FAR Section 2

Regulation S-X - Annual Financial Statements

Annual FS filed with SEC must be audited by independent public accountant and audit report must be filed with FS GAAP: : 2 b/s, 3 IS, 3 Cash Flows FS IFRS: 2 all statements MD&A not required

Valuation Techniques (MIC)

Entities can use the market approach, the income approach, the cost approach or a combination of these as appropriate when measuring fair value of an asset or liability.

Asset Disclosure - Segment

-Amount of investment in equity method investees -Total expenditures for: Additions to long lived assets other than financial instruments Long-term customer relationships Mortgage and other servicing rights Deferred policy acquisition costs Deferred tax assets Liabilities (IFRS ONLY)

XBRL

Extensible Business Reporting Language: royalty free, open specification for software that uses XML data tags to describe financial information Tag machine readable code that gives a standard definition for each line item in an income statement, cash flow statement, balance sheet or other financial or non financial data including data contained in the notes to the FS. Tags include descriptive labels, definitions, references to US GAAP, and other elements that provide contextual information that allow data to be recognized and process by software.

Intercompany Transactions Not Eliminated for Reporting*

It is important to remember that transactions between the segments of an entity are not eliminated in a consolidation between the parent company and the subsidiaries.

Comparative Reporting (Segment)

Segment deemed to be reportable in the immediately preceding period but that does not meet the criteria for reporting in the current period may continue to be reported separately if management judges the segment to have continuing significance.

Nature of Operations

entity's major products or services and its principal markets, including the locations of those markets. 1/2 of companies now have this as the first footnote.

Goodwill Method - Recognized Intangible Asset

-Compute new net assets before Goodwill after admitting new (or paying old) partner -Memo: Compute new capitalized net assets and compare Capitalized Net Assets with Net Assets before Goodwill -The Difference is Goodwill to be allocated to the old partners according to their old partnership profit ratios. G = Goodwill = Going in Investment controls capital account allocation and goodwill calculation. To old partners.

Examples of Concentrations

-Concentrations in the volume of business transacted with a particular customer, supplier, lender, grantor, or contributor -Concentrations in revenue from particular products, services, or fund-raising events -Concentrations in the available supply of resources such as materials, labor, or services -Concentrations in market or geographic area

Exact Method - Equal to Book Value

-Determine the exact amount a new partner will have to pay to get his capital account in the exact proportional interest to the new assets of the partnership -There is no goodwill or bonus -Old partners capital account dollars stay the same -Old partners % ownership changes, but that change is generally not a requirement on the CPA exam A, B, C are partners in a three person partnership. Capital accounts of 20,000 30,000 and 50,000. D wants to be a new partner with 25% interest in partnership. 1/4 = 4 -1 = Total amount before/3 100,000/3 = 33,333 to be contributed

Special Purpose Frameworks - General Presentation Guidelines

-FS titles should be differentiate the OCBOA FS from accrual basis financial statements (DO NOT USE GAAP TERMS) -Required FS are equivalents of the accrual basis balance sheet and income statement -FS should explain changes in equity accounts -Statement of cash flows is not required -Disclosures should be similar to GAAP and should include -summary of significant accounting policies -informative disclosures -disclosures related to items not shown on the face of the FS such as related party transactions, sub events, and uncertainties.

Required Disclosures for All Public - Segment Reporting

-Operating segments (annual and interim) -Products and services -Geographic areas -Major Customers

Reconciliations - Segment

-Total of the reportable segments revenues to the entity's consolidate revenues -Total of the reportable segments measure of profit or loss to the entity's consolidated income before income taxes, discontinued operations, and the cumulative effects of changes in accounting principles -Total of the reportable segments assets to the entity's consolidated assets -Total of the reportable segments liabilities to the entity's consolidate liabilities (IFRS only) -Total of the reportable segments amounts for every other significant item of information disclosed to the corresponding consolidated amount.

Measurement Criteria - Segment

Accounting principles used for segment reporting may not be the same as those used to prepare the consolidated statements. Some principles are not expected to apply on a segment basis, there for the following must be disclosed: -Basis of accounting for any internal transactions -Nature of any differences between measurements of the reportable segment profits or losses and the entity's consolidated income. -Nature of any differences between measurements of the reportable segments assets and the entity s consolidated assets -Nature of any changes from prior period in measurement methods used to determine reported segment profit or loss -Nature and effect of any asymmetrical allocations to segments.

