CPA FAR F-1 Notes

7/31/2019 CPA FAR F-1 Notes

1/25


2/25

The International Financial Reporting Interpretations Committee (IFRIC) assists theIASB in establishing and improving standards of financial accounting and reporting. Itprovides guidance on newly identified financial reporting issues not addressed in IFRSand assists the IASB in achieving international convergence of accounting standards.

The IASB updates IFRS by generally publishing a discussion paper on a major newtopic, although discussion papers are not required. After receiving comments on thepaper, the IASB prepares an Exposure Draft. At least nine members must approve anExposure Draft for issuance. At end of the public comment period, the IASB drafts anIFRS and at least nine members of the IASB must approve the IFRS.

IV. International Convergence of Accounting StandardsThe IASB and the FASB have been working together towards convergence. The goal ofconvergence is a single set of high quality, international accounting standards thatcompanies can use for both domestic and cross-border financial reporting.

V. Conceptual Frameworks Underlying Financial AccountingThe FASB has created the conceptual framework that serves as a basis for all FASBpronouncements. The six Statements of Financial Accounting Concepts (SFAC) are notGAAP, but they provide a basis for financial accounting concepts for basic reasoning.The IASB has also developed a conceptual framework for IFRS (Framework for thePreparation and Presentation of Financial Statements).

A. SFAC No. 1 Objectives of Financial Reporting by Business EnterprisesFocus is on informational needs of external users. (Disclose entity's performance)

a. Information useful in investment and credit decisions.

b. Information useful in assessing future cash flow prospects (Value).c. Information useful in assessing an enterprises resources, the debt and equity

claims to those resources and changes in them (Risk/required rate of return).

B. SFAC No. 2 Qualitative Characteristics of Accounting InformationFocus is on most useful information. Financial information must be

a. Understandable to decision makersb. Relevant (Timely with predictive or feedback value)c. Reliable (verifiable, faithfully representable, and neutral)d. Comparablee. Consistent

f. Materialg. Less costly than benefit provided

1. Illustration of Hierarchy of Accounting Qualities (see chart in book)


3/25

2. Constraintsa. Costs and benefits - benefit of accounting information must be greater than costs

of obtaining and presenting.b. Materiality - Information must be material, meaning the information or lack of

information could make a difference in decisions made by the users

***(IASB has three constraints - Timeliness, Costs and Benefits & Balance BetweenQualitative Characteristics)***3. Understandability4. Primary Qualities of Decision Usefulness

a. Relevance - Must be relevant (make a difference) to the decision-making process.Quality of relevance has three subcategoriesi. Predictive Value - has ability to assist users in evaluating past, present or

future eventsii. Feedback Value - enables decision-makers to confirm prior expectation or

adjust or correct the assessment madeiii.Timeliness - having information available while it is able to influence decisions

***(IASB has Predictive Value, Feedback Value & Materiality as subcategories ofRelevance)***

b. Reliability - Must be able to reasonably depend on it to be free from error and biasand be faithfully represented of what it claims to represent.Quality of reliability has three subcategoriesi. Neutrality - free from bias and free from outside influencesii. Representational Faithfulness - agreement between financial reporting and

resources or events represented. It means information is validiii.Verifiability - means that same results could be duplicated with same

measurement techniques***(IASB has Neutrality, Representational Faithfulness, Substance over Form,

Prudence, and Completeness)***5. Secondary Characteristics(Apply to BOTH Relevance & Reliability)

a. Comparability - quality of information that enables users to identify similarities inand differences between two sets of economic phenomena. It allows user tocompare the information with similar information for other business enterprises

b. Consistency - In order for users to compare performance of a company in oneperiod with performance of another period, consistent accounting policies andprocedures must be applied by the company from period to period.

C. SFAC No. 3 Elements of Financial Statements of a Business

Replaced by SFAC No. 6

D. SFAC No. 4 Objectives of Financial Reporting by Nonbusiness Organizations1. Characteristics of Nonbusiness Organizations

a. A significant portion of their resources come from contributions and grants.b. Their operating purposes are other than to provide goods or services for profitc. They lack ownership interests than can be sold, transferred, or redeemed, or that

allow a claim on resources upon liquidation.


