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Accountants' Handbook Volume One: Financial Accounting and General Topics, Eleventh Edition

Book Description

This highly regarded reference is relied on by a considerable part of the accounting profession in their day-to-day work. This handbook is the first place many accountants look to find answers to practice questions. Its comprehensive scope is widely recognized and relied on. It is designed as a single reference source that provides answers to all reasonable questions on accounting and financial reporting asked by accountants, auditors, bankers, lawyers, financial analysts, and other preparers and users of accounting information.

Table of Contents

  1. Copyright
  2. ABOUT THE EDITORS
  3. ABOUT THE CONTRIBUTORS
  4. PREFACE
  5. 1. FINANCIAL ACCOUNTING REGULATIONS AND ORGANIZATIONS
    1. 1.1. THE SOCIAL ROLE OF FINANCIAL ACCOUNTING
      1. 1.1.1. (a) THE OBJECTIVE OF FINANCIAL ACCOUNTING.
      2. 1.1.2. (b) AN ECONOMY-WIDE PERSPECTIVE.
        1. 1.1.2.1. (i) From Society's Well-Being to the Financial Statements.
        2. 1.1.2.2. (ii) Market Efficiency.
      3. 1.1.3. (c) THE PARTICIPANTS IN THE FINANCIAL REPORTING SYSTEM.
      4. 1.1.4. (d) TYPES OF REGULATIONS FOR ACCOUNTANTS.
        1. 1.1.4.1. (i) Standards for Practice.
        2. 1.1.4.2. (ii) Standards for Competency.
        3. 1.1.4.3. (iii) Standards for Behavior.
      5. 1.1.5. (e) REGULATORY AGENCIES AND ORGANIZATIONS.
        1. 1.1.5.1. (i) Governmental Agencies.
        2. 1.1.5.2. (ii) Accounting Standard Setting Organizations.
        3. 1.1.5.3. (iii) Professional Societies.
    2. 1.2. GOVERNMENTAL AGENCIES
      1. 1.2.1. (a) SECURITIES AND EXCHANGE COMMISSION.
        1. 1.2.1.1. (i) Background of the Securities and Exchange Commission.
        2. 1.2.1.2. (ii) Structure of the Securities and Exchange Commission.
        3. 1.2.1.3. (iii) Division of Corporation Finance.
        4. 1.2.1.4. (iv) Office of the Chief Accountant.
        5. 1.2.1.5. (v) Division of Enforcement.
        6. 1.2.1.6. (vi) Regulations and Publications.
        7. 1.2.1.7. (vii) Summary.
      2. 1.2.2. (b) SARBANES-OXLEY ACT OF 2002 AND THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD.
        1. 1.2.2.1. (i) Public Company Accounting Oversight Board.
        2. 1.2.2.2. (ii) Auditor Independence.
        3. 1.2.2.3. (iii) Corporate Responsibility.
        4. 1.2.2.4. (iv) Enhanced Financial Disclosures.
        5. 1.2.2.5. (v) Corporate and Criminal Fraud Accountability.
        6. 1.2.2.6. (vi) White-Collar Crime Penalty Enhancements.
        7. 1.2.2.7. (vii) Corporate Tax Returns.
        8. 1.2.2.8. (viii) Corporate Fraud and Accountability.
      3. 1.2.3. (c) STATE BOARDS OF ACCOUNTANCY.
    3. 1.3. STANDARD-SETTING ORGANIZATIONS
      1. 1.3.1. (a) FINANCIAL ACCOUNTING STANDARDS BOARD.
        1. 1.3.1.1. (i) Brief History.
        2. 1.3.1.2. (ii) Structure of the Financial Accounting Standards Board.
        3. 1.3.1.3. (iii) Board Publications.
        4. 1.3.1.4. (iv) Due Process Procedures.
        5. 1.3.1.5. (v) The Conceptual Framework.
        6. 1.3.1.6. (vi) The Political Environment and the Financial Accounting Standards Board's Future.
      2. 1.3.2. (b) GOVERNMENTAL ACCOUNTING STANDARDS BOARD.
        1. 1.3.2.1. (i) The Structure of the Governmental Accounting Standards Board.
