FAR Cheat Sheet Taitel F1: Financial Reporting
Full Set of Financial Statements Liquidity and Solvency Basic Earnings Per Share (EPS)
1) Statement of Financial Position (Balance Sheet) Current Assets Income Available to Common Shareholders
Liquidity = Basic EPS =
2) Statement of Earnings (Income Statement) Current Liabilities Weighted Average Number of Common Shares Outstanding
3) Statement of Comprehensive Income Debt Income Available to Common Shareholders = Net Income - Preferred Dividends
Solvency =
4)Statement of Cash Flows Equity Preferred Dividends: Cumulative # of Pref Shares * Par Value * Rate
5)Statement of Owner's Equity Noncumulative Declared
Items in Comprehensive Income Stock dividends and Splits are Retroactively Adjusted
Individual Foreign Transactions P - Pension Adjustment Shares sold/reacquired are based on a time-weighted basis
Direct Method: domestic price of another currency $/€ U - Unrealized G/Ls on AFS
Indirect Method: foreign price of domestic currency €/$ F - Foreign Currency Items Diluted Earnings Per Share (EPS)
Assets Denominated in Foreign Currency I - Instrument Specific Credit Risk Income Available + Interest on Dilutive Securities
Diluted EPS =
Foreign Currency ↑, Asset ↑ Gain Net Income WAOCS (with all securities converted to common stock)
Foreign Currency ↓, Asset ↓ Loss + Other Comprehensive Income Treasury Stock Method - for Options and Warrants Average Price > Strike Price
Liabilities Denominated in Foreign Currency Comprehensive Income # of Shares * Exercise Price
Additional Shares = # of Shares -
Foreign Currency ↑, Liabilities ↑ Loss Average Market Price
Foreign Currency ↓, Liabilities ↓ Gain Items in Comprehensive Income If Converted Method - for Convertible Bonds Sequence from:
Authorized - amt that may be issued 1) add interest expense (net of tax) to the numerator Most Dilutive
Form 10-K Filing Deadlines Issued - stock that's been issued 2) add # of common stock associated to the denominator ↓
60 days for large accelerated filers $700M Market Value Outstanding = Issued - Treasury 3) if issued, assume stock is issued for WACSO Least Dilutive
75 days for accelerated filers $75-$700 MV If Converted Method - for Convertible Preferred Stock
Options and Warrants
+$100M Revenue Book Value Per Common Share 1) adjust numerator; add back pref dividend
are first
90 days for all others Less than 100M Rev Common Shareholders Equity 2) add # of common stock associated to the denominator
Form 10-Q Filing Deadlines Common Shares Outstanding
40 days for large accelerated filers and accelerated filers Common Shareholder Equity Preferred Stock - Equity with Options
45 days for all others Assets - Liabilities - Pref Equity - Dividends Cumulative pref dividends not paid accumulates (as dividends in Arrears)
in arrears Non Cumulative Dividends not paid do not accumulate
Stock Issuance Common Shares Outstanding Participating share with common shareholders in excess of a specific amount
Stock Issued Above Par Fully Particpating participates in excess dividends without limit
Shares issued - Shares Repurchased
DR: Cash Shares * Purchase Price Partially Particpating participates in excess dividends to a percentage limit
CR: Common Stock Shares*Par Value Non-Participating Pref Shareholders are limited to. dividend provided by preference
CR: APIC - C/S Plug Retained Earnings Preference Upon Liquidation must be disclosed if larger than par
Stock Issued At Par Net Income/Loss Convertible May be exchanged by stockholders at a specified amount
DR: Cash Shares*Par Value (Dividends Declared) Callable/Redeemable May be called (repurchased) at a price by the issuing corporation
CR: Common Stock Shares*Par Value ± Prior Period Adjustments
Stock Issued Below Par ± Accounting Changes Retrospective Treasury Stock - Cost Method (used 95% of the time)
DR: Cash Shares * Purchase Price Retained Earnings Treasury shares are recorded and carried at their reacquisition cost
DR: APIC Plug Gains/Loss is determined when it is reissued/retired | G/L = Reissue Price - Repurchase Cost