Limitations of Ratios

Although ratios are easy to compute, they depend entirely on the reliability (methods/estimates) of the data on which they are based. Additional information is also valuable when analyzing a company. Horizontal analysis measures the dollar and percentage change over a period of time which is useful in evaluation trends and noting material changes from period to period. Vertical analysis is helpful in reducing statement items to a common size, as all elements are expressed as a percentage of a common number. Vertical analysis assist in period to period comparison but also allows for comparability among other entities as the statement is in a common size format.

Going Concern

An entity is considered to be a going concern if it is reasonably expected to remain in existence and settle all its obligations for the foreseeable future. Presumption US GAAP preparation of FS presumes that the reporting entity will continue as a going concern. Under this presumption FS are prepared under the going concern basis of accounting. If an entity's liquidation is imminent (and the entity is therefor no longer considered to be a going concern), FS are prepared under the liquidation basis of accounting.

Major Customers - Segment

An entity that generates 10 percent or more of its revenue from sales to a single customer must disclose the fact the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. The identity of the major customer need not be disclosed.

Subsequent Event

An event or transaction that occurs after the balance sheet date but before the financial statements are issued or available to to be issued. Can be divided into two categories: Recognized Subsequent Events - provide additional information about conditions that existed at the balance sheet date. Entities must recognize the effects of all recognized subsequent events in the FS. Non-recognized Subsequent Events - an entity should not recognize subsequent events that provide information about conditions that did not exist at the balance sheet date.

3 Methods of Partnerships

Exact Method -Incoming partners capital account is their actual contribution -No adjustment to the existing partners capital accounts is required Bonus Method -Balance in total capital accounts controls the computation -The incoming partners capital account is their percentage of the partnership total NBV (after their contribution) -Adjust the existing partners capital accounts to balance. Goodwill Method -Going in investment (dollars) controls the computation -Income partner's capital account is their actual contribution -Goodwill (implied) is determined based upon the incoming partner's contribution and shared by the existing partners.

Reportable Segment Disclosures

Identifying Factors - factors used to identify the entity's reportable segments, including the basis of organization (products and services, geographic areas, regulatory environments) should be disclosed Products and Services - types from which the reportable segment derives its revenues must be disclosed Profit or Loss - following items must be individually disclosed if the amounts are included in the calculation -Revenues from external customers -Revenues from transactions with other internal operating segments -Interest Revenue -Interest Expense -Depreciation, depletion, and amortization -Unusual items -Equity in net income of investees -Income tax expense or benefit -Significant noncash items

Going Concern - Mitigating Factors

If conditions or events exist that raise substantial doubt about an entity's ability to continue as a going concern, management should consider whether the entity plans intended to mitigate those conditions or events will be successful in alleviating substantial doubt. Evaluated based on -Whether it is probable that the plans will be effectively implemented and -Whether it is probably that the implemented plans will be successful in mitigating adverse conditions or events.

No Segment Reporting Needed

If one segment is greater than 90% than no segment reporting is needed This is because no other segment is over 10% and already covering the 75% rule

75 Percent "Reporting Sufficiency" Test

If the total of external (consolidated) revenue reported by operating segments constitutes less than 75 percent of external (consolidated) revenue, additional operating segments need to be identified as reportable segments, even if they do not meet the 10% three tests, until at least 75 percent of external (consolidated) revenue is included in reportable segments. The practical limit to the number of segments is 10, which is not a precise limit but is reasonable so as not to overwhelm FS users with detailed information.

Profit and Loss Distribution

Income or loss is distributed among the partners in accordance with their agreement and in the absence of an agreement all partners share equally irrespective of what their capital accounts reflect or the amount of time each partner spends on the partnership affairs. Unless the partnership agreement provides otherwise, all payments for interest on capital, salaries, and bonuses are deducted prior to any distribution in the profit and loss ratio. Such payments are provided for in full even in a loss situation. Partnership accounts may be different from their respective profit and loss ratios. The reason for this is that distributions/withdrawals will be at different times and for different reasons.

"All Other Segments" Category

Information about other business activities and operating segments that are not reportable based on the 10% or 75% criteria should be combined and disclosed in an "all other segments" category but is reasonable so as not to overwhelm FS users with detailed information. Not 10% and already showing over 75%

Regulation S-X -Interim financial statements - Disclosure

Interim FS disclosures should be sufficient Omitted Disclosures - because users have access to the most recent annual FS, interim reports may omit summary of significant accounting policies, the details of accounts that have not changed significantly Required Disclosures -Material contingencies -Events subsequent to the end of the most recent fiscal year that have a material impact on the entity including changes in accounting principles and practices, changes in estimates, changes in status of long term contracts, significant new borrowings or modification of financing arrangements and business combinations or dispositions.

