FAR - F2 Financial Reporting and Disclosures

Requirements for Annual Financial Statements

Audit Requirement Periods Presented: 2 BS, 3 IS+CF IFRS Requires: at minimum 2BS, 2 Comprehensive inc statements, and 2 CF

Cash Basis and Modified Cash Basis Financial Statements

DO not use GAAP Terms Cash Basis: Revenue recognized when cash received, expenses when cash paid -Statements of cash and equity= balance sheet: Cash only asset, no liab, eq = cash -Statement of Cash Receipts and Disbursements = Income Statement Modified Cash Basis: Common Modifications: -Capitalizing and Depreciation fixed assets -Accrual of ITaxes -Recording Liab -Capitalizing Inv -Reporting Inv at FV Presentation: -Statement of Assets and Liab = Balance Sheet -Statement of Revenues and Expenses and Retained Earnings: Income Statement; a statement of revenues collected and expenses paid

Quantitative threshold for reportable segments

Disclosure required if a segment meets one of the following criteria: *If one segment is >90% b= no segment reporting needed* 10% size test: -revenue: the segments revenue including both internal and external sales is 10% or more of combined revenue -reported profit or loss:the absolute amount of the segments reported profit or loss is 10% or more of the greater in absolute amount of 1. the combined profit of all operating segments that did not report a loss 2. the combined reported loss of all operating segments that did report a loss -Assets: the segments identifiable assets are 10% or more of the combined assets of all operating segments 75% reporting sufficiency test: if the total external revenue reported is less than 75% of external revenue additional operating segments need to be identified as reporting segments

Income Tax Basis Financial Statements

Do not use GAAP Terms Accounting Issues: Prepared based on methods used to prepare the tax return, special accounting given to nontaxable revenues and expenses not on tax return Nontaxable revenues and expenses may be reported as: -Separate Line items in the revenue and expense sections of revenues and expenses ; -additions and deductions to net income -A disclosure in a note Presentation: -A statement of assets, liab and equity (income tax basis) -Statement of REvenues and expense and retained earnings (income tax basis) or statement of income (income tax basis)

General Presentation Guidelines

Dont Use GAAP Terms FSs should differentiate The OCBOA FSs from Accrual basis FSs should explain changes in Eq accounts stmt of cash flows not required disclosures in OCBOA should be similar to GAAP

Form 11-K

Employee benefit plans

Exceptions to Fair Value Measurement

Exceptions exist when: -it is not practical to measure FV -FV cannot be reasonably measured -FV cannot be measured with sufficient reliability

Revised Financial Statements

FSs that have been revised to correct an error or reflect the retrospective application of US GAAP Revised financials are considered reissued

Form 8-K

For Major Events

Data Tagging Details

Four different Levels of Data Tagging 1. Complete footnote and schedule is tagged as a single block of text 2. significant accounting policy 3.each footnote or schedule is tagged as separate block of text 4.Each amount, is required to be separately tagged

Adjustments for Fair Presentation

Interim financials should refelct adjustments to fairly state the results of the interim period

Going Concern Overview

Issue: Valuation, Classification 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 If the reporting entity will continue as a going concern, FSs are prepared under the going concern basis of accounting If an entities liquidation is imenent FSs are prepared under the liquidation basis of accounting

SEC Reporting Requirements

Know the Forms

Disclosure of Risks and Uncertainties

Nature of Operations: FN should include a description of entity's major products or services and its principle markets if entity operates multiple businesses disclosure should describe relevant importance of each * Half the companies have this as the first footnote Use of Estimates in the preparation of Financial Statements: FNs should include a statement on saying that GAAP requires mgmt to make estimates and assumptions that affect Assets and Liab, etc. Actual results could vary from estimates

Requirements for Interim Financial Statements

Review Requirement: interim statements must be reviewed by a public accountant

SEC Interactive Data Rule

SEC requirs public US companies and foreign issuers to present FSs using XBRL

Form 6-K

Semiannual Filed semiannually by foreign private issuers unaudited

Liquidity Ratios

Short Term risk of distress, whats in the numerator to cover the denominator *Higher the ratio, the lower the risk* Current Ratio: *Higher the ratio, the lower the risk* Current Assets/Current Liabilities Quick Ratio: more Liquid/conservative than the current ratio (Cash and Cash Equivalents + Short Term Marketable Securities + Receivables (net)) / Current Liabilities