CR: Common Stock Shares*Par Value Stock Subscription Default Losses: Paid-in Capital Treasury Stock ↓; Excess Retained Earning↓
1) issue stock in proportion to amt paid Gains: Paid-in Capital Treasury Stock ↑
Stock Subscriptions 2) refund the partial payment Original Issue Buy back Above Issue Price
Record Subscriptions Receivable 3) retain the partial payments with APIC DR: Cash Shares * Purchase Price DR: Treasury Stock Shares *Repurchase
DR: Subscription Receivable Shares * Purchase Price CR: Common Stock Shares*Par Value CR: Cash Price
CR: Common Stock Subscribed Shares*Par Value Retirement of Treasury Stock CR: APIC - C/S Plug Reissuing Below Cost
CR: APIC - C/S Plug Retirement of Treasury (Cost Method) Reissuing Above Cost DR: Cash Shares * Purchase Price
Collection of Subscriptions | All payments are included DR: Common Stock Shares * Par DR: Cash Shares * Resale Price DR: APIC - T/S Shares*Par Value
DR: Cash DR: APIC - C/S OG Price - Per*Share CR: Treasury Stock Total Repurchase Price DR: Retained Earnings Plug
CR: Subscription Receivable DR: Retained Earning Plug CR: APIC - T/S Plug CR: Treasury Stock Plug
Issuance of Subscriptions | Only includes fully paid CR: Treasury Stock Repurchase P* Shares
DR: Common Stock Subscribed At Par Retirement of Treasury (Par Method) Treasury Stock - Par/Stated Value Method (used 5% of the time)
CR: Common Stock Issued At Par DR: Common Stock Calculate Gains and Losses immediately upon repurchase
CR: Treasury Stock Shares * Par Value 1) Calculate Gains/Loss = Original Selling Price - Repurchase Price
Dividend Terms 2) Reverse Original entry for Shares Repurchased; Debit Treasury Stock at Par
Date of Declaration - BOD formally approves a dividend Use Fair Market Value on all Property (In 3) Credit Cash Paid
DR: Retained Earnings Kind Dividends) Original Issue Buy back Above Issue Price LOSS
CR: Dividend Payable DR: Cash Shares * Purchase Price DR: Treasury Stock Shares * Par Value
Date of Record - specifies the time names are determined Scrip Dividends are used when there's a CR: Common Stock Shares*Par Value DR: APIC - C/S Plug
Date of Payment - when it is dispersed by the corp cash shortage, Used Notes Payable CR: APIC - C/S Plug DR: Retained Earnings OG Selling P - Repurch
Buy back Below Issue Price GAIN CR: Cash Repurchase
Stock Dividends DR: Treasury Stock Shares * Par Value Reissue Shares
Small Stock Dividends (<20-25%) DR: APIC - C/S Plug DR: Cash Resale Price * Shares
Retained Earnings ↓ by FMV CR: APIC - T/S OG Selling P - Repurch CR: Treasury Stock Shares * Par Value
Large Stock Dividends (>20-25%) CR: Cash Repurchase CR: APIC - C/S Plug
Retained Earnings ↓ by Par Value
, FAR Cheat Sheet Taitel F2: Financial Reporting/Disclosure
Five Step Approach for Revenue Recognition (I am a STAR) Criteria for Identifying Contracts Change in Accounting Estimates (prospective)
1) Identify the contract with the customer • all parties approved the contact 1) It is not an error Prospective Approach
2) Separate Performance Obligations • rights of each party are identified 2) do not Restate prior Years • use new information in current/future years
3) Transaction Price Determination • payment terms are identified 3) Follow Prospective Approach • no effect on prior Retained Earnings
4) Allocate the Transaction Price to each PO • contract has commercial substance Includes To LIFO and Depreciation Method
5) Recognize Revenue • probable collection of consideration
Criteria isn't met but consideration is paid: Change in Accounting Principle (retrospective)
Recognizing Revenue Timing Recognize Rev if the consideration is Change in Accounting Principle - change from one acceptable accounting method to another one
Satisfied Over Time if any of the following is met: nonrefundable and no more POs Rule of Preferability - cannot change principles without justification
1) creates or enhances an asset that the customer controls Retrospective Approach - adjust beginning retained earnings, net of tax
2) customer simultaneously receives and consumes the benefit Contract Modification is a new contract IF: Noncomparative F/S Comparative F/S
