ch24 full disclosure in financial accounting 17th ed.pptx

learn the importance of disclose your financial report, the meaning behind number, for better judgment in financial decision

1. Intermediate Accounting Seventeenth Edition Kieso ● Weygandt ● Warfield Chapter 24 Full Disclosure in Financial Reporting This slide deck contains animations. Please disable animations if they cause issues with your device.

2. Learning Objectives After studying this chapter, you should be able to: Review the full disclosure principle and describe how it is implemented. Discuss the disclosure requirements for related-party transactions, post-balance-sheet events, major business segments, and interim reporting. Identify the major disclosures in the auditor’s report and understand management’s responsibilities for the financial statements. Identify reporting issues related to fraudulent financial reporting and financial forecasts. 2 Copyright ©2019 John Wiley & Sons, Inc.

3. Preview of Chapter 24 (1 of 2) Full Disclosure In Financial Reporting Full Disclosure Principle Increase in reporting requirements Differential disclosure Notes to the financial statements Disclosure Issues Related parties Post-balance-sheet events Diversified companies Interim reports 3 Copyright ©2019 John Wiley & Sons, Inc.

4. Preview of Chapter 24 (2 of 2) Auditor's and Management’s Reports Auditor's report Management's reports Current Reporting Issues Fraudulent financial reporting Internet financial reporting Reporting on forecasts and projections Criteria for accounting and reporting choices 4 Copyright ©2019 John Wiley & Sons, Inc.

5. Learning Objective 1 Review the full disclosure principle and describe how it is implemented. 5 Copyright ©2019 John Wiley & Sons, Inc. LO 1

6. Full Disclosure Principle Full disclosure principle calls for financial reporting of any financial facts significant enough to influence the judgment of an informed reader. Financial disasters at Microstrategy , PharMor , WorldCom , and Theranos highlight the difficulty of implementing the full disclosure principle. 6 Copyright ©2019 John Wiley & Sons, Inc. LO 1

7. Full Disclosure Principle Types of Financial Information 7 Copyright ©2019 John Wiley & Sons, Inc. LO 1

8. Full Disclosure Principle Increase in Reporting Requirements Reasons: Complexity of business environment. Necessity for timely information. Accounting as a control and monitoring device. 8 Copyright ©2019 John Wiley & Sons, Inc. LO 1

9. Full Disclosure Principle Differential Disclosure “Big G A A P versus Little G A A P”. F A S B has traditionally taken the position that there should be one set of G A A P. F A S B is working with an advisory committee to explore ways that its standards can be more cost-effective for all companies, regardless of size. 9 Copyright ©2019 John Wiley & Sons, Inc. LO 1

10. Notes to the Financial Statements Notes are the means of amplifying or explaining the items presented in the main body of the statements. Accounting Policies Companies should present a statement identifying the accounting policies adopted and followed. Should present the disclosure as first note or separate Summary of Significant Accounting Policies section preceding the notes to the financial statements. 10 Copyright ©2019 John Wiley & Sons, Inc. LO 1

11. Notes to the Financial Statements Review Question Which of the following should be disclosed in a Summary of Significant Accounting Policies? a. Types of executory contracts. b. Amount for cumulative effect of change in accounting principle. c. Claims of equity holders. d. Depreciation method followed. 11 Copyright ©2019 John Wiley & Sons, Inc. LO 1

12. Notes to the Financial Statements Review Question - Answer Which of the following should be disclosed in a Summary of Significant Accounting Policies? a. Types of executory contracts. b. Amount for cumulative effect of change in accounting principle. c. Claims of equity holders. d. Depreciation method followed. 12 Copyright ©2019 John Wiley & Sons, Inc. LO 1

13. Notes to the Financial Statements Major Disclosures Common Notes Inventory Property, Plant, and Equipment Creditor Claims Equityholders’ Claims Contingencies and Commitments Fair Values Deferred Taxes, Pensions, and Leases Changes in Accounting Principles 13 Copyright ©2019 John Wiley & Sons, Inc. LO 1

14. Learning Objective 2 Discuss the Disclosure Requirements for Related-Party Transactions, Post-Balance-Sheet Events, Major Business Segments, and Interim Reporting 14 Copyright ©2019 John Wiley & Sons, Inc. LO 2

