Financial F1

  1. Who has the legal authority to establish GAAP?
    • SEC
    • But they commonly allow the accounting profession to establish GAAP and self-regulate
  2. FASB
    • Determined GAAP since 1973
    • 5 full time members serve one 5 yr term and can do one more additional 5 yr term
  3. What does FASB issue?
    • Statements of Financial Accounting standards (SFAS)
    • FASB interpretations (FIN)
    • FASB technical bulletins (FTB)
    • Emerging issue task force statements (EITF)
    • Staff positions
    • implementation guides
    • Statements of Financial accounting concepts (SFAC)
  4. FASB accounting standards codification
    • Effective July 1, 2009
    • Single source of authoritative nongovernmental US GAAP
    • If it's not in the Codification, it's not in GAAP
  5. Authoritative lit included in code
    • FASB
    • EITF abstracts and topic D
    • Derivative implementation group issues
    • accounting Principles board opinions
    • accounting Research bulletins
    • accounting Interpretations
    • AICPA

    updates are not authoritative
  6. Purpose of IASB
    develop a single set of high quality global accounting standards
  7. IFRIC
    International financial reporting interpretations committe

    • provides guidance on newly identified financial reporting issues not addressed in IFRS
    • assists IASB in achieving international convergence
  8. IFRS
    • Like US GAAP
    • issued by IASB
  9. Convergence
    • goal=single set of high quality international accounting standards
    • FASB and IASB work together to improve GAAP and IFRS and eliminate the differences
  10. SFAC
    statements of financial accounting concepts

    8 SFAC not GAAP but provide basis for financial accounting concepts
  11. SFAC 8 chapter 1 the objective of general purpose financial reporting
    provide financial info about entity that is useful to the primary users in making decisions
  12. SFAC 8 chapter 1 primary users
    • existing and potential:
    • investors
    • lenders
    • other creditors
  13. SFAC 8 chapter 1 financial info provided
    • resources of entity
    • liabilities of entity
    • efficiency and effectiveness of management

    used for users to assess entity's prospects for FCF of enity and to estimate value of entity
  14. SFAC 8 chapter 3 qualitative characteristics of useful financial info
    • Fundamental characteristics=
    • relevance
    • faithful representation

    • enhancing characteristics=
    • comparability
    • verifiability
    • timeliness
    • understandability
  15. 3 requirements for info to be relevant
    Predictive value=used to predict future outcomes

    Confirming value=provides feedback about evaluations previously made by users

    Materiality=different or missing info could affect decision made by user
  16. 3 requirements of Faithful representation
    Completeness=include all info necessary for user to understand economic phenomena

    Neutrality=free from bias

    Freedom from error=no errors in production of financial info or descriptions of economic phenomena. Does no require perfect accuracy however
  17. Comparability
    • info can be compared with similar info about other entities or time periods and find similarities or differences. Consistency (using the same methods for the same items) helps achieve comparability.
    • Helps determine which method to use
  18. Verifiability
    independent observers can agree that info is faithfully represented. complete agreement is not required
  19. Timeliness
    info reaches users in time to influence their decisions
  20. Understandability
    classified, characterized and presented cleary and consisely.
  21. SFAC 7 using CF info and PV in accounting measurements
    Provides a framework to use when using FCF as a measurement
  22. Four components of income and where they are recorded
    • Income from continuing operations=I/S
    • Discontinued operations income=I/S after tax
    • Extraordinary items (GAAP only)=I/S after tax
    • Accounting principle change=RE stmt after tax
  23. Multi step I/S
    • Operating rev and exp reported separately from non op rev and exp and other g/l
    • enhances user information
  24. When is a component considered "discontinued"?
    • When it is held for sale. This includes:
    • mngt commits to a plan to sell
    • can be sold in present condition
    • actively trying to locate a buyer
  25. Extra IFRS held for sale requirement
    Remeasure and recognize any gain or loss
  26. When to recognize a L for exit or disposal costs
    • 1. an obligation event has occurred
    • 2. there's a present obligation to make pmt or provide future services
    • 3. little or no discretion to avoid obligation
  27. Extraordinary items
    • separately disclosed net of tax
    • unusual and infrequent (if only one is met it goes to continuing ops)
    • Not allowed for IFRS
  28. Change in accounting estimate
    • Prospective=affects current and future inc. from continuing ops (future changes should be disclosed)
    • includes change to LIFO and depr change
  29. Changes in accounting principle
    direct effect=any adjustments to make it like you have always used that principle
  30. cumulative effect of change in accounting principle
    • presenting non-comparative fin. stmts=difference between Beginning RE and what RE would have been if new principle had been retroactively applied
    • presenting comparative fin. stmts= difference between beginning RE and what RE would have been if new principle had always been used
  31. Reporting changes in accounting principle
    adjust beginning retained earnings in earliest period presented for cumulative effect. Prior periods should be restated (retrospective)
  32. Changes in accounting entity
    All prior year comparative stmts should be restated.
  33. error corrections
    • presenting comparative fin. stmts=adjust RE of earliest year and correct errors in years presented
    • not presenting comparative fin stmts=adjust BB of RE net of tax
  34. Comprehensive income
    all changes in equity except investments from and distributions to owners