3) Does not create an asset with alternative use a) The Scope Increase 1) use new method in year presented 1) Use new method in all years
Output Method - based on the value to customers b) the Price increases 2) find earnings if method was always used 2) calculate the cumulative effect
Input Method - based on the entity's efforts to the satisfaction of PO 3) adjust beginning R/Es net of tax 3) present effect net of tax to beginning R/Es
Satisfied at a Point in Time: recognize when customer obtains control District POs must be: General Rule Exemptions: Changes to LIFO | Change to Depreciation Method
a) customer has accepted the asset 1. are separately identifiable • adjust retained earnings for the cumulative effect net of tax at the beginning or earliest period
b) entity has right to payment and customer has obligation to pay 2. customer can benefit independently • use the new accounting principle for all periods presented
c) transferred physical possession of the asset A transfer is separately identifiable if:
d) customer has legal title to the asset a) does not integrate with others Change in Accounting Entity (retrospective)
e) customer has significant rewards and risks b) does not customize or modify Restate all previous F/Ss presented in comparative F/S along with the Full Disclosure to be made
c) does not depend on or relate to others current year to reflect the information for the new reporting entity with changes in income
Fair Value Not Separately Identifiable POs
Fair Value -the price that would be received to sell an asset or transfer a liab •are highly interrelated or interdependent Error Correction (Prior Period Adjustment)
market based approach Does not Include transaction price • provides a sig service of integrating • Corrections of errors in recognition, measurement, presentation or disclosure resulting from
Non Financial Assets are measured using the Highest and Best Use mathematical mistakes, misapplication of US GAAP, or oversight of facts
Principal Market - market with the greatest volume or activity level FV Valuation Techniques MIC • Changes from a non-GAAP to GAAP method of accounting
• price in that market is the FV measurement, even if there's MVP Market Approach- use price from market Comparative Financial Statements Presented:
Most Advantageous Market - transaction involving comparable financial statements for the year with the error are presented
• best price for the asset/liab after considering transaction costs Income Approach- Discounted Cash Flow correct the error in those prior financial statements
• transaction costs are ignored in FV after the market is determined Model financial statements for the year with the error are NOT presented
adjust (net of tax) the opening retaining earnings of the earliest period presented
Cost Approach- Current Replace Cost
Liquidity Ratios No Comparative Financial Statements Presented
ability to meet short Current Assets reported as an adjustment to the opening balance of retained earnings (net of tax)
term obligations Current Ratio
Current Liabilities Hierarchy of Fair Value Inputs
Cash + ST MS + AR (Net) Level 1 - Observable, Active, and Identical Profitability Ratios
Quick Ratio
Current Liabilities Level 2 - Observable, Quoted Sales (Net) - COGS Net Income
Gross Profit Margin Profit Margin
success of collecting Sales (net) Level 3 - Unobservable and assumption based Sales (Net) Sales (Net)
outstanding A/Rs A/R Turnover
Average A/R (net) Net Income Net Income
Return On Sales Return On Equity
average # of days to Ending A/R Solvency Ratio Average Total Assets Average Total Equity
collect A/R Days Sales in A/R
Sales (net) / 365 Total Liabilities Dupont Return on
Debt-to-Equity =
How quickly inventory COGS Total Equity Asset Profit Margin x Asset Turnover
is sold. HIgher is better Inventory Turnover
Average Inventory Total Liabilities Operating Cash Flow CFs from Operations
Total Debt Ratio =
average # of days to Ending Inventory Total Assets Ratio Current Liabilities
sell inventory Days in Inventory
COGS / 365 Total Assets
