F1 Final

1-7 (2012 UPDATE) name the three elements of faithful representation

1. nuetrality 2. completeness 3. freedom of error.

1-26 How is a change in an accounting estimate reported?

- Prospectively - The effect is shown in the current and/or future periods which are affected by the change - Financial statements are not restated

Name the pervasive constraint on the information provided in financial reporting.

Cost constraint: Benefits of reporting financial information must be greater than costs of obtaining and presenting it.

1-44 define Development Stage Enterprise

Enterprise that devotes substantially all of its efforts to establishing a new business and either planned principal operations have not commenced or not significant revenue has been generated therefrom.

Who are the primary users of general purpose financial reports?

Existing and potential investors lenders and other creditors.

Name the authoritative literature included in the FASB Accounting Standards Codification.

FEDPRIA Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Abstracts and Topic D Derivative Implementation Group Issues Accounting Principles Board Opinions (APBO) Accounting Research Bulletins (ARB) Accounting Interpretations American Institute of Certified Public Accountants (AICPA)

1-46 define Fair Value

Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.

Name the fundamental qualitative characteristics of useful financial information.

Relevance and Faithful Representation.

Name the five elements of present value measurement per SFAC #7.

UVOTE The price for bearing Uncertainty Expectations about timing Variations of future cash flows Other factors (i.e. liquidity issues and market imperfections) Time value of money Estimate of future cash flow

1-37 What income tax rate is used in interim financial reporting?

Use best estimate of effective tax rate to be applicable for full fiscal year on quarterly statements.

1-5 (2012 UPDATE) Name the fundamental qualitative characteristic of useful information.

relevance and faithful representation.

How are subsequent adjustments to amounts previously recorded in discontinued operations treated?

Classified in current period in discontinued operations.

1-16 The gain (loss) from discontinued operations can consist of...

An impairment loss, a gain (loss) from actual operations,and a gain (loss) on disposal.

1-3 (2012 UPDATE) Who are the primary users of general purpose financial statements?

Existing and potential: (1) investors (2) lenders (3) other creditors

What is a component of an entity?

Part of entity (lowest level) for which operations and cash flows can be clearly distinguished both operationally and for financial reporting purposes from rest of entity.

What is the International Financial Reporting Interpretations Committee?

Replaced Standing Interpretations Committee (SIC) in 2002. Appointed by trustees of IASC Foundation. Provides guidance on newly identified financial reporting issues not addressed in IFRSs. Assists IASB in achieving international convergence of accounting standards.

In determining present value what two approaches does SFAC No. 7 allow?

Traditional Aproach Expected Cash Flow Approach

What may a component of an entity be under U.S. GAAP and IFRS?

U.S. GAAP: 1. Operating segment 2. Reportable segment (segment reporting) 3. Reporting unit (goodwill impairment testing) 4. Subsidiary 5. Asset group (collection of assets and liabilities directly associated with each other that are disposed of together in a single transaction) IFRS: 1. Separate major line of business or geographical area of operations 2. Subsidiary acquired exclusively with a view to resale

1-32 List some disclosure requirements for Comprehensive Income

-Tax effects of each component included in current "Other Comprehensive Income" - Accumulated balances of components of "Other Comprehensive Income" -Total accumulated other comprehensive income - reclassification adjustments between other comprehensive income and net income

1-47 Describe the valuation techniques that can be used to measure the fair value of an asset or liability

1. Market Approach - Uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities to measure fair value. 2. Income Approach - Converts future amounts, including cash flows or earnings, to a single discounted amount to measure the fair value of assets or liabilities.

1-6 (2012 UPDATE) Name the three elements of relevance

1. Predictive value 2. confirming value 3. materiality

What is included in the calculation of a discontinued operation?

1. Results of operations of component (current period and all prior periods presented). 2. Gain or loss on disposal of component. 3. Impairment loss (and subsequent increases in fair value) of component. Loss is recognized for recording the impairment of component. Gain is recognized for any subsequent increase in fair value minus costs to sell (not in excess of previously recognized cumulative loss). 4. Assets within component are no longer depreciated or amortized.

1-8 (2012 UPDATE) name the enhancing qualitative characteristic of financial information

1. compariability, 2. verifiability 3. timeliness 4. understandability

1-17 In what period are the following reported: An impairment loss? A gain (loss) from actual operations? A gain (loss) on disposal?

All are reported in the period in which they occur.

In what period are the following reported: An impairment loss? A gain (loss) from actual operations? A gain (loss) on disposal?

