Exam 1 Financial Reporting A

What is the explanation of the Operating Section of a Multiple-Step Income Statement?

Reports the revenues and expenses related to the entity's principal operations. Operating profit is a key measure.

When was the US GAAP Codification developed?

2009

What are other assets?

A category that includes any asset that does not fall into any of the primary balance sheet classifications

What are 3 possible research outcomes

Answer in literature but standards setters allow for judgement; Answer readily found; No information available

The statement of cash flows allows financial statement users to...

Assess the entity's ability to meet its obligations and pay dividends; determine whether the entity will require external financing; identify the differences between net income and the associated cash receipts and payments

In what order are assets listed on the balance sheet under US GAAP?

Assets are listed in decreasing order of liquidity

What are property plant and equipment?

Assets that are tangible, long-lived, and used in the production and sale of the company's goods and services

What are intangible assets?

Assets that lack physical substance but have economic value due to the rights they confer upon the holder

What is level 2 of the US GAAP Hierarchy?

Authoritative rules and principles from US GAAP for similar transactions

What is Level 2 of the IFRS Literature Hierarchy?

Authoritative rules from IFRS for similar and related transactions

What is step 1 in the Research Process?

Establish and understand the facts

What is the description of the topic "General Principles"

Establishes the Codification as the authoritative course for US GAAP

What are some uses of the income statements?

Evaluate past performance, predict future performance, and assess risk or uncertainty of future cash flows

What is step 4 in the Research Process?

Evaluate the results of the search

What information should be included in the documentation of research?

Facts of business transaction, research question, analysis of issue, conclusion and recommendations for this company

What is level 3 of the US GAAP Hierarchy?

Nonauthoritative material such as FASB Concept Statements, IFRS, American Institute of CPAs (AICPA) Issue Papers, Technical Information Services Inquiries and replies included in AICPA Technical Practice Aids, pronouncements of professional associations or regulatory agencies, industry practice, and textbooks

What are long-term investments?

Noncurrent assets that are not used directly in the operations of the business

What are long-term liabilities?

Obligations an entity does not expect to satisfy within one year or operating cycle, whichever is longer

What are current liabilities?

Obligations that the firm expects to liquidate through the use of current assets or the creation of other current liabilities within one year or one operating cycle, whichever is longer

What is noncontrolling interest?

One company controls another company (i.e. a subsidiary) but owns less than 100% of its voting shares

What are the common sections of the multiple-step format?

Operating, Nonoperating, Income Tax Provision, Discontinued Operations, and Net Income and Earnings per Share

What are expenses?

Outflows or other consumption of assets or incurrences of liabilities from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing primary or central operations

What is the most specific division of the codification?

Paragraphs

What standards must be met to be a component of an entity under US GAAP?

Portion of the entity; Comprising operations and cash flows; Clearly distinguishable, operationally and for financial-reporting purposes, from the rest of the entity

What is the description of the topic "Industry"

Presents industry-specific guidance

What is Level 4 of the IFRS Literature Hierarchy?

Recent pronouncements of other standards-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature, and accepted industry practices, to the extent that they do not conflict with the sources in levels 1 and 2

What are cookie jar reserves in reference to earnings management?

Reduce earnings now, save funds to boost future earnings

What are investing activities on the statement of cash flows?

Relate to the acquisition and disposition of productive property and debt and equity securities, as well as making and collecting loans

What are the other comprehensive income reporting requirements?

Reported net of tax; can be reported item by item or gross of tax with one bottom-line net of tax item; Accumulated OCI is reported in shareholders' equity section of balance sheet

What is the explanation of the Net Income and Earnings per Share Section of a Multiple-Step Income Statement?

Reports net income and several computations of the amount of earnings available to each shareholder in a company.

What is the multiple-step format of an income statement?

Reports several critical subtotals before computing income from continuing operations and net income

What is the explanation of the Income Tax Provision Section of a Multiple-Step Income Statement?

Reports the income taxes related to continuing operations from all jurisdictions in which the entity operates

What is the explanation of the Discontinued Operations Section of a Multiple-Step Income Statement?

Reports the results of operations for a component of an entity that has been disposed of by the end of the reporting period or that is held for sale at the end of the reporting period; also includes any gain or loss from teh actual disposal of the component of the entity.

What is the explanation of the Nonoperating Section of a Multiple-Step Income Statement?

Reports the revenues and expenses related to any secondary operations of the entity; also includes net financing costs (interest expense less interest income) and other gains and losses

What are current assets?

Resources that the firm expects to convert to cash, use, or consume within one year or one operating cycle, whichever is longer

What are the primary elements of an income statement?

Revenues, Gains, Expenses, and Losses

What to do if the research outcome is "Answer in literature but standards setters allow for judgement"

Review range of possibilities and use professional judgement

Contribution of the SEC to the codification

SEC regulations only apply to publicly traded companies but is not technically included in FASB's codification

What companies are required to issue a Statement of Stockholders' Equity?

SEC requires them from publicly traded companies

What is step 3 in the Research Process?

Search the authoritative literature

What is the second most specific division of the codification?

Sections

What standards must be met to be a component of an entity under IFRS?

Separate major line of business or geographical area of operations; Subsidiary acquired exclusively for the purpose of resale

What are the two formats of income statements?

Single-step and multiple-step

What is another name for the balance sheet?

Statement of Financial Position

What is the second broadest division of the codification?

Subtopics

What does the statement of cash flows do?

Summarizes a firm's cash inflows and outflows over a period of time

What are the uses of a balance sheet?

Summarizes the economic resources and obligations that impact the entity's ability to generate future cash flows; Helps assess an entity's rate of return on its investments when examined in conjunction with the income statement; Aids in assessing the risk associated with an entity by providing inputs for cash-flow measures

What is Level 3 of the IFRS Literature Hierarchy?

The Conceptual Framework definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses

What are earnings per share?

The amount of earnings assigned to each outstanding share of the company's common stock

What is comprehensive income?

The change in a company's equity during a period of time resulting from transactions and other events and circumstances, apart from transactions with owners

What is level 1 of the US GAAP Hierarchy?

The codification and all SEC rules and interpretive releases.

What does earnings quality capture?

The degree to which reported income provides financial-statement users with useful information for predicting future firm performance

What is the operating cycle?

The period of time from the acquisition of goods to the point at which the entity receives cash from the sale of the goods

What are some limitations of income statements?

Certain items are excluded, chosen accounting method may affect comparability, and requires extensive judgement

What is the single-step format of an income statement?

Combines all revenues and gains and all expenses and losses into single categories

What is step 6 in the Research Process?

Communicate the results of the research

What is other comprehensive income?

Comprises revenues, expenses, gains, and losses that are explicitly excluded from net income in specific accounting standards

What to do if the research outcome is "No information available"

Contemplate similarities to other transactions, derive conclusions by analogy, and use judgement as to degree of similarity

What makes up owners' equity?

Contributed Capital, Retained Earnings, Accumulated Other Comprehensive Income, Noncontrolling Interest

What is the description of the topic "Presentation"

Covers items such as financial statements, interim reporting, and segment reporting

What is the description of the topic "Assets"

Covers the accounting treatment for assets

What is the description of the topic "Equity"

Covers the accounting treatment for equity

What is the description of the topic "Expenses"

Covers the accounting treatment for expenses

What is the description of the topic "Liabilities"

Covers the accounting treatment for liabilities

What is the description of the topic "Revenue"

Covers the accounting treatment for revenues

What are losses?

Decreases in equity from an entity's peripheral or incidental transactions except from expenses or distributions to owners

What is step 5 in the Research Process?

Develop conclusions

What does the letter to the shareholders from the CEO do?

Focuses on the highlights of the past year and the outlook for the future

What does the US GAAP Codification do?