# of times trade Equity Multiplier =
COGS Total Equity Performance Metrics
payable turnover A/P Turnover
during a period Average A/P Times Interest EBIT Sales Net Income
average # of days to Days in Payable Ending A/R Earned = Interest Expense Top Down EBITDA - COGS Bottom Up EBITDA + Income Tax/ Interest Expense
collect A/R Outstandings Sales (net) / 365 - Operating Expense +D/A Expenses
Days Sales in A/R+ Days in Inventory - Days in Beginning + End Price Per Share Cash Dividends
Cash Conversion Cycle Average ______ Price to Earnings Ratio Dividend Payout
Payable Outstandings 2 Basic EPS Net Income
Sales (net)
Asset Turnover
Summary of Significant Accounting Policies Remaining Notes to the F/S Average Total Assets
- description of all significant policies included in F/S - contains all other info relevant
First Footnote: general description Examples of Notes Cash Basis of Accounting
Second Footnote: significant accounting policies - material info regarding assets/liab Revenue = When Cash is received Expense = when cash is paid
Disclosure includes - nature of change in SE Cash Basis Financial Statements 2) Statement of Cash Receipts + Disbursements
a) measurment based used in prepping the F/S - require marketable securities 1) Statement of Cash and Equity Receipts (rev received) Disbursements (expense paid)
b) specific accounting prinicpals and methods - FV estimates - cash is only asset; cash = equity + Debt Proceeds -debt/dividend repayment
- contingency G/L - no liabilities are recorded + Asset Sale proceeds - asset purchase payment
Disclosure of Rights and Uncertainty - Pension Plan Description Modified Cash Basis of Accounting
- requires the disclosure of risk/uncertainty that can be relevant - segment disclosure Common Modifications Financial Statements for Modified Cash
footnote describes - change in accounting principals - capitalizing and depreciating fixed assets - Statement of Assets and Liab (Modified Cash Basis)
a) risk and uncertainties around major operations - accural of income taxes - Statement of A&L arising from cash transactions
b) relative importance of each busniess OCBOA Guidelines - recording liabs and related interest - Statement of revs, exps, & R/E (Modified Cash Basis)
c) use of accounting estimates in prep the F/S Other Comprehensive Basis of Accounting - capitalizing invetory - Statement of revs collected and expenses paid
concentration should be disclosed if all 1) different titles for F/S - reporting investments at FV
a) consentration exists at F/S date 2) required equivalent of B/S and I/S Income Tax Basis - prepared using method/principles used to prepare tax returns
b) consentration makes entity vulenerable to near term impact 3) F/S should explain changes in equity Financial Statements for Modified Cash
c) at least reasonably possible that the event will happen 4) statement of CFs is not required - Statement of Assets, Liabs, + Equity (Income Tax Basis)
5) disclosures should be similar to GAAP - Balance Sheet (Income Tax Basis)
Cash to Accrual Detailed View - Statement of revs, exps, & R/E (Income Tax Basis)
Revenue Purchases to COGS Operating Expenses Cash to Accrual Basis - Statement of income (income tax basis)
Cash Basis Revenue Cash paid for purchase Cash paid for OpEx 1) Add increases in current assets
+ Ending A/R + Ending A/P + Ending accrued liab 2) Subtract decreases in current assets Subsequent Event - event that happens after B/S date but before available for issued
- Beginning A/R - Beginning A/P - Begin accrued liab 3) Add decreases in current liabilities Type 1 (recognized): provides additional information about condition that existed at B/S date
- Ending unearned rev - Ending Inventory - Ending prepaid exp 4) Subtract increases in current liabilities Type 2 (not recognized): conditions that did not exist at balance sheet date
+ Begin unearned rev + Begin Inventory + Begin prepaid exp Public Firms → evaluate events until F/S are issued (when widely distributed to users)
Accrual Basis Revenue COGS Accrual OpEx Private Firms → evaluate events until F/S are available (after prepared and finalized)
