Accounting Standards and Conceptual Frameworks

I. Standard Setting Bodies in the United States In the US, the SEC has the legal authority to establish US generally accepted accounting principles (GAAP). In most instances the SEC has allowed the accounting profession to establish GAAP and self-regulate. Since 1934, the three different bodies of the accounting profession that have determined GAAP since 1934 are: ! ! ! 1. Committee on Accounting Procedure (CAP) 2. Accounting Principles Board (APB) 3. Financial Accounting Standards Board (FASB)

II. US GAAP - FASB Accounting Standards Codication FASB is the current standard in the US. Effective July 1, 2009, the FASB Accounting Standards Codication is the single source of authoritative nongovernmental US GAAP. The FASB Codication is composed of the the following literature by various standard setters: FEDPRIA ! F - Financial Accounting Standards Board a. Statements of Financial Accounting Standards b. Interpretations c. Technical Bulletins d. Staff Positions e. Staff Implementation Guides E - Emerging Issues Task Force D - Derivative Implementation Group Issues P - Accounting Principles Board Opinions R - Accounting Research Bulletins I - Accounting Interpretations A - AICPA

! ! ! ! ! !

The FASB updates the Accounting Standards Codication for new US GAAP issued by the FASB and for amendments to the SEC content with Accounting Standards Updates. Proposed FASB amendments to the ASC are issued for public comment in the form of Exposure Drafts. A majority vote of three Board members is required to approve an Exposure Draft for issuance. At end of the public comment period, the FASB prepares an Accounting Standards Update and majority vote of three Board members is required to amend the ASC. III. International Accounting Standards Board (IASB) When the IASB was created, it adopted the International Accounting Standards (IAS) that had been issued by its predecessor, the Board of the International Accounting Standards Committee. The International Accounting Standards Board (IASB) establishes International Financial Reporting Standards (IFRS). Its purpose is the develop a single set of high quality, global standards.

The International Financial Reporting Interpretations Committee (IFRIC) assists the IASB in establishing and improving standards of nancial accounting and reporting. It provides guidance on newly identied nancial reporting issues not addressed in IFRS and assists the IASB in achieving international convergence of accounting standards. The IASB updates IFRS by generally publishing a discussion paper on a major new topic, although discussion papers are not required. After receiving comments on the paper, the IASB prepares an Exposure Draft. At least nine members must approve an Exposure Draft for issuance. At end of the public comment period, the IASB drafts an IFRS and at least nine members of the IASB must approve the IFRS. IV. International Convergence of Accounting Standards The IASB and the FASB have been working together towards convergence. The goal of convergence is a single set of high quality, international accounting standards that companies can use for both domestic and cross-border nancial reporting. V. Conceptual Frameworks Underlying Financial Accounting The FASB has created the conceptual framework that serves as a basis for all FASB pronouncements. The six Statements of Financial Accounting Concepts (SFAC) are not GAAP, but they provide a basis for nancial accounting concepts for basic reasoning. The IASB has also developed a conceptual framework for IFRS (Framework for the Preparation and Presentation of Financial Statements). A. SFAC No. 1 Objectives of Financial Reporting by Business Enterprises Focus is on informational needs of external users. (Disclose entity's performance) a. Information useful in investment and credit decisions. b. Information useful in assessing future cash ow prospects (Value). c. Information useful in assessing an enterprises resources, the debt and equity claims to those resources and changes in them (Risk/required rate of return). B. SFAC No. 2 Qualitative Characteristics of Accounting Information Focus is on most useful information. Financial information must be a. Understandable to decision makers b. Relevant (Timely with predictive or feedback value) c. Reliable (veriable, faithfully representable, and neutral) d. Comparable e. Consistent f. Material g. Less costly than benet provided 1. Illustration of Hierarchy of Accounting Qualities (see chart in book)

