Combo Becker FAR

What are the four categories of revenue transactions under IFRS and what are the common revenue recognition criteria for those categories?

1. Sales of goods 2. Rendering of services 3. Revenue from interest, royalties, and dividends 4. Construction contracts Common revenue recognition criteria include: -Revenues and costs can be reliably measured. -It is probable that economic benefits will flow to the entity (Each category has additional criteria.)

List the three formats acceptable for reporting comprehensive income. Which format is prohibited under IFRS?

1. Statement of Comprehensive Income (single-statement approach) 2. Statement of Income followed by separate Statement of Comprehensive Income (two-statement approach) 3. Component of the Statement of Owners' Equity (prohibited under IFRS, will be prohibited under U.S. GAAP for public companies as of 12/15/11 and for nonpublic companies as of 12/15/12)

On the balance sheet, marketable securities classified as held-to-maturity are valued...

At amortized cost

On the balance sheet, marketable securities classified as trading or available-for-sale are valued...

At fair value

State the formula for calculating the gross profit realized on installment sales.

Cash received x (Total gross profit/Sales price)

State the formula for recognizing the gain/loss on long-term construction-type contracts under the percentage-of-completion method.

(Total cost to date/Total est. cost of contract) x Total est. gross profit - Gross profit recognized to date

Name two quantitative thresholds used in identifying reportable operating segments.

-10% "Size" test -75% "Reporting Sufficiency" test

What are the special changes in an accounting principle? How are special changes in accounting principle reported?

-A change to LIFO from another method of inventory pricing under U.S. GAAP -Any other change in which a cumulative effect adjustment is considered impractical to calculate Special changes are reported prospectively (like a change in estimate).

What disclosures should be made for available-for-sale and held-to-maturity securities?

-Aggregate fair value -Gross unrealized holding gains and losses -Amortized cost basis by type -Information about the contractual maturity of debt securities

What are monetary items?

-Assets and liabilities that are fixed in amount by contract or in terms of number of dollars. -Examples include cash, accounts and notes receivable, accounts and notes payable. -These items are already stated in constant dollars.

What are nonmonetary items?

-Assets and liabilities that fluctuate in value with inflation/deflation. -Examples are inventories, PP&E, and capital stock. These items need to be restated to constant dollars.

Identify the exchange rate to be used when translating different components of the balance sheet and income statement.

-Assets and liabilities: Current exchange rate -Common stock and APIC: Historical rate -Revenue and expenses: weighted-average exchange rate for the period

Name the three types of accounting changes.

-Change in an accounting principle -Change in an accounting estimate -Change in accounting entity

How is impairment of long-lived assets other than goodwill analyzed under IFRS?

-Compare the carrying value of the asset to the asset's recoverable amount. -The recoverable amount is the greater of the asset's fair value less costs to sell and the asset's value in use (PV of future cash flows).

Define start-up costs. What is the accounting treatment of start-up costs?

-Costs incurred for one-time activities to start a new operation. Start-up costs include costs incurred in the formation of a corporation. -Start-up costs are expensed in the period incurred.

How is a change in accounting principle reported?

-Cumulative effect of change is included in the retained earnings statement as an adjustment of the beginning retained earnings balance of the earliest year presented. -Prior period financial statements are restated, if presented.

What are the general guidelines for OCBOA financial statement presentation?

-Different titles from accrual basis financial statements. -Required financial statements are the equivalent of the accrual basis balance sheet and income statement. -Financial statements should explain changes in equity accounts. -A statement of cash flows is not required. -Disclosures should be similar to GAAP financial statement disclosures.

Define goodwill.

-Excess of the fair value of a subsidiary over the fair value of the subsidiary's net assets. -Costs of maintaining and/or developing goodwill CANNOT be capitalized.

How are gains/losses on nonmonetary exchanges recognized under IFRS?

-Exchange of similar assets: no gains recognized. Losses recognized in full. -Exchange of dissimilar assets: All gains and losses recognized.

Outline the treatment of computer software developed internally or obtained for internal use only under U.S. GAAP?

-Expense costs incurred in the preliminary project state and costs incurred in training and maintenance -Capitalize costs incurred after preliminary project state and for upgrades and enhancements -Capitalized costs should be amortized on a straight-line basis

Identify the two foreign currency activities.

-Foreign currency translations -Foreign currency transactions

The term "International Financial Reporting Standards" includes what standards?