Full Set of Financial Statements Liquidity and Solvency Basic Earnings Per Share (EPS)
1) Statement of Financial Position (Balance Sheet) Current Assets Income Available to Common Shareholders
Liquidity = Basic EPS =
2) Statement of Earnings (Income Statement) Current Liabilities Weighted Average Number of Common Shares Outstanding
3) Statement of Comprehensive Income Debt Income Available to Common Shareholders = Net Income - Preferred Dividends
Solvency =
4)Statement of Cash Flows Equity Preferred Dividends: Cumulative # of Pref Shares * Par Value * Rate
5)Statement of Owner's Equity Noncumulative Declared
Items in Comprehensive Income Stock dividends and Splits are Retroactively Adjusted
Individual Foreign Transactions P - Pension Adjustment Shares sold/reacquired are based on a time-weighted basis
Direct Method: domestic price of another currency $/€ U - Unrealized G/Ls on AFS
Indirect Method: foreign price of domestic currency €/$ F - Foreign Currency Items Diluted Earnings Per Share (EPS)
Assets Denominated in Foreign Currency I - Instrument Specific Credit Risk Income Available + Interest on Dilutive Securities
Diluted EPS =
Foreign Currency ↑, Asset ↑ Gain Net Income WAOCS (with all securities converted to common stock)
Foreign Currency ↓, Asset ↓ Loss + Other Comprehensive Income Treasury Stock Method - for Options and Warrants Average Price > Strike Price
Liabilities Denominated in Foreign Currency Comprehensive Income # of Shares * Exercise Price
Additional Shares = # of Shares -
Foreign Currency ↑, Liabilities ↑ Loss Average Market Price
Foreign Currency ↓, Liabilities ↓ Gain Items in Comprehensive Income If Converted Method - for Convertible Bonds Sequence from:
Authorized - amt that may be issued 1) add interest expense (net of tax) to the numerator Most Dilutive
Form 10-K Filing Deadlines Issued - stock that's been issued 2) add # of common stock associated to the denominator ↓
60 days for large accelerated filers $700M Market Value Outstanding = Issued - Treasury 3) if issued, assume stock is issued for WACSO Least Dilutive
75 days for accelerated filers $75-$700 MV If Converted Method - for Convertible Preferred Stock
Options and Warrants
+$100M Revenue Book Value Per Common Share 1) adjust numerator; add back pref dividend
are first
90 days for all others Less than 100M Rev Common Shareholders Equity 2) add # of common stock associated to the denominator
Form 10-Q Filing Deadlines Common Shares Outstanding
40 days for large accelerated filers and accelerated filers Common Shareholder Equity Preferred Stock - Equity with Options
45 days for all others Assets - Liabilities - Pref Equity - Dividends Cumulative pref dividends not paid accumulates (as dividends in Arrears)
in arrears Non Cumulative Dividends not paid do not accumulate
Stock Issuance Common Shares Outstanding Participating share with common shareholders in excess of a specific amount
Stock Issued Above Par Fully Particpating participates in excess dividends without limit
Shares issued - Shares Repurchased
DR: Cash Shares * Purchase Price Partially Particpating participates in excess dividends to a percentage limit
CR: Common Stock Shares*Par Value Non-Participating Pref Shareholders are limited to. dividend provided by preference
CR: APIC - C/S Plug Retained Earnings Preference Upon Liquidation must be disclosed if larger than par
Stock Issued At Par Net Income/Loss Convertible May be exchanged by stockholders at a specified amount
DR: Cash Shares*Par Value (Dividends Declared) Callable/Redeemable May be called (repurchased) at a price by the issuing corporation
CR: Common Stock Shares*Par Value ± Prior Period Adjustments
Stock Issued Below Par ± Accounting Changes Retrospective Treasury Stock - Cost Method (used 95% of the time)
DR: Cash Shares * Purchase Price Retained Earnings Treasury shares are recorded and carried at their reacquisition cost
DR: APIC Plug Gains/Loss is determined when it is reissued/retired | G/L = Reissue Price - Repurchase Cost