2. Constraints a. Costs and benets - benet of accounting information must be greater than costs of obtaining and presenting. b. Materiality - Information must be material, meaning the information or lack of information could make a difference in decisions made by the users ***(IASB has three constraints - Timeliness, Costs and Benets & Balance Between Qualitative Characteristics)*** 3. Understandability 4. Primary Qualities of Decision Usefulness a. Relevance - Must be relevant (make a difference) to the decision-making process. Quality of relevance has three subcategories i. Predictive Value - has ability to assist users in evaluating past, present or future events ii. Feedback Value - enables decision-makers to conrm prior expectation or adjust or correct the assessment made iii. Timeliness - having information available while it is able to inuence decisions ***(IASB has Predictive Value, Feedback Value & Materiality as subcategories of Relevance)*** b. Reliability - Must be able to reasonably depend on it to be free from error and bias and be faithfully represented of what it claims to represent. Quality of reliability has three subcategories i. Neutrality - free from bias and free from outside inuences ii. Representational Faithfulness - agreement between nancial reporting and resources or events represented. It means information is valid iii. Veriability - means that same results could be duplicated with same measurement techniques ***(IASB has Neutrality, Representational Faithfulness, Substance over Form, Prudence, and Completeness)*** 5. Secondary Characteristics (Apply to BOTH Relevance & Reliability) a. Comparability - quality of information that enables users to identify similarities in and differences between two sets of economic phenomena. It allows user to compare the information with similar information for other business enterprises b. Consistency - In order for users to compare performance of a company in one period with performance of another period, consistent accounting policies and procedures must be applied by the company from period to period. C. SFAC No. 3 Elements of Financial Statements of a Business Replaced by SFAC No. 6 D. SFAC No. 4 Objectives of Financial Reporting by Nonbusiness Organizations 1. Characteristics of Nonbusiness Organizations a. A signicant portion of their resources come from contributions and grants. b. Their operating purposes are other than to provide goods or services for prot c. They lack ownership interests than can be sold, transferred, or redeemed, or that allow a claim on resources upon liquidation.

2. Users of Financial Information of Nonbusiness Organization a. Resource providers, including lenders, suppliers, employees, members, contributors, and taxpayers b. Constituents who use and benet from the services provided by nonbusiness organizations c. Governing and oversight bodies who are responsible for setting policies and for overseeing and evaluating the managers of nonbusiness organizations d. Managers who are responsible for carrying out the policy mandates of the governing bodies and managing the day-to-day operations of the nonbusiness organization 3. Objectives of Financial Reporting of Nonbusiness Organizations a. Information useful in making resource allocation decisions b. Information useful in assessing services and the ability to provide services c. Information useful in assessing management stewardship and performance. d. Information about economic resources, obligations, and net resources, organization performance, the nature of and relationship between inows and outows, service efforts and accomplishments, and liquidity. ***(IASB does not separately consider business and nonbusiness enterprises, but instead provides one framework that applies to all entities)*** E. SFAC No. 5 Recognition and Measurement in the Financial Statements This statement sets forth the recognition criteria and guidance on what and when information should be incorporated in the nancial statements. 1. Full Set of Financial Statements a. Statement of nancial position (balance sheet) b. Statement of earnings (income statement) c. Statement of comprehensive income d. Statement of cash ows e. Statement of changes in owners equity 2. Fundamental Recognition Criteria Recognition is the process of formally recording or incorporating and item in the nancial statements of an entity and classifying it as asset, liability, equity, revenue, or expense a. Denitions b. Measurability c. Relevance d. Reliability 3. Measurement Attributes for Assets and Liabilities a. Historical cost b. Current cost c. Net realizable value d. Current market value e. Present value of future cash ows 4. Fundamental Assumptions

a. Entity Assumption - economic activity can be accounted for when considering an identiable set of activities (i.e. separate corporation, division) b. Going Concern Assumption - presumed entity will continue to operate in foreseeable future c. Monetary Unit Assumption - assumed money is appropriate basis by which to measure economic activity; assumes monetary unit does not change over time, so does effects of ination are not reected in nancial statements d. Periodicity Assumption - economic activity can be divided into meaningful periods e. Historical Cost Principle - nancial information is accounted for and based on cost, not current market value f. Revenue Recognition Principle - revenue should be recognized when it is earned and when it is realized or realizable i. Earned - when entity has substantially accomplished what is must do to be entitled to benets represented by revenues ii. Realized or Realizable - revenues and gains are recognized when products, services, or other assets are exchanged for cash or claims to cash or when related assets received or held are readily convertible to known amounts of cash or claims to cash g. Matching Principle - all expenses incurred to generate a specic amount of revenue in a period are matched against that revenue; does not govern recognition of losses since they result from unusual events h. Accrual Accounting - revenues are recognized when they are earned and expenses are recognized in the same period as related revenue, not necessarily in the period in which the cash is received or expended by the company i. Full Disclosure Principle - important that user be given information that would make a difference in decision making process but not so much information that the user is impeded in analyzing whats important j. Conservation Principle - if in doubt when selecting from alternative GAAP methods, the method that is least likely to overstate assets (and revenues/gains) and understate liabilities (and expenses/losses) in current period should be selected i. Recognize revenues/gains when earnings process is complete (or virtually complete) ii. Recognize expenses/losses immediately ***(IASB outlines only two fundamental assumptions: accrual basis accounting & going concern)*** F. SFAC No. 6 Elements of Financial Statements Elements are the components of the nancial statements. They must be measurable and meet the recognition requirements previously discussed. Ten elements provide information required in objectives stated in SFAC No. 1 1. Comprehensive Income - Includes all differences between beginning equity and ending equity other than transactions with owners (i.e. NI + other comprehensive income)