Regulation S-X -Interim financial statements

Interim financial statements filed with the SEC must be reviewed by an independent public accountant and the review must be filed with the financial statement US - quarterly (10Q) Foreign - semiannual (6k) B/S - most recent fiscal quarter and end of the preceding fiscal year I/S - most recent fiscal quarter, period between the end of the preceding fiscal year and the end of the most recent fiscal quarter CF - most recent fiscal quarter and end of the preceding fiscal year Adjustments are necessary to fairly state results of interim period and a statement to that effect should be included in the notes to FS Interim FS may be condensed FS

Segment Reporting

Objective of segment reporting is to provide information on the business activities and the economic environment of a company to help users of the FS -Better understand the entity performance -Better assess its prospects for future net cash flows -Make more informed engagements about the entity as a whole IFRS requires the disclosure of segment liabilities if such measures regularly provided to the chief operating decision maker. US GAAP does not require the disclosure of segment liabilities.

Reportable Segments

Operating segments of an entity that meet the criteria for separate reporting. Look for characteristics such as: -Nature of the products and services -Nature of production processes -Type or class of customer for their products and services -Methods used to distribute their products or provide services -If applicable, the nature of the regulatory environment (banking, insurance, or public utilities)

Recognized Subsequent Events

Record JE and disclose The following subsequent events are considered to be recognized subsequent events: Settlement of Litigation - if litigation that arose before the balance sheet date is settled after the balance sheet date but before the date that the FS are issued or available to be issued, the settlement amount should be considered when determining the liability to be reported on the balance sheet date. Loss on an Uncollectable Receivable - the effects of a customers bankruptcy filing after the balance sheet date but before the date that the FS are issued or available to be issued should be considered when determining the amount of uncollectible receivable to be recognized in the FS on the balance sheet date.

Denominator

The denominator has an inverse relationship with the ratio. For example an increase in the denominator results in a decrease in the ratio. Numerator/Denominator (up) = Resulting Ration (down)

Cost Approach

Uses current replacement costs to measure the fair value of assets

Market Approach

Uses prices and other relevant information from market transactions (Exchange) involving identical or comparable assets or liabilities to measure fair value.

Current vulnerability due to certain concentrations

Vulnerability due to concentrations arise when an entity is exposed to risk of loss that could be mitigated through diversification. Concentrations should be disclosed if all of the following are met: -Concentration exists at the FS date -The concentration makes the entity vulnerable to the risk of a near term severe impact (significant financial disruptive effect on the normal functioning of an entity) -It is at least reasonably possible that the events that could cause the severe impact will occur in the near term.

Securities Offering Registration Statements

When a company issues new securities, it is required to submit a registration statement to the SEC that includes: -Disclosures about the securities being offered for sale -Relationship of the new securities to the company's other securities -Information similar to that filed in the annual filing -Audited financial statements -Description of business risk factors

Reissuance of FS - Subsequent Event

When an entity reissues the FS, the entity should not recognize events that occurred between the date the original FS were issued or available to be issues and the date the FS were reissued, unless an adjustment is required by GAAP.

Fair Value Defined

Exit Price Price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal (or most advantageous) market at the measurement date under current market conditions. -Market-based measure not entity based -Principal Market or most advantagous market in the absense of a principal market -Exit price (the price to sell an asset or transfer a liability) -Reflect all of the assumptions that market participants would use in pricing the asset or liability -DOES NOT INCLUDE TRANSACTION COSTS BUT MAY INCLUDE TRANSPORTATION COST IF LOCATION IS AN ATTRIBUTE OF THE ASSET OR LIABILITY -Non financial asset (PP&E) assumes highest and best use

Data Tagging Details

FS footnote and FS schedule tagging is broken into four different levels: Level 1 - each complete footnote and schedule is tagged as a single block or text Level 2 - each significant accounting policy within the significant accounting policies footnote is tagged as a single block or text Level 3 - each table within each footnote or schedule is tagged as a separate block or text Level 4 - within each footnote or schedule each amount (i.e. monetary value, percentage and number) is required to be separately tagged.