-International Accounting Standards (IAS) -International Financial Reporting Standards (IFRS) -IFRIC Interpretations -SIC Interpretations

What types of costs are associated with exit and disposal activities?

-Involuntary employee-termination benefits -Costs to terminate a contract that is NOT a capital lease -Other costs associated with exit or disposal activities

Define extraordinary items.

-Material in nature -Of a character significantly different from the typical or customary business activities (unusual) -Not expected to recur in the foreseeable future (infrequent) -Not normally considered in evaluating the ordinary operating results of an enterprise **Remember: Extraordinary items are recognized under U.S. GAAP but not IFRS.

Describe the related party disclosures required under U.S. GAAP and IFRS.

-Material related party transactions -Related party notes/accounts receivable -Control relationships NOTE: IFRS requires disclosure of key management compensation; U.S. GAAP does not require this disclosure.

What are the U.S. GAAP disclosure requirements for risks and uncertainties?

-Nature of operations -Use of estimates in preparing the financial statements -Significant estimates -Current vulnerability due to certain concentrations

Name the four required disclosures for segments of an enterprise.

-Operating segments -Products and services -Geographic areas -Major customers

State two types of foreign currency transactions.

-Operating transactions, such as importing, exporting, borrowing, lending, and investing transactions -Forward exchange contracts, which are agreements to exchange two different currencies at a specific future date and at a specific rate

Identify five items included in other comprehensive income. PUFER

-Pension adjustments -Unrealized gains/losses on available-for-sale securities -Foreign currency translation adjustments and gains/losses on foreign currency transactions that are designated as economic hedges of a net investment in a foreign entity -Effective portions of cash flow hedges -Revaluation surpluses (IFRS only)

How is a change in an accounting estimate reported?

-Prospectively -The effect is shown in the current and/or future periods that are affected by the change -Financial statements are NOT restated

For operating transactions in foreign currency, detail the recording process.

-Record original transaction at exchange or spot rate on date of transaction. -At balance sheet date, compute gain/loss on the transaction by recalculating using the current exchange or spot rate. -On payment date, compute gain/loss on the transaction by using the exchange rate on payment date.

Describe the 10% test for identifying reportable segments.

-Revenue: reported revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal & external, of all operating segments. -Reported profit/loss: The absolute amount of its reported profit/loss is 10% or more of the greater, in absolute amount, of: 1. The combined reported profit of all op. segments that did not report a loss, or 2. The combined reported loss of all op. segments that did report a loss. -Assets: Assets are 10% or more of the combined assets of all op. segments. NOTE: Must meet only one of the above.

List some items NOT considered research and development costs.

-Routine periodic design changes -Marketing research -Quality control testing -Reformulation of a chemical compound

List three conditions when losses on marketable securities classified as available-for-sale are recognized in income.

-Sale of the security -Transfer of the security to trading classification -Other than temporary decline of individual security below cost (impairment)

According to SFAC #5, what should a full set of financial statements include?

-Statement of Financial Position (the balance sheet) -Statement of Earnings (the income statement) -Statement of Comprehensive Income -Statement of Cash Flows -Statement of Changes in Owners' Equity

List some disclosure requirements for comprehensive income.

-Tax effects of each component included in current "Other Comprehensive Income" -Changes in the accumulated balances of components of "Other Comprehensive Income" -Total accumulated other comprehensive income -Reclassification adjustments between other comprehensive income and net income

List some examples of extraordinary items.

-The abandonment of, or damage to, a plant due to an infrequent earthquake or an infrequent flood. -An expropriation of a plant by the government. -A prohibition of a product line by a newly enacted law or regulation.

Name an example of both 1) accelerated and 2) deferred revenue recognition relative to normal recognition when revenue is recognized at the time goods are transferred.

-The percentage-of-completion method of long-term construction accounting is an example of accelerated revenue recognition. -The installment method (or cost-recovery method) is an example of deferred revenue recognition.

What are the conditions for revenue recognition when the right of return exists?

-The sales price is substantially fixed at the time of sale. -The buyer assumes all risks of loss b/c the goods are considered in the buyer's possession. -The buyer has paid some form of consideration. -The product sold is substantially complete. -The amount of future returns can be reasonably estimated.

What is the maximum period over which an identifiable intangible asset (not goodwill) should be amortized?

-The shorter of its estimated useful economic life and its remaining legal life (as in a copyright, franchise, or patent). -Goodwill is not amortized, but must be tested at least annually for impairment.

