Vous êtes sur la page 1sur 89

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

Copyright ©2019 John Wiley & Sons, Inc. 2


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
Copyright ©2019 John Wiley & Sons, Inc. 3
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

Copyright ©2019 John Wiley & Sons, Inc. 4


Learning Objective 1
Review the full disclosure principle and
describe how it is implemented.

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 5


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.

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 6


Full Disclosure Principle
Types of Financial Information

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 7


Full Disclosure Principle
Increase in Reporting Requirements

Reasons:
• Complexity of business environment.
• Necessity for timely information.
• Accounting as a control and monitoring device.

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 8


Full Disclosure Principle
Differential Disclosure

• “Big GAAP versus Little GAAP”.


• FASB has traditionally taken the position that
there should be one set of GAAP.
• FASB is working with an advisory committee to
explore ways that its standards can be more
cost-effective for all companies, regardless of
size.

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 9


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
o first note or
o separate Summary of Significant Accounting Policies
section preceding the notes to the financial statements.

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 10


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.

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 11


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.

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 12


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

LO 1 Copyright ©2019 John Wiley & Sons, Inc. 13


Learning Objective 2
Discuss the Disclosure Requirements for
Related-Party Transactions, Post-Balance-
Sheet Events, Major Business Segments,
and Interim Reporting

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 14


Disclosure Issues (1 of 25)
Disclosure of Special Transactions or Events
• Related Parties
o Nature of the relationship(s) involved.
o A description of the transactions for each of the
periods for which income statements are presented.
o Dollar amounts of transactions for each of the
periods for which income statements are presented.
o Amounts due from or to related parties.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 15


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 16


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 17


Disclosure Issues (4 of 25)
Post-Balance Sheet-Events (Subsequent Events)

1 - Events that provide 2 - Events that provide evidence


additional evidence about about conditions that did not exist
conditions that existed at at the balance sheet date.
the balance sheet date.
LO 2 Copyright ©2019 John Wiley & Sons, Inc. 18
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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 19


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 20


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 21


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 22


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 23


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.
LO 2 Copyright ©2019 John Wiley & Sons, Inc. 24
Disclosure Issues (11 of 25)
Basic Principles
GAAP 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).

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 25


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 26


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.
1. Its revenue is 10 percent or more of the combined revenue of all the
company’s operating segments.
2. 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.
3. Its identifiable assets are 10 percent or more of the combined assets
of all operating segments.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 27


Disclosure Issues (14 of 25)
Identifying Operating Segments
Quantitative Materiality Test: In applying these tests, the company
must consider two additional factors.
1. Segmented results must equal or exceed 75 percent of the
combined sales to unaffiliated customers for the entire
company.
2. FASB decided that 10 is a reasonable upper limit for the number
of segments that a company must disclose.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 28


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.
LO 2 Copyright ©2019 John Wiley & Sons, Inc. 29
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.
LO 2 Copyright ©2019 John Wiley & Sons, Inc. 30
Disclosure Issues (17 of 25)
Segmented Information Reported
1. General information about operating segments.
2. Segment profit and loss and related information.
3. Segment assets.
4. Reconciliations.
5. Information about products and services and
geographic areas.
6. Major customers.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 31


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 32


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 33


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 34


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 35


Disclosure Issues (22 of 25)
Interim Reports
Cover periods of less than one year.
Two viewpoints exist:
1. Discrete approach
2. Integral approach

Companies should use the same accounting principles for


interim reports that they use for annual reports.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 36


Disclosure Issues (23 of 25)
Unique Problems of Interim Reporting
1. Advertising and Similar Costs
2. Expenses Subject To Year-end Adjustment
3. Income Taxes
4. Earnings per Share
5. Seasonality

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 37


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 38


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.