Remaining Notes to the Financial Statements

The Remaining Notes contain all other information relevant to decision makers -material info regarding PPE,inv,etc -changes in SH eq -Required marketable securities disclosures -FV estimates -Contingency losses -Contingency gains -Subsequent Events: Discontinued Segment, and Outside ordinary course of business -Changes in Acct principles -related party disclosures

US GAAP vs IFRS for going Concern differenecs

US GAAP requires Liquidation basis if liquidation is imminent, IFRS does not provide this guidance US GAAP Requires certain disclosures when there is substantial doubt about an entities ablity to continue as a going concern, IFRS requires disclosures when mgmt is aware of material uncertainties that may give rise to substantial doubt about ability to continue as a going concern US GAAP requires mgmt to assess going concern conditions within one year of the FS issuance date, IFRS requires assessment at least one year from the BS date

Statements and Periods Presented

US- Quarterly (10-K) Foreign - Semiannual (6K) Interim statements should include Balance sheets, Income statements, statement of cash flows

Mitigating Factors

If events exist that raise substantial doubt about an entities going concern, mgmt should consider whether the plans to mitigate those conditions will be successful: the mitigating effects should be based on: -whether it is probable that the plans will be effectively implemented, and if so, -whether it is probable that the implemented plans will be successful in mitigating the adverse conditions or events

Profit and Loss Distribution

Income or loss is distributed in accordance with partnership agreement, if no agreement share equally according to %s *Partnership accounts may be different from their respective profit and loss ratios, the reason for this is that distributions will be at diff times and for diff reasons

Condensed Financial Statements

Interim Statements can be presented as condensed

Limitations of Ratios

easy to compute, hinge of reliability of data Additional information is also valuable - need to compare to benchmark, or over time(trend analysis) Vertical analysis: common size, assists in period to period comparison

Converting Cash Basis Financial Statements to the Accrual Basis

Revenue Recognition: Cash Basis = Cash Received Accrual Basis = Realized or Realizable and Earned (AR) Expense Recognition: Cash Basis=Cash Paid Accrual Basis=Incurred/owed/benefit received Balance Sheet Conversion: All Assets + Liab existing an YE not already the balance sheet need to be added with equity equal to the difference between Total A - Total L Income Statement Conversion: Primary Adjustments: -Converting Cash Basis revenue to accrual basis -Converting Cash paid for purchases to Accrual basis for COGS -Converting cash paid for OPEX to accrual basis for OPEX Additional Adjustments may be required to: -recognize noncash expenses -capitalize purchases for fixed asset -reduce the fiexed asset balance for assets sold during the period (recognize G/L) -Record Debt Proceeds received during the period as liabilities -Record Debt repayments as reduction in Liab Converting Cash Basis to Accrual Basis Revenue: Formula: Cash Basis Revenue +Ending AR -Beginning AR -Ending Unearned Revenue +Beginning Unearned Revenue _______________________________________________________________________________ =Accrual Basis Revenue Converting Cash Paid for Purchases to COGS: Formula: Cash paid for Purchases +Ending AP -Beginning AP -Ending Inventory +Beginning Inventory _______________________________________________________________________________ =COGS Converting Cash Paid for Operating Expenses to Accrual Basis Operating Expenses: Formula: Cash paid for operating Expenses +Ending Accrued Liabilities -Beginning Accrued Liabilities -Ending Prepaid Expenses +Beginning Prepaid Expenses -------------------------------------------------------------- =Accrual Basis Operating Expenses

SEC XBRL Reporting Requirements

royalty free open specification for software that uses XML data tags to describe financial information for business and financial reporting

Regulation S-X

sets forth form and content and requirements for interim and annual FS to be filed with SEC