When a marketable security is transferred from trading to available-for-sale, or vice versa, at what cost is it transferred?

-Transferred at fair value, which then becomes new basis. -For a security transferred into the trading category, the difference is treated as a realized gain or loss and is recognized on the income statement. -For a security transferred from the trading category, the unrealized holding gain or loss will already have been recognized in earnings. NOTE: Transfers to and from the trading category should be rare.

What are the guidelines for interim reporting?

-Use same accounting principles that were used in the most recent annual report. -Allocate expenses to the interim period benefited. -Revenues are recognized in the period in which they are earned and realized/realizable. -A total for comprehensive income in condensed financial statements of interim periods.

Define comprehensive income.

Change in equity (net assets) that results from revenue, expenses, gains, and losses during a period, as well as any other recognized changes in equity that occur for reasons other than investments by owners and distributions to owners.

What is the 75% test for identifying reportable segments?

Combined external (consolidated) revenue of all reportable segments must be at least 75% of the total consolidated revenue of the entity. The practical limit is 10 segments, but this is not a precise limit.

Name the enhancing qualitative characteristics of financial information.

Comparability, Verifiability, Timeliness, and Understandability

List the 10 elements of financial statements according to SFAC #6

Comprehensive income, Revenues, Expenses, Gains and Losses, Assets, Liabilities, Equity (of Net Assets), Investments by Owners, Distributions to Owners

Describe the expected cash flow approach for present value computations.

Considers a range of possible cash flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted-average, or "expected," future cash flow.

Name the pervasive constraint on the information provided in financial reporting.

Cost constraint: The benefits of reporting financial information must be greater than the costs of obtaining and presenting the information.

In general, what are the criteria for revenue recognition under U.S. GAAP?

Earned & realized or realizable. The following 4 criteria must be met before revenue can be recognized: 1. Persuasive evidence of an arrangement exists. 2. Delivery has occurred or services have been rendered. 3. The price is fixed and determinable. 4. Collection is reasonably assured.

Define development-stage enterprise.

Enterprise that devotes substantially all of its efforts to establishing a new business and either planned principal operations have not commenced or no significant revenue has been generated therefrom.

Name the five elements of present value measurement per SFAC #7.

Estimate of future cash flow, Expectations about timing variations of future cash flows, Time value of money (the risk-free rate of interest), The price for bearing uncertainty, Other factors (e.g. liquidity issues and market imperfections)

Who are the primary users of general purpose financial reports?

Existing & potential investors, lenders, and other creditors.

How are purchased intangible assets and internally developed intangible assets recorded under U.S. GAAP and IFRS?

Purchased intangible assets: Recorded at cost, including legal and registration fees, under U.S. GAAP and IFRS. Internally developed intangible assets: -Legal fees, costs of successful defense, registration fees, consulting fees, and design fees can be capitalized under U.S. GAAP and IFRS. -Under U.S. GAAP, research & development costs must be expensed. Under IFRS, research costs must be expensed, but development costs may be capitalized if they meet certain criteria.

What is the difference between realization and recognition?

Realization: When sold and converted to cash (or claims to cash) Recognition: When recorded in the financial statements

Name the fundamental qualitative characteristics of useful financial information.

Relevance and Faithful Representation

Where are remeasurement gains/losses reported in the financial statements?

Remeasurement gains or losses are recognized on the income statement.

When is the remeasurement method used?

Remeasurement is used to restate financial statements from the foreign currency to the entity's functional currency when: -The reporting currency is the functional currency. -The financial statements must be restated in the entity's functional currency prior to translating from the functional currency to the reporting currency.

How are error corrections reported?

Reported as prior period adjustments to retained earnings and all comparative financial statements presented are restated.

How are gains and losses on financial instruments that hedge available-for-sale securities reported?

Reported in earnings together with the offsetting gains or losses on the available-for-sale securities attributable to the hedged risk.

How are gains and losses on financial instruments that hedge trading securities reported?

Reported in earnings, consistent with reporting unrealized gains and losses on trading securities.

How are gains/losses on nonmonetary exchanges recognized under U.S. GAAP?

1. Exchange has commercial substance - always recog. gains/losses on the exchange equal to the diff. btwn. the FV of what is given up and the carrying value of what is given up. 2. Exchange does not have commercial substance or the new asset's FV is not determinable (and the FV of the asset given up is unknown) -- No gain on exchange is recognized unless boot is received, and losses are recog. in full (if losses exist bc an impairment loss was not prev. recog.) 3. If boot received > 25% of total consideration, all gains/losses are recog. by both parties to the exchange just as in a monetary transaction that has commercial substance.