2. Revenues - inows, enhancements of assets, or reductions of liabilities from delivering goods or services as part of normal operations. Recognize revenue at the gross amount (less allowances for returns and discounts given) 3. Expenses - outows, uses of assets, or incurrence of liabilities from delivering goods or services as part of normal operations 4. Gains - increases in equity from peripheral transactions and other events except revenue and investments from owners 5. Losses - decreases in equity from peripheral transactions and other events except expenses and distributions from owners 6. Assets - probable future economic benets to be received by the company as a result of past transactions or events 7. Liabilities - probable future sacrices of economic benets arising from a present obligation of the company to transfer assets or provide services to other entities in the future as a result of past transactions or events 8. Equity - residual interest in the assets of the company that remains after deducting its liabilities 9. Investment by Owners - increases in assets from transfers of cash, property, or services from owners 10.Distribution to Owners - decreases in assets from transfers of cash, property, or services, or the incurrence of a liability to owners. ***(IASB lists elements as assets, liabilities, equity, income (including revenue & gains), expenses (including expenses & losses), and capital maintenance adjustments (increases/decreases in equity that arise from revaluation or restatement of liabilities therefore, IASB does not include concept of comprehensive income)*** G. SFAC No. 7 Using Cash Flow Information and Present Value in Accounting Measurements Provides framework when using future cash ows as measurement basis for assets & liabilities, especially when factors to consider in measurement are complex. It also sets principle that govern use of present value, especially when timing and/or amount of future cash ows are uncertain. 1. Measurability Based on Future Cash Flows Only Only applies to measurement issues for assets/liabilities that are determined using future cash ow only 2. Five Elements of Present Value Measurement (Asset or Liability) a. Estimate of future cash ow b. Expectations about timing variations of future cash ows c. Time value of money (risk-free rate of interest) d. The price for bearing uncertainty - credit risk e. Other factors (liquidity issues and market imperfections) 3. Fair Value Objective If fair value cannot be determined in the marketplace, objective must be to obtain an estimate of fair value 4. Present Value Computations

a. Traditional Approach (i.e. PV bonds - scheduled known payments) - is used to present value computations when assets/liabilities have contractual cash ows that are not expected to vary. In this approach, interest rate is paramount b. Expected Cash Flow Approach - in more complex cases, uses only the risk-free rate of return as the discount rate and then turns its attention to expected future cash ows, considering uncertainties as adjustments to future cash ows i. Expected Cash Flow (i.e. PV warranties - uncertain future payments) considers range of possible cash ows and assigns a probability to each cash ow in the range to determine the weighted-average, or expected future cash ow ii. Risk and Uncertainty Adjustments to Cash Flows - used in complex present value computations (rather than interest rate adjustments) that are required for uncertainties (i.e. default risk) ***(IASB does not consider use of cash ow information and present value in accounting measurements)***