4/25

2. Users of Financial Information of Nonbusiness Organizationa. Resource providers, including lenders, suppliers, employees, members,

contributors, and taxpayersb. Constituents who use and benefit from the services provided by nonbusiness

organizations

c. Governing and oversight bodies who are responsible for setting policies and foroverseeing and evaluating the managers of nonbusiness organizationsd. Managers who are responsible for carrying out the policy mandates of the

governing bodies and managing the day-to-day operations of the nonbusinessorganization

3. Objectives of Financial Reporting of Nonbusiness Organizationsa. Information useful in making resource allocation decisionsb. Information useful in assessing services and the ability to provide servicesc. Information useful in assessing management stewardship and performance.d. Information about economic resources, obligations, and net resources,

organization performance, the nature of and relationship between inflows and

outflows, service efforts and accomplishments, and liquidity.***(IASB does not separately consider business and nonbusiness enterprises, butinstead provides one framework that applies to all entities)***

E. SFAC No. 5 Recognition and Measurement in the Financial StatementsThis statement sets forth the recognition criteria and guidance on what and wheninformation should be incorporated in the financial statements.

1. Full Set of Financial Statementsa. Statement of financial position (balance sheet)b. Statement of earnings (income statement)

c. Statement of comprehensive incomed. Statement of cash flowse. Statement of changes in owners equity

2. Fundamental Recognition CriteriaRecognition is the process of formally recording or incorporating and item in thefinancial statements of an entity and classifying it as asset, liability, equity, revenue, orexpense

a. Definitionsb. Measurabilityc. Relevanced. Reliability

3. Measurement Attributes for Assets and Liabilitiesa. Historical costb. Current costc. Net realizable valued. Current market valuee. Present value of future cash flows

4. Fundamental Assumptions


5/25

a. Entity Assumption - economic activity can be accounted for when considering anidentifiable set of activities (i.e. separate corporation, division)

b. Going Concern Assumption - presumed entity will continue to operate inforeseeable future

c. Monetary Unit Assumption - assumed money is appropriate basis by which to

measure economic activity; assumes monetary unit does not change over time, sodoes effects of inflation are not reflected in financial statementsd. Periodicity Assumption - economic activity can be divided into meaningful periodse. Historical Cost Principle - financial information is accounted for and based on cost,

not current market valuef. Revenue Recognition Principle - revenue should be recognized when it is earned

and when it is realized or realizablei. Earned - when entity has substantially accomplished what is must do to be

entitled to benefits represented by revenuesii. Realized or Realizable - revenues and gains are recognized when products,

services, or other assets are exchanged for cash or claims to cash or when

related assets received or held are readily convertible to known amounts ofcash or claims to cash

g. Matching Principle - all expenses incurred to generate a specific amount ofrevenue in a period are matched against that revenue; does not governrecognition of losses since they result from unusual events

h. Accrual Accounting - revenues are recognized when they are earned andexpenses are recognized in the same period as related revenue, not necessarilyin the period in which the cash is received or expended by the company

i. Full Disclosure Principle - important that user be given information that wouldmake a difference in decision making process but not so much information thatthe user is impeded in analyzing whats important

j. Conservation Principle - if in doubt when selecting from alternative GAAPmethods, the method that is least likely to overstate assets (and revenues/gains)and understate liabilities (and expenses/losses) in current period should beselectedi. Recognize revenues/gains when earnings process is complete (or virtually

complete)ii. Recognize expenses/losses immediately

***(IASB outlines only two fundamental assumptions: accrual basis accounting & goingconcern)***

F. SFAC No. 6 Elements of Financial Statements

Elements are the components of the financial statements. They must be measurableand meet the recognition requirements previously discussed. Ten elements provideinformation required in objectives stated in SFAC No. 1

1. Comprehensive Income - Includes all differences between beginning equity andending equity other than transactions with owners (i.e. NI + other comprehensiveincome)


6/25

2. Revenues - inflows, enhancements of assets, or reductions of liabilities fromdelivering goods or services as part of normal operations. Recognize revenue at thegross amount (less allowances for returns and discounts given)

3. Expenses - outflows, uses of assets, or incurrence of liabilities from delivering goodsor services as part of normal operations

4. Gains - increases in equity from peripheral transactions and other events exceptrevenue and investments from owners5. Losses - decreases in equity from peripheral transactions and other events except

expenses and distributions from owners6. Assets - probable future economic benefits to be received by the company as a result

of past transactions or events7. Liabilities - probable future sacrifices of economic benefits arising from a present

obligation of the company to transfer assets or provide services to other entities in thefuture as a result of past transactions or events

8. Equity - residual interest in the assets of the company that remains after deducting itsliabilities

9. Investment by Owners - increases in assets from transfers of cash, property, orservices from owners

10.Distribution to Owners - decreases in assets from transfers of cash, property, orservices, or the incurrence of a liability to owners.