CR: Common Stock Shares*Par Value Stock Subscription Default Losses: Paid-in Capital Treasury Stock ↓; Excess Retained Earning↓
1) issue stock in proportion to amt paid Gains: Paid-in Capital Treasury Stock ↑
Stock Subscriptions 2) refund the partial payment Original Issue Buy back Above Issue Price
Record Subscriptions Receivable 3) retain the partial payments with APIC DR: Cash Shares * Purchase Price DR: Treasury Stock Shares *Repurchase
DR: Subscription Receivable Shares * Purchase Price CR: Common Stock Shares*Par Value CR: Cash Price
CR: Common Stock Subscribed Shares*Par Value Retirement of Treasury Stock CR: APIC - C/S Plug Reissuing Below Cost
CR: APIC - C/S Plug Retirement of Treasury (Cost Method) Reissuing Above Cost DR: Cash Shares * Purchase Price
Collection of Subscriptions | All payments are included DR: Common Stock Shares * Par DR: Cash Shares * Resale Price DR: APIC - T/S Shares*Par Value
DR: Cash DR: APIC - C/S OG Price - Per*Share CR: Treasury Stock Total Repurchase Price DR: Retained Earnings Plug
CR: Subscription Receivable DR: Retained Earning Plug CR: APIC - T/S Plug CR: Treasury Stock Plug
Issuance of Subscriptions | Only includes fully paid CR: Treasury Stock Repurchase P* Shares
DR: Common Stock Subscribed At Par Retirement of Treasury (Par Method) Treasury Stock - Par/Stated Value Method (used 5% of the time)
CR: Common Stock Issued At Par DR: Common Stock Calculate Gains and Losses immediately upon repurchase
CR: Treasury Stock Shares * Par Value 1) Calculate Gains/Loss = Original Selling Price - Repurchase Price
Dividend Terms 2) Reverse Original entry for Shares Repurchased; Debit Treasury Stock at Par
Date of Declaration - BOD formally approves a dividend Use Fair Market Value on all Property (In 3) Credit Cash Paid
DR: Retained Earnings Kind Dividends) Original Issue Buy back Above Issue Price LOSS
CR: Dividend Payable DR: Cash Shares * Purchase Price DR: Treasury Stock Shares * Par Value
Date of Record - specifies the time names are determined Scrip Dividends are used when there's a CR: Common Stock Shares*Par Value DR: APIC - C/S Plug
Date of Payment - when it is dispersed by the corp cash shortage, Used Notes Payable CR: APIC - C/S Plug DR: Retained Earnings OG Selling P - Repurch
Buy back Below Issue Price GAIN CR: Cash Repurchase
Stock Dividends DR: Treasury Stock Shares * Par Value Reissue Shares
Small Stock Dividends (<20-25%) DR: APIC - C/S Plug DR: Cash Resale Price * Shares
Retained Earnings ↓ by FMV CR: APIC - T/S OG Selling P - Repurch CR: Treasury Stock Shares * Par Value
Large Stock Dividends (>20-25%) CR: Cash Repurchase CR: APIC - C/S Plug
Retained Earnings ↓ by Par Value
, FAR Cheat Sheet Taitel F2: Financial Reporting/Disclosure
Five Step Approach for Revenue Recognition (I am a STAR) Criteria for Identifying Contracts Change in Accounting Estimates (prospective)
1) Identify the contract with the customer • all parties approved the contact 1) It is not an error Prospective Approach
2) Separate Performance Obligations • rights of each party are identified 2) do not Restate prior Years • use new information in current/future years
3) Transaction Price Determination • payment terms are identified 3) Follow Prospective Approach • no effect on prior Retained Earnings
4) Allocate the Transaction Price to each PO • contract has commercial substance Includes To LIFO and Depreciation Method
5) Recognize Revenue • probable collection of consideration
Criteria isn't met but consideration is paid: Change in Accounting Principle (retrospective)
Recognizing Revenue Timing Recognize Rev if the consideration is Change in Accounting Principle - change from one acceptable accounting method to another one
Satisfied Over Time if any of the following is met: nonrefundable and no more POs Rule of Preferability - cannot change principles without justification
1) creates or enhances an asset that the customer controls Retrospective Approach - adjust beginning retained earnings, net of tax
2) customer simultaneously receives and consumes the benefit Contract Modification is a new contract IF: Noncomparative F/S Comparative F/S