Activity Ratios

"Turnover" How effectively entity is using its assets General rule: Greater than or equal to the standard *Generally Use average balance for the balance sheet components, However on some CPA exams it has asked to use year end **READ CAREFULLY** Accounts Receivable Turnover: Want a high number, shows success of the firm in collecting outstanding receivables Sales (net) - From Current year IS / Average Accounts Receivable (net) Days Sales in Accounts Receivable: Lower the better, average number of days to collect AR Ending Accounts Receivable (net) / (Sales (net) / 365) Inventory Turnover: Higher the better, how quickly inventory is being sold indicator of performance COGS/Average Inventory Days in Inventory: # of Days to sell, too high =slow moving, too low=sell too fast giving it away Ending Inventory/(COGS/365) Accounts Payable Turnover: Take full advantage of interest free grace period but dont be late, no problem paying on time but dont pay too fast unless you have a 2/10 net 30 deal, want it a littler higher than average COGS/Average Accounts Payable Days of Payables Outstanding: # of days to pay, too high = problems paying, too low = poor cash mgmt Ending Accounts Payable/(COGS/365) Cash Conversion Cycle: how long it takes to generate cash from core business Days sales in AR + Days Sales in Inventory - Days of Payables Outstanding Asset Turnover: Ability of asset to generate revenue, high ratio indicates effective asset use to generate sales -mgmt efficiency: too many trucks=ratio too low; too few trucks, high turnover but lost sales Sales (net)/Average Total Assets

Ratio Analysis

*Quickly identify red flags -historical trends -industry standard Ratios are financial indicators that distill relevant information about a business entity Can be compared with ratios from a different period can also be compared to competitor ratios and industry ratios trends that may be important to primary users Key ratios to know: liquidity ratio, activity ratio, profitability ratios, coverage ratios

Withdrawal of a Partner

1. Bonus Method: The difference between the balance of the withdrawing partners capital account and the amount that the person is paid is the amount of the bonus. The bonus is allocated among the remaining partners capital accounts. Although Partners assets may be revalued to FV at date of withdrawal, any good will implied by the excess payment to the retiring partner is not recorded Step 1: JE to revalue the assets to reflect FV Dr. Asset Adj (adjust assets up to FV) Cr. A Capital % Cr. B Capital % Cr. X Capital % Step 2: JE to pay off withdrawing partner Dr. A Capital % (make up diff) Dr. B Capital % (make up diff) Dr. X Capital 100% (buy him out) Cr. Cash (pay him more than capital account) 2. Goodwill Method: Partners may elect to record the implied GW in the partnership based on the pmt to the withdrawing partner. Amount of implied GW is allocated to all of the partners, after this balance in the withdrawing partners account should equal the amount that the person is to receive in the final settlement of their interest. Step 1. JE To revalue the assets to reflect FV Dr. Asset Adj (adjust assets up to FV) Cr. A Capital % Cr. B Capital % Cr. X Capital % Step 2. JE to record GW to make withdrawing partners capital amount equal payoff Dr. GW Cr. A Capital % Cr. B Capital % Cr. X Capital % (get him to the exact amount of buyout) Step 3. JE to pay off withdrawing partner: Dr. X Capital (100%) Cr. Cash

Fair Value Disclosures

1. The valuation techniques and inputs the entity uses to arrive at its FV, including judgements and assumptions taht the entity makes 2. the Uncertainty in the FV measurment as of the reporting date; and 3. How changes in FV measurement affect the entities performance and cash flows -Specifically they must provide the following disclosures regarding FV measurement: Quantitative information about significant unobservable inputs (forecasted FCF/discount rate) Discussion of the sensitivity of level 3 measurements to changes in unobservable inputs disclosed info about nonfinancial assets and liab for which measurement differ from highest and best use hierarch for items that are not measured on the balance sheet but are disclosed in the notes to the financial statements

Forms 3,4,5

10% Owners; filed by directors, officers, or owners of more than 10% of a class of equity securities of a registered company

Forms 20-F and 40-F

20-F: Non US 10-K annual Report 40-F: Canadian 10-K Annual Report Financial data, MD&A, audited financial stmts, may be prepared with GAAP or IFRS

