Codification Topic 205

Presentation of Financial Statements

Financial Statements
1. Balance Sheet --> Topic 210
2. Income Statement --> Topic 215
3. Statement of Cash Flows --> Topic 230
4. Statement of Shareholder Equity --> Topic 215
5. Notes to Financial Statements --> Topic 235
Codification Topic 210
Balance Sheet


Balance Sheet
Current assets are reported separately from noncurrent assets
Current liabilities are reported separately from noncurrent liabilities

Current assets
--> Assets that are expected to be realized
--> within a year or normal operating cycle, whichever is longer

Current liabilities
--> Liabilities that are expected to liquidate
--> within a year or normal operating cycle, whichever is longer

Regulation S-X: 17 CFR Part 210
Rule 5-02: Balance sheets

Current Assets
5-02.1: Cash and cash items
5-02.2: Marketable securities
5-02.3: Accounts and notes receivable
5-02.4: Allowances for doubtful accounts and notes receivable
5-02.5: Unearned income
5-02.6: Inventories
5-02.7: Prepaid expenses
5-02.8: Other current assets
5-02.9: Total current assets

Noncurrent assets
5-02.12: Other investments
5-02.13: Property, plant and equipment
5-02.14: Accumulated depreciation
5-02.15: Intangible assets
5-02.16: Amortization of intangible assets
5-02.17: Other assets
5-02.18: Total assets

Current liabilities
5-02.19: Accounts and notes payable
5-02.20: Other current liabilities
5-02.21: Total current liabilities

Noncurrent liabilities
5-02.22: Bonds, mortgages and other long-term debt
5-02.24: Other liabilities
5-02.25: Commitments and contingent liabilities

Stockholders' equity
5-02.27: Redeemable preferred stocks
5-02.28: Non-redeemable preferred stocks
5-02.29: Common stocks
5-02.30: Other stockholders' equity
5-02.31: Noncontrolling interests
5-02.32: Total liabilities and equity
Codification Topic 220
Comprehensive Income


Comprehensive Income

SFAS 130, June 1997
"Reporting Comprehensive Income"

Total change in equity = (A) + (B)
(A) Comprehensive Income
(B) Changes in equity due to (B1) and (B2)
(B1) Investments by owners
(B2) Distributions to owners

Comprehensive income = (1) + (2)
(1) Net income
(2) Other comprehensive income (OCI)

Reporting other comprehensive income (OCI)
Three formats
Format 1: Reported in the income statement below net income
Format 2: Reported in the separate statement of comprehensive income
Format 3: Reported in the statement of changes in equity

Format 1 or Format 2 is encouraged
Format 1 or Format 2 is "superior" to Format 3


Items reported as other comprehensive income (OCI)

A. Investments in debt and equity securities
1. Unrealized holding gains and losses
--> on "available for sale" securities

2. Unrealized holding gains and losses
--> due to the transfer from (a) to (b)
(a) held-to-maturity securities
(b) available-for-sale securities

3. The portion of impairment not recognized in earnings
--> for (c) and (d)
(c) available-for-sale debt securities
(d) held-to-maturity debt securities

4. Subsequent increases and decreases
--> in the fair value of available-for-sale securities
--> previously impaired


B. Hedges
5. Gains and losses from the effective portion of cash flow hedges

6. Gains and losses on the hedges of a net investment in foreign operations


C. Pension and other postretirement benefits
7. The portion of gains or losses
--> that is not recognized in net periodic pension cost
--> "corridor approach"

8. Prior service costs or credits in pension

9. Transition assets or obligations in pension
--> not recognized in net periodic pension cost


D. Foreign currency transactions
10. Foreign currency translation adjustments

11. Gains and losses on intra-entity foreign currency transactions
Codification Topic 225
Income Statement


Income attributable to the noncontrolling interest

SFAS 160, December 2007
"Noncontrolling Interests in Consolidated Financial Statements
an Amendment of ARB No. 51"

ARB 51, August 1959
"Consolidated Financial Statements"

1. SFAS 160 amended ARB No. 51

2. On the face of the consolidated financial statements
--> report (A1) and (A2) separately
(A1) Consolidated net income attributable to the parent
(A2) Consolidated net income attributable to the noncontrolling interest

3. On the face of the consolidated financial statements
--> report (B1) and (B2) separately
(B1) Consolidated comprehensive income attributable to the parent
(B2) Consolidated comprehensive income attributable to the noncontrolling interest

4. SFAS 160, Transition
The requirements for presentation and disclosure are
--> applied "retrospectively"
--> for all periods presented

4a. Consolidated net income is adjusted
--> to include net income attributed to the noncontrolling interest

4b. Consolidated comprehensive income is adjusted
--> to include comprehensive income attributed to the noncontrolling interest