3) Does not create an asset with alternative use a) The Scope Increase 1) use new method in year presented 1) Use new method in all years
Output Method - based on the value to customers b) the Price increases 2) find earnings if method was always used 2) calculate the cumulative effect
Input Method - based on the entity's efforts to the satisfaction of PO 3) adjust beginning R/Es net of tax 3) present effect net of tax to beginning R/Es
Satisfied at a Point in Time: recognize when customer obtains control District POs must be: General Rule Exemptions: Changes to LIFO | Change to Depreciation Method
a) customer has accepted the asset 1. are separately identifiable • adjust retained earnings for the cumulative effect net of tax at the beginning or earliest period
b) entity has right to payment and customer has obligation to pay 2. customer can benefit independently • use the new accounting principle for all periods presented
c) transferred physical possession of the asset A transfer is separately identifiable if:
d) customer has legal title to the asset a) does not integrate with others Change in Accounting Entity (retrospective)
e) customer has significant rewards and risks b) does not customize or modify Restate all previous F/Ss presented in comparative F/S along with the Full Disclosure to be made
c) does not depend on or relate to others current year to reflect the information for the new reporting entity with changes in income
Fair Value Not Separately Identifiable POs
Fair Value -the price that would be received to sell an asset or transfer a liab •are highly interrelated or interdependent Error Correction (Prior Period Adjustment)
market based approach Does not Include transaction price • provides a sig service of integrating • Corrections of errors in recognition, measurement, presentation or disclosure resulting from
Non Financial Assets are measured using the Highest and Best Use mathematical mistakes, misapplication of US GAAP, or oversight of facts
Principal Market - market with the greatest volume or activity level FV Valuation Techniques MIC • Changes from a non-GAAP to GAAP method of accounting
• price in that market is the FV measurement, even if there's MVP Market Approach- use price from market Comparative Financial Statements Presented:
Most Advantageous Market - transaction involving comparable financial statements for the year with the error are presented
• best price for the asset/liab after considering transaction costs Income Approach- Discounted Cash Flow correct the error in those prior financial statements
• transaction costs are ignored in FV after the market is determined Model financial statements for the year with the error are NOT presented
adjust (net of tax) the opening retaining earnings of the earliest period presented
Cost Approach- Current Replace Cost
Liquidity Ratios No Comparative Financial Statements Presented
ability to meet short Current Assets reported as an adjustment to the opening balance of retained earnings (net of tax)
term obligations Current Ratio
Current Liabilities Hierarchy of Fair Value Inputs
Cash + ST MS + AR (Net) Level 1 - Observable, Active, and Identical Profitability Ratios
Quick Ratio
Current Liabilities Level 2 - Observable, Quoted Sales (Net) - COGS Net Income
Gross Profit Margin Profit Margin
success of collecting Sales (net) Level 3 - Unobservable and assumption based Sales (Net) Sales (Net)
outstanding A/Rs A/R Turnover
Average A/R (net) Net Income Net Income
Return On Sales Return On Equity
average # of days to Ending A/R Solvency Ratio Average Total Assets Average Total Equity
collect A/R Days Sales in A/R
Sales (net) / 365 Total Liabilities Dupont Return on
Debt-to-Equity =
How quickly inventory COGS Total Equity Asset Profit Margin x Asset Turnover
is sold. HIgher is better Inventory Turnover
Average Inventory Total Liabilities Operating Cash Flow CFs from Operations
Total Debt Ratio =
average # of days to Ending Inventory Total Assets Ratio Current Liabilities
sell inventory Days in Inventory
COGS / 365 Total Assets