        2. 1.3.2.2. (ii) The Jurisdiction Issue.
    4. 1.4. PROFESSIONAL ORGANIZATIONS
      1. 1.4.1. (a) AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS.
        1. 1.4.1.1. (i) Structure.
        2. 1.4.1.2. (ii) Technical Standards.
        3. 1.4.1.3. (iii) Examinations.
    5. 1.5. SUMMARY
    6. 1.6. SOURCES AND SUGGESTED REFERENCES
  6. 2. THE FRAMEWORK OF FINANCIAL ACCOUNTING CONCEPTS AND STANDARDS
    1. 2.1. FINANCIAL ACCOUNTING AND REPORTING
      1. 2.1.1. (a) THE FINANCIAL ACCOUNTING STANDARDS BOARD AND GENERAL PURPOSE EXTERNAL FINANCIAL ACCOUNTING AND REPORTING.
      2. 2.1.2. (b) MANAGEMENT ACCOUNTING AND TAX ACCOUNTING.
    2. 2.2. WHY WE HAVE A CONCEPTUAL FRAMEWORK
      1. 2.2.1. (a) Special Committee on Cooperation with Stock Exchanges.
        1. 2.2.1.1. (i) "Accepted Principles of Accounting."
          1. 2.2.1.1.1. But Were They "Principles"?.
          2. 2.2.1.1.2. May's Attempts to Rectify "Considerable Misunderstanding".
          3. 2.2.1.1.3. The Special Committee's Definition of "Principle".
        2. 2.2.1.2. (ii) The Best Laid Schemes.
          1. 2.2.1.2.1. The Special Committee's Heritage.
        3. 2.2.1.3. (iii) Securities Acts and the Securities and Exchange Commission—"Substantial Authoritative Support".
      2. 2.2.2. (b) COMMITTEE ON ACCOUNTING PROCEDURE, 1938–1959.
        1. 2.2.2.1. (i) No Comprehensive Statement of Principles by Institute.
          1. 2.2.2.1.1. Statements of Accounting Principles by Others.
          2. 2.2.2.1.2. American Accounting Association's Theoretical Basis for Accounting Rules and Procedures.
          3. 2.2.2.1.3. Sanders, Hatfield, and Moore's Codification of Accounting Practices.
          4. 2.2.2.1.4. Sets of Principles by Individuals.
          5. 2.2.2.1.5. Principles from Resolving Specific Problems.
        2. 2.2.2.2. (ii) The Accounting Research Bulletins.
          1. 2.2.2.2.1. Piecemeal Principles Based on Practice, Experience, and General Acceptance.
          2. 2.2.2.2.2. Challenges to the Committee's Authority.
          3. 2.2.2.2.3. Influence of the Securities and Exchange Commission.
          4. 2.2.2.2.4. Decision to Issue Principles Piecemeal Reaffirmed.
          5. 2.2.2.2.5. Influence of the American Accounting Association.
          6. 2.2.2.2.6. "All-Inclusive Income" versus "Avoiding Distortion of Periodic Income".
          7. 2.2.2.2.7. "Matching of Costs and Revenues" and "Assets Are Costs".
        3. 2.2.2.3. (iii) Failure to Reduce the Number of Alternative Accounting Methods.
      3. 2.2.3. (c) ACCOUNTING PRINCIPLES BOARD—1959–1973.
        1. 2.2.3.1. (i) Postulates and Principles.
        2. 2.2.3.2. (ii) The Accounting Principles Board, the Investment Credit, and the Seidman Committee.
          1. 2.2.3.2.1. Accounting Principles Board Statement 4.
        3. 2.2.3.3. (iii) The End of the Accounting Principles Board.
      4. 2.2.4. (d) THE FINANCIAL ACCOUNTING STANDARDS BOARD FACES DEFINING ASSETS AND LIABILITIES.
        1. 2.2.4.1. (i) Were They Assets? Liabilities?.
          1. 2.2.4.1.1. Assets, Liabilities, and What-You-May-Call-Its.
          2. 2.2.4.1.2. Proper Matching to Avoid Distorting Periodic Net Income.
        2. 2.2.4.2. (ii) Nondistortion, Matching, and What-You-May-Call-Its.
