial statements of compliance with IFRS.

Which form is not required to include audited financial statements?

Form 6-K is filed semi-annually by foreign private issuers and contains unaudited financial statements. Form 10-Q, which is filed quarterly by U.S. registered companies, also contains unaudited financial statements.

Under Regulation S-X, an entity's annual financial statements filed with the SEC should include which statements?

Balance sheets for the two most recent fiscal years and the statements of income, changes in owners' equity, and cash flows for the three fiscal years preceding the date of the most recent audited balance sheet.

What is Regulation S-X (17 CFR part 210)

In Regulation S-X (17 CFR part 210), the SEC sets forth the form and content of and requirements for interim and annual financial statements to be filed with the SEC.

What is an accelerated filer?

An accelerated filer is an issuer:


With a public float of greater than or equal to $75 million,


Subject to the Securities Exchange Act's reporting requirements for greater than or equal to 12 months,


That previously filed at least 1 report,


Which is not eligible to file quarterly and annual reports on Forms 10-QSB and 10-KSB.

A company is an accelerated filer that is required to file Form 10-K with the United States Securities and Exchange Commission (SEC). What is the maximum number of days after the company's fiscal year end that the company has to file Form 10-K with the SEC?

75 days

What are the Form 10-K reporting requirements?

Form 10-K must be filed annually by U.S. registered companies. The filing deadline is 60 days after the end of the fiscal year for large accelerated filers, 75 days for accelerated filers, and 90 days for all other registrants. These forms contain a summary of financial data, MD&A, and audited financial statements prepared using GAAP.

Which of the following items in not required to be presented in an exhibit prepared using XBRL when a filer submits Form 10-K to the SEC?



a. Management's discussion and analysis (MD&A)


b. Summary of significant accounting policies


c. Balance sheet


d. Statement of comprehensive income

The MD&A is not required. The SEC's Interactive Data Rule requires a U.S. public company submitting a Form 10-K to present financial statements, including the balance sheet, statement of comprehensive income, and all footnotes, and any applicable financial statement schedules, in an exhibit prepared using XBRL.

Under Regulation S-X, an entity's interim and annual financial statements filed with the SEC should include which balance sheets?

Balance sheets as of the end of the most recent fiscal quarter and as of the end of the preceding fiscal year. A balance sheet for the corresponding fiscal quarter for the preceding fiscal year is not required unless necessary to understand the impact of seasonal fluctuations.

Under Regulation S-X, an entity's interim and annual financial statements filed with the SEC should include which income statements?

Income statements for the most recent fiscal quarter, for the period between the end of the preceding fiscal year and the end of the most recent fiscal quarter, and for the corresponding periods of the preceding fiscal year.

Under Regulation S-X, an entity's interim and annual financial statements filed with the SEC should include which cash flow statements?

Statements of cash flows for the period between the end of the preceding fiscal year and the end of the most recent fiscal quarter, and for the corresponding period for the preceding fiscal year.

An entity has modified liability for its interactive data (XBRL) exhibits for what period?

24 months from the time the filer first is required to submit interactive data files. The modified liability provision will terminate completely on October 31, 2014, but will end sooner than this date for most entities.

What are Forms 3, 4, and 5?

These forms are required to be filed by directors, officers, or beneficial owners of a class of equity securities of a registered company and would not contain financial statements. They contain information regarding the filer's ownership of the entity's securities.

What are the filing deadlines for Form 10-Q?

Form 10-Q is a quarterly report filed within 40 days for large corporations and 45 days for small corporations after the end of the first three quarters of each fiscal year. It must contain reviews of interim financial information by an independent CPA.

According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based what?

the informational needs of the external users of the information

According to the FASB and IASB conceptual frameworks, predictive value is an ingredient of "Relevance" or "Faithful Representation"?

Relevance

What are the fundamental qualitative characteristics of useful information?

Relevance and Faithful Representation.

What are the ingredients of Relevance?

Predictive Value


Confirming Value


Materiality

What are the ingredients of Faithful Representation?

Completeness


Neutrality


Freedom from Error

FASB's conceptual framework explains both financial and physical capital maintenance concepts. Which capital maintenance concept is applied to currently reported net income, and which is applied to comprehensive income?

