Financial Accounting and Accounting StandardsCurrent Reporting Issues
Internet financial reporting
Fraudulent financial reporting
Criteria for accounting and reporting choices
Ch24: Full Disclosure in Financial Reporting
Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation.
Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt.
Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets.
Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees.
Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss:
difference between the actual return and the expected return on plan assets and,
amortization of the unrecognized net gain or loss from previous periods
Chapter 24-*
Full disclosure principle :
Report any financial facts significant enough to influence the judgment of an informed reader.
Implementation issues :
2. Increase in reporting requirements by SEC, FASB
3. Differential disclosure: “Big GAAP vs. Small GAAP”
Full Disclosure Principle
Chapter 24-*
Notes: the means of full disclosure and providing qualitative and supplementary data
Notes to the Financial Statements
Accounting Policies
Companies should present a statement identifying the accounting policies adopted (Summary of Significant Accounting Policies).
Common Notes
Equity Holders’ Claims; Contingencies and Commitments;
Deferred Taxes, Pensions, and Leases
Changes in Accounting Principles
Related-party transactions
(2) Disclosure requirements :SFAS 57
Nature of relationship
Description of transaction
Disclosure Issues
1 - Events that provide additional evidence about conditions that existed at the balance sheet date (Recognized subsequent event) => adjustments to F/S
2 - Events that provide evidence about conditions that did not exist at the balance sheet date (Non-recognized subsequent event) => note disclosure, if necessary
Chapter 24-*
Investors and investment analysts want financial statement information on the individual segments of the company.
Pros and cons: Aggregated information vs. Disaggregated information.
How to disaggregate?: Based on how the company’s operations are managed (Operating Segment).
Chapter 24-*
Disclosure Issues
1. A segment is reportable if it meets any one of:
Revenue test: if its total revenue is 10% or more of the company’s total revenue.
Profit (loss) test: if its profit (loss) is greater than 10% of total profit (loss) for all segments that reported profit (loss).
Asset test: if its assets are 10% or more of all operating segments.
2. Limit of 10 segments and the sales of all the segments must be at least 75% of the company’s total sales.
Chapter 24-*
Interim Reports
Disclosure Issues
2.Two viewpoints exist:
(1) The discrete approach
(2) The integral approach
3. Companies should use the same accounting principles for interim reports that they use for annual reports.
Chapter 24-*
Disclosure Issues
Income taxes
Extraordinary items