FAR 2
An entity is considered to be a going concern if
A reasonable period of time not to exceed one year beyond the date the financial statements are issued. it is reasonably expected to remain in existence and to be able to settle all its obligations for the foreseeable future. Management is required to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern within one year after the date that the financial statements are issued.
major difference between U.S. GAAP and IFRS guidance for consideration of going concern is
IFRS does not offer guidance on the basis of accounting to use in case of imminent liquidation. U.S. GAAP provides specific guidance about preparing financial statements and necessary disclosures when liquidation is imminent (liquidation basis of accounting).
Hierarchy of inputs
LEVEL 1. (observable) "ACTIVE + IDENTICAL ( NOT SIMILAR, IDENTICAL) on the measurement dates when no adjustments are required LEVEL 2. (observable) -Quoted prices for identical assets and liabilities in markets that are not active. -Quoted prices for similar assets and liabilities in markets that are active. LEVEL 3. (not-observable) MGMT. DCF. Internally generated
disclosure GAAP VS IFRS
IFRS requires that a statement of compliance with IFRS be included in the financial statements; U.S. GAAP does not require inclusion of a statement of compliance with U.S. GAAP. Both IFRS and U.S. GAAP require disclosure of all significant accounting policies. Likewise, both IFRS and U.S. GAAP require disclosure of estimates made in the preparation of financial statements; however, IFRS also requires disclosure of judgments made (e.g., whether a financial asset is categorized as "held-to-maturity" or "available-for-sale") but U.S. GAAP does not require disclosure of judgments made.
What is the purpose of information presented in notes to the financial statements?
Information presented in notes to the financial statements have the purpose of providing disclosures required by generally accepted accounting principles. SFAC 5 para. 7
Segment reporting disclosure
Unaffiliated customers sales and intracompany sales must be disclosed separately. However, the 10% rule applies to the combined number. In order to conform to GAAP, financial statements for public business enterprises must report segment information about a company's major customers if that customer provides 10% or more of the combined revenue, internal and external, of all operating segments. For each reportable segment of an enterprise, both profit or loss and total assets should be disclosed under U.S. GAAP. In disclosure questions, if you are not sure, disclose the most rather than the least.
most advantageous market
When there is no principal market (or multiple active markets), the price in the most advantageous market is the fair value measurement. Although transaction costs are not included in the fair value measurement, they are used to determine the most advantageous market, exception: most advantageous market looks at the transaction cost to find the best price (net of transaction cost). however uses the quoted amount to calculate.
The summary of significant accounting policies
the summary of significant accounting policies is typically the first note provided after the financial statements and will include components such as: measurement bases, accounting principles and methods, criteria, and policies such as basis of consolidation, depreciation methods, revenue recognition, etc. The criteria for determining which investments are treated as cash equivalents would be part of the summary of significant accounting policies.
subsequent event - disclosure
two types 1. Recognized - condition existed at BS date - settlement of litigation or loss on AR - disclose Probable: This category means that the future event will likely occur. disclose amount if known. If a contingent liability is probable and the amount of loss that could be sustained is reasonably estimated, the loss is shown on the financial statements by reducing net income and increasing liabilities. Reasonably possible: The chance of the future event happening is more than remote but less than probable. The nature of the contingency should be disclosed as well as the nature of the possible loss or range of loss Remote: The chance of the future event taking place is remote 2. Not Recognized - condition did not exist at the BS date - sale of bond or stock or loss of inventory - footnote disclosure is required for a "reasonably possible" loss. The nature of the contingency should be disclosed as well as the nature of the possible loss or range of loss
The 10% "Size" test is the quantitative threshold for reportable segments. Any of the three criteria are applicable:
1. Reported revenue (sales to external customers and intersegment sales) greater than or equal to 10% of combined revenue (internal and external) of all operating segments. 2. Reported profit/loss greater than or equal to 10% of the greater (absolute value) of: a. Combined profit of all operating segments that did not report a loss. b.Combined reported loss of all operating segments that did report a loss 3. Assets greater than or equal to 10% of the combined assets of all operating segments. (not liabilities)
Fair value Terminology 1
Principal market ->most volume Most advantageous market ->best price
coverage ratio
long term risk assessment how capital was raised? capital structure
include subsequent event and going concern in
quarterly stmts
Reporting segment
there are three different ways to identify a reportable segment. A segment is reportable if it contributes at least 10% of the total for all segments of one or more of the following: •Revenues - includes intracompany transaction •Assets ( but not liabilities) •Profits or Loss
operating segment
corporate HQ is not an operating segment pension plan is not an operating segment
Activity ratios
"Turnover" how effectively enterprise is using its assets IS (current ) / BS (average) Higher ratio is better AR turnover = net credit sales / Ave. AR convert to days by dividing 365 to AR turnover (you want to get a low number, faster collection) Inventory turnover = cost of goods sold/ Ave. Inventory OPERATING CYCLE = AR TURNOVER IN DAYS + INVENTORY TURNOVER IN DAYS working capital turn over = sales / Ave. WC total asset turn over = net sales / Ave. asset
converting cash to accrual 1
look at the changes to the Asset and liabilities account thru out the year. for example if AR was 5k in Jan and 15k in Dec, the journal entry is to debit AR 10K and the other side of it is a credit to revenue which is an increase in revenue. calculate Rev and Exp separately and calculate income.