Financial capital maintenance is applied to both currently reported income and comprehensive income.

What are assets?

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

What are revenues?

Revenues are inflows or other enhancements of assets and/or settlements (decreases) in liabilities resulting from the entity's ongoing major operations,not from "incidental" operations.

What are the requirements under IFRS and U.S. GAAP for the summary of significant accounting policies?

A description of all significant policies should be included as an integral part of the financial statements. Policies presented in other notes should not be duplicated.

What should be included in the summary of significant accounting policies?

Identify and describe:


a. Measurement bases


b. Accounting principles and methods


c. Criteria


d. Policies


e. Pricing

What are some accounting policies commonly described in the summary of significant accounting policies?

a. Basis of consolidation


b. Depreciation methods


c. Amortization of intangibles


d. Inventory pricing


e. Accounting for recognition of profit on long-term construction contracts


f. Recognition of revenue from franchising or leasing operations

Which items are NOT included in the summary of significant accounting policies?

a. Composition of accounts and amounts in dollars of account balances


b. Details relating to changes in accounting principles


c. Dates of maturity and amounts of long-term debt


d. Yearly computation of depreciation

What are inventory costs?

Purchase price & freight in (these go into cost of goods sold)

What are selling expenses?

Freight out


Sales team salaries and commissions


Advertising

What are general & administrative expenses?

Officer's salaries


accounting and legal


insurance

What are non-operating expenses?

Auxiliary activities


interest expense

Brecon Co. installed cabinets to display its merchandise in customers' stores. Brecon expects to use these cabinets for 5 years. Brecon's Year 1 multi-step income statement should include:


a. One-fifth of the cabinet costs in selling, general, and administrative expenses.


b. All of the cabinet costs in cost of goods sold.


c. One-fifth of the cabinet costs in cost of goods sold.


d. All of the cabinet costs in selling, general, and administrative expenses.

One-fifth of the cabinet costs (depreciation expense) should be included in selling, general, and administrative expenses for Year 1. Merchandise display cabinets are fixed assets whose cost should be allocated systematically over their five-year useful life.

Gown, Inc. sold a warehouse and used the proceeds to acquire a new warehouse. The excess of the proceeds over the carrying amount of the warehouse sold should be reported in what part of the income statement?

Continuing Operations



When a fixed asset is sold, gain or loss is recognized as part of income from continuing operations. The amount of the gain or loss is equal to the difference between the proceeds from the sale and the carrying amount (FMV) of the fixed asset sold.

Should unrealized losses (or gains) resulting from changes in market value of available-for-sale investments be reported in the income statement?

Unrealized losses (or gains) resulting from changes in market value of available-for-sale investments should be reported as a component of other comprehensive income in shareholders' equity. Unrealized gains and losses on investments held for trading would be included in net income.

Under U.S. GAAP, a transaction that is unusual, but not infrequent, should be reported separately as a(an):


.


a. Component of income from continuing operations, but not net of applicable income taxes.


b. Extraordinary item, net of applicable income taxes.


c. Component of income from continuing operations, net of applicable income taxes.


d. Extraordinary item, but not net of applicable income taxes.

A transaction that is unusual, but not "infrequent" should be reported separately as a component of continuing operations, (gross) but not net of applicable income taxes.

How is income (or loss) from continuing operations, discontinued operations, and extraordinary items reported on the income statement?

Income (or Loss) from continuing operations (individual line items show "gross of tax", then total reported "net of tax")



Income (or Loss) from Discontinued Operations (reported "net of tax")



Extraordinary Items (reported "net of tax")

What is the presentation order of the major components of an income and retained earnings statement?

Income from continuing operations


Discontinued operations


Extraordinary Items


Accounting principle change

What is the cumulative effect of change in accounting principle?

It's presented net of tax and is the cumulative effect (calculated as of the beginning of the earliest period presented in the period of implementation of the new method) of a change from one acceptable method of accounting to another (GAAP to GAAP) because the new method presents the financial information more fairly than the old method.

What are extraordinary items?

Items that are infrequent and unusual in nature.



a. Material in nature


b. of a character significantly different from the typical or customary business activities


c. Not expected to recur in the forseeable future, and


d. Not normally considered in evaluating the ordinary operating results of an enterprise

What are examples of extraordinary items?