          1. 2.2.4.2.1. Nondistortion and the Balance Sheet as Footnote.
          2. 2.2.4.2.2. Proper Matching and "Assets Are Costs".
        3. 2.2.4.3. (iii) An Overdose of Matching, Nondistortion, and What-You-May-Call-Its.
        4. 2.2.4.4. (iv) Initiation of the Conceptual Framework.
    3. 2.3. THE FINANCIAL ACCOUNTING STANDARDS BOARD'S CONCEPTUAL FRAMEWORK
      1. 2.3.1. (a) THE FRAMEWORK AS A BODY OF CONCEPTS.
        1. 2.3.1.1. (i) Information Useful in Making Investment, Credit, and Similar Decisions.
        2. 2.3.1.2. (ii) Representations of Things and Events in the Real-World Environment.
        3. 2.3.1.3. (iii) Assets (and Liabilities)—The Fundamental Element(s) of Financial Statements.
          1. 2.3.1.3.1. Misunderstanding and Controversy about the Financial Accounting Standards Board's Defining Assets and Liabilities as the Fundamental Elements.
          2. 2.3.1.3.2. Two Views of Income.
          3. 2.3.1.3.3. Asset and Liability View and Conceptual Primacy of Assts and Liabilities.
          4. 2.3.1.3.4. Revenue and Expense View and its Hold on Practice.
        4. 2.3.1.4. (iv) Functions of the Conceptual Framework.
      2. 2.3.2. (b) THE FINANCIAL ACCOUNTING STANDARDS BOARD CONCEPTS STATEMENTS.
        1. 2.3.2.1. (i) Objectives of Financial Reporting.
          1. 2.3.2.1.1. Concepts Statement No. 1.
          2. 2.3.2.1.2. Concepts Statement No. 1 and the Trueblood Group's Objectives
          3. 2.3.2.1.3. Concepts Statement No. 4.
          4. 2.3.2.1.4. Effects of Environment and Information Needs of Resource Providers.
          5. 2.3.2.1.5. Objectives of Financial Reporting by Business Enterprises.
          6. 2.3.2.1.6. Objectives of Financial Reporting by Not-for-Profit Organizations.
          7. 2.3.2.1.7. Keeping the Objectives in Perspective.
        2. 2.3.2.2. (ii) Qualitative Characteristics of Accounting Information.
          1. 2.3.2.2.1. Concepts Statement No. 2.
          2. 2.3.2.2.2. A Hierarchy of Accounting Qualities.
          3. 2.3.2.2.3. Relevance.
          4. 2.3.2.2.4. Predictive Value And Feedback Value.
          5. 2.3.2.2.5. Timeliness.
          6. 2.3.2.2.6. Reliability.
          7. 2.3.2.2.7. Representational Faithfulness.
          8. 2.3.2.2.8. Completeness.
          9. 2.3.2.2.9. Verifiability.
          10. 2.3.2.2.10. Neutrality.
          11. 2.3.2.2.11. Comparability.
          12. 2.3.2.2.12. Conservatism.
          13. 2.3.2.2.13. Materiality.
          14. 2.3.2.2.14. Costs and Benefits.
          15. 2.3.2.2.15. Impact of the Qualitative Characteristics.
        3. 2.3.2.3. (iii) Elements of Financial Statements.
          1. 2.3.2.3.1. Concepts Statement No. 3.
          2. 2.3.2.3.2. Concepts Statement No. 6.
          3. 2.3.2.3.3. Definition of Assets.
          4. 2.3.2.3.4. Future Economic Benefits.
          5. 2.3.2.3.5. Control by a Particular Entity.
          6. 2.3.2.3.6. Occurrence of A Past Transaction or Event.
          7. 2.3.2.3.7. Definition of Liabilities.
          8. 2.3.2.3.8. Required Future Sacrifice of Assets.
          9. 2.3.2.3.9. Obligation of A Particular Entity.
          10. 2.3.2.3.10. Occurrence of a Past Transaction or Event.
          11. 2.3.2.3.11. Nonessential Characteristics of Assets and Liabilities.
          12. 2.3.2.3.12. Equity or Net Assets.
          13. 2.3.2.3.13. Equity or Net Assets as a Measure of Wealth.
