Financial 1 (Income Statement)

ACCOUTING STANDARDS AND CONCEPTUAL FRAMEWORK Hierarch of Accounting Qualities Benefits > Cost Information must be material with respect to the F/S Understandability understandable to a variety of users who possess a reasonable amount of knowledge about the economy and are willing to understand the material Primary Qualities of Decision Usefulness Relevance Passing Feels Terrific relevant info in decision making process o Predictive Value ability to evaluate past, present, or future events o Feedback Value Decision makers to confirm prior expectations o Timeliness having information available IFRS: 1) predictive value 2) feedback value 3) materiality Reliability Nobody Relies on Financial unless Verified free from error / bias o Neutrality free from bias and free from outside influences o Representational Faithfulness information is valid o Verifiability verifiable, be duplicated w/ the same measurement technique IFRS: 1) Neutrality 2) representational faithfulness 3) Completeness Secondary Characteristics Comparability (Apple vs. Microsoft) o Users to identify similarities and differences Consistency (C/Y vs. P/Y) o Comparing one period w/ another period, consistent accting and procedures INCOME STATEMENT I-D-E-A o Income (or loss) from Continuing Operations (before tax) o Income (or loss) from Discontinued Operations (net of tax) o Extraordinary Items (net of tax) o Cumulative Effect of Change in Accounting Principle (net of tax) Discontinued Operations Held for Sale (all criteria must be met) o 1) Plans to sell a component o 2) Available for immediate sale o 3) Active program to locate buyer o 4) Sale expected to be complete within a year o 5) Being actively marketed Criteria for Liability Recognition o Exit or disposal activities (all must be met) 1) an obligating event has occurred 2) event results in a present obligation to transfer assets or to provide service in the future 3) entity has little or no discretion to avoid future transfers of assets or providing of services Extraordinary Items must be unusual & infrequent o Material in nature o Significantly different from the typical o Not expected to recur in the foreseeable future o Not normally considered

(IFRS doesnt report extraordinary items) Accounting Changes Prospective (i.e. Depr) Changes in accounting estimates o When determined that the estimates used by the company was incorrect o Changes in accting principles that are inseparable from a change in estimate Changes in accounting principle Retrospective o GAAP to GAPP or IFRS to IFRS (non-GAAP to GAAP = ERROR) o Changed only if required by GAAP/IFRS or alternative principle is preferable and more fairly presents the information on the F/S Changes in accounting entity Restate (adjust earliest beg R/E presented) o Occurs when the entity being reported on has changed composition o Non-GAAP to GAAP correction of error as a prior period adj to R/E IFRS does not recognize changes in accounting entity change in equity (net assets) that are not from owner transactions COMPREHENSIVE INCOME P-U-F-E-R Comprehensive income = non-owner transactions o Pension adjustment o Unrealized gains/losses (available for sale securities) o Foreign currency transactions o Effective portion cash flow hedges o Revaluation surplus (IFRS only) SEGMENT REPORTING Quantitative Thresholds for Reportable Segments o 1) 10% Size Test (must only meet one) 10% or more combined revenue of all operating segments 10% or more of profit or loss (absolute value) 10% or more of combined assets of all operating segments o 2) 75% reporting Sufficiency Test additional operating segments need to be identified as reportable segments, even if they do not meet the above 3 tests, until at least 75% of external (consolidated) revenue is included in reportable segments Segment operating profit o Operating profit by segment is based on measure of profit reported to the Chief operating decision maker

FAIR VALUE MEASURES AND DISCLOSURES Principal Market Market w/ greatest volume or level of activity for the asset o Price in the market will be the FV measurement, even if there is a more advantageous price in a different market Most Advantageous Market Mkt w/ the best price for asset after considering trans. Cost o Although trans cost used to determine most advantageous mkt, transaction costs are not included to determine FV measurement

FV Valuation Techniques o Market Approach: use prices from market transaction involving identical or comparable assets or liability o Income Approach: converts future amounts, including cash flow or earnings, to a single discounted amount o Cost Approach: use current replacement cost FV Measurement Framework o Level 1 inputs: active market & identical (comparable) -- Highest Priority o Level 2 inputs: not quite identical but similar (not active) | o Level 3 inputs: unobservable inputs for assets & liabilities -- Lowest Priority

FIRST-TIME ADOPTION OF IFRS Opening IFRS F/S o 3 B/S, 2 Comprehensive stmts, 2 I/S, 2 C/F, 2 Changes in Equity, related notes