***(IASB lists elements as assets, liabilities, equity, income (including revenue & gains),expenses (including expenses & losses), and capital maintenance adjustments(increases/decreases in equity that arise from revaluation or restatement of liabilities -therefore, IASB does not include concept of comprehensive income)***

G. SFAC No. 7 Using Cash Flow Information and Present Value in AccountingMeasurements

Provides framework when using future cash flows as measurement basis for assets &liabilities, especially when factors to consider in measurement are complex. It also setsprinciple that govern use of present value, especially when timing and/or amount offuture cash flows are uncertain.

1. Measurability Based on Future Cash Flows OnlyOnly applies to measurement issues for assets/liabilities that are determined usingfuture cash flow only2. Five Elements of Present Value Measurement (Asset or Liability)

a. Estimate of future cash flowb. Expectations about timing variations of future cash flows

c. Time value of money (risk-free rate of interest)d. The price for bearing uncertainty - credit riske. Other factors (liquidity issues and market imperfections)

3. Fair Value ObjectiveIf fair value cannot be determined in the marketplace, objective must be to obtain anestimate of fair value4. Present Value Computations


7/25

a. Traditional Approach (i.e. PV bonds - scheduled known payments) - is used topresent value computations when assets/liabilities have contractual cash flowsthat are not expected to vary. In this approach, interest rate is paramount

b. Expected Cash Flow Approach - in more complex cases, uses only the risk-freerate of return as the discount rate and then turns its attention to expected future

cash flows, considering uncertainties as adjustments to future cash flowsi. Expected Cash Flow (i.e. PV warranties - uncertain future payments) -considers range of possible cash flows and assigns a probability to each cashflow in the range to determine the weighted-average, or expected future cashflow

ii. Risk and Uncertainty Adjustments to Cash Flows - used in complex presentvalue computations (rather than interest rate adjustments) that are required foruncertainties (i.e. default risk)

***(IASB does not consider use of cash flow information and present value inaccounting measurements)***


8/25

Income Statement

I. Uses and TerminologyPurpose is to provide information about the uses of funds in the income process(expenses), uses of funds that will never be used to earn income (losses), sources of

funds created by those expenses (revenues), and the sources of funds not associatedwith the earnings process (gains).

A. Uses of the Income StatementUseful in determining profitability, value for investment purposes, and credit worthiness(Performance for period of time)B. Terminology

1. Gross Concepta. Revenues - reported as gross amounts (less allowances for returns and

discounts given)b. Expenses - reported as gross amounts

2. Net Concepta. Gains- reported at net amounts; a recognition of an asset either not in the

ordinary course of business or without the incurrence of an expenseb. Losses - reported at net amounts; a cost expiration either not in ordinary

course or business or without the generation of revenue

II. Presentation Order of the Major Components of an Income and RetainedEarnings Statement

Know the IDEA mnemonic:! Income from Continuing Operations - IS! Discontinued Operations - IS! Extraordinary Items - IS! Accounting Principle Change - RE

Reported on Income StatementA. Income (or Loss) from Continuing Operations (individual line items show gross of/before tax, then total reported net of tax) - includes operating activities (revenues,cogs, selling expenses, and administrative expenses), non-operating activities (otherrevenues/gains and other expenses/losses), and income taxesB. Income (or Loss) from Discontinued Operations (reported net of tax)C. Extraordinary Items (reported net of tax) - include items that are unusual in nature

and infrequent in occurrence)

Reported on Statement of Retained EarningsD. Cumulative Effect of Change in Accounting Principle (reported net of tax) -

cumulative effect (calculated as beginning of earliest period presented in the periodof implementation of the new method) of a change from one acceptable method ofaccounting to another (GAAP to GAAP) because the new method presents thefinancial information more fairly than the old method.


