External Financial Reporting Decisions

• Current = expected to be realized, sold or consumed within one year or one operating cycle, whichever is longer.
• US GAAP usually lists the most liquid assets first; IFRS statements often list noncurrent items first.
• Measurement is mixed: historical cost, fair value, net realizable value and present value all appear.
• Equity = common and preferred stock, APIC, retained earnings, accumulated other comprehensive income, less treasury stock. AOCI holds unrealized gains/losses on available-for-sale debt securities, foreign-currency translation, pension adjustments and the effective portion of cash-flow hedges.
• Limitations: historical cost differs from fair value; internally generated intangibles (brands, people) are missing; many estimates.

• Extraordinary items no longer exist under US GAAP (ASU 2015-01); IFRS never allowed them. Unusual or infrequent items are shown within continuing operations.
• Comprehensive income may be one continuous statement or two consecutive statements.

• Both methods give the same operating cash flow. The direct method shows receipts and payments and still requires the indirect reconciliation as a disclosure.
• Noncash investing and financing activities (equipment for a note, bond conversion) are disclosed separately, not in the statement.
• Cash equivalents have an original maturity of three months or less when purchased.

• The liability for a cash dividend arises on the declaration date; the record date needs no entry; the payment date settles it.
• Small stock dividend (below about 20–25%): transfer fair value from retained earnings. Large: transfer par value.
• A stock split changes the number of shares and par value per share only; no entry, no change in any equity account.

The FASB conceptual framework states what makes information useful to investors and lenders. Its qualitative characteristics come up as "which characteristic does this describe?" questions.

An integrated report is a concise communication about how an organization's strategy, governance, performance and prospects create value over the short, medium and long term. The framework (originally from the IIRC, now maintained by the IFRS Foundation) is principles-based and aimed mainly at providers of financial capital.

• Guiding principles: strategic focus and future orientation, connectivity of information, stakeholder relationships, materiality, conciseness, reliability and completeness, consistency and comparability.
• Content elements: organizational overview and environment, governance, business model, risks and opportunities, strategy and resource allocation, performance, outlook, basis of preparation.

Receivables are reported at the amount expected to be collected. Under the current expected credit loss model (CECL), the allowance reflects lifetime expected losses, often estimated with an aging schedule or loss rates.

• LIFO is prohibited under IFRS. A US company using LIFO for taxes must use it for financial reporting (LIFO conformity rule).
• Write-downs are expensed. US GAAP never reverses them; IFRS reverses up to original cost if NRV recovers.
• Ownership decides inclusion: FOB shipping point goods in transit belong to the buyer; FOB destination to the seller; consigned goods stay in the consignor's inventory.

• Capitalize every cost needed to bring the asset to its location and working condition: price, freight-in, installation, testing, site preparation, and interest during construction.
• Expense ordinary repairs, maintenance, training, and relocation after the asset is in use.

• Finite-life intangibles are amortized and tested when indicators arise; indefinite-life intangibles and goodwill are not amortized but tested at least annually.
• US GAAP goodwill test: compare the reporting unit's fair value with its carrying amount; the loss is the excess, limited to the goodwill.
• R&D is expensed under US GAAP (exceptions: software after technological feasibility; R&D acquired in a business combination). IFRS capitalizes development costs that meet its criteria.

• If a range is estimable with no best estimate, US GAAP accrues the minimum of the range; IFRS uses the midpoint.
• IFRS calls accrued contingencies provisions and accrues when an outflow is "more likely than not" (above 50%), a lower bar than US GAAP's "probable".
• Gain contingencies are never recognized until realized; they may be disclosed.

A lessee records a right-of-use asset and a lease liability for every lease longer than 12 months, measured at the present value of the lease payments. US GAAP then classifies each lease as finance or operating; IFRS 16 uses a single (finance-type) model.

• Finance lease if any test is met: ownership transfers; a purchase option is reasonably certain to be exercised; the lease term is a major part of economic life (about 75%); the PV of payments is substantially all of fair value (about 90%); the asset is so specialized that it has no alternative use.
• Finance lease: interest on the liability + straight-line amortization of the asset, so expense is front-loaded. Principal is a financing cash outflow.
• Operating lease: a single straight-line lease cost; all payments are operating cash outflows.

• Temporary differences reverse: tax depreciation faster than book creates a deferred tax liability; warranty or bad-debt expenses deducted for tax only when paid create a deferred tax asset.
• Permanent differences never reverse (municipal bond interest, fines, nondeductible expenses). They change the effective rate but create no deferred tax.
• A valuation allowance reduces a DTA when it is more likely than not (above 50%) that some of it will not be realized.
• Deferred tax balances are classified as noncurrent.

• Issued shares: par value to common stock, the excess to APIC. Issue costs reduce APIC.
• Treasury stock (cost method): debit treasury stock at cost. On reissue above cost, credit APIC–treasury; below cost, debit APIC–treasury then retained earnings.
• Preferred stock that is mandatorily redeemable is a liability, not equity.

1. Identify the contract: approved, rights and payment terms identifiable, commercial substance, collection probable.
2. Identify the performance obligations: goods or services that are distinct (capable of being distinct and separately identifiable).
3. Determine the transaction price: include variable consideration (expected value or most likely amount, constrained so a significant reversal is not probable), significant financing components, noncash consideration, and consideration payable to the customer.
4. Allocate the price to the obligations on relative stand-alone selling prices.
5. Recognize revenue when (or as) each obligation is satisfied, i.e. when control transfers.

• Over time if any one holds: the customer receives and consumes the benefit as the entity performs; the entity's work creates or enhances an asset the customer controls; the asset has no alternative use and the entity has an enforceable right to payment for work to date.
• Otherwise at a point in time. Indicators of control: right to payment, legal title, physical possession, risks and rewards, acceptance.
• Contract asset: revenue recognized before the right to payment is unconditional. Receivable: unconditional right. Contract liability: cash received before performance.
• A principal controls the good before transfer and reports revenue gross; an agent reports only its commission (net).
• Incremental costs of obtaining a contract (sales commissions) are capitalized and amortized; they may be expensed if the amortization period is a year or less.

• A discontinued operation is a component (or group) that has been disposed of or is held for sale and represents a strategic shift with a major effect on operations and results (e.g. a major line of business or geographic area).
• Its operating results for the period and any gain or loss on disposal are shown net of tax, below income from continuing operations; prior periods shown are reclassified.
• Assets held for sale are measured at the lower of carrying amount and fair value less costs to sell, and are no longer depreciated.

• Weight shares issued or repurchased by the fraction of the year they were outstanding.
• Stock splits and stock dividends are applied retroactively to all earlier shares (and to prior-year EPS shown), as if they had always existed.
• EPS is required on the face of the income statement for public companies, for both continuing operations and net income.

Include each potential common share only if it lowers EPS. Rank the securities by their incremental EPS (numerator effect ÷ added shares), add them from the most dilutive, and stop adding any that would raise EPS (antidilutive).