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


2. An expropriation of a plant by the government


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


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


What are examples of non-extraordinary items?

1. Gain or loss from sale or abandonment of property, plant, or equipment used in the business



2. Large write downs or write-offs of receivables, inventories, intangibles, long-term securities



3. Gain or loss from foreign currency transactions or translation



4. Losses from major strike by employees



5. Long-term debt extinguishments that are part of a common management strategy

Teller Co. incurred losses arising from its guilty plea in its first antitrust action, and from a substantial increase in production costs caused when a major supplier's workers went on strike. Which of these losses should be reported as an extraordinary item under U.S. GAAP?

Losses arising from a company's first (and probably "last") "anti-trust" action are unusual and extraordinary and should be reported as an extraordinary item. Losses resulting from additional costs caused by a strike at a major supplier or even at one's own company are not extraordinary and should be disclosed as "income from continuing operations."

What are the criteria for classifying a business (U.S. GAAP) or a disposal group (IFRS) as "held for sale"?

1. Management commits to a plan to sell the component.


2. The component is available for immediate sale in its present condition.


3. An active program to locate a buyer has been initiated.


4. The sale of the component is probable and the sale is expected to be complete within one year.


5. The sale of the component is being actively marketed.


6. Actions required to complete the sale make it unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

What types of items are included in the calculation of discontinued operations?

1. Types of Items Included in Results


a. Results of operations of the component.


b. Gain or loss on disposal of the component.


c. Impairment loss (and subsequent increases in fair value) of the component.



2. Report in the period disposed of or held for sale



3. Assets within the component are no longer depreciated or amortized.

What are exit and disposal costs?

1. Involuntary employee termination benefits.


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


3. Other costs associated with exit or disposal activites, including costs to consolidate facilities or relocate employees.

What is the criteria for liability recognition for exit or disposal activities?

1. An obligating event has occured,


2. The event results in a present obligation to transfer assets or to provide services in the future, and


3. The entity has little or no discretion to avoid the future transfer of assets or providing of services.



Future operating losses expected to be incurred as part of an exit or disposal activity are recognized in the period(s) incurred.


What are the 3 broad classes of accounting changes?

1. Changes in accounting estimate,



2. Changes in accounting principle, and



3. Changes in accounting entity.



Error corrections are not considered accounting changes.

What are examples of events that result in estimate changes?

1. Changes in the lives of fixed assets.


2. Adjustments of year-end accrual of officers' salaries and/or bonuses.


3. Write-downs of obsolete inventory.


4. Material nonrecurring IRS adjustments.


5. Settlement of litigation.


6. Changes in accounting principle that are inseparable from a change in estimate (e.g., a change from the installment method to immediate recognition method).

How are changes in estimate reported?

Prospectively. If a change in accounting estimate affects several future periods, the effect on income before extraordinary items, net income, and the related per share information for the current year should be disclosed in the notes to the financial statements.

Under U.S. GAAP, is the cumulative effect of an inventory pricing change on prior years earnings reported on the financial statements for LIFO to Weighted Average or Weighted Average to LIFO?

In a change to LIFO, no cumulative effect adjustment is made. The change is accounted for prospectively.



In a change from LIFO to weighted average, there is no such impracticability. The cumulative effect is computed and the change is handled retrospectively.

What is a change in accounting principle?

A change in accounting from one accounting principle to another acceptable accounting principle (i.e., GAAP to GAAP or IFRS to IFRS).

What is the rule of preferability for a change in accounting principle?

An accounting principle may be changed only if required by GAAP/IFRS or if the alternative principle is preferable and more fairly presents the informationH

How is a change in accounting principle reported?

Retrospectively - changes should be recognized by adjusting beginning retained earnings in the earliest period presented for the cumulative effect of the change, and, if prior period financial statements are presented, they should be restated. Separate disclosure if material.

What is the exception to the retrospective application rule for changes in accounting principle?

Impracticable to estimate



E.g. a change in inventory cost flow assumption to LIFO. This change is handled prospectively.

What is an error correction?