All are reported in the period in which they occur.

1-27 Under U.S. GAAP, how is a change in the "reporting entity" reported?

All current and prior period financial statements presented are restated.

List the six elements of financial statements according to the IASB Framework.

Assets Liabilities Equity Income (revenue & gains) Expenses (expenses & losses) Capital maintenance adjustments (increases/decreases in equity due to revaluation/restatement of assets/liabilities) ALE ICE

1-12 List the six elements of financial statements according to the IASB framework.

Assets Liabilities Equity Income (revenue and Gains) Expenses (expenses & losses) Capital maintenance adjustments

Name the most authoritative literature included in the FASB Accounting Standards Codification.

BOSSI Accounting Research Bulletins (ARB) Accounting Principles Board Opinions (APBO) FASB Statments of Financial Accounting Standards (SFAS) FASB Staff Positions FASB Interpretations FASB Statement 133 Implementation Issues

1-29 Define comprehensive income

Change in equity (net assets) that results from revenue, expenses, gains, and losses during a period, as well as any other recognized change in equity that occur for reasons other than investments by owners and distributions to owners.

1-42 What is the 75% test for identifying reportable segments?

Combined external (consolidated) revenue of all reportable segments must be at least 75% of the total consolidated revenue of the entity. The practical limit is 10 segments, but not a precise limit

Name the enhancing qualitative characteristics of financial information.

Comparability Verifiability Timeliness Understandability CUTV: It is ENHANCING to CU on TV.

1-8 Name the two secondary characteristics of accounting information

Comparability and Consistency

Name the three elements of faithful representation.

Completeness - includes all necessary information Neutrality - free from bias in selection or presentation Freedom From Error - no errors in selection or application FNC: Financials are Not FAITHFULLY REPRESENTED unless Complete.

1-11 List the ten elements of financial statements according to SFAC #6 (CREG AND LALEID)

Comprehensive Income Revenues Expenses Gains and Losses Assets Liabilities Equity (of Net Assets) Investments by Owners Distributions to Owners

What is the FASB Conceptual Framework?

Conceptual framework (set forth in SFAC) that serves as basis for all FASB pronouncements. SFAC are not GAAP but provide basis for financial accounting concepts for business and nonbusiness enterprises.

1-14 Describe the expected cash flow approach for present value computations

Considers a range of possible cash flows and assigns a (subjective) probability to each cash flow in the range to determine the weighted-average, or "expected," future cash flow.

Describe the expected cash flow approach for present value computations.

Considers range of possible cash flows and assigns (subjective) probability to each cash flow in range to determine weighted-average or "expected" future cash flow.

1-4 (2012 UPDATE) Name the pervasive constraint provided in financial reporting.

Cost constraint. the benefits of reporting financial information must be greater than the costs of obtaining and presenting the information.

Give some examples for the following items: (1) Inventory Cost (2) Selling Expense (3) General & Administrative and (4) Non-operating.

(1) purchase price freight in (2) freight out salaries and commissions advertising (3) officers' salaries accounting and legal insurance (4) auxiliary activities interest expense

1-9 According to SFAC #5, what should a full set of financial statements include?

- Statement of Financial Position (the balance sheet) - Statement of Earnings (the income statement) - Statement of Comprehensive Income - Statement of Cash Flows - Statement of Changes in Owner's Equity

1-22 List some examples of EXTRAORDINARY items

- The abandonment of, or damage to, a plant due to an infrequent earthquake or an infrequent flood - An expropriation of a plant by the government - A prohibition of a product line by a newly enacted law or regulation

1-36 What are the guidelines for interim reporting?

- Use same accounting principles that were used in the most recent annual report - Allocate expenses to the interim period benefited. - Revenues are recognized in the period in which they are earned and realized or realizable - A total for comprehensive income in condensed financial statements of interim periods.

1-20 What types of costs are associated with exit and disposal activities

- involuntary employee termination benefits - costs to terminate a contract that is not a capital lease - other costs associated with exit or disposal activities

1-21 Define EXTRAORDINARY items

- material in nature - of a character significantly different from the typical or customary business activities (unusual) - not expected to recur in the foreseeable future (infrequent) - not normally considered in evaluating the ordinary operating results of an enterprise Key words: Unusual and Infrequent Remember: Extraordinary items are recognized under U.S. GAAP, but not IFRS

1-13 Name the five element of present value measurement per SFAC #7 (EVTUO)

-Estimate of future cash flow -expectations about timing Variations of future cash flows -Time value of money (the risk-free rate of interest) -the price for bearing Uncertainty -Other factors (e.g., liquidity issues and market imperfections)

Describe the IASB's ongoing standard-setting process.