9/25

Income From Continuing Operations

Income from Continuing OperationsDiscontinued Operations

Extraordinary ItemsAccounting Principle Change

I. Multiple Step Income Statement (see illustration in book)II. Single Step Income Statement (see illustration in book)


10/25

Discontinued Operations and Exit or Disposal Activities

Income from Continuing OperationsDiscontinued OperationsExtraordinary Items

Accounting Principle Change

I. Introduction to Discontinued OperationsThe loss from discontinued operations can consist of an impairment loss, a gain/lossfrom actual operations, and a gain/loss on disposal. All of these amounts are included indiscontinued operations in the period in which they occur, NOT BEFORE

II. DefinitionsA. Component of an Entity

1. US GAAPa. An operating segment

b. A reportable segmentc. A reporting segmentd. A subsidiarye. An asset group

2. IFRSa. A separate major line of business or geographical area of operationsb. A subsidiary acquired exclusively with a view to resale

B. Held for SaleAll of the following criteria must be met.

1. Management commits to a plan to sell the component2. Component is available for immediate sale in its present condition

3. Active program to locate a buyer has been initiated4. Sale of component is profitable and sale is expected to be complete within one

year5. Sale of component is being actively marketed6. Actions required to complete the sale make it unlikely significant changes to the

plan will be made or that the plan will be withdrawn***(Under IFRS, before a component can be classified as held-for-sale, individual assetsand liabilities must be measured in accordance with applicable standards and anyresulting gains/losses must be recognized. After classification as held-for-sale,component is reported at lower of carrying value and fair value less costs to sell. USGAAP does not require remeasurement but does trigger an impairment analysis of the

component)***

III.Accounting RulesA. Two Conditions that Must be Present

1. Eliminated from Ongoing Operations2. No Significant Continuing Involvement

B. Discontinued Operations Calculation1. Result of operations for that component


11/25

2. Gain or loss on disposal of component3. Impairment loss

a. Initial and subsequent losses - loss is recognized for recording impairmentb. Subsequent increases in fair value - gain is recognized for any subsequent

increase in fair value minus costs to sell (not in excess of any previously

recognized loss)C. Report in the Period Disposed of or Held for SaleD. Depreciation and Amortization - assets within component no longer depreciated or

amortized

See example on page 23.


12/25

E. Anticipated Future Gains or Losses - gains or losses not previously recognizedthat result from sale are recognized at date of sale and not before. Gains or lossesanticipated to occur in future periods are not recognized until they occur

F. Measurement and Valuation - measured at lower of its carrying value or fair valueless costs to sell. Costs to sell are the incremental direct costs to transact the sale

IV. Exit or Disposal ActivitiesAs part of its convergence with IFRS, US GAAP requires recognition of a liability for thecosts associated with an exit or disposal activity

A. Exit and Disposal Costs1. Involuntary employee termination benefits2. Costs to terminate a contract that is not a capital lease3. Other costs associated with exit or disposal activities, including costs to

consolidate facilities or relocate employeesB. Criteria for Liability Recognition

An entitys commitment to an exit or disposal plan, by itself, is not enough to result inliability recognition. All following criteria must be met

1. An obligating event has occurred2. Event results in a present obligation to transfer assets in the future3. Entity has little or no discretion to avoid future transfer of assets or providing of

servicesFuture operating losses expected to be incurred as part of an exit or disposal activityare recognized in period incurred.C. Liability Measurement - should be at fair valueD. Income Statement Preparation - reported in discontinued operationsE. Disclosure - disclosed in the notes to the financial statements


13/25

Extraordinary Items



I. Extraordinary ItemsA. Defined

1. Material in nature2. Of a character significantly different from the typical or customary business

activities3. Not expected to recur in foreseeable future, and infrequent4. Not normally considered in evaluating ordinary results of an enterprise

B. Examples of Extraordinary Items1. Abandonment of, or damage, to a plant due to an infrequent earthquake or

infrequent flood2. Expropriation of a plant by the government3. Prohibition of a product line by newly enacted law or regulation4. Certain gains/losses from extinguishment of long-term debt, provided not part of

entitys recurring operations and, thus, meet criteria of unusual and infrequentC. Examples of Nonextraordinary Items (presented as separate component of

continuing operations)1. Gain or loss from sale or abandonment of property, plant or equipment used in the

business2. Large write-downs or write-offs3. Gain/loss from foreign currency transactions or translations

