Accounting Factoids™ are helpful bits of accounting information to lead you in the right direction.
Today’s topic: Presentation of Certain Items on the Balance Sheet
Commitments and contingencies should be referenced on the balance sheet to the explanatory footnote.
Liquidation value of preferred stock is required to be presented on the face of the balance sheet.
Subscriptions receivable may be presented as assets only if cash was received prior to issuing the financials.
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The accounting and financial reporting guidance addressing treasury stock transactions isn’t anything new. But preparers of financial statements raise questions when addressing measurement and disclosure requirements associated with these transactions. Questions arise about how the preparers should consider the authoritative accounting technical literature and various state laws and regulations so that financial statements are prepared properly. The authoritative technical literature addressing accounting issues related to treasury stock transactions is in the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505-30, Treasury Stock. In complying with the accounting technical literature, the reacquisition of shares, any subsequent resale of the shares and any ultimate retirement of the shares depend on the method used in initially reflecting treasury stock transactions in financial statements. Practically, these transactions are reflected in financial statements through use of the cost method, the par value method or the constructive retirement method. The cost method. In using the cost method of accounting for treasury stock transactions, the aggregate cost of shares reacquired is charged to a contra-equity account referred to as treasury stock. Essentially, equity accounts that initially were established upon issuance of the shares remain unchanged. If the shares subsequently are reissued, any proceeds received that are greater than the reacquisition cost are credited to paid-in capital. Any deficiency associated with a reissuance is charged to retained earnings, unless paid-in capital from previous treasury stock transactions exists. In that case, the deficiency would be charged to paid-in capital first before being charged to retained earnings. The cost method frequently is used in practice when reporting entities reacquire their own shares for reasons other than retiring the shares. The method also is popular in practice when reporting entity management has not made decisions as to whether the reacquired shares will be retired, held indefinitely or reissued. The par value method. In using the par value method of accounting for treasury stock transactions, the treasury stock account is charged only for the aggregate par, or stated, value of the reacquired shares. Then, it is important to consider amounts of additional paid-in capital available to absorb any difference between the reacquisition price and the par value of the reacquired shares. To the extent that sufficient paid-in capital is not available to absorb the difference, retained earnings would be charged for the remaining amount. The constructive retirement method. In using the constructive retirement method of accounting for treasury stock transactions, financial statement preparers will notice similarities to using the par value method. The obvious difference between the two methods relates to the initial recording of reacquired treasury shares because the treasury stock account is not used. Rather, as the name of the method implies, the journal entries are assembled in a manner similar to how they would be used if the shares actually were being retired upon reacquisition. When reporting entities are incorporated in states where laws define reacquisition of shares to be retirement of the shares, the constructive retirement method actually is the only one of the three methods that would be consistent with the laws. In fact, in certain jurisdictions, reporting entities are required to use the constructive retirement method in accounting for treasury stock transactions.
The Public Company Accounting Oversight Board plans to hold an open meeting to discuss its proposed regulations calling for greater auditor independence and mandatory rotation of audit firms.
The PCAOB will consider a “concept release” that would solicit public comments on ways to enhance the independence, objectivity and professional skepticism of audit firms. Among the proposals the PCAOB plans to consider is one requiring mandatory audit firm rotation.
With the recent economic downturn still currently in focus, the Financial Accounting Standards Board has noted that creditors have significantly increased the volume of debt they are restructuring or modifying.
Read more at http://news.cpamerica.org/salberg/newsletter/article.asp?a=98
As the Securities and Exchange Commission moves closer to deciding whether to incorporate International Financial Reporting Standards, debate intensifies over how it should — and, more fundamentally, whether it should. Some fear that politics will influence international standards setting. Another argument against the international standards is that accounting transparency in the U.S. has attracted international investors, and it would be foolish to give up that advantage.
PCAOB Issues Concept Release
On Auditor’s Reporting Model
The Public Company Accounting Oversight Board today issued a concept release to discuss alternatives for changing the auditor’s reporting model. The Board also announced that it will convene a public roundtable to discuss the concept release in the third quarter of 2011.
The Public Company Accounting Oversight Board (PCAOB) adopted without material change a proposed temporary rule that establishes an interim inspection program for audits of securities brokers and dealers as permitted by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The board said that insights gained through the interim program will inform the eventual determination of the scope and elements of a permanent program, which the board expects to propose by 2013.
The Securities and Exchange Commission and the Financial Accounting Foundation have released a proposed taxonomy using eXtensible Business Reporting Language that public companies must use while filing U.S. GAAP financial reports in 2011. The SEC is accepting public comments on its proposal until Oct. 30 and plans to release a final mandate early next year.
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