LO 2 Copyright ©2019 John Wiley & Sons, Inc. 39


Learning Objective 3
Identify the Major Disclosures in the
Auditor’s Report and Understand
Management’s Responsibilities for the
Financial Statements

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 40


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 GAAP. Other opinions:
• Qualified
• Adverse
• Disclaim

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 41


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

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 42


Auditor’s and Management’s Reports
Qualified Opinion

Auditor’s Report
Qualified opinion contains an exception to the
standard opinion. Usual circumstances may include:
1. Scope limitation.
2. Statements do not fairly present financial
position or results of operations because of:
a. Lack of conformity with GAAP.
b. Inadequate disclosure.

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 43


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.
1. 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.
LO 3 Copyright ©2019 John Wiley & Sons, Inc. 44
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.

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 45


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.

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 46


Auditor’s and Management’s Reports
PepsiCo Inc. Example

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 47


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.

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 48


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.

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 49


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.

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 50


Auditor’s and Management’s Reports
Home Depot Example

LO 3 Copyright ©2019 John Wiley & Sons, Inc. 51


Learning Objective 4
Identify Reporting Issues Related to
Fraudulent Financial Reporting and
Financial Forecasts

LO 4 Copyright ©2019 John Wiley & Sons, Inc. 52


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.

LO 4 Copyright ©2019 John Wiley & Sons, Inc. 53


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.
LO 4 Copyright ©2019 John Wiley & Sons, Inc. 54
Fraudulent Financial Reporting
Trends in Reported Fraud

A wide range of economic crimes are reported.


LO 4 Copyright ©2019 John Wiley & Sons, Inc. 55
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).

LO 4 Copyright ©2019 John Wiley & Sons, Inc. 56


Fraudulent Financial Reporting
Opportunities

Causes of Fraudulent Financial Reporting


Common opportunities for fraudulent financial reporting
1. Absence of a board of directors or audit committee.
2. Weak or nonexistent internal accounting controls.
3. Unusual or complex transactions.
4. Accounting estimates requiring significant judgment.
5. Ineffective internal audit staffs.

LO 4 Copyright ©2019 John Wiley & Sons, Inc. 57


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.

LO 4 Copyright ©2019 John Wiley & Sons, Inc. 58


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.

LO 4 Copyright ©2019 John Wiley & Sons, Inc. 59


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.
LO 4 Copyright ©2019 John Wiley & Sons, Inc. 60
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.
LO 4 Copyright ©2019 John Wiley & Sons, Inc. 61
Learning Objective 5
Describe the Approach to Financial
Statement Analysis

LO 5 Copyright ©2019 John Wiley & Sons, Inc. 62


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.
1. Know the questions for which you want to find
answers.
2. Know the questions that particular ratios and
comparisons are able to help answer.
3. Match 1 and 2 above. By such a matching, the
statement analysis will have a logical direction and
purpose.
LO 5 Copyright ©2019 John Wiley & Sons, Inc. 63
Appendix 24A: Basic Financial Statement
Analysis (2 of 11)
Perspective on Financial Statement Analysis
Analysis includes an understanding that
1. Financial statements report on the past.
2. Single ratio by itself is not likely to be very useful.
3. Awareness of the limitations of accounting numbers
used in an analysis.

LO 5 Copyright ©2019 John Wiley & Sons, Inc. 64


Learning Objective 6
Identify Major Analytic Ratios and Describe
Their Calculation

LO 6 Copyright ©2019 John Wiley & Sons, Inc. 65


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.

LO 6 Copyright ©2019 John Wiley & Sons, Inc. 66


Appendix 24A: Ratio Analysis
Liquidity

LO 6 Copyright ©2019 John Wiley & Sons, Inc. 67


Appendix 24A: Ratio Analysis
Activity

LO 6 Copyright ©2019 John Wiley & Sons, Inc. 68


Appendix 24A: Ratio Analysis
Profitability

LO 6 Copyright ©2019 John Wiley & Sons, Inc. 69


Appendix 24A: Ratio Analysis
Coverage

LO 6 Copyright ©2019 John Wiley & Sons, Inc. 70


Learning Objective 7
Explain the Limitations of Ratio Analysis

LO 7 Copyright ©2019 John Wiley & Sons, Inc. 71


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.

