Consol - Ch. 13

Accounting Pronouncements on Interim Reporting

-ASC 270 standardized the preparation and reporting of interim income statements. -ASC 250 specifies that a change in an accounting principal made in an interim period is reported using the retrospective application to the prechange interim periods for the direct effects of the change -ASC 740 tackles the problems of measuring the tax provision for interim reports when the actual tax expense is based on annual income.

10% tests include what 3 tests:

1. 10% revenue 2. 10% profit (loss) 3. 10% assets

10% profit (loss)

The absolute value of the segment's profit or loss is 10% or more of the higher (a) the total profit of all operating segments that did not report a loss or (b) the total loss of all operating segments that did report a loss

ASC 280...

The purpose of the ASC 280 is to provide financial statment users information so that they can determine an entity's risks and potential returns applying the same basis of information aggregation as the company's mangement used. The ASC 280 established "enterprisewide disclosure" standards to provide users more information about the company's risks. These are normally made in the footnote of financial statements.

Quarterly Financial Reports include:

1. An income statement for the most recent quarter of the current fiscal period and a comparative income statement for the same quarter for the prior fiscal year. 2. Income statements for the cumulative year to date time period and for the corresponding period of the prior fiscal year. 3. A condensed balance sheet at the end of the current quarter and a condensed balance sheet at the end of the prior fiscal year. 4. A statement of cash flows as of the end of the current cumulative year to date period and for the same time span for the prior year 5. Footnotes that update those in the last annual report. 6. A report by management analyzing and discussing the results for the latest interim period

Information about geographic areas in enterprise wide disclosures. The company must report the following:

1. Revenues from external customers attributed to the company's home country of domicile and the revenue from external customers attributed to all foreign countries in which the enterprise generates revenues. If revenues from external customers generated in an individual country are material, then that country's revenues must also be separately disclosed. 2. Long-lived productive assets located in the entity's home country and the total assets located in all foreign countries in which the entity holds assets. If the assets are material, then the amount of assets held in an individual foreign country must be disclosed separately. -There is no materiality threshold for geographic segment (there is a 10% guideline) Individual Customer: any single customer, the federal/foreign/local/state government. Materiality is not defined for this disclosure (10% guideline) The disclosures include the amount of revenue from each significant customer and the identity of the segment or segments reporting the revenues. NOT TRUE (part of a practice quiz question: the auditor determines the materiality threshold for these disclosures

ASC 280 defines an operating segment as having 3 characteristics:

1. The component unit's business activities generate revenue and incur expenses, including any revenue or expenses in transactions with other business units of the company 2. The component unit's operating results are regularly reviewed by the entity's chief operating decision maker, who then determines the resources to be assigned to the segment and evaluates it 3. Separate financial information is available for the component unit

All other costs & expenses

General rule: costs and expenses should be charged to interim income in the interim period in which they are incurred.

COGS and Inventory

General rule: interim COGS should be computed with the direct and allocated cost elements on the same basis as used to compute the annual COGS

International Financial Reporting Standards for Interim Reporting

IAS 34 International Financial Reporting Standards for interim reporting, similar to those of U.S. GAAP.

Revenue

One of the most significant elements of the interim income statement is revenue from sales. The measurement basis used to determine revenue earned in an interim period should be the same as that used for the full fiscal year (revenue should be recognized and reported in the period in which it is earned) Revenue from seasonal business (agriculture, food products, amusements) cannot be manipulated to eliminate seasonal trends. (seasonal businesses are encouraged to supplement their interim reports with information for 12 month periods ending at the interim date for the current and preceding years, these disclosures reduce the possibility that users might make unwarranted inferences about the annual results)

10% revenue

includes both external sales and intersegment sales or transfers. The segment's revenue must be 10% or more of the total revenues from external sales plus intersegment transactions of all operating segments

Interim reports

reports that provide timely information on the entity's operating progress throughout the year (cover a time period of less than 1 year)

Information to be disclosed for a segment determined to be separately reportable... (5 things)

1. General Information (Info must be disclosed regarding how the company identifies each separately reportable segment, including info about the company's organizational structure and the types of products or services from which each reportable segment earns its revenues) 2. Amounts for each separately reportable segment (Segment disclosures must include amounts for each segment's profit or loss and the measurement procedures used to determine the profit or loss, including how the company accounts for intersegment transactions and each segment's assets) 3. Measures of segment profit or loss (Each of the following must be disclosed if the company's chief operating decision maker reviews it to measure the profit/loss: revenues from external sales, revenues from transactions with other operating segments of the company, interest revenue, interest expense, depreciation and amortization, equity in the income of investees accounted for by the equity method, income tax expense or benefit, extraordinary items and other significant noncash items) 4. Segment assets (the amount of investment in equity-method investees and the total expenditures for increases to long-term productive assets through the capital budget because these expenditures often indicate which segments the company is building for the future. 5. Reconciliations to consolidated totals (reconciliations between the reportable segments' total revenues, total profits or losses, and total assets and the related consolidated totals for those items.

ASC 270 and ASC 740 permit the following modifications to the COGS and inventory general rule:

1. Use estimated gross profit rates 2. LIFO temporary liquidations 3. Lower of cost or market valuations 4. Standard cost systems

What are the issues with segment reporting? (4 of them)

1. Usually, the corporate headquarters is not a separate operating segment 2. The company may choose to aggregate several individual operating segments that have very similar economic characteristics 3. Management belief that aggregation will provide more meaningful information to users 4. Allocation of costs to specific segments

Some costs and expenses may be deferred and allocated to several interim periods:

1. an estimate of time used 2. an estimate of benefit received 3. activity level of the interim period

ASC 280 is...

A management approach to the definition of segments. It's a focus on financial information that an enterprises's financial decision makers use to evaluate the entity's operating segments.

Comprehensive Disclosure Test

After determining which of the segments is reportable under any of the three 10% tests, the company must apply a comprehensive test. This comprehensive test is the 75% consolidated revenue test. The total revenue from external sources by all separately reportable operating segments must equal at least 75% of the total consolidated revenue. The reporting company must identify additional operating segments as reportable until this test is met.

10% assets test

The segment's assets are 10% or more of the total assets of all operating segments. Management defines the items composing each segment's assets as used for internal decision-making purposes. Management may include intangibles, receivables, and even intercompany items as defined by management.