4. Losses from major strike by employees5. Long-term debt extinguishments that are part of common management strategy

***(IFRS prohibits reporting of any amount as extraordinary on IS or notes tofinancials)***


14/25

Accounting Changes and Error Corrections



I. GeneralAccounting changes are broadly classified as:

1. Changes in accounting estimate (prospective)2. Changes in accounting principle (retrospective)3. Changes in accounting entity (restate)

II. Changes in Accounting EstimateDo not restate prior periodsA. Events Resulting in Estimate Changes

1. Changes in lives of fixed assets (includes depreciate estimates)2. Adjustments of year-end accrual of officers salaries and/or bonuses3. Write-downs of obsolete inventory4. Material non-recurring IRS adjustments5. Settlement of litigation6. Changes in accounting principles that are inseparable from a change in estimate

(to LIFO or change in depreciation)*If change in accounting estimate affects several future periods, the effect should bedisclosed in the notes to the financials. If not, do not have to be disclosed unless theyare material.Look at example on page 29


15/25

III.Changes in Accounting PrincipleAdjust retained earningsA. Rule of Preferability - change only if required by GAAP/IFRS or if alternative

principle is preferable and more fairly represents the informationB. Effects of Change

1. Direct Effects - are adjustments that would be necessary to restate financialstatements of prior periods2. Cumulative Effect - If non-comparative financial statements presented, cumulative

effect is equal to difference between beginning retained earnings in period ofchange and what the retained earnings would have been if the accounting changehad been retroactively applied to all prior affected periods. If comparative financialstatements presented, cumulative effect is equal to difference between beginningretained earnings in first period presented and what the retained earnings wouldhave been if the accounting change had been retroactively applied to all prioraffected periods.

Look at example on page 31


16/25

C. Reporting Changes in Accounting PrincipleThe general rule is to adjust retained earnings in the earliest period presented for thecumulative effect of the change and, if prior period financial statements are presented,they should be restated.

1. Exception to General Rule

a. Impracticable to Estimateb. Change in Depreciation Method2. Applications of General Rule - amount of cumulative effect is the difference

betweena. Retained earnings at the beginning of earliest period presented, andb. Retained earnings that would have been reported at the beginning of earliest

period presented if the new accounting principle that been applied retrospectivelyfor all prior periods

IV. Changes in Accounting EntityIf change in accounting entity occurs (change composition), all previous financial

statements presented in comparative financial statements along with current yearshould be restated to reflect the information for the new reporting entity. Full disclosureshould be made of the cause and nature of the change***(IFRS does not include concept of a change in accounting entity)***

V. Error CorrectionError Corrections include errors in recognition, measurement, presentation or disclosurein financial statements resulting from mathematical mistakesA. Accounting

1. Comparative Financial Statements Presenteda. Correct the Information, if Year of Error is Presented

b. Adjust Beginning Retained Earnings of Earliest Year Presented, if Year is NotPresented

2. Comparative Financial Statements Not Presenteda. Adjust opening balance of retained earnings for current year

***(Under IFRS, when impracticable to determine cumulative effect of an error the entityis required to restate information prospectively from earliest date that is practicable. USGAAP does not)***See Example on page 34


17/25

Comprehensive Income

Pension adjustmentsUnrealized gains and losses (available-for-sale securities)Foreign currency items

Effective portion cash flow hedgesRevaluation surplus (IRFS)I. DefinitionA. Comprehensive Income - change in equity of a business enterprise during a periodfrom transactions and other events from non-owner sources. It includes all changes inequity during a period except those resulting from investments made by owners anddistributions to owners.

Net Income (IDE)

+ Other Comprehensive Income (PUFER)Comprehensive Income

B. Net Income1. Income from Continuing Operations2. Discontinued Operations3. Extraordinary Items

C. Other Comprehensive Income1. Pension adjustments2. Unrealized gains and losses (available-for-sale securities)3. Foreign currency items4. Effective portion cash flow hedges5. Revaluation surplus (IRFS)

D. Reclassification Adjustments - Reclassification adjustments move othercomprehensive income items from accumulated other comprehensive income to theincome statement. These adjustments may be displayed on the face of the incomestatement or disclosed in the notes to the financial statements.