Income Statement
I. Uses and Terminology Purpose is to provide information about the uses of funds in the income process (expenses), uses of funds that will never be used to earn income (losses), sources of funds created by those expenses (revenues), and the sources of funds not associated with the earnings process (gains). A. Uses of the Income Statement Useful in determining protability, value for investment purposes, and credit worthiness (Performance for period of time) B. Terminology 1. Gross Concept a. Revenues - reported as gross amounts (less allowances for returns and discounts given) b. Expenses - reported as gross amounts 2. Net Concept a. Gains - reported at net amounts; a recognition of an asset either not in the ordinary course of business or without the incurrence of an expense b. Losses - reported at net amounts; a cost expiration either not in ordinary course or business or without the generation of revenue II. Presentation Order of the Major Components of an Income and Retained Earnings Statement Know the IDEA mnemonic: ! Income from Continuing Operations - IS ! Discontinued Operations - IS ! Extraordinary Items - IS ! Accounting Principle Change - RE Reported on Income Statement A. Income (or Loss) from Continuing Operations (individual line items show gross of/ before tax, then total reported net of tax) - includes operating activities (revenues, cogs, selling expenses, and administrative expenses), non-operating activities (other revenues/gains and other expenses/losses), and income taxes B. Income (or Loss) from Discontinued Operations (reported net of tax) C. Extraordinary Items (reported net of tax) - include items that are unusual in nature and infrequent in occurrence) Reported on Statement of Retained Earnings D. Cumulative Effect of Change in Accounting Principle (reported net of tax) cumulative effect (calculated as beginning of earliest period presented in the period of implementation of the new method) of a change from one acceptable method of accounting to another (GAAP to GAAP) because the new method presents the nancial information more fairly than the old method.

Income From Continuing Operations

Income from Continuing Operations Discontinued Operations Extraordinary Items Accounting Principle Change I. Multiple Step Income Statement (see illustration in book) II. Single Step Income Statement (see illustration in book)

Discontinued Operations and Exit or Disposal Activities

Income from Continuing Operations Discontinued Operations Extraordinary Items Accounting Principle Change I. Introduction to Discontinued Operations The loss from discontinued operations can consist of an impairment loss, a gain/loss from actual operations, and a gain/loss on disposal. All of these amounts are included in discontinued operations in the period in which they occur, NOT BEFORE II. Denitions A. Component of an Entity 1. US GAAP a. An operating segment b. A reportable segment c. A reporting segment d. A subsidiary e. An asset group 2. IFRS a. A separate major line of business or geographical area of operations b. A subsidiary acquired exclusively with a view to resale B. Held for Sale All of the following criteria must be met. 1. Management commits to a plan to sell the component 2. Component is available for immediate sale in its present condition 3. Active program to locate a buyer has been initiated 4. Sale of component is protable and sale is expected to be complete within one year 5. Sale of component is being actively marketed 6. Actions required to complete the sale make it unlikely signicant changes to the plan will be made or that the plan will be withdrawn ***(Under IFRS, before a component can be classied as held-for-sale, individual assets and liabilities must be measured in accordance with applicable standards and any resulting gains/losses must be recognized. After classication as held-for-sale, component is reported at lower of carrying value and fair value less costs to sell. US GAAP does not require remeasurement but does trigger an impairment analysis of the component)*** III. Accounting Rules A. Two Conditions that Must be Present 1. Eliminated from Ongoing Operations 2. No Signicant Continuing Involvement B. Discontinued Operations Calculation 1. Result of operations for that component

2. Gain or loss on disposal of component 3. Impairment loss a. Initial and subsequent losses - loss is recognized for recording impairment b. Subsequent increases in fair value - gain is recognized for any subsequent increase in fair value minus costs to sell (not in excess of any previously recognized loss) C. Report in the Period Disposed of or Held for Sale D. Depreciation and Amortization - assets within component no longer depreciated or amortized See example on page 23.

E. Anticipated Future Gains or Losses - gains or losses not previously recognized that result from sale are recognized at date of sale and not before. Gains or losses anticipated to occur in future periods are not recognized until they occur F. Measurement and Valuation - measured at lower of its carrying value or fair value less costs to sell. Costs to sell are the incremental direct costs to transact the sale IV. Exit or Disposal Activities As part of its convergence with IFRS, US GAAP requires recognition of a liability for the costs associated with an exit or disposal activity A. Exit and Disposal Costs 1. Involuntary employee termination benets 2. Costs to terminate a contract that is not a capital lease 3. Other costs associated with exit or disposal activities, including costs to consolidate facilities or relocate employees B. Criteria for Liability Recognition An entitys commitment to an exit or disposal plan, by itself, is not enough to result in liability recognition. All following criteria must be met 1. An obligating event has occurred 2. Event results in a present obligation to transfer assets in the future 3. Entity has little or no discretion to avoid future transfer of assets or providing of services Future operating losses expected to be incurred as part of an exit or disposal activity are recognized in period incurred. C. Liability Measurement - should be at fair value D. Income Statement Preparation - reported in discontinued operations E. Disclosure - disclosed in the notes to the nancial statements