Discussion paper published (not required). Exposure Draft (ED) prepared after reviewing comments on discussion paper. ED published for public comment (required) at least nine members must approve issuance. IASB analyzes comment letters and position papers then redeliberates on issue. After all reasonable alternatives adequately considered IASB staff drafts IFRS. IFRS must be approved by at least nine members.

1-39 define Operating Segment

Distinct revenue-producing components of the enterprise about which separate financial information is produced internally, and whose operating results are regularly reviewed by the enterprise.

What is the International Accounting Standards Board?

Established in 2001 as part of International Accounting Standards Committee (IASC) Foundation. Replaced Board of the International Accounting Standards Committee which was created in 1973. Purpose is to develop single set of high quality global accounting standards. Has 12 full-time members and 2 part-time members selected to provide mix of practical experience among auditors preparers users and academics.

1-4 Name the pervasive constraints in the hierarchy of accounting quality under the FASB concept statements and the IFRS framework.

FASB concept statements: - Benefit > Cost - Materiality IFRS framework: - Timeliness - Benefit > Cost - Balance Between Qualitative Characteristics

1-43 What are the disclosure requirements for reportable operating segments?

For each reportable segment, the entity must report: - Identifying factors - Products of services - Profit or loss details - Asset details - Liability details (IFRS only) - Measurement criteria - Reconciliations

1-50 Describe the Form 10-K and the Form 10-Q. What level of assurance must be provided with the financial statements submitted in these forms?

Form 10-K: Filed anually by U.S. registered companies. Includes a summary of financial data, MD&A, and audited financial statements prepared using U.S. GAAP. Form 10-Q: Filed quarterly by U.S. registered companies. Includes reviewed financial statements, interim MD&A, and certain disclosures.

What is the Securities and Exchange Commission?

Has legal authority to establish U.S. GAAP but allows accounting profession to establish GAAP and self-regulate. All companies issuing securities in U.S. subject to SEC rules and regulations. Issued public company specific accounting rules and regulations in Regulation S-X Financial Reporting Releases (FRR) Accounting Series Releases (ASR) Interpretive Releases (IR) Staff Accounting Bulletins (SAB) and EITF Topic D and SEC Observer comments.

In order for a settlement to be considered directly related to a component of an entity it must

Have demonstrated cause-and-effect relationship and Occur no later than one year after date of disposal transaction (unless circumstances beyond control of entity exist).

What is the presentation order of the major components of an income and retained earnings statement?

IDEA Income (or loss) from continuing operations (individual line items reported gross of tax total reported net of tax on I/S) Income (or loss) from Discontinued operations (reported net of tax on I/S) Extraordinary items (reported net of tax on I/S) Cumulative effect of a change in Accounting principles (reported net of tax on RE/S)

How is a discontinued component treated before and after classification as held-for-sale (HFS) under IFRS and U.S. GAAP?

IFRS: Before classification as HFS individual assets and liabilities of component must be measured in accordance with applicable standards resulting gains and losses must be recognized. After classification as HFS component reported at lower of carrying value and fair value less costs to sell. U.S. GAAP: Does not require re-measurement of individual assets and liabilities before classification as HFS. Classification of a component as HFS triggers impairment analysis of component.

What is the main difference between the IASB's Framework for the Preparation and Presentation of Financial Statements and the FASB's Conceptual Framework?

In the absence of standard or interpretation IASB's Framework can be applied to specific accounting issue. FASB's Conceptual Framework cannot.

What is the presentation order of the major components of an income and retained earnings statement? (IDEA)

Income Statement: -Income (or loss) from continuing operations -income (or loss) from Discontinued operations -Extraordinary items Retained Earnings Statement: -Cumulative effect of a change in Accounting principles

What is the Financial Accounting Standards Board?

Independent full-time organization established in 1973. Through 2009 issued Statements of Financial Accounting Standards (SFAS) FASB Interpretations (FIN) FASB Technical Bulletins (FTB) Emerging Issues Task Force Statements (EITF) FASB Staff Positions FASB Implementation Guides and Statements of Financial Accounting Concepts (SFAC). Has 7 full-time members serving 5 year terms and may be reappointed for additional 5 year term. Members must sever connections with firms or institutions before joining.

What types of costs are associated with exit and disposal activities?

