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FCF = Future Cash Flows FASB = Financial Accounting Standard Board IASB = International Accounting
FCF = Future Cash Flows FASB = Financial Accounting Standard Board IASB = International Accounting
FCF = Future Cash Flows FASB = Financial Accounting Standard Board IASB = International Accounting

FCF = Future Cash Flows FASB = Financial Accounting Standard Board IASB = International Accounting Standard Board

24.b
24.b

Form S-1

Registration statement prior to sale of new securities

with

statement prior to sale of new securities with 24.a Form 10-K 24.c 2015, Study Session #
statement prior to sale of new securities with 24.a Form 10-K 24.c 2015, Study Session #
statement prior to sale of new securities with 24.a Form 10-K 24.c 2015, Study Session #
24.a
24.a

Form 10-K

24.c
24.c
to sale of new securities with 24.a Form 10-K 24.c 2015, Study Session # 7, Reading

2015, Study Session # 7, Reading # 24

Form 10-K 24.c 2015, Study Session # 7, Reading # 24 “FINANCIAL REPORTING STANDARDS” Standard-Setting Bodies

“FINANCIAL REPORTING STANDARDS”

Standard-Setting Bodies

Securities & Exchange Commission Filings

Form 10-Q

Form DEF-14A

Form 8-K

Related to

To disclose

proxy

material

statement for

events

shareholders.

corporate

statement for events shareholders. corporate Form 144 Filing to notify SEC notice of the proposed sale
statement for events shareholders. corporate Form 144 Filing to notify SEC notice of the proposed sale
statement for events shareholders. corporate Form 144 Filing to notify SEC notice of the proposed sale

Form 144

Filing to notify SEC notice of the proposed sale of restricted securities or securities held by an issuer’ affiliate on reliance of Rule 144.

held by an issuer’ affiliate on reliance of Rule 144. FS A&L = Assets & Liabilities
held by an issuer’ affiliate on reliance of Rule 144. FS A&L = Assets & Liabilities
held by an issuer’ affiliate on reliance of Rule 144. FS A&L = Assets & Liabilities

FS

A&L = Assets & Liabilities G/L = Gain & Loss

= Financial Statements

BS

= Balance Sheet

IS

= Income Statement

F.S provides information about financial performance & in financial position. Reporting standards ensure the usefulness of information to a wide range of users.

Standards-setting bodies professional organizations of accountants & auditors that establish financial reporting standards. Regulatory authorities Govt agencies to enforce compliance with financial reporting standards.

Financial Accounting Standards Board (FASB). International Accounting Standards Board (IASB). Generally Accepted
Financial Accounting Standards Board (FASB).
International Accounting Standards Board (IASB).
Generally Accepted Accounting Principles (GAAP)
International Financial Reporting Standards (IFRS).

IASB has four stated goals. Develop transparent & comparable accounting standards and high quality F.S. Promote global accounting standards. Achieve convergence b/w national & global accounting standards. Consider emerging markets & small firms when implementing standards. Examples of regulatory authorities are Securities & Exchange Commission (SEC) & Financial Services Authority (FSA).

Form 3, 4, &5 Annual filing information about management, Quarterly unaudited filings & a MD&A
Form 3, 4, &5
Annual filing
information
about
management,
Quarterly
unaudited
filings & a
MD&A about
certain events.
Filing about
beneficial
ownership
Company’s
business &
disclosures.
Not a
substitute for
annual report.

One barrier to convergence is different standard setting bodies & regulatory authorities. Political pressure that regulatory bodies face from business groups is another barrier.

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24.d Understandability Users with basic knowledge of business should be able to readily understand the
24.d Understandability Users with basic knowledge of business should be able to readily understand the
24.d
24.d

Understandability

Users with basic knowledge of business should be able to readily understand the information in F.S.

Historical cost

Amount originally paid for asset

24.e
24.e

Constraints

Assumption

Required financial statements

Balance sheet.

Statement of comprehensive Income.

Cash flow statement.

Statement of in owner’s equity. Explanatory notes.