Form 6-K

Filed semiannually by foreign private issuers. Similar to 10-Q, contains unaudited F/S, and interim MD&A, and certain disclosures

Converting Cash Basis Revenue to Accrual Basis Revenue

Formula Cash basis revenue + Ending AR - Beginning AR - Ending unearned revenue + Beginning unearned revenue = Accrual basis revenue -Cash basis revenue - from cash basis income statement -Ending AR - revenue earned during period not collected -Beginning AR - cash collect during current period that was earned in prior period -Ending unearned revenue - cash collected during the current period that will not be earned until future periods -Beginning unearned revenue - cash collected in prior periods that was earned in the current period

Converting Cash Paid for Operating Expenses to Accrual Basis Operating Expenses

Formula Cash paid for operating expenses + Ending accrual liabilities - Beginning accrued liabilities - Ending prepaid expenses + Beginning prepaid expenses = Accrual basis operating expenses -Cash paid for operating expenses - from cash basis income statement -Ending accrued liabilities - expenses incurred during the period but not yet paid -Beginning accrued liabilities - expenses incurred during the prior period and paid in the current period -Ending prepaid expenses - payments made during the current period that have not yet been sold -Beginning prepaid expenses - payments made in prior periods that benefited the current period

Converting Cash Paid for Purchase to Cost of Goods Sold

Formula Cash paid for purchases + Ending AP - Beginning AP - Ending inventory + Beginning inventory = Cost of Goods Sold -Cash paid for purchases - from cash basis income statement -Ending AP - expenses incurred during the period but not yet paid -Beginning AP - expenses incurred during the prior period and paid in the current period -Ending inventory - purchases made during the current period that have not yet been sold -Beginning inventory - purchases made in prior periods that were sold during the current period

Forms 3, 4, 5

required to be filed by directors, officers, or beneficial owners of more than 10% of a class of equity securities of a registered company

SEC Interactive Data Rule

requires US public companies and foreign private issuers that use US GAAP, as well as foreign private issuers that use IFRS to present financial statements and any applicable FS schedules in an exhibit prepared using XBRL. Required with the filers SEC registration statements, quarterly and annual reports and reports 6-k and 8-k. (Everything linked)

Fair Value Disclosures

-For assets and liabilities measured at fair value, the valuation techniques (MIC) and inputs (1,2,3) used to develop those measurements -For fair value measurements using significant unobservable inputs (Level 3), the effect of the measurements on earnings (or changes in net assets) or other comprehensive income for the period. Specifically an entity must provide the following: -Quantitative information about significant unobseravle inputs -Discussion of the sensitivity of Level 3 measurements to changes in unobservable inputs disclosed -Description of the entity's valuation process -Transfers between Levels 1 and 2 of the fair value hierarchy -Information about nonfinancial assets and liabilities for which measurements differ from highest and best use -Hierarchy for items that are not measured on the balance sheet bu are disclosed in the notes to the FS

Items Normally Excluded from Segment Profit or Loss

-General corporate revenues -General corporate expenses -Internal expense (except for financial institutions) EBIT -Income taxes EBIT -Equity in earnings and losses or an unconsolidated subsidiary -Gains or Losses from discontinued operations -Minority interest (NCI)

Creation of a Net Partnership Interest with Investment of Additional Capital

3 Ways 1. Exact 2. Bonus 3. Goodwill When a new partnership interest is created by the investment of additional capital into the partnership. The total capital of the partnership does change and the purchase price can be equal to, more than, or less than book value. Finger Math Get 1/4 = 4-1 = Divide by 3 Get 1/5 = 5-1 = Divide by 4 Get 1/20 = 20-1 = Decide by 19

Use of Estimates in the Preparation of FS/Certain Significant Estimates

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, reported amounts of revenues and expenses. Certain Significant Estimates - when it is reasonably possible that an estimate will change in the near term and that the effect of the change will be material, an estimate of the effect of the change should be disclosed. -Inventory or equipment subject to rapid tech obsolescence -Deferred tax asset valuation allowances -Capitalized computer software costs -Loan valuation allowances -Litigation-related obligations -Amounts report for long term obligations (pension, post retirement benefits) -Amounts reported in long term contracts

Summary of Significant Accounting Polices - Disclosures

Measurement bases used in preparing the FS Specific accounting principles and methods used during the period including: -Basis of consolidation -Depreciation methods -Amortization of intangibles -Inventory Pricing -Use of estimates -Fiscal year definition -Special revenue recognition -Criteria for which investments are cash equivalents

Income Approach

Present value of future cash flow (DCF) Converts future amounts, including cash flows or earnings, to a single discounted amount to measure fair value. This method can be applied to assets or liabilities.