Involuntary employee termination benefits Costs to terminate a contract that is not a capital lease Other costs (i.e. costs to consolidate facilities or relocate employees)

What criteria must be met in order for a component of a business (U.S. GAAP) or a disposal group (IFRS) to be classified as "held for sale?"

Management commits to plan to sell component. Component available for immediate sale in present condition. Active program to locate buyer initiated. Sale is probable and expected to be complete within one year. Sale of component actively marketed. Actions required to complete sale make it unlikely that significant changes to plan will be made or that plan will be withdrawn.

1-7 Name the three elements of RELIABILITY (NRFV)

Neutrality Representational Faithfulness Verifiability

What criteria are needed to recognize a liability associated with an exit or disposal activity?

Obligating event has occurred Event results in present obligation to transfer assets or to provide services in future and Entity has little or no discretion to avoid future transfer of assets or providing of services.

What does income (or loss) from continuing operations consists of? Give some examples of each.

Operating activities (i.e. revenues costs of goods sold selling expenses & admin. expenses) Non-operating activities (e.g. other revenues & gains and other expenses & losses) Income taxes

1-30 Identify five items included in Other Comprehensive Income (PUFER)

Pension adjustments Unrealized gains and losses on available-for-sale securities Foreign currency translation adjustments and gains/losses on foreign currency transactions that are designated as economic hedges of a net investment in a foreign entity Effective portions of cash flow hedges Revaluation surpluses (IFRS only)

Name the three elements of relevance.

Predictive Value - can be used to predict future outcomes Confirming Value - provides feedback about previous evaluations Materiality - could affect decisions made by users; entity-specific PMC: I will be RELEVANT when I Pass My CPA exam.

1-6 Name the three elements of RELEVANCE (Passing Feels Terrific)

Predictive value Feedback value Timeliness

How are proposed FASB amendments amended to the Accounting Standards Codification?

Proposed FASB amendments to ASC issued for public comment as Exposure Drafts (ED) majority vote of three Board members required to issue ED. At end of ED public comment period FASB staff analyzes comment letters and position papers then FASB redeliberates issue. When FASB satisfied that all reasonable alternatives adequately considered FASB staff prepares Accounting Standards Update. Majority vote of three Board members required to amend ASC.

1-10 What is the difference between REALIZATION and RECOGNITION

Realization: When sold and converted to cash (or claims to cash) Recognition: When recorded in the financial statements

What is the difference between realization and recognition?

Realization: When sold and converted to cash (or claims to cash) Recognition: When recorded in the financial statements

How do we account for subsequent increases in the fair value of a discontinued component?

Recognized for subsequent increase in fair value minus costs to sell (not in excess of previously recognized cumulative loss). Reported in period of increase.

1-5 Name the two primary decision-specific qualities of useful accounting information

Relevance and Reliability

1-28 How are corrections of an error reported?

Reported as prior period adjustments to retained earnings and all comparative financial statements presented are restated

1-41 Describe the 10% test for identifying reportable segments

Revenue: Reported revenue, including both sales to external customers and intersegment sales or transfers is 10% or more of the combined revenue, internal and external, of all operating segments. Reported profit or loss: The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of (1) the combined reported profit of all operating segments that did not report a loss, or (2) The combined reported loss of all operating segments that did report a loss.

1-45 Indicate any special accounting treatment for development stage enterprises.

Same generally accepted accounting principles as established operating enterprises with additional disclosures: - Identifying statements as those of development stage enterprise. - Accumulated losses identified as "deficit accumulated during development stage." - In the Income Statement, show revenue and expenses and cumulative total of both amounts from company's inception. - In the SCF, include cumulative amounts of cash inflows and outflows from enterprise's inception and current amount of cash inflows and outflows for each period presented. - Issue a separate statement of stockholders' equity, indicating shares issued, date of issuance, dollar amounts assigned, non-cash consideration, if any.

What is the Framework for the Preparation and Presentation of Financial Statements?

Similar to FASB Conceptual Framework. Developed by IASB to assist in developing future IFRSs and evaluating existing IFRSs. Provides basis for reducing number of alternative accounting treatments permitted by IFRSs. Framework is not an IFRS.

1-31 List the three formats acceptable for reporting Comprehensive Income. Which format is prohibited under IFRS?

Single statement approach: - Statement of Income and Comprehensive Income Two statement approach: - Statement of Comprehensive Income - Component within the Statement of Owner's Equity (prohibited under IFRS)

According to SFAC #5 what should a full set of financial statements include?