          14. 2.3.2.3.14. Equity of Business Enterprises.
          15. 2.3.2.3.15. Investments by and Distributions to Owners.
          16. 2.3.2.3.16. Comprehensive Income of Business Enterprises.
          17. 2.3.2.3.17. Revenues, Expenses, Gains, and Losses.
          18. 2.3.2.3.18. Net Assets of Not-for-Profit Organizations.
          19. 2.3.2.3.19. Accrual Accounting and Related Concepts.
          20. 2.3.2.3.20. Transactions, Events, and Circumstances.
          21. 2.3.2.3.21. Accrual Accounting.
        4. 2.3.2.4. (iv) Recognition and Measurement.
          1. 2.3.2.4.1. Concepts Statement No. 5.
          2. 2.3.2.4.2. Financial Statements.
          3. 2.3.2.4.3. Comprehensive Income and Earnings.
          4. 2.3.2.4.4. Capital Maintenance.
          5. 2.3.2.4.5. Measurement and Attributes.
          6. 2.3.2.4.6. Recognition and Measurement—Description Rather than Concepts.
        5. 2.3.2.5. (v) Using Cash Flow Information and Present Value in Accounting Determinations.
          1. 2.3.2.5.1. Fundamental Questions Relevant to Determinations that Use Present Value Techniques.
          2. 2.3.2.5.2. The Time Value of Money.
          3. 2.3.2.5.3. Elements of Present Value Determinations.
          4. 2.3.2.5.4. Using Present Value to Approximate Fair Value at Initial Recognition and for Fresh-Start Determinations.
          5. 2.3.2.5.5. Implementing the Determination of Fair Value Using Present Value Techniques.
          6. 2.3.2.5.6. Relationship to Accounting for Contingencies.
          7. 2.3.2.5.7. Risk and Uncertainty.
          8. 2.3.2.5.8. Relevance and Reliability.
          9. 2.3.2.5.9. Present Value in the Determination of Liability Amounts.
          10. 2.3.2.5.10. Interest Methods of Allocation.
    4. 2.4. INVITATION TO LEARN MORE
    5. 2.5. SOURCES AND SUGGESTED REFERENCES
  7. 3. SECURITIES AND EXCHANGE COMMISSION REPORTING REQUIREMENTS
    1. 3.1. THE SECURITIES AND EXCHANGE COMMISSION
      1. 3.1.1. (a) CREATION OF THE SECURITIES AND EXCHANGE COMMISSION.
      2. 3.1.2. (b) ORGANIZATION OF THE SECURITIES AND EXCHANGE COMMISSION.
      3. 3.1.3. (c) DIVISION OF CORPORATION FINANCE.
        1. 3.1.3.1. (i) Responsibilities.
        2. 3.1.3.2. (ii) Organization.
        3. 3.1.3.3. (iii) Review Procedures.
        4. 3.1.3.4. (iv) EDGAR—Electronic Data Gathering Analysis and Retrieval System.
        5. 3.1.3.5. (v) Extension of Time to File.
      4. 3.1.4. (d) RELATIONSHIP BETWEEN THE ACCOUNTING PROFESSION AND THE SECURITIES AND EXCHANGE COMMISSION.
      5. 3.1.5. (e) SARBANES-OXLEY ACT OF 2002.
        1. 3.1.5.1. (i) Implications for Public Company Officers and Directors.
          1. 3.1.5.1.1. Certifications.
          2. 3.1.5.1.2. Internal Control Reports.
          3. 3.1.5.1.3. Loans to Officers and Directors.
          4. 3.1.5.1.4. Penalties for Violations of Securities Laws.
        2. 3.1.5.2. (ii) Implications for Audit Committees.
          1. 3.1.5.2.1. General Audit Committee Requirement and Responsibilities.
          2. 3.1.5.2.2. Financial Expertise Requirement and Disclosure.
        3. 3.1.5.3. (iii) Implications for Independent Auditors.
          1. 3.1.5.3.1. Public Company Accounting Oversight Board.
          2. 3.1.5.3.2. Public Accounting Firms.
          3. 3.1.5.3.3. Auditor Independence Standards.
          4. 3.1.5.3.4. Financial Disclosures.