Admission of a Partner

By Purchase or sale of existing partnership interest = outside partnership transaction -NO Journal Entry Formation of a Partnership: 1.Assets are valued at FV 2.Liab Assumed are recorded at their present value 3.Partners Capital account equals difference between Assets and Liab Creation of a New Partnership Interest with Investment of Additional Capital: 3 ways: Exact, Bonus or Goodwill 1. Exact method: When the purchase price is equal to the book value of the capital account purchased -Rules: Problem Solving Steps: 1.determine the exact amount the new partner will have to pay to get his capital account in the exact proportional interest to the new net assets of the partnership 2. There is no goodwill or bonus 3. Old partners capital account "dollars" stay the same 4. Old partners % ownership changes but that change is not normally a requirement on the CPA exam 2. Bonus Method - Recognize Intercapital Transfer: when the purchase price is more or less than the book value of the capital account purchased -Rules:Problem Solving Steps: 1. Determine the total capital and interest to the new partner 2. If interest less than amount contributed, bonus to old partners 3. If interest greater than amount contributed bonus to new partner *Under Bonus method the bonus will be credited to the following Partner: Existing Partner when the new partner pays more than NBV New Partner when the new partner pays less than NBV 3. Goodwill Method: Recognized Intangible Asset: GW is recognized based upon the total value of the partnership implied by the new partners contribution -Rules: Problem Solving Steps: 1. Compute new "Net Assets before GW" after admitting new partner 2. Memo: Compute new capitalized net assets (=total net worth) and compare "Capitalized Net assets" with "Net Assets Before GW" and 3. The Difference is Goodwill to be allocated to the old partners according to their old partnership profit ratios

Operating Segment

Component of an entity that has all of these characteristics: -Engages in business activities in which it gains revenues and incurs expenses -Its operating results are regularly reviewed by the chief decision maker to make decisions about resource allocation -its discrete financial information is available (traceable cash flows)

Notes to Financial Statements - Summary of Significant Accounting Policies

GAAP and IFRS requires that a description of all significant policies be included as an integral part of the FSs. Preferred presentation is to include the "summary of significant accounting policies" as the first or second note in the FSs IFRS requires an explicit statement of compliance with IFRS in the FS notes Disclosures: -Measurement bases used in preparing FSs -Specific accounting principles and methods used during the period including: -basis of consolidation -Dep methods -amort of intangibles -inv pricing -use of estimates -fiscal yr definition -special revenue recognition issues -Criteria for which investments are cash equivalents IFRS requires disclosure of judgements and estimates that management has made in the process of applying accounting policies Items not included: -composition and detailed dollar amounts of account balances -details relating to changes in accounting principles -dates of maturity and amounts of long term debt -yearly computation of dep,depletion, and amort

Fair Value Measurement Overview:

GAAP and IFRS standardized definitions and framework for everything except: -Share based compensation -Measurement based on or using vendor specific objective evidence of fair value; and -fair value measurements used for lease classification or measurement FV: Price that would be received to sell an asset in the principle market at measurement date -Market based measure- not entity based -in principle market or most advantageous mkt in absence of a principle mkt -FV is an exit price -Does not Include transaction costs but may include transportation costs if location is an attribute (used to calculate most advantageous market) -assume highest and best use of the asset

Coverage Ratios

LT risk/solvency - capital structure Debt to Equity: Dependent on risk mgmt is willing and able to assume, lower the ratio better companies position; Degree of Financial Leverage = 1 + D/E Total Liabilities/Total Equity Total Debt Ratio: As debt goes up risk assumed goes up, but more debt means there's less equity which means more ROE Total Liabilities/ Total Assets Equity Multiplier: Used in Dupont Model, DFL (degree of financial leverage), ROA x DFL = ROE, higher means risk assumed higher but ROE higher, Amplifies both risk assumed and potential return Total Assets/Total Equity Times Interest Earned: interest coverage ratio, higher = lower risk, ability of a company to cover interest charges EBIT/Interest Expense

Fair Value Measurement Framework

Level Valuation Techniques (MIC): Can use the Market approach, the income approach, the cost approach, or a combination of these as appropriate; change in valuation technique accounted for as a change in accounting estimate Market Approach: uses prices and other relevant information from market transactions (uses prices from an exchange) Income Approach: Present Value of FCF Cost Approach: uses the current replacement cost Hierarchy of Inputs: Prioritizes the inputs that can be used in the valuation techniques described above; Level 1 inputs have highest priority and level 3 have the lowest; Valuation techniques should maximize the use of observable inputs (Lvl 1 and 2) and minimize the use of unobservable inputs (lvl 3) Level 1 Inputs: Quoted prices in active markets for identical assets that an entity has access to on the measurement date Level 2: Directly or indirectly observable:ex: -Quoted prices for similar assets in active markets -Quoted prices for identical or similar assets in markets taht are not active -inputs that are derived from observable market data Level 3: Unobservable inputs , reflect the reporting entities assumptions and should be based on the best available info, should only be used when there are no Lvl 1 or 2 inputs or when undue cost and effort are required to obtain