LO 7 Copyright ©2019 John Wiley & Sons, Inc. 72


Learning Objective 8
Describe Techniques of Comparative
Analysis

LO 8 Copyright ©2019 John Wiley & Sons, Inc. 73


Appendix 24A: Basic Financial Statement
Analysis Comparative Analysis

LO 8 Copyright ©2019 John Wiley & Sons, Inc. 74


Learning Objective 9
Describe Techniques of Percentage Analysis

LO 9 Copyright ©2019 John Wiley & Sons, Inc. 75


Appendix 24A: Basic Financial Statement
Analysis Percentage (Common Size) Analysis

LO 9 Copyright ©2019 John Wiley & Sons, Inc. 76


Appendix 24A: Basic Financial Statement
Analysis Common Size Analysis – Income Statement

LO 9 Copyright ©2019 John Wiley & Sons, Inc. 77


Learning Objective 10
Compare the Disclosure Requirements
Under GAAP and IFRS

LO 10 Copyright ©2019 John Wiley & Sons, Inc. 78


IFRS Insights (1 of 10)
Relevant Facts
Similarities
• GAAP and IFRS 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 GAAP, IFRS 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.

LO 10 Copyright ©2019 John Wiley & Sons, Inc. 79


IFRS Insights (2 of 10)
Relevant Facts
Similarities
• Following the issuance of IFRS 8, “Operating Segments,” the
requirements under IFRS and GAAP are very similar. That is, both
standards use the management approach to identify reportable
segments, and similar segment disclosures are required.
• Neither GAAP nor IFRS 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.

LO 10 Copyright ©2019 John Wiley & Sons, Inc. 80


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

LO 10 Copyright ©2019 John Wiley & Sons, Inc. 81


IFRS Insights (4 of 10)
On The Horizon
Hans Hoogervorst, chairperson of the IASB, 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 IFRSs.” While the United States has yet to adopt IFRS, there is no
question that IFRS and GAAP are converging quickly. We have provided
expanded discussion in the Global Views and IFRS Insights. After reading these
discussions, you should realize that IFRS and GAAP 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, IFRS does not
permit LIFO inventory accounting.

LO 10 Copyright ©2019 John Wiley & Sons, Inc. 82


IFRS Insights (5 of 10)
IFRS Self-Test Questions
Which of the following is false?
a. In general, IFRS note disclosures are more expansive
compared to GAAP.
b. GAAP and IFRS have similar standards on subsequent
events.
c. Both IFRS and GAAP require interim reports although the
reporting frequency varies.
d. Segment reporting requirements are very similar under I
FRS and GAAP.

LO 10 Copyright ©2019 John Wiley & Sons, Inc. 83


IFRS Insights (6 of 10)
IFRS Self-Test Questions
Which of the following is false?
a. In general, IFRS note disclosures are more expansive
compared to GAAP.
b. GAAP and IFRS have similar standards on subsequent
events.
c. Both IFRS and GAAP require interim reports although the
reporting frequency varies.
d. Segment reporting requirements are very similar under I
FRS and GAAP.

LO 10 Copyright ©2019 John Wiley & Sons, Inc. 84


IFRS Insights (7 of 10)
IFRS Self-Test Questions
Subsequent events are reviewed through which date
under IFRS?
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.

LO 10 Copyright ©2019 John Wiley & Sons, Inc. 85


IFRS Insights (8 of 10)
IFRS Self-Test Questions
Subsequent events are reviewed through which date
under IFRS?
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.

LO 10 Copyright ©2019 John Wiley & Sons, Inc. 86


IFRS Insights (9 of 10)
IFRS Self-Test Questions
Under IFRS, 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.
LO 10 Copyright ©2019 John Wiley & Sons, Inc. 87
IFRS Insights (10 of 10)
IFRS Self-Test Questions
Under IFRS, 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.
LO 10 Copyright ©2019 John Wiley & Sons, Inc. 88
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.

Copyright ©2019 John Wiley & Sons, Inc. 89

Vous aimerez peut-être aussi