Indicate any special accounting treatment for development-stage enterprises.

Same GAAP as established operating enterprises, with additional disclosures: -Identify statements as those of a development-stage enterprise. -Accumulated losses identified as "deficit accumulated during development stage." -In the I/S, show revenue & expenses, & cumulative total of both amts from company's inception. -In Stmt of Cash Flows, include cumulative amts of cash inflows and outflows from enterprise's inception and current amts of cash inflows & outflows for each pd presented. -Issue a separate stmt of stockholders' equity, indicating shares issued, date of issuance, dollar amts assigned, and noncash consideration, if any.

In reporting discontinued operations, how is a "component" of an entity defined under U.S. GAAP and IFRS?

U.S. GAAP: An operating segment, a reportable segment, a reporting unit, a subsidiary, or an asset group IFRS: A separate major line of business or geographical area of operations, or A subsidiary acquired exclusively with a view to resale.

When should revenue from the performance of services be recognized under U.S. GAAP and IFRS?

U.S. GAAP: In the period in which the services have been rendered and are able to be billed. IFRS: Using the percentage of completion method when the outcome of the transaction can be estimated reliably.

Identify two methods of revenue recognition for long-term construction-type contracts under U.S. GAAP and IFRS.

U.S. GAAP: Percentage of completion and Completed-contract IFRS: Percentage of completion and Cost recovery

What is the proper treatment of research and development costs under U.S. GAAP and IFRS?

U.S. GAAP: R&D costs should be expensed as incurred unless an expenditure is for capital assets that have alternative future uses, or for R&D undertaken on behalf of others under a contractual arrangement. IFRS: Research costs must be expensed. Development costs may be capitalized if they meet certain criteria.

How are intangible assets reported under U.S. GAAP and IFRS?

U.S. GAAP: Reported at cost less amortization (finite life intangibles only) and impairment. IFRS: Reported using the cost model (same as U.S. GAAP) or the revaluation model. Under the revaluation model, reported at fair value on revaluation date less subsequent amortization and impairment.

What is the calculation for impairment loss under U.S. GAAP and IFRS?

U.S. GAAP: The amount by which the carrying amount exceeds the fair value of the asset. IFRS: The amount by which the carrying amount exceeds the asset's recoverable amount.

How are unrealized gains/losses on trading securities recognized?

Unrealized gains and losses on trading securities are recognized on the income statement.

How are unrealized gains/losses on available-for-sale securities recognized?

Unrealized gains/losses on available-for-sale securities are reported in other comprehensive income. NOTE: Under IFRS, foreign exchange gains and losses on available-for-sale debt securities are reported on the income statement.

What income tax rate is used in interim financial reporting?

Use best estimate of effective tax rate to be applicable for full fiscal year on quarterly statements.

How do we account for subsequent increases in the fair value of a discontinued component?

A gain is recognized for the subsequent increase in fair value minus costs to sell (but not in excess of the previously recognized cumulative loss). The gain is reported in the period of increase.

When should the costs of developing computer software for resale, lease, or licensing be capitalized under U.S. GAAP?

After technological feasibility has been established and before the product is released for sale.

In what period are the following reported: An impairment loss? A gain (loss) from actual operations? A gain (loss) on disposal?

All are reported in the period in which they occur.

Under U.S. GAAP, how is a change in the accounting entity reported?

All current and prior period financial statements presented are restated.

The gain (loss) from discontinued operations can consist of...

An impairment loss, a gain (loss) from actual operations, and a gain (loss) on disposal.

How should the costs of capitalized computer software developed for resale be amortized under U.S. GAAP?

Annual amortization is the greater of: Percent of Revenue Method: Total capitalized amount x (Current gross revenue for the pd/total projected gross revenue for product) Straight line: Total capitalized amount x (1/est. of economic life)

List the six elements of financial statements according to the IASB Framework.

Assets, Liabilities, Equity, Income (Revenue & Gains), Expenses (expenses & losses), Capital maintenance adjustments

Identify the exchange rate to be used when remeasuring different components of the balance sheet and income statement.

Balance sheet: -Monetary: current exchange rate -Nonmonetary: historical rate Income statement: -Balance sheet related: historical rate -Non-balance sheet related: weighted-average

Define operating segment.