      6. 3.1.6. (f) SEC PROPOSED RULE MAKING AND OTHER GUIDANCE.
        1. 3.1.6.1. (i) Acceleration of Periodic Report Filing Dates and Disclosure Concerning Web Site Access to Reports.
        2. 3.1.6.2. (ii) Form 8-K Disclosure of Certain Management Transactions (Release No. 33-8090).
        3. 3.1.6.3. (iii) Disclosure in Management's Discussion and Analysis about the Application of Critical Accounting Policies (Release No. 33-8098).
        4. 3.1.6.4. (iv) Critical Accounting Estimates.
        5. 3.1.6.5. (v) Initial Adoption of Accounting Policies.
      7. 3.1.7. (g) QUALIFICATIONS AND INDEPENDENCE OF PUBLIC ACCOUNTANTS PRACTICING BEFORE THE SEC.
      8. 3.1.8. (h) SEC's Focus on Accounting Fraud.
      9. 3.1.9. (i) FOREIGN CORRUPT PRACTICES ACT.
        1. 3.1.9.1. (i) Payments to Foreign Officials.
        2. 3.1.9.2. (ii) Internal Accounting Control.
      10. 3.1.10. (j) AUDIT COMMITTEES.
      11. 3.1.11. (k) CONTACT WITH SEC STAFF.
      12. 3.1.12. (l) CURRENT REFERENCE SOURCES.
    2. 3.2. THE SECURITIES ACT OF 1933
      1. 3.2.1. (a) TRANSACTIONS COVERED.
      2. 3.2.2. (b) AUDITORS' RESPONSIBILITIES.
      3. 3.2.3. (c) MATERIALITY.
        1. 3.2.3.1. (i) Assessing Materiality.
        2. 3.2.3.2. (ii) Aggregating and Netting Misstatements.
        3. 3.2.3.3. (iii) Intentional Immaterial Misstatements.
        4. 3.2.3.4. (iv) Implementation Questions.
      4. 3.2.4. (d) SMALL BUSINESS INTEGRATED DISCLOSURE SYSTEM.
      5. 3.2.5. (e) EXEMPTIONS FROM REGISTRATION.
        1. 3.2.5.1. (i) Regulation D.
          1. 3.2.5.1.1. Accredited Investor.
          2. 3.2.5.1.2. Disclosure Requirements.
          3. 3.2.5.1.3. Conditions to Be Met.
        2. 3.2.5.2. (ii) Regulation A.
        3. 3.2.5.3. (iii) Other Exemptions.
      6. 3.2.6. (f) OTHER INITIATIVES.
      7. 3.2.7. (g) "GOING PRIVATE" TRANSACTIONS.
      8. 3.2.8. (h) INITIAL FILINGS.
    3. 3.3. THE SECURITIES EXCHANGE ACT OF 1934
      1. 3.3.1. (a) SCOPE OF THE ACT.
      2. 3.3.2. (b) CORPORATE DISCLOSURE REQUIREMENTS.
        1. 3.3.2.1. (i) Registration of Securities.
        2. 3.3.2.2. (ii) Periodic Reports.
    4. 3.4. FORM 10-K AND REGULATIONS S-X AND S-K
      1. 3.4.1. (a) REGULATION S-X.
      2. 3.4.2. (b) ACCOUNTANTS' REPORTS.
      3. 3.4.3. (c) GENERAL FINANCIAL STATEMENT REQUIREMENTS.
      4. 3.4.4. (d) CONSOLIDATED FINANCIAL STATEMENTS.
      5. 3.4.5. (e) REGULATION S-X MATERIALITY TESTS.
      6. 3.4.6. (f) CHRONOLOGICAL ORDER AND FOOTNOTE REFERENCING.
      7. 3.4.7. (g) ADDITIONAL DISCLOSURES REQUIRED BY REGULATION S-X.
      8. 3.4.8. (h) OTHER SOURCES OF DISCLOSURE REQUIREMENTS.
      9. 3.4.9. (i) RESTRICTIONS ON TRANSFER BY SUBSIDIARIES AND PARENT-COMPANY-ONLY FINANCIAL INFORMATION.