Numerator

The numerator has a direct relationship with the ratio. For example, an increase in the numerator results in an increase in the ratio. Numerator (up)/Denominator = Resulting Ratio (up)

Form 11-K

annual report of company's employee benefit plans

Modified Cash Basis Financial Statements

A hybrid method that includes elements of both cash basis and accrual basis accounting. Common Modifications include - capitalizing and depreciating fixed assets, accrual of income taxes, recording liabilities for long term and short term borrowings and the related interest expense, Capitalizing inventory, Reporting investments at fair value and recognizing unrealized gains and losses. Presentation -Statement of assets and liabilities or a statement of assets and liabilities arising from cash transactions. (Balance Sheet) -Statement of revenues and expenses and retained earnings or a statement of revenues collected and expenses paid. (Income Statement) DO NOT USE GAAP TERMS.

Subsequent Event Examples

Balance sheet date of December 31. Year 3. Entity will file the FS by end of March Year 4. 1 - Lawsuit filed in Year 2 was settled in early Feb. Friends of company must pay 600,000 as a result of the lawsuit. The FS currently reflect a contingency amount of 725,000. (RECORD and FOOTNOTE) 2 - Entity announced in early March that it will acquire Company Inc. for 1.5 million. Planned for September Year 4. (FOOTNOTE) 3 - Customer that had significant aged invoices at year end announced bankruptcy. (RECORD) 4 - Second customer that is typically a timely payer had multiple outstanding invoices at year end. Customer experience a flood in Feb and the entire retail location was wiped out. Customer has decided to close its business permanently and not returning phone calls. (FOOTNOTE)

Summary of Significant Accounting Policies

Both US GAAP and IFRS require a description of all significant policies as an integral part of the financial statements. The preferred presentation is to include the Summary of Significant Accounting Policies as the first or second note to the FS. IFRS requires explicit and unreserved statement of compliance with IFRS in the notes of the FS.

Not Every Component is an Operating Segment

Corporate Headquarters Not an Operating Segment - A corporate headquarters or certain functional departments do not earn revenues or may earn revenues that are only incidental to the activities of the entity and would not be operating segment Pension Plan not an Operating Segment - An entity's pension and other post retirement benefit plans are not considered to be operating segments

Most Advantageous Market Example

Company holds stock which trades on two exchanges. The stock price and transaction costs at the measurement date are as follows NY Stock Exchange $52 stock price $6 Trans Cost Net $46 London Exchange $50 stock price $2 Trans Cost Net $48 If NY is principal market = $52 fair value If London is principal market = $50 fair value If no principal market, with London's price (net of transaction costs) having the most advantageous result = $50 fair value You have to ignore the transaction costs when it comes to fair value, the quoted stock price is the price. Just considering for advantageous market.

Operating Segments

Component of an entity that has all of the following characteristics: -Engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity) -Its operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance -Its discrete financial information is available (Traceable cash flows)

Formation of Partnership

Contributions to a partnership are recorded as follows: -Assets are valued at fair value. GAAP/tax - Rollover cost basis GAAP Rule - use FV of asset contributed Tax Rule - use NBV of assets contributed -Liabilities assumed are recorded at their present value -Partners capital account there fore equals the difference between the fair value of the contributed assets less the present value of liabilities assumed.

30-day grace period

Each company's initial interactive data exhibit, regardless of filing type, will be required within 30 days after the earlier of the due date or filing date of the related report or registration statement. Filers will also receive a 30 day grace period for the first filing that is required to have footnotes and schedules tagged using all levels of detail. Information submitted by a filer to the SEC must also be posted to the filer's corporate website.

Nonrecognized Subsequent Events Examples

Disclose (only) Happened after balance sheet and did not exist at balance sheet date -Sale of bond or capital stock -Business combination -Settlement of litigation if the litigation arose after the balance sheet date -Loss of plant or inventory due to fire or natural disaster -Changes in the fair value of assets, liabilities, or foreign exchange rates -Entering into significant commitments or contingent liabilities -Losses on receivables resulting from conditions occurring after the balance sheet date.