Managements Responsibility to Evaluate

Mgmt is required to evaluate whether there is substantial doubt about an entities ability to continue as a going concern within one year after the date the FSs are issued (***One year from Issuance Date NOT balance sheet date***) -If it is probable (likely to occur) that the entity will not be able to meet its obligations as they become due within one year from the FS issuance date -mgmts evaluation should occur for each annual and interim reporting period -should consider both qualitative and quantitative factors

Form 10-K

Must be filed annually by registered companies, filing deadline is 60 days after end of fiscal year for large accelerated filers, 75 days for accelerated filers, and 90 days for all other registrants Large Accelerated Filer: mkt value of 700mil or more Accelerated Filer:75mil or more Smaller reporting companies with less than 100 million are excluded from the two above

Required disclosures for public entities

Must report FSs about a companies -operating segments -products/services -Geographic areas -Major customers

Results of Managements Evaluation and Required Disclosures

No disclosures related to going concern are required if the evaluation does not give rise to substantial doubt If there is substantial doubt, but the substantial doubt is alleviated as a result of mgmts plans , FSs should be prepared under going concern basis and include the following footnote disclosures: -The primary conditions or events that initially raised substantial doubt about the entities ability to continue as a going concern -Mgmts evaluation of the significance of those conditions or events in relation to the entities ability to meet its obligations -Mgmts plans that alleviated the doubt Substantial Doubt not Alleviated - If there is substantial doubt about going concern and it is not alleviated, continue to prepare FSs under going concern; FNs must state that there is substantial doubt in addition the following disclosures are required: -The primary conditions or events that raised substantial doubt about the entities ability to continue as a going concern -Mgmts evaluation of the significance of those conditions or events in relation to the entities ability to meet its obligations -Mgmts plans that that are intended to mitigate the adverse conditions or events

Special Purpose Frameworks

Non-GAAP presentations that have widespread understanding and support (Other Comprehensive basis of Accounting (OCBOA) ex: Cash basis, tax basis, regulatory basis

Interim Reporting Disclosure

Omitted Disclosures: May omit the summary of significant accounting policies, the details of the accounts that have not changes significantly Required Disclosures: -Material Contingencies -Events subsequent to the end of the most recent fiscal year that have a material impact

Reportable segments

Operating segments that meet the criteria for separate reporting Those operating segments that exhibit similar long term financial performance may be aggregated into a single operating segment only if the segments have the same basic characteristics in the following areas: -The nature of the products and services -the nature of the production processes -the type or class of customer for their products and services -the methods used to distribute their products -if applicable the nature of the regulatory environment

Liquidation of a Partnership

Order of preference regarding distribution of assets: When assets reduced to cash, cash must be used to pay liabilities in the following order: 1. Creditors (paid first): Including Partners who are creditors 2.Partners Capital (paid last): Right of offset between a partners loans to and from Losses Considered in Liquidation: 1. All possible losses must be provided for in liquidation before any distribution is made to the partners 2.Losses in liquidating a partnership are charged to the partners in accordance with the partnership agreement Convert Noncash assets: All noncash assets converted to cash Gain or Loss on Realization: Liquidation of assets may result in: 1. Gain on realization 2.A loss on realization 3.A 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 (Use their loan account):if a partner w/ a capital deficiency has a loan account, partner can offset and may use loan account to satisfy the deficiency Remaining Partners Charged: if deficiency still exists, remaining partners absorb the deficiency according the their remaining Profit and Loss ratios

Fair Value Terminology

Orderly Transaction: where the assets or Liab exposed to the mkt for a period before the measurement date, long enough to allow for marketing activities that are usual and customary for transactions involving such assets. cant be forced Market Participants: Buyers/Sellers who are independent knowledgeable, able to transact for the asset and willing to transact. considered to be acting in their economic best interest Principle market: Where the greatest volume or level of activity for the asset. If there is a principle mkt for the asset the price will be the FV . must be available at measurement date (most volume) Most advantageous Market: mkt with the best price for the asset, after considering transaction costs. Although transactions costs are used to determine the most advantageous market they are not included in the final FV measurement. Most advantageous mkt will be FV if there is not a principle mkt Highest and Best Use: Nonfinancial Assets: take into account the mkt participants ability to generate economic benefits by using the asset in its highest and best use; assume a reporting entity is using the asset in its highest and best use Financial Assets: Not relevant when measuring fair value of financial assets , bc they do not have alternative uses