15. Disclosure Issues (1 of 25) Disclosure of Special Transactions or Events Related Parties Nature of the relationship(s) involved. A description of the transactions for each of the periods for which income statements are presented. Dollar amounts of transactions for each of the periods for which income statements are presented. Amounts due from or to related parties. 15 Copyright ©2019 John Wiley & Sons, Inc. LO 2

16. Disclosure Issues (2 of 25) Review Question If a business entity entered into certain related party transactions, it would be required to disclose all the following information except the a. nature of the relationship between the parties to the transactions. b. nature of any future transactions planned between the parties and the terms involved. c. dollar amount of the transactions for each of the periods for which an income statement is presented. d. amounts due from or to related parties as of the date of each statement of financial position presented. 16 Copyright ©2019 John Wiley & Sons, Inc. LO 2

17. Disclosure Issues (3 of 25) Review Question - Answer If a business entity entered into certain related party transactions, it would be required to disclose all the following information except the a. nature of the relationship between the parties to the transactions. b. nature of any future transactions planned between the parties and the terms involved. c. dollar amount of the transactions for each of the periods for which an income statement is presented. d. amounts due from or to related parties as of the date of each statement of financial position presented. 17 Copyright ©2019 John Wiley & Sons, Inc. LO 2

18. Disclosure Issues (4 of 25) Post-Balance Sheet-Events (Subsequent Events) 1 - Events that provide additional evidence about conditions that existed at the balance sheet date. 2 - Events that provide evidence about conditions that did not exist at the balance sheet date. 18 Copyright ©2019 John Wiley & Sons, Inc. LO 2

19. Disclosure Issues (5 of 25) Illustration: For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose. ______ 1. Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end. ______ 2. Introduction of a new product line. ______ 3. Loss of assembly plant due to fire. ______ 4. Sale of a significant portion of the company’s assets. ______ 5. Retirement of the company president. ______ 6. Issuance of a significant number of ordinary shares. 19 Copyright ©2019 John Wiley & Sons, Inc. LO 2

20. Disclosure Issues (6 of 25) Illustration: For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose. a 1. Settlement of federal tax case at a cost considerably in excess of the amount expected at year-end. c 2. Introduction of a new product line. b 3. Loss of assembly plant due to fire. b 4. Sale of a significant portion of the company’s assets. c 5. Retirement of the company president. b 6. Issuance of a significant number of ordinary shares. 20 Copyright ©2019 John Wiley & Sons, Inc. LO 2

21. Disclosure Issues (7 of 25) Illustration: For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose. ______ 7. Loss of a significant customer. ______ 8. Prolonged employee strike. ______ 9. Material loss on a year-end receivable because of a customer’s bankruptcy. ______ 10. Hiring of a new president. ______ 11. Settlement of prior year’s litigation. ______ 12. Merger with another company of comparable size. 21 Copyright ©2019 John Wiley & Sons, Inc. LO 2

22. Disclosure Issues (8 of 25) Illustration: For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose. c 7. Loss of a significant customer. c 8. Prolonged employee strike. a 9. Material loss on a year-end receivable because of a customer’s bankruptcy. c 10. Hiring of a new president. a 11. Settlement of prior year’s litigation. b 12. Merger with another company of comparable size. 22 Copyright ©2019 John Wiley & Sons, Inc. LO 2

23. Disclosure Issues (9 of 25) Reporting for Diversified (Conglomerate) Companies Investors and investment analysts want income statement, balance sheet, and cash flow information on the individual segments that compose the total income figure. 23 Copyright ©2019 John Wiley & Sons, Inc. LO 2

24. Disclosure Issues (10 of 25) Objective of Reporting Segmented Information To provide information about the different types of business activities in which an enterprise engages and the different economic environments in which it operates. Meeting this objective will help users: a) Better understand the enterprise’s performance. b) Better assess its prospects for future net cash flows. c) Make more informed judgments about the enterprise as a whole. 24 Copyright ©2019 John Wiley & Sons, Inc. LO 2

25. Disclosure Issues (11 of 25) Basic Principles G A A P requires that general-purpose financial statements include selected information on a single basis of segmentation. A company can meet the segmented reporting objective by providing financial statements segmented based on how the company’s operations are managed ( management approach ). 25 Copyright ©2019 John Wiley & Sons, Inc. LO 2

26. Disclosure Issues (12 of 25) Identifying Operating Segments An operating segment is a component of an enterprise: a. That engages in business activities from which it earns revenues and incurs expenses. b. Whose operating results are regularly reviewed by the company’s chief operating decision-maker. c. For which discrete financial information is available. 26 Copyright ©2019 John Wiley & Sons, Inc. LO 2

27. Disclosure Issues (13 of 25) Identifying Operating Segments Quantitative Materiality Test: Must satisfy one to determine whether the segment is significant enough to warrant actual disclosure. Its revenue is 10 percent or more of the combined revenue of all the company’s operating segments. The absolute amount of its profit or loss is 10 percent or more of the greater, in absolute amount, of (a) the combined operating profit of all operating segments that did not incur a loss, or (b) the combined loss of all operating segments that did report a loss. Its identifiable assets are 10 percent or more of the combined assets of all operating segments. 27 Copyright ©2019 John Wiley & Sons, Inc. LO 2

28. Disclosure Issues (14 of 25) Identifying Operating Segments Quantitative Materiality Test: In applying these tests, the company must consider two additional factors. Segmented results must equal or exceed 75 percent of the combined sales to unaffiliated customers for the entire company. F A S B decided that 10 is a reasonable upper limit for the number of segments that a company must disclose. 28 Copyright ©2019 John Wiley & Sons, Inc. LO 2

29. Disclosure Issues (15 of 25) Materiality Test Illustration Reporting segments are therefore A, C, D, and E, assuming that these four segments have enough sales to meet the 75 percent of combined sales test. 29 Copyright ©2019 John Wiley & Sons, Inc. LO 2

30. Disclosure Issues (16 of 25) Materiality Test Illustration The 75 percent test is computed as follows. 75% of combined sales test: 75% × $2,150 = $1,612.50. The sales of A, C, D, and E total $2,000 ($100 + $700 + $300 + $900); therefore, the 75 percent test is met. 30 Copyright ©2019 John Wiley & Sons, Inc. LO 2

31. Disclosure Issues (17 of 25) Segmented Information Reported General information about operating segments. Segment profit and loss and related information. Segment assets. Reconciliations. Information about products and services and geographic areas. Major customers. 31 Copyright ©2019 John Wiley & Sons, Inc. LO 2

32. Disclosure Issues (18 of 25) Review Question Question Revenue of a segment includes a. only sales to unaffiliated customers. b. sales to unaffiliated customers and intersegment sales. c. sales to unaffiliated customers and interest revenue. d. sales to unaffiliated customers and other revenue and gains. 32 Copyright ©2019 John Wiley & Sons, Inc. LO 2

33. Disclosure Issues (19 of 25) Review Question - Answer Question Revenue of a segment includes a. only sales to unaffiliated customers. b. sales to unaffiliated customers and intersegment sales. c. sales to unaffiliated customers and interest revenue. d. sales to unaffiliated customers and other revenue and gains. 33 Copyright ©2019 John Wiley & Sons, Inc. LO 2

34. Disclosure Issues (20 of 25) Review Question Question The profession requires disaggregated information in the following ways: a. products or services. b. geographic areas. c. major customers. d. all of these. 34 Copyright ©2019 John Wiley & Sons, Inc. LO 2

35. Disclosure Issues (21 of 25) Review Question - Answer Question The profession requires disaggregated information in the following ways: a. products or services. b. geographic areas. c. major customers. d. all of these. 35 Copyright ©2019 John Wiley & Sons, Inc. LO 2

36. Disclosure Issues (22 of 25) Interim Reports Cover periods of less than one year. Two viewpoints exist: Discrete approach Integral approach Companies should use the same accounting principles for interim reports that they use for annual reports. 36 Copyright ©2019 John Wiley & Sons, Inc. LO 2

37. Disclosure Issues (23 of 25) Unique Problems of Interim Reporting Advertising and Similar Costs Expenses Subject To Year-end Adjustment Income Taxes Earnings per Share Seasonality 37 Copyright ©2019 John Wiley & Sons, Inc. LO 2

38. Disclosure Issues (24 of 25) Review Question In considering interim financial reporting, how does the profession conclude that such reporting should be viewed? a. As a "special" type of reporting that need not follow generally accepted accounting principles. b. As useful only if activity is evenly spread throughout the year so that estimates are unnecessary. c. As reporting for a basic accounting period. d. As reporting for an integral part of an annual period. 38 Copyright ©2019 John Wiley & Sons, Inc. LO 2

39. Disclosure Issues (25 of 25) Review Question - Answer In considering interim financial reporting, how does the profession conclude that such reporting should be viewed? a. As a "special" type of reporting that need not follow generally accepted accounting principles. b. As useful only if activity is evenly spread throughout the year so that estimates are unnecessary. c. As reporting for a basic accounting period. d. As reporting for an integral part of an annual period. 39 Copyright ©2019 John Wiley & Sons, Inc. LO 2

40. Learning Objective 3 Identify the Major Disclosures in the Auditor’s Report and Understand Management’s Responsibilities for the Financial Statements 40 Copyright ©2019 John Wiley & Sons, Inc. LO 3

41. Auditor’s and Management’s Reports Unqualified Opinion Auditor’s Report Unqualified Opinion – auditor expresses the opinion that the financial statements are presented fairly in accordance with G A A P. Other opinions: Qualified Adverse Disclaim 41 Copyright ©2019 John Wiley & Sons, Inc. LO 3

42. Auditor’s and Management’s Reports Explanatory Paragraph Auditor’s Report Certain circumstances, although they do not affect the auditor’s unqualified opinion, may require the auditor to add an explanatory paragraph to the audit report. Going Concern Lack of Consistency Emphasis of a Matter 42 Copyright ©2019 John Wiley & Sons, Inc. LO 3

43. Auditor’s and Management’s Reports Qualified Opinion Auditor’s Report Qualified opinion contains an exception to the standard opinion. Usual circumstances may include: Scope limitation. Statements do not fairly present financial position or results of operations because of: a. Lack of conformity with G A A P. b. Inadequate disclosure. 43 Copyright ©2019 John Wiley & Sons, Inc. LO 3

44. Auditor’s and Management’s Reports Adverse Opinion Auditor’s Report Adverse opinion is required in any report in which the exceptions to fair presentation are so material that in the independent auditor’s judgment, a qualified opinion is not justified. The financial statements taken as a whole are not in accordance with GAAP a. Adverse opinions are rare. b. The SEC will not permit a company listed on an exchange to have an adverse opinion. 44 Copyright ©2019 John Wiley & Sons, Inc. LO 3

45. Auditor’s and Management’s Reports Disclaimer of an Opinion Auditor’s Report Disclaimer of an opinion is appropriate when the auditor has gathered so little information on the financial statements that no opinion can be expressed. 45 Copyright ©2019 John Wiley & Sons, Inc. LO 3

46. Auditor’s and Management’s Reports MD&A Management’s Report Management’s Discussion and Analysis The SEC mandates inclusion of management’s discussion and analysis (MD&A) . Management highlights favorable or unfavorable trends related to liquidity, capital resources, and results of operations and identifies significant events and uncertainties that affect these three factors. 46 Copyright ©2019 John Wiley & Sons, Inc. LO 3

47. Auditor’s and Management’s Reports PepsiCo Inc. Example 47 Copyright ©2019 John Wiley & Sons, Inc. LO 3

48. Auditor’s and Management’s Reports Review Question The MD&A section of a company's annual report is to cover the following three items: a. income statement, balance sheet, and statement of owners' equity. b. income statement, balance sheet, and statement of cash flows. c. liquidity, capital resources, and results of operations. d. changes in the stock price, mergers, and acquisitions. 48 Copyright ©2019 John Wiley & Sons, Inc. LO 3

49. Auditor’s and Management’s Reports Review Question - Answer The MD&A section of a company's annual report is to cover the following three items: a. income statement, balance sheet, and statement of owners' equity. b. income statement, balance sheet, and statement of cash flows. c. liquidity, capital resources, and results of operations. d. changes in the stock price, mergers, and acquisitions. 49 Copyright ©2019 John Wiley & Sons, Inc. LO 3

50. Auditor’s and Management’s Reports Management’s Responsibilities Management’s Responsibilities for Financial Statements The Sarbanes-Oxley Act requires the SEC to develop guidelines for all publicly traded companies to report on management’s responsibilities for, and assessment of, the internal control system. 50 Copyright ©2019 John Wiley & Sons, Inc. LO 3

51. Auditor’s and Management’s Reports Home Depot Example 51 Copyright ©2019 John Wiley & Sons, Inc. LO 3

52. Learning Objective 4 Identify Reporting Issues Related to Fraudulent Financial Reporting and Financial Forecasts 52 Copyright ©2019 John Wiley & Sons, Inc. LO 4

53. Current Reporting Issues Fraudulent Financial Reporting Intentional or reckless conduct, whether act or omission, that results in materially misleading financial statements. Frauds involving such well-known companies as Enron , WorldCom , Adelphia , and Theranos indicate that more must be done to address this issue. 53 Copyright ©2019 John Wiley & Sons, Inc. LO 4

54. Fraudulent Financial Reporting Global Survey- Growth of Economic Crimes Source: Recent global survey of over 3,000 executives from 54 countries documented the types of economic crimes. 54 Copyright ©2019 John Wiley & Sons, Inc. LO 4

55. Fraudulent Financial Reporting Trends in Reported Fraud A wide range of economic crimes are reported. 55 Copyright ©2019 John Wiley & Sons, Inc. LO 4

56. Fraudulent Financial Reporting Causes Causes of Fraudulent Financial Reporting Common causes are the desire to obtain a higher stock price, to avoid default on a loan covenant, or to make a personal gain of some type (additional compensation, promotion). 56 Copyright ©2019 John Wiley & Sons, Inc. LO 4

57. Fraudulent Financial Reporting Opportunities Causes of Fraudulent Financial Reporting Common opportunities for fraudulent financial reporting Absence of a board of directors or audit committee. Weak or nonexistent internal accounting controls. Unusual or complex transactions. Accounting estimates requiring significant judgment. Ineffective internal audit staffs. 57 Copyright ©2019 John Wiley & Sons, Inc. LO 4

58. Current Reporting Issues Internet Financial Reporting A large proportion of companies’ websites contain links to their financial statements and other disclosures. Allows firms to communicate more easily and quickly with users. Allow users to take advantage of tools such as search engines and hyperlinks to quickly find information about the firm. Can help make financial reports more relevant by allowing companies to report expanded disaggregated data and more timely data. 58 Copyright ©2019 John Wiley & Sons, Inc. LO 4

59. Current Reporting Issues Reporting on Financial Forecasts and Projections Financial forecast is a set of prospective financial statements that present, a company’s expected financial position, results of operations, and cash flows. Financial projections are prospective financial statements that present, given one or more hypothetical assumptions, an entity’s expected financial position, results of operations, and cash flows. Regulators have established a Safe Harbor Rule . 59 Copyright ©2019 John Wiley & Sons, Inc. LO 4

60. Current Reporting Issues Review Question Which of the following best characterizes the difference between a financial forecast and a financial projection? a. Forecasts include a complete set of financial statements, while projections include only summary financial data. b. A forecast is normally for a full year or more and a projection presents data for less than a year. c. A forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on what is not necessarily expected to happen. d. A forecast includes data which can be verified about future expectations, while the data in a projection is not susceptible to verification. 60 Copyright ©2019 John Wiley & Sons, Inc. LO 4

61. Current Reporting Issues Review Question - Answer Which of the following best characterizes the difference between a financial forecast and a financial projection? a. Forecasts include a complete set of financial statements, while projections include only summary financial data. b. A forecast is normally for a full year or more and a projection presents data for less than a year. c. A forecast attempts to provide information on what is expected to happen, whereas a projection may provide information on what is not necessarily expected to happen. d. A forecast includes data which can be verified about future expectations, while the data in a projection is not susceptible to verification. 61 Copyright ©2019 John Wiley & Sons, Inc. LO 4

62. Learning Objective 5 Describe the Approach to Financial Statement Analysis 62 Copyright ©2019 John Wiley & Sons, Inc. LO 5

63. Appendix 24A: Basic Financial Statement Analysis (1 of 11) Perspective on Financial Statement Analysis A logical approach to financial statement analysis is necessary, consisting of the following steps. Know the questions for which you want to find answers. Know the questions that particular ratios and comparisons are able to help answer. Match 1 and 2 above. By such a matching, the statement analysis will have a logical direction and purpose. 63 Copyright ©2019 John Wiley & Sons, Inc. LO 5

64. Appendix 24A: Basic Financial Statement Analysis (2 of 11) Perspective on Financial Statement Analysis Analysis includes an understanding that Financial statements report on the past. Single ratio by itself is not likely to be very useful. Awareness of the limitations of accounting numbers used in an analysis. 64 Copyright ©2019 John Wiley & Sons, Inc. LO 5

65. Learning Objective 6 Identify Major Analytic Ratios and Describe Their Calculation 65 Copyright ©2019 John Wiley & Sons, Inc. LO 6

66. Appendix 24A: Ratio Analysis Major Types of Ratios Liquidity Ratios. Measures of the company's short-run ability to pay its maturing obligations. Activity Ratios. Measures of how effectively the company is using the assets employed. Profitability Ratios. Measures of the degree of success or failure of a given company or division for a given period of time. Coverage Ratios. Measures of the degree of protection for long-term creditors and investors. 66 Copyright ©2019 John Wiley & Sons, Inc. LO 6

67. Appendix 24A: Ratio Analysis Liquidity 67 Copyright ©2019 John Wiley & Sons, Inc. LO 6

68. Appendix 24A: Ratio Analysis Activity 68 Copyright ©2019 John Wiley & Sons, Inc. LO 6

69. Appendix 24A: Ratio Analysis Profitability 69 Copyright ©2019 John Wiley & Sons, Inc. LO 6

70. Appendix 24A: Ratio Analysis Coverage 70 Copyright ©2019 John Wiley & Sons, Inc. LO 6

71. Learning Objective 7 Explain the Limitations of Ratio Analysis 71 Copyright ©2019 John Wiley & Sons, Inc. LO 7

72. Appendix 24A: Basic Financial Statement Analysis Limitation of Ratio Analysis Based on historical cost. Use of estimates. Achieving comparability among firms in a given industry. Substantial amount of important information is not included in a company’s financial statements. 72 Copyright ©2019 John Wiley & Sons, Inc. LO 7

73. Learning Objective 8 Describe Techniques of Comparative Analysis 73 Copyright ©2019 John Wiley & Sons, Inc. LO 8

74. Appendix 24A: Basic Financial Statement Analysis Comparative Analysis 74 Copyright ©2019 John Wiley & Sons, Inc. LO 8

75. Learning Objective 9 Describe Techniques of Percentage Analysis 75 Copyright ©2019 John Wiley & Sons, Inc. LO 9

76. Appendix 24A: Basic Financial Statement Analysis Percentage (Common Size) Analysis 76 Copyright ©2019 John Wiley & Sons, Inc. LO 9

77. Appendix 24A: Basic Financial Statement Analysis Common Size Analysis – Income Statement 77 Copyright ©2019 John Wiley & Sons, Inc. LO 9

78. Learning Objective 10 Compare the Disclosure Requirements Under G A A P and I F R S 78 Copyright ©2019 John Wiley & Sons, Inc. LO 10

79. I F R S Insights (1 of 10) Relevant Facts Similarities G A A P and I F R S have similar standards on post-statement of financial position (subsequent) events. That is, under both sets of standards, events that occurred after the statement of financial position date, and which provide additional evidence of conditions that existed at the statement of financial position date, are recognized in the financial statements. Like G A A P, I F R S requires that for transactions with related parties, companies disclose the amounts involved in a transaction; the amount, terms, and nature of the outstanding balances; and any doubtful amounts related to those outstanding balances for each major category of related parties. 79 Copyright ©2019 John Wiley & Sons, Inc. LO 10

80. I F R S Insights (2 of 10) Relevant Facts Similarities Following the issuance of I F R S 8, “Operating Segments,” the requirements under I F R S and G A A P are very similar. That is, both standards use the management approach to identify reportable segments, and similar segment disclosures are required. Neither G A A P nor I F R S require interim reports. Rather, the SEC and securities exchanges outside the United States establish the rules. In the United States, interim reports generally are provided on a quarterly basis; outside the United States, six-month interim reports are common. 80 Copyright ©2019 John Wiley & Sons, Inc. LO 10

81. I F R S Insights (3 of 10) Relevant Facts Differences Due to the broader range of judgments allowed in more principles-based I F R S, note disclosures generally are more expansive under I F R S compared to G A A P. Subsequent (or post-statement of financial position) events under I F R S are evaluated through the date that financial instruments are “authorized for issue.” G A A P uses the date when financial statements are “issued.” Also, for share dividends and splits in the subsequent period, I F R S does not adjust but G A A P does. Under I F R S, there is no specific requirement to disclose the name of the related party, which is this case under G A A P. Under I F R S, interim reports are prepared on a discrete basis; G A A P generally follows the integral approach. 81 Copyright ©2019 John Wiley & Sons, Inc. LO 10

82. I F R S Insights (4 of 10) On The Horizon Hans Hoogervorst , chairperson of the I A S B, recently noted: “High quality financial information is the lifeblood of market-based economies. It is the same with financial reporting. If investors cannot trust the numbers, then financial markets stop working. For market-based economies, that is really bad news. It is an essential public good for market-based economies. . . . And in the past 10 years, most of the world’s economies—developed and emerging—have embraced I F R Ss.” While the United States has yet to adopt I F R S, there is no question that I F R S and G A A P are converging quickly. We have provided expanded discussion in the Global Views and I F R S Insights. After reading these discussions, you should realize that I F R S and G A A P are very similar in many areas, with differences in those areas revolving around some minor technical points. In other situations, the differences are major; for example, I F R S does not permit L I F O inventory accounting. 82 Copyright ©2019 John Wiley & Sons, Inc. LO 10

83. I F R S Insights (5 of 10) I F R S Self-Test Questions Which of the following is false ? a. In general, I F R S note disclosures are more expansive compared to G A A P. b. G A A P and I F R S have similar standards on subsequent events. c. Both I F R S and G A A P require interim reports although the reporting frequency varies. d. Segment reporting requirements are very similar under I F R S and G A A P. 83 Copyright ©2019 John Wiley & Sons, Inc. LO 10

84. I F R S Insights (6 of 10) I F R S Self-Test Questions Which of the following is false ? a. In general, I F R S note disclosures are more expansive compared to G A A P. b. G A A P and I F R S have similar standards on subsequent events. c. Both I F R S and G A A P require interim reports although the reporting frequency varies. d. Segment reporting requirements are very similar under I F R S and G A A P. 84 Copyright ©2019 John Wiley & Sons, Inc. LO 10

85. I F R S Insights (7 of 10) I F R S Self-Test Questions Subsequent events are reviewed through which date under I F R S? a. Statement of financial position date. b. Sixty days after the year-end date. c. Date of independent auditor’s opinion. d. Authorization date of the financial statements. 85 Copyright ©2019 John Wiley & Sons, Inc. LO 10

86. I F R S Insights (8 of 10) I F R S Self-Test Questions Subsequent events are reviewed through which date under I F R S? a. Statement of financial position date. b. Sixty days after the year-end date. c. Date of independent auditor’s opinion. d. Authorization date of the financial statements. 86 Copyright ©2019 John Wiley & Sons, Inc. LO 10

87. I F R S Insights (9 of 10) I F R S Self-Test Questions Under I F R S, share dividends declared after the statement of financial position date but before the end of the subsequent events period are: a. accounted for similar to errors as a prior period adjustment. b. adjusted subsequent events, because they are paid from prior year earnings. c. not adjusted in the current year’s financial statements. d. recognized on a prospective basis from the date of declaration. 87 Copyright ©2019 John Wiley & Sons, Inc. LO 10

88. I F R S Insights (10 of 10) I F R S Self-Test Questions Under I F R S, share dividends declared after the statement of financial position date but before the end of the subsequent events period are: a. accounted for similar to errors as a prior period adjustment. b. adjusted subsequent events, because they are paid from prior year earnings. c. not adjusted in the current year’s financial statements. d. recognized on a prospective basis from the date of declaration. 88 Copyright ©2019 John Wiley & Sons, Inc. LO 10

89. Copyright Copyright © 2019 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein. 89 Copyright ©2019 John Wiley & Sons, Inc.