Management's Responsibility to Evaluate Going Concern

Management is required to evaluate whether there is substantial doubt about an entity's ability to continue as a going concerned within one year after the fate that the FS are issued. (ISSUE DATE NOT BS DATE) -Substantial doubt exists when relevant conditions and events, when considered in teh aggregate, indicate it is probable that the entity will not be able to meet its obligations as they become due within one year from the FS issuance date -Managements evaluation should occur for each annual and interim reporting period -Managements evaluation should be based on relevant conditions and events that are known and reasonably knowable at the FS issuance date. -Management's evaluation should consider both quantitative and qualitative factors such as: -Current financial condition -Obligations due or anticipated -Funds necessary to maintain operations -Negative financial trends, financial difficulties

Form 10-K

Must be filed annually by US registered companies (issuers). The filing deadline for form 10-k is below. Forms contain financial disclosures including summary of financial data, managements discussion and analysis (MD&A) and audited financial statements prepared under GAAP. Large accelerated = 60 days Accelerated = 75 days All others = 90 days A large accelerated filer is defined by the SEC as an issuer with a worldwide market value of outstanding common equity held by nonaffiliates of $700 million or more, Accelerated file is an issuer with market value of outstanding common equity held of nonaddiliates of 75 million or more but less than 700 million.

Form 10-Q

Must be filed quarterly by the US registered companies (issuers). The filing deadline for Form 10-Q is below. Contains unaudited FS prepared using US GAAP, interim period MD&A and certain disclosures Large accelerated = 40 days Accelerated = 40 days All others = 45 days

Illustration - Bonus to New Partners

New partner pays less A and B share profits and losses 60:40 and have capital accounts of 30,000 and 10,000 (40,000 total). C has agreed to invest 14,000 for one-third interest in new partnership. 14,000 + 40,000 = 54,000. Now 1/3 of 54,000 is 18,000 that C now gets. Paid in 14,000, gets 18,000 so bonus of 4,000 is received. How is that shared? 60% and 40% Debt Cash 14,000 Debit A Capital (Bonus 4,000 * 60%) 2,400 Debit B Capital (Bonus 4,000 * 40%) 1,600 Credit C Capital (30,000 + 10,000 + 14,000 * 1/3) 18,000

Illustration - Bonus to Existing Partner

New partner pays more A and B share profits and losses 60:40 and have capital accounts of 30,000 and 10,000 (40,000 total). C has agreed to invest 35,000 for one-third interest in new partnership. 35,000 + 40,000 = 75,000. Now 1/3 of 75,000 is 25,000 that C now gets. Paid in 35,000, gets 25,000 so bonus of 10,000 is paid. How is that shared? 60% and 40% Debt Cash 35,000 Credit A Capital (Bonus 10,000 * 60%) 6,000 Credit B Capital (Bonus 10,000 * 40%) 4,000 Credit C Capital (30,000 + 10,000 + 35,000 * 1/3) 25,000

Results of Management's Evaluation and Required Disclosures

No Substantial Doubt = No disclosure Substantial Doubt Alleviated = Must Disclose FS should be prepared under the going concern basis of accounting and should include the following footnote: -Primary conditions or events that initially raised substantial doubt -Managements evaluation of the significance of those conditions or events -Managements plans that alleviated the substantial doubt Substantial Doubt Not Alleviated = Must Disclose The FS will continue to be prepared under the going concern basis. The footnotes must state that there is substantial doubt about the entity's ability to continue as a going concern. Also note the following: -Primary conditions or events that initially raised substantial doubt -Managements evaluation of the significance of those conditions or events -Managements plans that are intended to mitigate the substantial doubt

Highest and Best Use

Non financial Asset - PP&E - takes into account the market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest or best use. Liabilities and Financial Assets - Stocks and Bonds - the highest and best use concept is not relevant when measuring fair value here because such items do not have alternative uses and their fair values do not depend on their use within a group or other assets or liabilities

Liquidation of a Partnership

Order of Preference Regarding Distribution of Assets Creditors - Paid first Creditors including partners who are credits must be paid before the non creditor partners receive any payments Partners Capital - Paid last Right of offset between a partners loans to and from the partnership and that persons capital balances generally exists in liquidation Losses Consider in Liquidation -All possible losses must be provided for in a liquidation before any distributions is made to the partners. -Losses in liquidating a partnership are charged to the partners in accordance with the partnership agreement, in absence of agreement losses are shared equally. Convert Noncash Assets General procedure in liquidation is that noncash assets are converted into cash, all liabilities are paid, and the remained if any is distributed to the partners. Gain or Loss on Realization -A gain on realization -A loss on realization -Loss on realization resulting in a capital deficiency Capital Deficiency A debit balance in a partners capital account and indicates that the partnership has a claim against the partner for the amount of the deficiency Right of Offset If a partner with a capital deficiency has a loan account (partnership has a payable to the partner) the partnership has a legal right to offset and may use the loan account to satisfy the capital deficiency Remaining Partners Charged If a deficiency still exists, the remaining partners must absorb the deficiency according to their respective remaining profit and loss ratios.