Extraordinary Items
Income from Continuing Operations Discontinued Operations Extraordinary Items Accounting Principle Change I. Extraordinary Items A. Dened 1. Material in nature 2. Of a character signicantly different from the typical or customary business activities 3. Not expected to recur in foreseeable future, and infrequent 4. Not normally considered in evaluating ordinary results of an enterprise B. Examples of Extraordinary Items 1. Abandonment of, or damage, to a plant due to an infrequent earthquake or infrequent ood 2. Expropriation of a plant by the government 3. Prohibition of a product line by newly enacted law or regulation 4. Certain gains/losses from extinguishment of long-term debt, provided not part of entitys recurring operations and, thus, meet criteria of unusual and infrequent C. Examples of Nonextraordinary Items (presented as separate component of continuing operations) 1. Gain or loss from sale or abandonment of property, plant or equipment used in the business 2. Large write-downs or write-offs 3. Gain/loss from foreign currency transactions or translations 4. Losses from major strike by employees 5. Long-term debt extinguishments that are part of common management strategy ***(IFRS prohibits reporting of any amount as extraordinary on IS or notes to nancials)***

Accounting Changes and Error Corrections

Income from Continuing Operations Discontinued Operations Extraordinary Items Accounting Principle Change I. General Accounting changes are broadly classied as: 1. Changes in accounting estimate (prospective) 2. Changes in accounting principle (retrospective) 3. Changes in accounting entity (restate) II. Changes in Accounting Estimate Do not restate prior periods A. Events Resulting in Estimate Changes 1. Changes in lives of xed assets (includes depreciate estimates) 2. Adjustments of year-end accrual of ofcers salaries and/or bonuses 3. Write-downs of obsolete inventory 4. Material non-recurring IRS adjustments 5. Settlement of litigation 6. Changes in accounting principles that are inseparable from a change in estimate (to LIFO or change in depreciation) *If change in accounting estimate affects several future periods, the effect should be disclosed in the notes to the nancials. If not, do not have to be disclosed unless they are material. Look at example on page 29

III. Changes in Accounting Principle Adjust retained earnings A. Rule of Preferability - change only if required by GAAP/IFRS or if alternative principle is preferable and more fairly represents the information B. Effects of Change 1. Direct Effects - are adjustments that would be necessary to restate nancial statements of prior periods 2. Cumulative Effect - If non-comparative nancial statements presented, cumulative effect is equal to difference between beginning retained earnings in period of change and what the retained earnings would have been if the accounting change had been retroactively applied to all prior affected periods. If comparative nancial statements presented, cumulative effect is equal to difference between beginning retained earnings in rst period presented and what the retained earnings would have been if the accounting change had been retroactively applied to all prior affected periods. Look at example on page 31

C. Reporting Changes in Accounting Principle The general rule is to adjust retained earnings in the earliest period presented for the cumulative effect of the change and, if prior period nancial statements are presented, they should be restated. 1. Exception to General Rule a. Impracticable to Estimate b. Change in Depreciation Method 2. Applications of General Rule - amount of cumulative effect is the difference between a. Retained earnings at the beginning of earliest period presented, and b. Retained earnings that would have been reported at the beginning of earliest period presented if the new accounting principle that been applied retrospectively for all prior periods IV. Changes in Accounting Entity If change in accounting entity occurs (change composition), all previous nancial statements presented in comparative nancial statements along with current year should be restated to reect the information for the new reporting entity. Full disclosure should be made of the cause and nature of the change ***(IFRS does not include concept of a change in accounting entity)*** V. Error Correction Error Corrections include errors in recognition, measurement, presentation or disclosure in nancial statements resulting from mathematical mistakes A. Accounting 1. Comparative Financial Statements Presented a. Correct the Information, if Year of Error is Presented b. Adjust Beginning Retained Earnings of Earliest Year Presented, if Year is Not Presented 2. Comparative Financial Statements Not Presented a. Adjust opening balance of retained earnings for current year ***(Under IFRS, when impracticable to determine cumulative effect of an error the entity is required to restate information prospectively from earliest date that is practicable. US GAAP does not)*** See Example on page 34

