Conceptual Framework

Question 1

What are the objectives financial reporting?

Answer 1

To provide info…

1. to investors, lenders, and other creditors
2. about a reporting entity’s economic resources and claims against the entity
3. about changes in economic resources and claims
4. about financial performance reflected by accrual accounting
5. about financial performance reflected by past cash flow
6. about changes in economic resources and claims NOT resulting from financial performance (ex: issuing stock)

Question 2

What are the components of comprehensive income?

Answer 2

DENT:
Derivative cash flow hedges
Excess adjustment of Pension PBO and FV of plan assets
Net unrealized G/L on AFS securities
Translation adjustments for foreign currency

Question 3

When do you recognize a financial statement element?

Answer 3

Meets the definition of an element
Element is capable of being measured in monetary terms
Item is useful (relevant and faithful representation)

Question 4

Which items are required to use fair value?

Answer 4

Trading or AFS securities
Assets acquired in business combinations
Impairment losses
All derivatives

Question 5

Which items do not qualify for fair value election?

Answer 5

Pensions
Leases
Financial instruments that are components of equity
Share based payments and stock options

Question 6

What are the three levels of inputs to measure an item at fair value?

Answer 6

Level I - observable data from the actual active market
Level II - observable data from a similar market OR inactive market
Level III - unobservable data based on management’s judgment

Question 7

What are the four areas of disclosure?

Answer 7

Nature of operations
Use of estimates
Certain significant estimates
Current vulnerability associated with certain concentrations

Question 8

What are 10 elements of financial statements?

Answer 8

1. Asset
2. Liability
3. Equity
4. Contribution/Investments by owners
5. Distributions to owners
6. Comprehensive Income
7. Revenue
8. Expenses
9. Gains
10. Losses

Question 9

What are steps for fair value measurement?

Answer 9

1. Identify asset/liability
2. Determine principal/most advantageous market (highest & best use)
3. Determine valuation premise (in use or exchange)
4. Determine appropriate valuation technique (MIC)
5. Obtain inputs for valuation (Level 1, 2, 3)
6. Calculate fair value