Fair Value Terminology

Orderly Transaction - cannot be a forced transaction Market Participants - buyers and sellers who are independent NOT related parties Principal Market - General Rule - market with the greatest volume or level of activity for the asset or liability Most Advantageous Market - IF no principal market - the market with the best price for the asset (maximizes selling price of the asset) or liability (minimized payment to transfer liability) AFTER considering transaction costs Note that although transactions cost are used to determine the most advantageous market, transaction costs are NOT included in the final fair value measurement

Purchase or Sale of Existing Partnership Interest

Outside partnership transaction A partner with the consent of all partners may sell his partnership interest to a new partner. Payment for the partnership interest by the new partner would go directly to the selling partner. The retiring partner could sell his interest in the same manner to the remaining partners. No Journal Entry No entries are made on the partnership books, except for the change of name on the capital account. Transactions of this type do no affect the assets, liabilities, or total capital of partnership

Income Tax Basis Financial Statements

Prepared based on the methods and principles used to prepare the entity's tax return. Special accounting treatment must be given to nontaxable revenues and expenses not reported on the tax return. Nontaxable revenues and expenses must be recognized in tax basis FS in the period received or paid for cash basis taxpayers and in the period accruable for accrual basis taxpayers. Nontaxable revenues and expenses may be reported as: -Separate line items in rev and expense sections -Additions and deductions to net income, or -A disclosure in an note Presentation -Statement of assets and liabilities and equity or a balance sheet -Statement of revenues and expenses and retained earnings or a statement of income.

Ratio Analysis Overview

Quickly identify red flags Historical Trends Industry Standards Ratios are financial indicators that distill relevant information about a business entity. Liquidity Ratio, Activity Ratio, Profitability Ratio, and Coverage Ratio.

Remaining Notes to the FS

Remaining notes contain all other information relevant to decision makers: -Material information regarding inventory, property, plant, and equipment -Changes in stockholders equity -Required marketable securities disclosure -Fair value estimates -Contingency losses -Contingency gains -Contractual obligations -Pension plan -Segment reporting -Related Parties -Sub Events (Discontinued segment, Outside ordinary course of business) -Changes in accounting principles or implementation of new accounting standards updates.

10 Percent "Size" Test

Revenue - the segment's revenue including both sales to external customers and interssegment sales or transfers is 10 percent or more of the combined revenue, internal or external, of all operating segments. Reported Profit or Loss The absolute amount of the segments reported profit or loss is 10 percent or more of the greater, in absolute amount of: -combined reported profit of all operating segments that did not report a loss -combined reported loss of all operating segments that did report a loss Assets - the segments identifiable assets are 10 percent or more of the combined assets of all operating segments. The assets of a segment are those assets included in the measure of the segments assets that are reviewed by the chief operating decision maker.

Converting Cash Basis FS to Accrual Basis

Revenue Recognition Cash Basis - cash received Accrual Basis - realized or realizable and earned, accounts receivable Expense Recognition Cash Basis - cash paid Accrual Basis - incurred/owed/benefit received, accounts payable Additional adjustments may be required: -recognize noncash expense (depreciation and amortization) -Capitalize purchases of fixed assets (fixed asset purchases are cash disbursements under the cash basis) -Reduce fixed asset balance for assets sold during the period (fixed asset sales are cash receipts under the cash basis) and recognize gains/losses on the sale -Record debt proceeds received during the period as liabilities (debt proceeds are cash receipts under the cash basis) -Record debt repayments as reduction in liabilities ( debt repayments are cash disbursements under the cash basis)

Segment Profit (or Loss) Defined

Revenues Less: directly traceable costs (for that segment both internal and external) Less: reasonably allocated costs (by management chief operating decision maker) ____________________________________________ Operating profit (or loss) (EBIT earnings before interest and tax)

Geographic Areas Disclosure - Segment

Revenues - disclose revenues from external customers that are: -Attributable to the entity's domicile country -Attributable to all foreign countries if the amount is material -Attributed to individual foreign counties if the amount is material -The basis for attributing revenues from external customers to individual countries Long-Lived Assets - disclose the long-lived assets that are: -Located in the entity's domicile country -Located in all foreign countries in total in which the entity holds assets -Located in individual foreign countries if the amount is material

Revised Financial Statements - Subsequent Events

Revised FS are FS that have been revised to correct an error or to reflect the retrospective application of US GAAP. Revised FS are considered reissued FS. If an entity is not an SEC filer, the entity should disclose in its revised FS the dates through which subsequent events have been evaluaed in both its issued/available to be issued FS and its revised FS. Disclose is not required for SEC filers.