Profitability Ratios

Profit Margin: Turn revenue into profit - but first cover costs, heavily dependent on competition Net Income/Sales(net) Return on Assets: Turn asset into profit for owner, want it higher the better Net income/Average total assets Dupont Return on Assets: Explain why ROA is what it is, did the asset generate revenue, did revenue generate profit Profit margin * Asset Turnover Return on (total) Equity: want Greater than required rate of return, higher the better (is it sustainable) Net Income/Average Total Equity Return on Sales: Operating margin - excludes impact of Financial Leverage, higher the better EBIT / Sales (net) Gross Margin: (Sales (net) - COGS) / Sales (net) Operating Cash Flow: Cash generated from core business, higher coverage less risk of distress Cash flow from operations / Current Liabilities

Subsequent Event Evaluation Period

Public Companies must evaluate subsequent events through the date the FSs are issued Private companies must evaluate through the date the FSs are available to be issued (must disclose date that the FS were available to be issued)

Form 10-Q

Quarterly report Filing Deadline: Large Accelerated: 40 days Accelerated: 40 All Others: 45 days Unaudited financial statements

Entity-Wide Disclosures

The following apply to entities regardless of the number of reportable segments -Products and services: revenues from external customers of each product must be disclosed unless it is impractical to do so -Geographic Areas : Revenues: disclose the revenues from external customers that are: -attributable to entities domicile territory - attributed to all foreign countries if the amount is material -attributed to individual countries 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 entries domicile territory -located in all foreign countries in total in which the entity holds assets -located in individual foreign countries if the amount is material Major customers: an entity that generates 10% or more of its revenue from sales to a single customer must disclose that fact

Segment Reporting Overview

The objective of segment reporting is to provide information on the business activities and the economic environment of a company to help users of the financial statements: 1. Better understand the entity performance 2.Better assess its prospects of future net cash flows; and 3. make more informed judgements about the entity as a whole IFRS requires disclosures of segment liabilities if such a measure is regularly provided to the chief decision maker US GAAP does not **Intercompany transactions not eliminated for reporting** Only applies to public companies

Investor Ratios

Two ways to make money on Current income: dividend or growth Earnings per share: want it higher Income available to common shareholders/Weighted average common shares outstanding Price Earnings Ratio: relative valuation metric, rise in ratio mean investors are pleased with firms growth opportunity Price per share/Basic EPS Dividend Payout Ratio: low DPR = more growth opportunities, high DPR less growth opportunity but higher current income Cash Dividends/Net Income

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 Disclosure Requirements: Concentrations should be disclosed if the following criteria are met: -The concentration exists at 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 events that could cause the severe impact will occur in the near term Examples of Concentration: -Concentrations in volume of business transacted with a particular customer,supplier, etc -concentrations in revenue from products or services -concentrations in available supplies of resources -concentrations in mkt or geographic area

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 new securities being offered for sale -the relationship of the new securities to the companies other securities -audited FSs -descirption of business risk factors

Reissuance of Financial Statements

When an entity reissues its FSs the entity should not recognize events that occurred between the date of the original FS issuance and the date that the FSs were reissued Under IFRS subsequent events are referred to as "events after the reporting period" subsequent event evaluation period extends through the date the FSs are authorized for issuance

Certain significant estimates

When it is reasonably possible that an estimate will change in the near term and the change will be material it should be disclosed Examples: -DTA allowances -Computer Software costs that are capitalized Loan Valuation allowances -litigation related obligations

Subsequent Events

an event or transaction that happened after the balance sheet date but before the financial statements are issued: Can be divided into two categories Recognized Subsequent Events (Record JE and disclose): Provide additional information about conditions that existed at the balance sheet date; entity must recognize all the effects of all recognized subsequent events in the FSs: ex: -Settlement of Litigation: If litigation that arose before the balance sheet date is settled after the balance sheet date but before the date the FSs are issued , 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 FS are issued should be considered when determining the amount of uncollectible receivables Non Recognized Receivables (Disclose Only): An entity should not recognize subsequent events that provide information about conditions that did not exist at the balance sheet date; ex: -sale of bonds or stock -business combination -settlement of litigation, if litigation arose after BS date -changes in FV of assets -Loss on receivables resulting from conditions after BS date The events listed should be disclosed if disclosure is necessary to keep the FSs from being misleading