Fair value Defined
DOES NOT APPLY TO COMPENSATION AND LEASES FASB ASC Section 820 defines fair value for those purposes as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date" -EXIT PRICE NOT AN ENTRY PRICE -A change in the valuation technique used to measure fair value is a change in accounting estimate. -fair value is a market-specific measure, not an entity-specific measure -The price in the principal market for an asset or liability will be the fair value measurement. -fair value includes transportation costs, but not transaction costs.==> if you are looking at the most advantages market, to find it look at net ( including transaction cost), however you don't use the net amount for calculation
Disclosures
Disclosure of accounting policies (and all other disclosure also) is an integral part of the financial statements. Significant estimates should be disclosed when it is reasonably possible (not probable) that the estimate will change in the near term and that the effect of the change will be material. Footnote disclosures should include information on changes in stockholders' equity as well as any other information about significant asset and/or liability accounts.
Segment profit or loss
EBIT it includes intracompany transactions Sales to other segments would be used in determining a segment's operating income. Rule: Operating profit by segments is based on the measure of profit reported to the "Chief Operating Decision Maker." Interest expense, income taxes, Indirect operating expenses, and general corporate expenses are not allocated to the divisions solely for the purposes of segment disclosures; they may be allocated if that is how the segments report to the "Chief Operating Decision Maker."
SEC other forms
Forms 3, 4, and 5 are required to be filed by directors, officers, or beneficial owners of more than 10 percent of a class of equity securities of a registered company. These forms do not contain the registered company's financial statements because they are not filed by the company, and therefore are not required to present the company's financial statements in an exhibit prepared using XBRL.
regulation s-x 1. interim
Regulation S-X sets forth the form and content of and requirements for interim and annual financial statements to be filed with the SEC. 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. interim report must be REVIEWED Interim: US 10Q - quarterly Foreign - 6k semi annually Rule: The entire amount of a gain or loss from sale of fixed assets should be reported during the period (quarter) incurred. Expenses are allocated to the proper quarter. Due to the absence of seasonal fluctuations, the end of the preceding fiscal year is the appropriate period to include in addition to the most recent quarter end.
segment Q
Rule: To be significant enough to report on, a segment must be at least 10% of: Combined revenues (whether intersegment or affiliated customers), or Operating profit (of all segments not having an operating loss), or Identifiable assets.
For purposes of determining the period over which subsequent events
SEC filler For entities that file financial statements with the Securities and Exchange Commission, the subsequent event evaluation period runs through the date the financial statements are issued. Financial statements are considered issued on the date when the financial statements are in a form and format that comply with GAAP and by which the financial statements have been widely distributed to financial statement users. There is no requirement for any shareholders to have acknowledged receipt of the financial statements. non-SEC filler For entities that do not file financial statements with the Securities and Exchange Commission, the subsequent event evaluation period runs through the date the financial statements are available to be issued, and that date is defined as the date when the financial statements are in a form and format that comply with GAAP and by which all approvals for issuance have been obtained. It is not necessary that the financial statements have actually been issued.
XBRL data tagging
The MD&A is not required to be presented in an exhibit prepared using XBRL. 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. Forms 3, 4, and 5 are required to be filed by directors, officers, or beneficial owners of more than 10 percent of a class of equity securities of a registered company. These forms do not contain the registered company's financial statements because they are not filed by the company, and therefore are not required to present the company's financial statements in an exhibit prepared using XBRL.
liquidity ratio
ability to pay short term obligations BS/BS Higher the ratio = less risk WC = CA - CL current ratio = CA / CL current assets include cash, accounts receivable (NET) and inventory Quick Ratio (acid test) = CA excluding inventory / CL Cash ratio = CA excluding inventory and AR/ CL
regulation s-x 1. annual
annual report must be AUDITED PERIODS PRESENTED: 2 BS and 3 IS + CF
converting cash to accrual 2
cash balance sheet is only cash + equity
plans to mitigate the conditions or events that raise substantial doubt about its ability to continue as a going concern
consideration should be given if 1.it is probable that the plans will be effectively implemented, and 2.It is probable that the implemented plans will be successful in mitigating the adverse conditions or events.
Disclosure of vulnerability to concentration
is required if all of the following criteria are met: The concentration exists as of the financial statement date. The concentration makes the entity vulnerable to the risk of a near-term severe impact. It is at least reasonably possible that the events that could cause a severe impact from the vulnerability will occur in the near term. Although the concentration in question might be in a specific geographic area, other concentrations (e.g., concentrations with respect to a specific customer or a specific supplier) must also be disclosed if the above criteria are met.
disclosure required for subsequent event by SEC filler vs non filler
entities that file financial statements with the SEC are not required to disclose the date through which subsequent events have been evaluated. Entities that do not file their financial statements with the SEC are required to disclose both the date through which subsequent events have been evaluated along with whether that date is the date that the financial statements were issued or the date that the financial statements were available to be issued.