Hierarchy of Inputs

The fair value of hierarchy "prioritizes" the inputs that can be used in the valuation techniques described above. Level 1 inputs have the highest priority and Level 3 inputs have the lowest priority. Level 1 inputs - active markets for identical assets as of the measurement date. Most reliable. Listed on an exchange. Level 2 inputs - other than quoted market prices that are directly or indirectly observable for the asset or liability. -Quoted prices for similar assets or liabilities in active markets -Quoted prices for identical or similar assets in markets that are not active Level 3 inputs - DCF - unobservable inputs for the asset or liability. Reflect the reporting entity's assumptions and should be based on the best available information. Estimates. Future Cash Flows. Used only when there are no observable inputs.

Subsequent Event Evaluation Period

Through the date that the FS are issues (public) With other entities (private, etc) when the are available to be issued.

Bonus Method - Recognize Intercapital Transfer

To existing partners = when the new partner pays more To new partner = when new partner pays less -Determine total capital and the interest to the new partner -If interest less than account contributed, bonus to old partners -If interest is great than amount contributed, bonus to new patner B = Bonus = Balance in total capital accounts controls the capital account allocation Under the bonus method, the bonus will be credited to the following partner: Existing partners - when new partner pays more than NBV New Partner - when new partner pays less than NBV

Illustration - Goodwill Credited to Capital Accounts of Existing Partners

To old partners A and B share profits and losses 60:40 and have capital accounts of 30,000 and 10,000. C has agreed to invest 35,000 for one third interest in partnership. Partnership decides to recognize goodwill. Implied value going in dollars 35,000 x 3 = 105,000 Total Partners capital account (book value) = 75,000 (35,000 + 10,000 + 30,000) Goodwill - Implied by going in dollars = 30,000 Debit Cash 35,000 Debit Goodwill 30,000 Credit A Capital (60% x 30,000) 18,000 Credit B Capital (40% x 30,000) 12,000 Credit C Capital (Amount contributed) 35,000

Fair Value Measurement Framework

US GAAP and IFRS established a framework for measuring fair value. Outlines the valuation techniques that can be used and establishes a hierarchy of the inputs that can be used.

Fair Value Overview

US GAAP and IFRS have standardized the definition of fair value, established a framework fro measuring fair value and outlined required fair value disclosures for all areas the require or permit fair value measurement, EXCEPT: -share based compensation (black scholes) -measurements based on or using vendor specific objective evidence of fair value -fair value measurements used for lease classification or measurement

Cash Basis Financial Statements

Under the cash basis of accounting, revenues are recognized when cash is received and expenses are recognized when cash is paid. -Statement of Cash and Equity (balance sheet) - in pure cash basis FS, cash is the only asset, no liabilities are recorded and equity is equal to cash -Statement of Cash Receipts and Disbursements (income statement) includes Revenues received, Debt and equity proceeds, proceeds from asset sales, expenses paid, debt repayments, dividend payments, payments for purchases of assets

Special Purpose Frameworks

also known as other comprehensive bases of accounting (OCBOA) are non-GAAP presentations that have a widespread understanding and support. OCBOA presentation include: -Cash basis and modified cash basis of accounting. -Tax basis of accounting -Definite set of criteria hav substantial support that is applied to all material financial statement elements, such as price-level adjusted FS -Regulatory basis of accounting.

Forms 20-F and 40-F

filed annually by foreign private issuers Contain financial disclosures including a summary of financial data, management's discussion and analysis (MD&A), and audited FS. FS may be prepared using US GAAP, IFRA, or a comprehensive body of accounting principles 40-F (Canadaian 10k) 20-F (Non-US 10k)

Form 8-K

used by publicly traded companies to disclose any material event not previously reported that is important to investors. Corporate asset acquisitions or disposals, changes in securities and trading markets, changes to accountants or FS, changes in corporate governance or management.