    • NI (IDE)
    • +OCI (PUFER)
    • Comprehensive income
  35. components of OCI
    • Pension adjustments
    • Unrealized g/l on available for sale securities
    • Foreign currency items
    • Effective portion of cash flow hedges
    • Revaluation surplus (IFRS only)
  36. Presentation of comprehensive income
    • 1. single stmt of comprehensive income
    • 2. I/S followed by separate stmt of comp. income starting with NI
    • 3. stmt of changes in equity (only GAAP)
  37. segment reporting requirements
    profit/loss, assets, certain related items, NOT cash flow
  38. reportable segment 10% size test
    • must meet only one
    • 1. revenue=if all reported rev >all reported rev of all segments
    • 2. reported profit/loss=if absolute profit/loss>10% of the greater of absolute amt of all profit reported by segments that did not report a loss or all loss reported by segments that reported a loss
    • 3. assets=if assets>10% of assets of all segments
  39. reportable segment 75% reporting sufficiency test
    If total consolidated rev from reportable segments is <75% of consolidated rev, add more reportable segments (even if they do not meet 10% tests) until at least 75% of consolidated rev is included in reportable segments
  40. all other segments category
    operating segments that are not reportable go in all other segments category
  41. Segment profit/loss
    • Revenues (for that segment internal and external)
    • - directly traceable costs
    • - reasonably allocated costs (by CFO)
    • operating profit/loss for that segment (EBIT)
  42. Determining fair value in the principle market
    • Principle market=greatest volume
    • use price in that market even if another market has a better price
  43. determining fair value with no principle market
    • use most advantageous market=best price after considering trasaction costs
    • don't include transaction costs in final fair value though
  44. Valuation techniques
    • changing techniques is considered a change in accting estimate
    • Maret approach
    • Income approach
    • Cost approach
  45. Market approach
    uses prices and other info from market transactions with identical or comparable A or L to determine fair value
  46. Income approach
    PV of FCF for A or L
  47. Cost approach
    uses current replacement cost to A fair value
  48. hierarchy of inputs
    • Level 1=most reliable. Quoted prices in active markets for identical assets
    • Level 2=Quoted prices for similar A in active markets or identical A in non active markets
    • Level 3=unobservable inputs based on entities assumptions
  49. IFRS opening F/S requirements
    • B/S=3 needed-E of CY, E of PY, and B of PY
    • all other stmts 2 needed
  50. What is considered to date of transition to IFRS?
    The date of the earliest B/S presented-B of PY
  51. Adjusting assets and liabilities to IFRS requirements
    make adjustments directly to retained earnings at the date of transition to IFRS
  52. Disclosure of transition to IFRS
    • What was GAAP, what is IFRS, why the difference?
    • Reconcile total CI from GAAP to IFRS
  53. Form 10-K
    • annual filing required by SEC
    • 75 days after E of fiscal year for accelerated filers, 90 days for others
    • includes summary of financial data, audited F/S, mgt discussion and analysis
  54. Form 10-Q
    • quarterly filing required by SEC
    • 40 days after E of fiscal quarter for accelerated filers, 45 days for others
    • unaudited GAAP F/S, interim MD&A, and disclosures
  55. Forms 20-F and 40-F
    • annual filing for foreign private issuers
    • 40-F for Canada, 20-F for others
    • Similar to 10-K
  56. Form 6-K
    • Filed semi-annually by foreign private issuers
    • similar to 10-Q
  57. Form 8-K
    • reports major corporate events
    • asset acquisitions or disposals
    • changes in trading markets, F/S, mgt. etc.
  58. Forms 3, 4, and 5
    • files by directors, officers, or beneficial owners with >10% of a class of equity.
    • assures no insider trading
  59. Regulation S-X
    • SEC requirements for interim and annual F/S
    • interim F/S must be reviewed by an independent public accountant
    • interim F/S require B/S at E of quarter and E of preceding fiscal year, I/S and CFS for most recent quarter, period between E of preceding fiscal year and E of most recent fiscal quarter, and for corresponding periods of preceding year
  60. Annual F/S requirements
    • audited by independent public accountant and audit report must be filed
    • B/S for 2 most recent fiscal years
    • other stmts for each of 3 fiscal years preceding dat of most recent audited B/S
Card Set
Financial F1
Income Statement