(i) Corrections of errors in recognition, measurement, presentation, or disclosure in financial statements resulting from mathematical mistakes, mistakes in the application of U.S. GAAP/IFRS, or oversight or misuse of facts.



(ii) Changes from a non-GAAP/IFRS method to a GAAP/IFRS method (e.g. cash basis to accrual)

How do you correct an error correction if comparative financial statements are presented?

a. If comparative financial statements are presented and financial statements for the year with the error are presented, merely correct the error in those prior financial statements.



b. If comparative financial statements are presented and financial statements for the year with the error are not presented, adjust (net of tax) the opening retained earnings of the earliest year presented.

How do you correct an error correction if comparative financial statements are NOT presented?

the error correction should be reported as an adjustment to the opening balance of retained earnings (net of tax).

What is a change in accounting entity?

this occurs when the entity being reported on has changed composition. E.g. consolidated or combined financial statements that are presented in place of statements of the individual companies and changes in the companies included in the consolidated or combined financial statements from year to year.

How should a change in accounting entity be reported?

If the change occurs in the current year, all previous financial statements that are presented in comparative financial statements along with the current year should be restated to reflect the information for the new reporting entity.



Full disclosure of the cause and nature of the change should be made, including changes in income before extraordinary items, net income, and retained earnings.

Is timeliness or reliability more important for interim reporting?

Timeliness

What is interim financial reporting?

Interim reporting is not required under GAAP or IFRS and is generally concerned with the quarterly reports that public companies must file with the SEC. GAAP used in the most recent annual report should be applied to interim statements of the current year, unless a change in accounting principle is adopted in the current year.

How are income taxes computed for interim financial statements?

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

How are permanent declines in market value reported in interim financial statements?

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.

How are temporary declines in market value reported in interim financial statements?

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

During the second quarter, Buzz Company sold a piece of equipment at a $12,000 gain. What portion of the gain should Buzz report in its income statement for the second quarter?

$12,000. The entire amount of an "extraordinary gain or loss" or an "unusual or infrequently occurring item," e.g., a gain or loss from sale of fixed assets, should be reported during the period (quarter) incurred.

How should interim financial statements be viewed in relation to the annual financial statements?

Interim financial statements must be viewed as an integral part of the annual financial statements.

For interim financial reporting, the computation of a company's second quarter provision for income taxes uses an effective tax rate expected to be applicable for the full fiscal year. The effective tax rate should reflect anticipated:

The effective income tax rates for operations for the full year should reflect anticipated foreign tax rates and available tax planning alternatives. In addition, the effect of other anticipated tax credits, capital gains rates, and foreign tax credits should be included.

For interim reporting, in which period of the calendar year are property taxes recorded?

Expenses that benefit more than one interim period, such as property taxes, are allocated among the periods benefited.

What is the quantitative threshold for reportable segments?

To be significant enough to report on, a segment must be at least 10% of:



1. Combined revenues (whether intersegment or unaffiliated customers), or


2. Operating income (of all segments that did not report a loss), or


3. Identifiable assets.

How is operating profit measured for segment reporting?

Operating profit by segments is based on the measure of profit reported to the "chief operating decision maker."



Allocations for general operating costs and interest, etc., should not be made solely for purposes of segment disclosures.

When should an enterprise report major customer data for segment reporting?

If revenue from a single external customer is 10% or more of total revenue, then the company should disclose this fact, the total amount of revenue from the customer, and the segment or segments reporting the revenues. The identity of the customer need not be disclosed.

How do Development Stage Enterprises present their financial statements?

Development stage enterprises should present FS in accordance with GAAP and make additional disclosures such as: cumulative net losses, cumulative deficit (as part of equity), cumulative sales & expenses (part of I/S), cumulative statement of cash flows and supplementary "shareholders equity."

Where should deficits accumulated during the development stage of a company be reported?

Deficits accumulated during the development stage of a company should be reported as a part of stockholders' equity on the balance sheet.

How does financial reporting by a development stage enterprise differ from financial reporting for an established operating enterprise?

Financial reporting by a development stage enterprise differs from financial reporting for an established operating enterprise in regard to (more extensive) footnote disclosures only.

What is the balance sheet disclosure requirement for a development-stage enterprise?

In the balance sheet, describe cumulative net losses as "deficit accumulated during the development stage".