4c. Noncontrolling interest is reclassified
--> to equity


Line items of income statement

Regulation S-X: 17 CFR Part 210
Rule 5-03: Income Statements

1. Net sales
2. Cost of sales
3. Selling, general and administrative (SG&A) expenses
4. Provisions for doubtful accounts
5. Non-operating income
6. Interest income and interest expense
7. Non-operating expenses
8. Income before income taxes
9. Income taxes
10. Earnings on equity investments
11. Income from continuing operations
12. Discontinued operations
13. Income before extraordinary items
14. Extraordinary items, net of income tax
15. Net income
16. Net income attributable to the noncontrolling interest
17. Net income attributable to the controlling interest
18. Earnings per share (Basic EPS and Diluted EPS)
Codification Topic 230
Statement of Cash Flows


Statement of Cash Flows

SFAS 95, November 1987
"Statement of Cash Flows"

SFAS 102, February 1989
"Statement of Cash Flows - Exemption of Certain Enterprises and Classification of Cash
Flows from Certain Securities Acquired for Resale - an amendment of FASB Statement No.
95"

Presentation of Cash Flows
1. Statement of cash flows reports (A) by (B)
--> (A) net cash provided or used
--> (B) operating, investing and financing activities
2. For operating activities, (C) is required to be presented
--> (C) Reconciliation of net income and net cash flow
3. Presentation of "Cash Flow per Share" is not allowed

Types of Activities
1. Operating activities
2. Investing activities
3. Financing activities

Operating Activities
1. Cash received from sale of goods or services
2. Cash paid to suppliers and employees
3. Receipt of dividends
4. Receipt of interests
5. Payment of interests
6. Receipt of insurance proceeds
7. Income taxed paid

Investing Activities
1. Acquisition of debt instruments of other entities
2. Sale of debt instruments of other entities
3. Acquisition of equity instruments of other entities
4. Sale of equity instruments of other entities
5. Acquisition of property, plant and equipment
6. Sale of property, plant and equipment
7. Capital expenditures
8. Payment for purchase of another entity

Financing Activities
1. Issuance of equity instruments
2. Payment of dividends
3. Repurchase of equity instruments
4. Proceeds from short-term borrowings
5. Repayment of short-term borrowings
6. Proceeds from issuance of bonds and other long-term borrowings
7. Repayment of bonds and other long-term borrowings

Reporting Operating Activities
1. Direct method
2. Indirect method
3. Direct method is "encouraged"

Direct method reports (1), (2) and (3)
--> (1) major classes of gross cash receipts from operating activities
--> (2) major classes of gross cash payments for operating activities
--> (3) net cash flow from operating activities

Indirect method
Net cash from operating activities = Net income + (4)
--> (4) Adjustments from net income to net cash from operating activities

(4) includes the following:

1. Add non-cash expenses
---> Example: depreciation and amortization

2. Subtract gain on sale of property, plant and equipment
--> Gain on sale of property, plant and equipment is included
--> in cash flows form investing activities

3. Decrease in non-cash current assets --> add
--> Example: collection of accounts receivable
--> decreases non-cash current assets, increases cash,

4. Increase in current assets --> subtract
--> Example: purchase of inventories in cash
--> increases non-cash current assets, decreases cash

5. Decrease in current liabilities --> subtract
--> Example: payment of accounts payable
--> decreases current liabilities, decreases cash

6. Increase in current liabilities --> add
--> Example: increase in accounts payable
--> increases current liabilities, increases cash
Codification Topic 250
Accounting Changes and Error Corrections


Accounting Changes and Error Corrections

SFAS 154, May 2005
"Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20
and FASB Statement No. 3"

Change in accounting principle
1. "Retrospective" application
--> Apply new accounting principle
--> to all prior periods presented
2. At the beginning of the first period presented
--> Cumulative effect will be reflected on the beginning balances
--> of assets, liabilities, and retained earnings
3. Balances of all prior and current periods reflect
--> the effect of change in accounting principle
4. If it is impracticable
--> apply at the beginning of the earliest period possible

Change in accounting estimate
1. "Prospective" application
--> Apply to current and future periods only
2. Do not apply retrospectively
3. Change in depreciation method is
--> a change in accounting estimate
4. If the effects of (A) and (B) are "inseparable"
--> Total amount is considered as (B)
(A) change in accounting principle
(B) change in accounting estimate

Change in reporting entity
1. Retrospective application
--> Apply to all prior periods presented
--> in the financial statements of new reporting entity

Correction of prior-period error
1. Retrospective "restatement"
--> Prior-period financial statements are restated
2. At the beginning of the first period presented
--> Cumulative effect will be reflected on the beginning balances
--> of assets, liabilities, and retained earnings
3. Balances of all prior and current periods reflect
--> the effect of error corrections
4. Materiality of errors is reviewed with reference to
--> the estimated "full fiscal year" income
5. Items material for (C), but not for (D) are
--> disclosed separately in the interim period
(C) interim period
(D) full fiscal year