II. Financial Statement ReportingUnder GAAP, comprehensive income may be presented in

1. A single statement of comprehensive income (US/IFRS)2. An income statement followed by separate statement of comprehensive income

that begins with net income (two statement approach) (US/IFRS)3. A statement of changes in equity (US only)

See illustrations on page 37 & 38See Other Reporting Issues on page 39


18/25

Balance Sheet and Disclosures Overview

I. Balance Sheet Overview (see page 40)

II. Notes to Financial Statements

A. Summary of Significant Accounting PoliciesBoth US GAAP and IFRS require a description of all significant policies be included asan integral part of financial statements.***(IFRS requires explicit and unreserved statement of compliance with IRFS in notes tofinancial statements. US GAAP does not)***Policies should

1. Identify and describea. Measurement basis used in preparing financial statementsb. Accounting principles and methodsc. Criteria (such as determining which investments treated as cash equivalents)d. Policies

e. Pricing2. Accounting policies commonly described in this footnote:

a. Basis of consolidationb. Depreciation methodsc. Amortization of intangiblesd. Inventory pricinge. Accounting for recognition of profit on long-term construction contractsf. Recognition of revenue from franchising or leasing operations

3. Items not included in this footnote:a. Composition of accounts and amounts in dollarsb. Details relating to change in accounting principles

c. Dates and maturity and amount of long-term debtd. Yearly computation of depreciation, depletion, amortization

B. Remaining Notes to the Financial StatementsThe remaining notes contain all other information relevant to decision makers.Examples include:

1. Changes in stockholders equity2. Required marketable securities disclosures3. Contingency losses4. Contractual obligations (off BS financing - operating leases)5. Pension plan description6. Post-balance sheet disclosures

7. Discontinued segment - outside ordinary course of businessSee Related Party Disclosures on page 42 - 46


19/25

Interim Financial Reporting

I. GeneralInterim financial reporting is not required under US GAAP or IFRS.

II. Matching of Revenues and ExpensesThe general rule is that costs and expenses that clearly benefit more than one periodshould be properly allocated the to the periods affected. Revenues should berecognized in the period in which they were earned and realized or realizable. Also, atotal for comprehensive income of interim periods issues to shareholders shall bereported.

III.Timeliness over Reliability - unaudited

IV. An Integral Part of Annual Financial Statements

V. Income TaxesIncome tax expenses is estimated each quarter. The general rule is to multiply the yearto date income by the estimated effective tax rate and subtract the result from theprovision included in the previous quarter. The estimate of the effective tax rate isexpected to be applicable for the full fiscal year should reflect all tax planningalternatives including foreign taxes, percentage depletion, capital gains rate, andanticipated investment tax credits.

VI. Interim Inventory ValuationA. Inventory Estimation MethodsB. Liquidation of a LIFO Base Layer (US GAAP only)

C. Permanent and Temporary Declines in Market Value1. Permanent inventory losses from market declines should be reflected in interim

period in which they occur. Market increases in subsequent periods should berecognized in recovery interim period not to exceed losses included in prior interimperiods

2. Temporary market declines that are expected to reverse before end of the annualperiod should not be recognized in the interim period statements.


20/25

Segment Reporting

I. GeneralIn general, an enterprise is required to disclose segment profit or loss, segment assets,and certain related items, but is not required to report segment cash flow.

***(IRFS required disclosure of segment liabilities if such a measure is regularlyprovided to chief operating officer. US GAAP does not require this)***A. Required Disclosure for all Public Enterprises

1. Operating segments2. Products and Services3. Geographic areas4. Major customers

B. Use Same Accounting Principles as Main Financial StatementsC. Intercompany Transactions Not Eliminated for ReportingD. Scope (public companies only)

II. Operating SegmentsA. DefinitionAn operating segment is a component of an enterprise:

1. That engages in business activities from which it may earn revenues and incurexpenses

2. Whose operating results are regularly reviewed by enterprisess chief operatingdecision maker to make decisions about resources allocated to the segment andto assess performance