What are the income statement disclosure requirements for a development-stage enterprise?

Show revenues and expenses for each period being presented, and present a cumulative amount from the company's inception.

What are the cash flow statement disclosure requirements for a development-stage enterprise?

1. Cumulative amounts of cash inflows and cash outflows from the company's inception, and



2. Current amounts of cash inflows and cash outflows for each period presented.

What is the calculation for Comprehensive Income?

Net Income


+ Other Comprehensive Income


__________________________________


Comprehensive Income

What is Other Comprehensive Income?

Revenues, expenses, gains, and losses that are included in comprehensive income but excluded from net income under U.S. GAAP and/or IFRS.

What is Comprehensive Income?

The change in equity (net assets) of a business enterprise during a period from transactions and other events excluding investments by owners and distributions to owners.



Non-owner sources.

What are the different classifications for Other Comprehensive Income?

Pension Adjustments


Unrealized Gains and Losses (available for sale securities)


Foreign Currency Items


Effective Portion of Cash Flow Hedges


Revaluation Surplus


What types of Pension Adjustment items can be included in Other Comprehensive Income (OCI)?

Under GAAP, changes in the funded status of a pension plan due to gains or losses, prior service costs, and net transition assets or obligations must be recognized & included in OCI in the year the changes occur until they are recognized as a component of net periodic benefit cost.



Under IFRS, certain actuarial gains & losses may be included in OCI & are NOT reclassified to net income in subsequent periods.

What types of Unrealized Gains and Losses items can be included in Other Comprehensive Income (OCI)?

a. Unrealized holding gains & losses on "available for sale securities"



b. Unrealized holding gains and losses that result from a debt security being transferred into the "available for sale" category from "held to maturity"



c. Subsequent decreases or increases in the fair value of "available for sale" securities previously written down as impaired

What types of Foreign Currency items can be included in Other Comprehensive Income (OCI)?

Foreign currency translation adjustments and gains and losses on foreign currency transactions that are designated as (and are effective as) economic hedges of a net investment in a foreign entity.



Foreign currency translation adjustments remain in OCI until the sale or liquidation of the investment in the foreign entity.

What types of Effective Portion of Cash Flow Hedge items can be included in Other Comprehensive Income (OCI)?

The effective portion of a cash flow hedge is reported as OCI until the cash flows associated with the hedged item are realized.

What types of Revaluation Surplus items can be included in Other Comprehensive Income (OCI)?

(IFRS only)



Revaluation surpluses (gains) recognized when intangible assets and fixed assets are revalued, are also included in OCI. Revaluation surpluses are not reclassified to net income in subsequent periods, but may be transferred directly to retained earnings when the related asset is used or derecognized.

What are reclassification adjustments to other comprehensive income?

Reclassification adjustments move other comprehensive income items from accumulated other comprehensive income to the income statement.

What is accumulated other comprehensive income?

Accumulated other comprehensive income is a component of equity that includes the total of OCI for the period and previous periods. OCI for the current period is "closed" to this account (balance sheet), which is reconciled each period.



Side Note: Net income is closed to retained earnings and OCI is closed to Accumulated OCI (which is on the balance sheet).

Is a change from the double-declining balance method of depreciation to the straight-line method of depreciation a change in accounting method or a change in accounting principle?

This is a change in accounting estimate effected by a change in accounting principle. This type of change is reported prospectively and all activity is reported through income from continuing operations.

Would revenue from a cancelled product line in women's clothing be reported in income from continuing operations, discontinued operations, or extraordinary items?

Income from continuing operations.



A dress line in women's clothing would not qualify as a component of a business, so it cannot be a component of discontinued operations.

What is a component of an entity?

A part of an entity (the lowest level) for which operations and cash flows can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the entity.

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

a. An operating segment


b. A reportable segment


c. A reporting unit (as defined in goodwill impairment testing)


d. A subsidiary


e. An asset group (a collection of assets to be disposed of together as a group in a single transaction and the liabilities directly associated with those assets that will be transferred in that same transaction).

What are examples of a component of an entity under IFRS?

a. A separate major line of business or geographical area of operations, or



b. A subsidiary acquired exclusively with a view to resale.