Distinct revenue-producing components of the enterprise about which separate financial information is produced internally, and whose operating results are regularly reviewed by the enterprise. Determined using a "management approach."

What is the test of recoverability for the impairment of long-lived assets other than goodwill under U.S. GAAP?

Finite Life: If undiscounted future cash flows expected from use of asset and eventual disposal is less than the carrying value, recognize loss on impairment. Indefinite Life: If fair value is less than carrying value, recognize loss on impairment.

What are the disclosure requirements for reportable operating segments?

For each reportable segment, the entity must report: -Identifying factors -Products or services -Profit or loss details -Asset details -Liability details (IFRS only) -Measurement criteria -Reconciliations

Where are foreign currency transaction gains or losses reported in the financial statements?

Foreign currency transaction gains or losses are included in determining net income for the period.

Describe the Form 10-K and the Form 10-Q. What level of assurance must be provided with the financial statements submitted in these forms?

Form 10-K: Filed annually by U.S. registered companies. Includes a summary of financial data, MD&A, and AUDITED financial statements prepared using U.S. GAAP. Form 10-Q: Filed quarterly by U.S. registered companies. Includes unaudited (REVIEWED) financial statements, interim MD&A, and certain disclosures.

How is goodwill impairment analyzed under U.S. GAAP?

Goodwill impairment is analyzed at the reporting unit level using a two-step process: 1. Identify potential impairment by comparing the fair value of each reporting unit with its carrying value, including goodwill. 2. Measure the amount of goodwill impairment by comparing the implied fair value of the reporting unit's goodwill to its carrying amount. NOTE: Under U.S. GAAP, the goodwill impairment test has been simplified by allowing companies to test qualitative factors first to determine whether it is necessary to perform the two-step goodwill impairment test.

How is goodwill impairment analyzed under IFRS?

Goodwill impairment testing is done at the cash-generating unit (CGU) level using a one-step test that compares the carrying value of the CGU to the CGU's recoverable amount. Impairment losses are first allocated to goodwill and then allocated on a pro rata basis to the other CGU assets.

When will an asset exchange have commercial substance under U.S. GAAP?

Has commercial substance when the entity expects a change in future cash flows as a result of the exchange and that expected change is material relative to the FV of the assets exchanged. NOTE: FASB has not provided specific guidance or provided examples of transactions that would meet criteria for commercial substance.

Identify the contents of the Summary of Significant Accounting Policies note to the financial statements.

Identify and describe: -Measurement bases used in preparing the financial stmts -Principles and methods -Criteria -Policies -Pricing

For long-term construction-type contracts, when are losses recognized?

Immediately when discovered, regardless of the method used for revenue recognition.

In a nonmonetary exchange, what is the basis of the new asset under U.S. GAAP?

In an exchange that has commercial substance (or an exchange when boot received > 25% of total consideration), record at fair value of asset given up + cash paid (or - cash received), or the fair value of the asset received if it is more clearly evident. In an exchange that lacks commercial substance, record at the net book value of the asset given up + cash paid (or - cash received), unless adjustments are needed for gain recognized (if boot is received).

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

Income Statement: Income (or loss) from continuing operations Income (or loss) from Discontinued operations Extraordinary items Retained Earnings Statement: Cumulative effect of a change in Accounting principle

Name the three elements of faithful representation.

Neutrality, Completeness, and Freedom from error

Name the three elements of relevance.

Predictive value, Confirming value, and Materiality

When are profits recognized under the cost recovery method?

Profits are recognized only after all costs have been recovered.

Name the single source of authoritative nongovernmental U.S. GAAP.

The FASB "Accounting Standards Codification" (ASC).

Where are translation adjustments reported in the financial statements?

Translation gains or losses are reported in other comprehensive income. They are treated as unrealized gains and losses.

When is the translation method used?

Translation is used to restate financial statements denominated in the functional currency to the reporting currency.

What is the date of an entity's transition to IFRS?

The date of the opening balance sheet.

What is an entity's functional currency under U.S. GAAP?

The functional currency is the currency of the primary economic environment in which the entity operates. All of the following conditions must be met: -The foreign operations are relatively self-contained and integrated within the country. -The day-to-day operations do not depend on the parent's or investor's functional currency. -The local economy of the foreign entity is not highly inflationary.

How should the contractual amounts of future services to be performed under a franchise agreement be accounted for by 1) the franchisor and 2) the franchisee?

They should be recorded at their present value as unearned revenue by the franchisor until earned and as an intangible asset by the franchisee.