Statement of ∆ in owner’s equity. Explanatory notes. 2015, Study Session # 7, Reading # 24

2015, Study Session # 7, Reading # 24

Qualitative Characteristics

Comparability

Verifiability

Required Reporting Elements

Measurement Bases

Realizable value

Amount for which firm could sell the asset

Constraints & Assumption

IAS # 1

Principles for preparing F.S

Fair presentation

Going concern; accrual basis; materiality and aggregation

No offsetting

Frequency of reporting Comparative information and consistency of presentation.

Comparative information and consistency of presentation. Timeliness Information is available to users prior to
Comparative information and consistency of presentation. Timeliness Information is available to users prior to

Timeliness

Information is available to users prior to making a decision.

Fair value

Exchange asset or settle liability in arm’s -length transaction.

Principles for presenting F.S

Aggregation of similar items. Classified B.S & minimum information on face of F.S. Comparative information for prior periods.

F.S presentation should be consistent among firms & across time periods Similar conclusions could be
F.S presentation should be
consistent among firms &
across time periods
Similar conclusions could be
drawn from independent
observers using same method.

An item should be recognized in F.S if future benefit is probable & can be measured reliably.

Current cost Present value Amount to be paid today for same asset Discounted value of
Current cost
Present value
Amount to be paid
today for same asset
Discounted value of
asset’s expected FCF

One constraint on F.S preparation is to balance b/w verifiability & timeliness. Benefit of information should be greater than cost. Intangible & non-quantifiable information cannot be captured directly in F.S.

Accrual basis reflecting transactions at time of occurrence, not necessarily when cash is paid.

directly in F.S. Accrual basis ⇒ reflecting transactions at time of occurrence, not necessarily when cash

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24.f   FASB 24.g Transparent Full disclosure & fair presentation. Valuation 24.h 2015,
24.f   FASB 24.g Transparent Full disclosure & fair presentation. Valuation 24.h 2015,
24.f
24.f
 

FASB

24.g
24.g

Transparent

Full disclosure & fair presentation.

Valuation

24.h
24.h

Full disclosure & fair presentation. Valuation 24.h 2015, Study Session # 7, Reading # 24 Comparison

2015, Study Session # 7, Reading # 24

Comparison of framework

Coherent Financial Reporting Framework

Comprehensive

Should include all types of transactions having financial implications.

Barriers to Coherent Financial Reporting

Standard Setting

Principle-based relies on

broad framework (IFRS).

Rule-based specific guidance (U.S.GAAP). Objective-oriented Blend of two.

guidance (U.S.GAAP). Objective-oriented ⇒ Blend of two. IASB Consistent Measurement Not at top of GAAP
guidance (U.S.GAAP). Objective-oriented ⇒ Blend of two. IASB Consistent Measurement Not at top of GAAP

IASB

Consistent

Measurement

Not at top of GAAP hierarchy. Different objective for business & non business F.S. reporting.
Not at top of GAAP hierarchy.
Different objective for business & non business F.S.
reporting.
Place less emphasis on going concern assumption.
Relevance & reliability are primary characteristics.
Revenue, expense, G&L & comprehensive income as
elements of performance.
Define asset as future economic benefit.
“Probable” is used to define A&L.
Does not allow upward movement of assets.
Consider framework if no explicit standard exist.
One objective for both.
Place more emphasis on going concern assumption.
Also lists comparability & understandability as primary
characteristics.
Income & expenses are elements of performance.
Assets are resources from which future economic
benefit is expected.
Requires probability criterion to be met and has a
separate recognition criterion of relevance.
Similar transactions should be accounted for in similar ways.
Similar transactions should
be accounted for in similar
ways.
Trade-off b/w relevance & reliability. Trade-off b/w properly valuing B/S & I.S.
Trade-off b/w relevance &
reliability.
Trade-off b/w properly
valuing B/S & I.S.

Analyst should be aware of new products & innovations in financial market. Companies disclose policies & estimates in footnotes. Management can discuss impact of adopting a new standard.

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