# of times trade Equity Multiplier =
COGS Total Equity Performance Metrics
payable turnover A/P Turnover
during a period Average A/P Times Interest EBIT Sales Net Income
average # of days to Days in Payable Ending A/R Earned = Interest Expense Top Down EBITDA - COGS Bottom Up EBITDA + Income Tax/ Interest Expense
collect A/R Outstandings Sales (net) / 365 - Operating Expense +D/A Expenses
Days Sales in A/R+ Days in Inventory - Days in Beginning + End Price Per Share Cash Dividends
Cash Conversion Cycle Average ______ Price to Earnings Ratio Dividend Payout
Payable Outstandings 2 Basic EPS Net Income
Sales (net)
Asset Turnover
Summary of Significant Accounting Policies Remaining Notes to the F/S Average Total Assets
- description of all significant policies included in F/S - contains all other info relevant
First Footnote: general description Examples of Notes Cash Basis of Accounting
Second Footnote: significant accounting policies - material info regarding assets/liab Revenue = When Cash is received Expense = when cash is paid
Disclosure includes - nature of change in SE Cash Basis Financial Statements 2) Statement of Cash Receipts + Disbursements
a) measurment based used in prepping the F/S - require marketable securities 1) Statement of Cash and Equity Receipts (rev received) Disbursements (expense paid)
b) specific accounting prinicpals and methods - FV estimates - cash is only asset; cash = equity + Debt Proceeds -debt/dividend repayment
- contingency G/L - no liabilities are recorded + Asset Sale proceeds - asset purchase payment
Disclosure of Rights and Uncertainty - Pension Plan Description Modified Cash Basis of Accounting
- requires the disclosure of risk/uncertainty that can be relevant - segment disclosure Common Modifications Financial Statements for Modified Cash
footnote describes - change in accounting principals - capitalizing and depreciating fixed assets - Statement of Assets and Liab (Modified Cash Basis)
a) risk and uncertainties around major operations - accural of income taxes - Statement of A&L arising from cash transactions
b) relative importance of each busniess OCBOA Guidelines - recording liabs and related interest - Statement of revs, exps, & R/E (Modified Cash Basis)
c) use of accounting estimates in prep the F/S Other Comprehensive Basis of Accounting - capitalizing invetory - Statement of revs collected and expenses paid
concentration should be disclosed if all 1) different titles for F/S - reporting investments at FV
a) consentration exists at F/S date 2) required equivalent of B/S and I/S Income Tax Basis - prepared using method/principles used to prepare tax returns
b) consentration makes entity vulenerable to near term impact 3) F/S should explain changes in equity Financial Statements for Modified Cash
c) at least reasonably possible that the event will happen 4) statement of CFs is not required - Statement of Assets, Liabs, + Equity (Income Tax Basis)
5) disclosures should be similar to GAAP - Balance Sheet (Income Tax Basis)
Cash to Accrual Detailed View - Statement of revs, exps, & R/E (Income Tax Basis)
Revenue Purchases to COGS Operating Expenses Cash to Accrual Basis - Statement of income (income tax basis)
Cash Basis Revenue Cash paid for purchase Cash paid for OpEx 1) Add increases in current assets
+ Ending A/R + Ending A/P + Ending accrued liab 2) Subtract decreases in current assets Subsequent Event - event that happens after B/S date but before available for issued
- Beginning A/R - Beginning A/P - Begin accrued liab 3) Add decreases in current liabilities Type 1 (recognized): provides additional information about condition that existed at B/S date
- Ending unearned rev - Ending Inventory - Ending prepaid exp 4) Subtract increases in current liabilities Type 2 (not recognized): conditions that did not exist at balance sheet date
+ Begin unearned rev + Begin Inventory + Begin prepaid exp Public Firms → evaluate events until F/S are issued (when widely distributed to users)
Accrual Basis Revenue COGS Accrual OpEx Private Firms → evaluate events until F/S are available (after prepared and finalized)