Groups and summarizes all current standards by topic and incorporates new FASB pronouncements (called Accounting Standards Updates, or ASUs) after they are approved

What is Level 1 of the IFRS Literature Hierarchy?

IFRS standards and interpretations that specifically apply to a transaction, event, or condition

What is step 2 in the Research Process?

Identify the issue: What is the research question?

What are operating activities on the statement of cash flows?

Include cash receipts and disbursements related to the production and delivery of goods and services that are reported on an accrual basis on the statement of net income

What is the description of the topic "Broad Transactions"

Includes items such as business combinations and consolidations, fair-value measurements, financial instruments, and foreign currency matters

What are discontinued operations

Income from portions of the business that a company has disposed of or is in the process of disposing of

What are the reportable items on discontinued operations?

Income or loss from the discontinued operation; Gain or loss on remeasurement of assets held for sale to fair value less disposal costs; Gain or loss on disposal of assets

What are gains?

Increases in equity from an entity's peripheral or incidental transactions except result of revenues of investments by owners

What are revenues?

Inflows or other enhancements of an entity's assets (ongoing major or central operations)

What are the four types of IFRS documents?

International Accounting Standards (IAS), International Financial Reporting Standards (IFRS), Standards Interpretations Committee (SIC) interpretations, and IFRS Interpretations Committee (IFRIC) interpretations

What are financing activities on the statement of cash flows?

Involve the cash receipts and payments from debt and equity financing

What is Basis for Conclusions

It is a discussion of the boards' reasoning in creating a standard included in recent FASB and IASB standards which is not authoritative

What is an income tax benefit?

It's a negative income tax expense if the company is losing money

What are the components of the annual report?

Letter to the Shareholders from the CEO; Financial Summary; Management Discussion and Analysis (MD&A)

In what order are liabilities listed on the balance sheet under US GAAP?

Liabilities are listed in order of maturity from least to most mature

What are permanent earnings?

Likely to continue; higher quality

What is the account format of the balance sheet?

Lists assets on the left side and liabilities and stockholders' equity on the right side of the statement

What is the report format of the balance sheet?

Lists liabilities and stockholders' equity directly below assets on the same page

What to do if the research outcome is "Answer readily found"

Locate and apply precise answer

What are the common characteristics of other comprehensive income?

Low probability of cash realization in the short run; Items are transitory components of income and excluding them from the income statement reduces earnings volatility; Not part of the entity's normal operations

What are the limitations of the balance sheet?

Many of the accounts on the balance sheet are reported as historical costs, as opposed to market values or liquidation values; A number of assets and liabilities are not recorded on the balance sheet (i.e. human capital); Many of the accounts reported on the balance sheet are based on estimates, as opposed to determinable amounts

What is net income?

Measure of financial performance resulting from the aggregation of revenues, gains, expenses, and losses that are not items of other comprehensive income

What factors affect earnings quality?

Nature of components (permanent or transitory) and how management has manipulated earnings to meet goals

How are discontinued operations reported?

Net of tax (written on the income statement with taxes already deducted)

What is the broadest division of the codification?

Topics

What does IFRS dictate the order of assets and liabilities to be on the balance sheet?

Typically noncurrent assets are first though there is no required format and same with the liabilities section

What section of the cash flow statement does "cash payments for dividends to owners" fall under for US GAAP and IFRS?

US GAAP: Financing IFRS: Operating or financing

What section of the cash flow statement does "cash payments for taxes" fall under for US GAAP and IFRS?

US GAAP: Operating IFRS: Operating activities, unless they can be specifically identified with financing or investing activities

What section of the cash flow statement does "cash receipts from interest and dividends" fall under for US GAAP and IFRS?

US GAAP: Operating IFRS: Operating or Investing

What section of the cash flow statement does "cash payments for interest" fall under for US GAAP and IFRS?

US GAAP: Operating IFRS: Operating or financing

What are transitory earnings?

Unlikely to continue; lower quality

What is a big bath in reference to earnings management?

When low earnings are expected, reduce net income