Comprehensive Income
Pension adjustments Unrealized gains and losses (available-for-sale securities) Foreign currency items Effective portion cash ow hedges Revaluation surplus (IRFS) I. Denition A. Comprehensive Income - change in equity of a business enterprise during a period from transactions and other events from non-owner sources. It includes all changes in equity during a period except those resulting from investments made by owners and distributions to owners. Net Income (IDE) + Other Comprehensive Income (PUFER) Comprehensive Income B. Net Income 1. Income from Continuing Operations 2. Discontinued Operations 3. Extraordinary Items C. Other Comprehensive Income 1. Pension adjustments 2. Unrealized gains and losses (available-for-sale securities) 3. Foreign currency items 4. Effective portion cash ow hedges 5. Revaluation surplus (IRFS) D. Reclassication Adjustments - Reclassication adjustments move other comprehensive income items from accumulated other comprehensive income to the income statement. These adjustments may be displayed on the face of the income statement or disclosed in the notes to the nancial statements. II. Financial Statement Reporting Under GAAP, comprehensive income may be presented in 1. A single statement of comprehensive income (US/IFRS) 2. An income statement followed by separate statement of comprehensive income that begins with net income (two statement approach) (US/IFRS) 3. A statement of changes in equity (US only) See illustrations on page 37 & 38 See Other Reporting Issues on page 39

Balance Sheet and Disclosures Overview

I. Balance Sheet Overview (see page 40) II. Notes to Financial Statements A. Summary of Signicant Accounting Policies Both US GAAP and IFRS require a description of all signicant policies be included as an integral part of nancial statements. ***(IFRS requires explicit and unreserved statement of compliance with IRFS in notes to nancial statements. US GAAP does not)*** Policies should 1. Identify and describe a. Measurement basis used in preparing nancial statements b. Accounting principles and methods c. Criteria (such as determining which investments treated as cash equivalents) d. Policies e. Pricing 2. Accounting policies commonly described in this footnote: a. Basis of consolidation b. Depreciation methods c. Amortization of intangibles d. Inventory pricing e. Accounting for recognition of prot on long-term construction contracts f. Recognition of revenue from franchising or leasing operations 3. Items not included in this footnote: a. Composition of accounts and amounts in dollars b. Details relating to change in accounting principles c. Dates and maturity and amount of long-term debt d. Yearly computation of depreciation, depletion, amortization B. Remaining Notes to the Financial Statements The remaining notes contain all other information relevant to decision makers. Examples include: 1. Changes in stockholders equity 2. Required marketable securities disclosures 3. Contingency losses 4. Contractual obligations (off BS nancing - operating leases) 5. Pension plan description 6. Post-balance sheet disclosures 7. Discontinued segment - outside ordinary course of business See Related Party Disclosures on page 42 - 46

Interim Financial Reporting

I. General Interim nancial reporting is not required under US GAAP or IFRS. II. Matching of Revenues and Expenses The general rule is that costs and expenses that clearly benet more than one period should be properly allocated the to the periods affected. Revenues should be recognized in the period in which they were earned and realized or realizable. Also, a total for comprehensive income of interim periods issues to shareholders shall be reported. III. Timeliness over Reliability - unaudited IV. An Integral Part of Annual Financial Statements V. Income Taxes Income tax expenses is estimated each quarter. The general rule is to multiply the year to date income by the estimated effective tax rate and subtract the result from the provision included in the previous quarter. The estimate of the effective tax rate is expected to be applicable for the full scal year should reect all tax planning alternatives including foreign taxes, percentage depletion, capital gains rate, and anticipated investment tax credits. VI. Interim Inventory Valuation A. Inventory Estimation Methods B. Liquidation of a LIFO Base Layer (US GAAP only) C. Permanent and Temporary Declines in Market Value 1. Permanent inventory losses from market declines should be reected in interim period in which they occur. Market increases in subsequent periods should be recognized in recovery interim period not to exceed losses included in prior interim periods 2. Temporary market declines that are expected to reverse before end of the annual period should not be recognized in the interim period statements.

