Wiley GAAP: Financial Statement Disclosure Manual

Joanne M. Flood

• Publisher: Wiley
• Year: 2021
• ISBN:
  9781119365723
• Edition: 1
• Topic: Aides à l'étude
• Subtopic: Guides d'étude CPA

Streamline financial statement preparation with this cross-referenced guide

Financial Statement Disclosures Manual is a natural complement to Wiley GAAP, providing a complete set of tools for statement preparation. This useful reference is formatted in accordance with FASB Accounting Standards Codification® (ASC) schema, with information delineated as Presentation, Assets, Liabilities, Equity, Revenue, Expenses, and Broad Transactions. When used with other Wiley GAAP resources, this arrangement helps users perform additional research and easily find more detailed information on requirements, with disclosures referenced to FASB's ASC. Explicit examples enable easy customization, streamlining the statement preparation process and potentially improving the effectiveness of disclosures with clear presentation of information that is most important to users.

Determining the correct wording and presentation formats for disclosures is a time consuming effort. Standards are continually updated, and the latest changes to revenue recognition impact virtually all financial statements. This book is a guide to enhanced disclosure as standardized by FASB, and works in conjunction with other Wiley GAAP products to provide a complete professional reference.

• Find specific GAAP codification and explanations quickly and easily
• Get up to speed on the latest developments and updates
• Follow references to relevant content in Wiley GAAP and the Disclosure Checklist
• Study expertly-prepared examples to understand GAAP applications

Enhanced disclosure requirements have come about in response to accounting scandals, the proliferation of complicated instruments, and the pressure toward transparency. Keeping abreast of the latest developments – and their applications and requirements – is an essential but time-consuming part of the accountant's role. Financial Statement Disclosures Manual simplifies statement preparation by providing complete disclosures information, cross-referenced to relevant GAAP information and tools.

1
ASC 105 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

1. Authoritative Literature
   1. What Is GAAP?
   2. Accounting Principles and Concepts
      1. Recognition Principles
      2. Disclosure Principles
   3. The Concept of Materiality
   4. Descriptions of Materiality
      1. Quantitative Factors
      2. Qualitative Factors
      3. Degree of Precision
2. Disclosure and Presentation Requirements

AUTHORITATIVE LITERATURE

Accounting Standards Codification (ASC) Topic 105 establishes the FASB Accounting Standards Codification^TM (the Codification) as the source of authoritative GAAP. ASC 105 contains no disclosure or presentation requirements.

What Is GAAP?

The Codification (ASC) is the:

… source of authoritative generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. In addition to the SEC's rules and interpretive releases, the SEC staff issues Staff Accounting Bulletins that represent practices followed by the staff in administering SEC disclosure requirements, and it utilizes SEC Staff Announcements and Observer comments made at Emerging Issues Task Force meetings to publicly announce its views on certain accounting issues for SEC registrants. ASC 105‐10‐05‐1

In the absence of authoritative guidance, the Codification offers the following approach:

If the guidance for a transaction or event is not specified within a source of authoritative GAAP for that entity, an entity shall first consider accounting principles for similar transactions or events within a source of authoritative GAAP for that entity and then consider nonauthoritative guidance from other sources. An entity shall not follow the accounting treatment specified in accounting guidance for similar transactions or events in cases in which those accounting principles either prohibit the application of the accounting treatment to the particular transaction or event or indicate that the accounting treatment should not be applied by analogy. ASC 105‐10‐05‐2

The Codification lists some possible nonauthoritative sources:

• Practices that are widely recognized and prevalent either generally or in the industry
• FASB Concepts Statements
• American Institute of Certified Public Accountants (AICPA) Issues Papers
• International Financial Reporting Standards of the International Accounting Standards Board
• Pronouncements of professional associations or regulatory agencies
• Technical Information Service Inquiries and Replies included in AICPA Technical Practice Aids
• Accounting textbooks, handbooks, and articles
  (ASC 105‐10‐05‐3)

GAAP is concerned with:

• The measurement of economic activity,
• The time when such measurements are to be made and recorded,
• The disclosures surrounding this activity, and
• The preparation and presentation of summarized economic information in the form of financial statements.

Accounting Principles and Concepts

There are two broad categories of accounting principles—recognition and disclosure.

Recognition Principles Recognition principles determine the timing and measurement of items that enter the accounting cycle and impact the financial statements. These are reflected in quantitative standards that require economic information to be reflected numerically.

Disclosure Principles Disclosure principles deal with factors that are not always quantifiable. Disclosures involve qualitative information that is an essential ingredient of a full set of financial statements. Their absence would make the financial statements misleading by omitting information relevant to the decision‐making needs of the reader. Disclosure principles also complement recognition principles by dictating that disclosures:

• Expand on some quantitative data,
• Explain assumptions underlying the numerical information, and
• Provide additional information on accounting policies, contingencies, uncertainties, etc.

These are essential to fully understand the performance and financial condition of the reporting enterprise.

The Concept of Materiality

Chapter 3 of CON 8 discusses how materiality differs from relevance and that materiality assessments can be properly made only by those with an understanding of the entity's facts and circumstances. Following are the relevant passages:

QC11. Relevance and materiality are defined by what influences or makes a difference to an investor or other decision maker; however, these two concepts can be distinguished from each other. Relevance is a general notion about what type of information is useful to investors. Materiality is entity specific. The omission or misstatement of an item in a financial report is material if, in light of surrounding circumstances, the magnitude of the item is such that it is probable that the judgment of a reasonable person relying upon the report would have been changed or influenced by the inclusion or correction of the item.

QC11A. A decision not to disclose certain information or recognize an economic phenomenon may be made, for example, because the amounts involved are too small to make a difference to an investor or other decision maker (they are immaterial). However, magnitude by itself, without regard to the nature of the item and the circumstances in which the judgment has to be made, generally is not a sufficient basis for a materiality judgment.

QC11B. No general standards of materiality could be formulated to take into account all the considerations that enter into judgments made by an experienced reasonable provider of financial information. This is because materiality judgments can properly be made only by those that understand the reporting entity's pertinent facts and circumstances. Whenever an authoritative body imposes materiality rules or standards, it is substituting generalized collective judgments for specific individual judgments, and there is no reason to suppose that the collective judgments always are superior.

Descriptions of Materiality

Materiality has great significance in understanding, researching, and implementing GAAP and affects the entire scope of financial reporting. Disputes over financial statement presentations often turn on the materiality of items that were, or were not, recognized, measured, and presented in certain ways.

Materiality is described by the FASB in Statement of Financial Concepts 8 (CON 8), Qualitative Characteristics of Accounting Information:

Information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. In other words, materiality is an entity‐specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates i...