3. For which discrete financial information is availableB. Not Every Enterprises is an Operating Segment

1. Corporate Headquarters Not an Operating Segment

2. Pension Plan Not an Operating SegmentC. Segment Profit or Loss Defined

1. Formula! ! Revenues! ! Less: Directly traceable costs! ! Less: Reasonably allocated costs! ! Operating Profit (or Loss)2. Items Normally Excluded from Segment Profit (or Loss)

a. General corporate revenuesb. General corporate expensesc. Interest expense (except for financial institutions)

d. Income taxese. Equity in earnings and losses of unconsolidated subsidiaryf. Gains or losses from discontinued operationsg. Extraordinary itemsh. Minority interest

D. Quantitative Thresholds for Reportable Segments1. 10% Size Test


21/25

a. Revenue - 10% or more of the combined revenue (both internal and externalcustomers)

b. Reported Profit or Loss - 10% or more of combined reported profit of allsegments that did not report a loss, or 10% or more of combined reported lossof all segments that did report a loss

c. Assets- 10% or more of combined assets of all operating segments2. 75% Reporting Sufficiency Test - if total of external (consolidated) revenuereported by operating segments constitutes less than 75% of external(consolidated) revenue, additional operating segments need to be identified evenif they do not meet the above three tests, until at least 75% of external(consolidated) revenue is included in reportable segments.

See pages 54-56Major customers - an enterprise that generates 10% or more of its revenue from salesto a single customer must disclose that fact, the total amount from each such customer,and the identity of the segment reporting the revenues. The identity of the majorcustomer need not be disclosed.


22/25

Development - Stage Enterprises (US GAAP)

I. OverviewUnder US GAAP, a development-stage enterprise is one in which either:

1. Principle operations have not yet commenced, or

2. Principle operations have generated an insignificant amount of revenue (or a loss)During developmental stage, start-up/organizational costs should be expensedimmediately under GAAP

II. DisclosureBalance sheet, income statement, statement of cash flows should show cumulativeamounts.


23/25

Fair Value Measurements and Disclosures

I. Key Factsa. Fair value does not include transaction costs, but may include transportation costs

if location is an attribute of the asset or liability

b. Fair value assumes the highest and best use of the assetc. An orderly transaction - not a fire sale

II. TerminologyA. Principle Market - market with greatest volume or level of activity for the asset. If

there is a principle market, then this price will be the fair value measurement, even ifthere is a more advantageous price in a different market

B. Most Advantageous Market - market with best price for asset or liability, afterconsidering transactions costs; to be used if not principle market, and althoughtransactions costs are used to determine the most advantageous market, they arenot included in the final fair value measurement

See illustration on page 59


24/25

III.Fair Value Measurement FrameworkA. Valuation Techniques

1. Market Approach - uses prices and other relevant information from markettransactions involving identical or comparable assets or liabilities to measure fairvalue

2. Income Approach - converts future amounts, including cash inflows and earnings,to a single discounted amount to measure fair value3. Cost Approach - uses current replacement costs to measure fair value of assets

B. Hierarchy of Inputs1. Level 1 - most reliable, quoted in active markets for identical assets or liabilities2. Level 2 - less reliable than level 1, quoted in not active markets for identical or

similar assets or liabilities3. Level 3 - least reliable, go off of best available information

IV. Exceptions to Fair Value MeasurementA. Not practical to measure fair value

B. Cannot be reasonably determinedC. Cannot be measured with sufficient reliability


25/25

First-Time Adoption of IFRS

An entitys first IFRS financial statements must include at least three balance sheets(end of current period, end of prior period, and beginning of prior period), twostatements of comprehensive income, two income statements (if using two-statement

approach), two statements of cash flows, two statements of changes in equity, andrelated notes.***B/S = 3, all others = 2***

The date of transition to IFRS is the date of the opening balance sheet. If three balancesheets are presented, this is the date of beginning of the prior period.

In its opening IFRS balance sheet, an entity should recognize all assets and liabilitiesrequired by IFRS and should apply IFRS in measuring and classifying all recognizedassets and liabilities. Adjustments needed to restate assets and liabilities in conformitywith IFRS should be made directly to retained earnings at the date of transition to IFRS.

An entity should also disclose how the transition from GAAP to IFRS affected itsreported financial position, financial performance and cash flows. The disclosure shouldinclude:

1. A reconciliation of its equity from GAAP to IFRS2. A reconciliation of total comprehensive income in accordance with IFRS

Documents

CPA FAR F-1 Notes