Statement of Financial Position (the balance sheet) Statement of Earnings (the income statement) Statement of Comprehensive Income Statement of Cash Flows Statement of Changes in Owner's Equity

1-33 Identify the contents of the first note to the financial statements

Summary of significant accounting policies Identify and describe: - Measurement bases used in preparing the financial statements - Principles and methods - Criteria - Policies - Pricing

1-1 Name the single source of authoritative nongovernmental U.S. GAAP.

The FASB "Accounting Standards Codification" (ASC).

Name the single source of authoritative nongovernmental U.S. GAAP.

The FASB "Accounting Standards Codification" (ASC).

1- 49 What is the date of an entity's transition to IFRS

The date of the opening balance sheet.

What is the objective of general purpose financial reporting?

To provide useful financial information to primary users of general purpose financial reports in making decisions about providing resources to a reporting entity.

1-3 What are three objectives of financial reporting by business enterprises?

To provide: - Information useful in investment, credit, and similar decisions -Information useful in assessing cash flow Prospects -Information about enterprise resources, claims t those resources, and changes in them

1-18 In reporting discontinued operations, how is a "component" of an entity defined under U.S. GAAP and IFRS?

U.S. GAAP: - an operating segment - a reportable segment - a reporting unit - a subsidiary - an asset group IFRS: - a separate major line of business or geographical area of operations - a subsidiary acquired exclusively with a view to resale

Describe the how the FASB's ongoing standard-setting process works.

Updates ASC for new U.S. GAAP issued by FASB and for ammendments to SEC content with Accounting Standards Updates.

When should the traditional approach to present value computations be used?

When assets and liabilities have contractual (i.e. fixed) cash flows that are not expected to vary. Interest rate selection is paramount.

The term "International Financial Reporting Standards" includes what standards?

"IAS IFRS IFRIC-I SIC-I" International Accounting Standards (IAS) International Financial Reporting Standards (IFRS) IFRIC Interpretations SIC Interpretations

1-35 What are the U.S. GAAP disclosures requirements for risks and uncertainties?

- Nature of operations. - Use of estimates in preparing the financial statements - Significant estimates - Current vulnerability due to certain concentrations

1-38 Name the four required disclosures for segments of an enterprise.

- Operating segments - Products and services - Geographic areas - Major customers

1-40 Name two quantitative thresholds used in identifying operating segments

- 10% "Size" test - 75% "Reporting Sufficiency" test

1-25 What are the special changes in an accounting principle? How are special changes in accounting principle reported?

- A change to LIFO from another method of inventory pricing under U.S. GAAP - Any other change in which a cumulative effect adjustment is considered impractical to calculate Special changes are reported prospectively (like a change in estimate)

1-23 Name the three types of accounting changes

- Change in an accounting principles - Change in accounting estimate - Change in reporting entity

1-24 How is a change in accounting principle reported?

- Cumulative effect of change is included in the retained earnings statement as an adjustment of the beginning retained earnings balance of the earliest year presented. - Prior-period financial statements are restated, if presented

1-2 The term "International Financial Reporting Standards" includes what standards?

- International Accounting Standards (IAS) - International Financial Reporting Standards (IFRS) - IFRIC Interpretations - SIC Interpretations

1-34 Describe the related party disclosures required under U.S. GAAP and IFRS

- Material related party transactions - Related party notes/accounts receivable - Control relationships Note: IFRS requires disclosures of key management compensations. U.S. GAAP does not require this disclosure

Describe the hierarchy f fair value inputs. Which inputs have the highest priority?

Level 1 inputs - Quoted prices in active markets for identical assets or liabilities Level 2 inputs - Inputs other than quoted market prices that are directly or indirectly observable for an asset or liability. Level 3 inputs - Unobservable inputs for the asset or liability that reflect the entities assumptions and are based on the best available information Note: Level 1 inputs have the highest priority

List the ten elements of financial statements according to SFAC #6.

CREG and LALEID Comprehensive Income Revenues Expenses Gains Losses Assets Liabilities Equity (of Net Assets) Investments by Owners Distributions to Owners

1-19 How do we account for subsequent increases in the fair value of a discontinued component

A gain is recognized for the subsequent increase in fair value minus costs to sell (but not in excess of the previously recognized cumulative loss). The gain is reported in the period of increase.

How are anticipated future gains or losses from discontinued operations treated?

A gain/loss not previously recognized resulting from sale of component recognized at date of sale not before. Gains/losses anticipated to occur in future not recognized until they occur.