PRA Exam 3

Which sales and revenue items should be stated separately (Regulation S-X, Rule 5-03) if it generates more than 10% of total revenue?

(a) Net sales of tangible products (gross sales less discounts, returns and allowances), (b) operating revenues of public utilities or others; (c) income from rentals; (d) revenues from services; and (e) other revenues. Amounts earned from transactions with related parties shall be disclosed as required under §210.4- 08(k).

Regulation S-X, Rule 5-03 Part (b)

(b) If income is derived from more than one of the sub captions described below, each class which is not more than 10% of the sum of the items may be combined with another class. If these items are combined, related costs and expenses shall be combined in the same manner.

Describe the disclosure requirements for nonGAAP financial measures under the SEC's Non GAAP Compliance and Disclosure Interpretations (CDIs)

- Non-GAAP Liquidity measures may not be presented on a per share basis, but Non-GAAP Performance measures can be presented on a per share basis - Company may need to provide info regarding tax effects - Adjustments to arrive at a non-GAAP measure should not be presented "net of tax"; show as a separate adjustment and explain

Describe the disclosure requirements for nonGAAP financial measures under Regulation G.

- Present "most directly comparable" GAAP measure - Reconcile the difference between the Non-GAAP and GAAP measure

Describe the disclosure requirements for nonGAAP financial measures under Item 10(e) of Regulation S-K.

- Presentation of comparable GAAP must be of equal or greater prominence - State why management uses each measure and why they believe it's useful to investors

Describe the nonGAAP financial measures that is prohibited by Item 10(e) of Regulation S-K.

- Prohibits non-GAAP measures that o Exclude charges or liabilities requiring cash settlement (except EBIT and EBITDA; interest, tax, depr./amort.) o Remove or smooth "infrequent" or "nonrecurring" items, but the similar item is reasonably likely to occur in 2 years or has occurred in past 2 years o Present non-GAAP measures on face of F/Ss or notes or in any pro- forma information o Uses titles or descriptions for non-GAAP that are identical or confusingly similar to those used for GAAP

Describe ASC 606-10-25-27, the criteria for recognizing revenue over time.

Recognize over time if one of the criteria is met: (a) The customer simultaneously receives and consumes the benefits provided by the entity's performance as the entity performs (b) The entity's performance creates or enhances an asset that the customer controls as the asset is created or enhanced (c) The entity's performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date.

How should companies classify cash from insurance proceeds?

The classification of insurance settlement proceeds should be determined based on the nature of the loss, not the intended use of the proceeds.

What is the CODM?

The term chief operating decision maker identifies a function, not necessarily a title. That function is to allocate resources to and assess the performance of the segments of a public entity.

When can a reporting entity change an accounting principle?

When either of the following apply: a. The change is required by a newly issued Codification update. b. The entity can justify the use of an allowable alternative accounting principle on the basis that it is preferable.

Describe the characteristics of an operating segment.

a. It engages in business activities from which it may earn revenues and incur expenses b. Its operating results are regularly reviewed by the public entity's CODM to make decisions about resources to be allocated to the segment and assess its performance. c. Its discrete financial information is available.

Describe Changes in the Reporting Entity

a. Presenting consolidated or combined financial statements in place of financial statements of individual entities b. Changing specific subsidiaries that make up the group of entities for which consolidated financial statements are presented c. Changing the entities included in combined financial statements. d. Neither a business combination accounted for by the acquisition method nor the consolidation of a variable interest entity (VIE) pursuant to Topic 810 is a change in reporting entity.

For consolidating subs with different FYEs, if the difference is not more than about (fill in the blank), it usually is acceptable to use, for consolidation purposes, the (fill in the blank) financial statements for its fiscal period

three months; subsidiary's

Regulation S‐X, Rule 3A‐02 states: Where the difference is not more than (fill in the blank) days, it is usually acceptable to use, for consolidation purposes, such entity's statements for its fiscal period. If the parent and the subsidiary have different fiscal year‐end dates, the parent should consider using the (fill in the blank) from the subsidiary when preparing its consolidated financial statements.

93 best available data

Define Accounting Change

A change in an accounting principle, an accounting estimate, or the reporting entity.

Describe a Change in Accounting Estimate

A change that has the effect of adjusting the carrying amount of an existing asset or liability or altering the subsequent accounting for existing or future assets or liabilities. Changes in accounting estimates result from new information.

Describe Error Corrections

An error in recognition, measurement, presentation, or disclosure in financial statements resulting from mathematical mistakes, mistakes in the application of generally accepted accounting principles (GAAP), or oversight or misuse of facts that existed at the time the financial statements were prepared. A change from an accounting principle that is not generally accepted to one that is generally accepted is a correction of an error.

What is the treatment for accounting changes?

retrospective application: accounting principle and reporting entity prospective application: change in estimates

Describe SAB Topic 11.B

Depr./amort. and depletion should not be positioned in the IS in a manner that results in a reported figure for income before depreciation; this is to avoid placing undue emphasis on "CF". the exclusion should be noted on the face of the IS alternative: present a subtotal for GP and disclose depr. on a line above the total GP

What are the sources of guidance for Non GAAP measures?

For public companies - the SEC

Where should cash receipts from the settlement of corporate‐owned life insurance policies be on the CF statement?

cash inflows from investing activities

Where shouldCash payments for premiums on corporate‐owned life insurance policies be on the CF statement?

cash outflows for investing activities, operating activities, or a combination of the two

As circumstances change over time, an entity shall update its measure of progress to reflect any changes in the outcome of the performance obligation. Such changes to an entity's measure of progress shall be accounted for as a (fill in the blank)

change in accounting estimate

What is the treatment for errors?

change retrospectively and label impacted FSs as "restated"

When would a sub's material intervening event be recognized as a subsequent event?

if it (1) occurs after the subsidiary's period‐end but before the year‐end of the parent's consolidated financial statements; and (2) would meet the criteria for recognition if the subsidiary was issuing separate stand‐alone financial statements under U.S. GAAP.

Describe the output method

recognize revenue based on the direct measurements of the value to the customer of the goods/services transferred to date relative to the remaining goods or services promised under the contract.

Describe input method

recognize revenue based on the entity's efforts/inputs to satisfy a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation