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A comprehensive overview of key concepts and financial reporting standards relevant to intermediate accounting. It covers topics such as the conceptual framework of financial reporting, gaap, ifrs, and the role of the sec. The document also includes explanations of important financial statements, including the income statement, balance sheet, statement of cash flows, and statement of stockholders' equity. Additionally, it delves into the principles of accounting, such as the revenue recognition principle, expense recognition principle, and the going concern assumption. This guide is valuable for students seeking to understand the fundamentals of accounting and its application in financial reporting.
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Form 10-K Comprehensive annual report filed with the SEC, includes audited financial statements (what people want) Stockholder's Equity Statement Statement showing changes in equity over time Negative Cashflow from Investing Activities Positive sign indicating reinvestment of money Sarbanes-Oxley Act Requires CEOs and CFOs to certify accuracy of financial reports
EBITDA acronym meaning Earnings before interest, taxes, depreciation, and amortization Debt Increase Impact on Net Income Increased debt leads to low net income corporations have separation of Separation of Ownership and Control Audit Committee is responsible for... why Responsible for hiring and firing external audit firms so the management doesnot pressure the auditors SEC Form 10-Q Quarterly report filed by publicly reporting companies Public Float Value of outstanding stock held by shareholders
FASB stands for Financial Accounting Standards Board IFRS International Financial Reporting Standards for global accounting SEC Federal agency administering the Securities Act of 1934, overseeing companies listed on major exchanges. Statements of Financial Accounting Concepts Series setting fundamental objectives and concepts used by FASB in developing financial accounting standards. Public/Private Partnership Reflects SEC's support for FASB, indicating that financial statements conforming to FASB standards have authoritative support.
SEC Oversight of FASB SEC's mandate to establish accounting principles, delegated to the private sector (FASB), intervening if issues are not promptly addressed (in which the partnership can be strained) SEC's actions to address accounting irregularities, including sending deficiency letters, issuing stop orders, and involving the Department of Justice for legal actions.(filing criminal charges for violating certain laws) Financial Accounting Concepts Framework for developing financial accounting standards, not establishing GAAP but undergoing a due process similar to Accounting Standards Updates. American Institute of Certified Public Accountants (AICPA) National organization of practicing CPAs, historically involved in standard-setting but now no longer formally part of the process International Accounting Standards Board (IASB) International organization setting International Financial Reporting Standards (IFRS) used in over 120 countries.
Entity Perspective Companies viewed separately from owners. Qualitative Characteristics of Accounting Information Characteristics distinguishing more useful information from less useful information for decision-making purposes. Hierarchy of Accounting Qualities Each characteristic contributes to decision-usefulness, limited by the cost should not exceed the benefits of a reporting practice relevance Fundamental quality making accounting information useful for decisions. - must be capable in making a difference in a decision Predictive Value Information aiding users in forming expectations about the future. Confirmatory Value
Information helping confirm or correct prior expectations. Materiality Information is material if its omission or misstatement influences decisions users make on the basis of the reported financial info Materiality Comparison Evaluating relative size and importance of items to assess materiality. Materiality - Quantitative and Qualitative Factors Quantitative materiality combined with qualitative factors to assess materiality. Materiality Adjustment If a misstatement causes net income to be converted to net loss, then you need to adjust materiality. Qualitatively Material A misclassification of the $100K loan as long-term appears to be qualitatively material (regardless of quantitative materiality considerations).
Consistency Present when a company applies the same accounting treatment to similar events, from period to period. Verifiability Occurs when independent measures, using the same methods, obtain similar results. Timeliness Having information available to decision-makers before it loses its capacity to influence decisions. Understandability The quality of information that lets reasonably informed users see its significance. Assets Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future. Equity Residual interest in the assets of an entity that remains after deducting its liabilities. Investments by Owners Increases in net assets of a particular enterprise resulting from transfers to it from other entities of something of value to obtain or increase ownership interests. Distributions to Owners Decreases in net assets of a particular enterprise resulting from transferring assets, rendering services, or incurring liabilities by the enterprise to owners. Comprehensive Income Change in equity (net assets) of an entity during a period from transactions and other events and circumstances from non-owner sources.It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. (includes net income)
Monetary Unit Assumption Money as the common denominator for economic activity and provides an appropriate basis for accounting measurement/analysis Periodicity Assumption Economic activities divided into artificial time periods Measurement Principle Historical cost or fair value basis for recording transactions Revenue Recognition Principle Revenue recognized when performance obligation is met Expense Recognition Principle Expenses must follow the revenues Fair Value Price received to sell an asset in an orderly transaction
In a 10 k, Item 7 is the place where the company discloses what went right or wrong. A company that has decreased debt may have issued stock. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's --- by adding back profitability- interest, taxes, depreciation, and amortization to net income. Unlike net income, EBITDA is not listed on ---but is calculated using its components. the income statement what makes EBITDA a preferred metric for assessing business value and attractiveness .It reflects a company's operating performance, excluding the effects of financial and accounting decisions, which makes it useful for comparing companies by focusing on core operational profitability. Shareholders want the financial reporting to say it was adjusted and stable. They do not want the company to show that they are better than everyone even when they are not.
"annual report to shareholders," The SEC Represents the--- and investing public, makes sure that they are given accurate information. Also know that a non-accelerated filer is exempt from having a separate audit on its internal controls over financial reporting Small companies are exempt from the additional reporting. Why is there a need for this conceptual framework? Investors rely on high quality relevant and reliable information to make their decisions. How are accounting standards established? FASB develops the accounting standards. There is a due process that occurs where they get information from the public.
Financial Information Must be---- to be Useful in Making Decisions Relevant and Reliable Relevant and reliable financial information during the uncertainties of the Covid- pandemic: Assessing whether companies were viable (going-concern assumption in question)Estimating liabilities (unable to fulfill contracts)Determining inventory (write downs from slow-moving inventory) Financial reporting is always uncertain because there is estimation involved. GAAP knows this and recognizes the challenge. FASB focuses on the internal or external users external User Groups of Accounting Information 1Owner/Manager (Financial and Managerial accounting) Assess financial position (balance sheet), operating performance (income statement), and source and use of cash (statement of cash flows) , 2Creditors Assess ability of companies to pay principle and interest on debt (e.g., earnings history - income statement, liquidity - balance sheet, positive operating cash flows - statement of cash flows).
the stock market crash of 1933), (they wanted the people to trust the companies and reinvest) the SEC: Administers what act the Securities Exchange Act of 1934 and several other acts. "The SEC currently exercises oversight over--- companies that are listed on the major exchanges (e.g., the New York Stock exchange and Nasdaq)." 12, Banks and other external funding sources (creditors and investors), as well as management, require/desire what basis GAAP, accrual-basis financial statements. Most companies that issue securities to the public or are listed on the stock exchanges are required to file audited GAAP financial statements with the SEC. "The SEC encouraged the creation of a private (accounting) standard-setting body."
"Accounting standards are developed in the private sector by the FASB." "The SEC indicated that it continues to believe that the initiative for establishing and improving accounting standards should remain in the private sector (the FASB), subject to Commission oversight. " stop order,' which prevents the registrant from issuing or trading securities on the exchanges." "The major standard-setting organization in the private sector (and in the public sector through the delegation of the SEC) is the Financial Accounting Standards Board (FASB)." Financial Accounting Standards Board: the U.S. organization established to improve standards of financial reporting for the guidance and education of the public, which includes issuers, auditors, and users of the financial statements.