Segment Reporting
I. General In general, an enterprise is required to disclose segment prot or loss, segment assets, and certain related items, but is not required to report segment cash ow. ***(IRFS required disclosure of segment liabilities if such a measure is regularly provided to chief operating ofcer. US GAAP does not require this)*** A. Required Disclosure for all Public Enterprises 1. Operating segments 2. Products and Services 3. Geographic areas 4. Major customers B. Use Same Accounting Principles as Main Financial Statements C. Intercompany Transactions Not Eliminated for Reporting D. Scope (public companies only) II. Operating Segments A. Denition An operating segment is a component of an enterprise: 1. That engages in business activities from which it may earn revenues and incur expenses 2. Whose operating results are regularly reviewed by enterprisess chief operating decision maker to make decisions about resources allocated to the segment and to assess performance 3. For which discrete nancial information is available B. Not Every Enterprises is an Operating Segment 1. Corporate Headquarters Not an Operating Segment 2. Pension Plan Not an Operating Segment C. Segment Prot or Loss Dened 1. Formula ! ! Revenues ! ! Less: Directly traceable costs ! ! Less: Reasonably allocated costs ! ! Operating Prot (or Loss) 2. Items Normally Excluded from Segment Prot (or Loss) a. General corporate revenues b. General corporate expenses c. Interest expense (except for nancial institutions) d. Income taxes e. Equity in earnings and losses of unconsolidated subsidiary f. Gains or losses from discontinued operations g. Extraordinary items h. Minority interest D. Quantitative Thresholds for Reportable Segments 1. 10% Size Test

a. Revenue - 10% or more of the combined revenue (both internal and external customers) b. Reported Prot or Loss - 10% or more of combined reported prot of all segments that did not report a loss, or 10% or more of combined reported loss of all segments that did report a loss c. Assets- 10% or more of combined assets of all operating segments 2. 75% Reporting Sufciency Test - if total of external (consolidated) revenue reported by operating segments constitutes less than 75% of external (consolidated) revenue, additional operating segments need to be identied even if they do not meet the above three tests, until at least 75% of external (consolidated) revenue is included in reportable segments. See pages 54-56 Major customers - an enterprise that generates 10% or more of its revenue from sales to a single customer must disclose that fact, the total amount from each such customer, and the identity of the segment reporting the revenues. The identity of the major customer need not be disclosed.

Development - Stage Enterprises (US GAAP)

I. Overview Under US GAAP, a development-stage enterprise is one in which either: 1. Principle operations have not yet commenced, or 2. Principle operations have generated an insignicant amount of revenue (or a loss) During developmental stage, start-up/organizational costs should be expensed immediately under GAAP II. Disclosure Balance sheet, income statement, statement of cash ows should show cumulative amounts.

Fair Value Measurements and Disclosures

I. Key Facts a. Fair value does not include transaction costs, but may include transportation costs if location is an attribute of the asset or liability b. Fair value assumes the highest and best use of the asset c. An orderly transaction - not a re sale II. Terminology A. Principle Market - market with greatest volume or level of activity for the asset. If there is a principle market, then this price will be the fair value measurement, even if there is a more advantageous price in a different market B. Most Advantageous Market - market with best price for asset or liability, after considering transactions costs; to be used if not principle market, and although transactions costs are used to determine the most advantageous market, they are not included in the nal fair value measurement See illustration on page 59

III. Fair Value Measurement Framework A. Valuation Techniques 1. Market Approach - uses prices and other relevant information from market transactions involving identical or comparable assets or liabilities to measure fair value 2. Income Approach - converts future amounts, including cash inows and earnings, to a single discounted amount to measure fair value 3. Cost Approach - uses current replacement costs to measure fair value of assets B. Hierarchy of Inputs 1. Level 1 - most reliable, quoted in active markets for identical assets or liabilities 2. Level 2 - less reliable than level 1, quoted in not active markets for identical or similar assets or liabilities 3. Level 3 - least reliable, go off of best available information IV. Exceptions to Fair Value Measurement A. Not practical to measure fair value B. Cannot be reasonably determined C. Cannot be measured with sufcient reliability

First-Time Adoption of IFRS

An entitys rst IFRS nancial statements must include at least three balance sheets (end of current period, end of prior period, and beginning of prior period), two statements of comprehensive income, two income statements (if using two-statement approach), two statements of cash ows, two statements of changes in equity, and related notes. ***B/S = 3, all others = 2*** The date of transition to IFRS is the date of the opening balance sheet. If three balance sheets are presented, this is the date of beginning of the prior period. In its opening IFRS balance sheet, an entity should recognize all assets and liabilities required by IFRS and should apply IFRS in measuring and classifying all recognized assets and liabilities. Adjustments needed to restate assets and liabilities in conformity with IFRS should be made directly to retained earnings at the date of transition to IFRS. An entity should also disclose how the transition from GAAP to IFRS affected its reported nancial position, nancial performance and cash ows. The disclosure should include: 1. A reconciliation of its equity from GAAP to IFRS 2. A reconciliation of total comprehensive income in accordance with IFRS