      10. 3.4.10. (j) FINANCIAL INFORMATION REGARDING UNCONSOLIDATED SUBSIDIARIES AND 50-PERCENT-OR-LESS-OWNED EQUITY METHOD INVESTEES.
      11. 3.4.11. (k) DISCLOSURE OF INCOME TAX EXPENSE.
      12. 3.4.12. (l) DISCLOSURE OF COMPENSATING BALANCES AND SHORT-TERM BORROWING ARRANGEMENTS.
        1. 3.4.12.1. (i) Disclosure Requirements for Compensating Balances.
        2. 3.4.12.2. (ii) Disclosure Requirements for Short-Term Borrowings.
      13. 3.4.13. (m) REDEEMABLE PREFERRED STOCK.
      14. 3.4.14. (n) REGULATION S-X SCHEDULES.
      15. 3.4.15. (o) REGULATION S-K.
      16. 3.4.16. (p) STRUCTURE OF FORM 10-K.
        1. 3.4.16.1. (i) Part I of Form 10-K.
          1. 3.4.16.1.1. Item 1—Business (Item 101 of Regulation S-K).
          2. 3.4.16.1.2. Item 2—Properties (Item 102 of Regulation S-K).
          3. 3.4.16.1.3. Item 3—Legal Proceedings (Item 103 of Regulation S-K).
          4. 3.4.16.1.4. Item 4—Submission of Matters to a Vote of Security Holders.
        2. 3.4.16.2. (ii) Part II of Form 10-K.
          1. 3.4.16.2.1. Item 5—Market for Registrant's Common Equity and Related Stockholder Matters (Item 201 and 701 of Regulation S-K).
          2. 3.4.16.2.2. Item 6—Selected Financial Data (Item 301 of Regulation S-K).
          3. 3.4.16.2.3. Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) (Item 303 of Regulation S-K).
          4. 3.4.16.2.4. Item 7A—Quantitative and Qualitative Disclosures About Market Risk (Item 305 of Regulation S-K).
          5. 3.4.16.2.5. Item 8—Financial Statements and Supplementary Data.
          6. 3.4.16.2.6. Item 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosures (Item 304 of Regulation S-K).
        3. 3.4.16.3. (iii) Part III of Form 10-K.
          1. 3.4.16.3.1. Item 10—Directors and Executive Officers of the Registrant (Items 401 and 405 of Regulation S-K).
          2. 3.4.16.3.2. Item 11—Executive Compensation (Item 402 of Regulation S-K).
          3. 3.4.16.3.3. Equity Compensation Plans.
          4. 3.4.16.3.4. Item 12—Security Ownership of Certain Beneficial Owners and Management (Item 403 of Regulation S-K).
          5. 3.4.16.3.5. Item 13—Certain Relationships and Related Transactions (Item 404 of Regulation S-K).
        4. 3.4.16.4. (iv) Part IV of Form 10-K.
          1. 3.4.16.4.1. Item 14—Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
        5. 3.4.16.5. (v) Signatures.
        6. 3.4.16.6. (vi) Relief for Certain Wholly Owned Subsidiaries.
        7. 3.4.16.7. (vii) Variations in the Presentation of Financial Statements in Form 10-K.
      17. 3.4.17. (q) ANNUAL REPORT TO STOCKHOLDERS.
        1. 3.4.17.1. (i) Financial Statements Included in Annual Report to Stockholders.
        2. 3.4.17.2. (ii) Content of Annual Report to Stockholders.
        3. 3.4.17.3. (iii) Reporting on Management and Audit Committee Responsibilities in the Annual Report to Stockholders.
        4. 3.4.17.4. (iv) Summary Annual Reports.
    5. 3.5. FORM 10-Q
      1. 3.5.1. (a) STRUCTURE OF FORM 10-Q.
        1. 3.5.1.1. (i) Part I—Financial Information.
          1. 3.5.1.1.1. Item 1—Financial Statements.
          2. 3.5.1.1.2. Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations [Item 303(b) of Regulation S-K].
          3. 3.5.1.1.3. Item 3—Quantitative and Qualitative Disclosures about Market Risk (Item 305 of Regulation S-K).
        2. 3.5.1.2. (ii) Part II—Other Information.
          1. 3.5.1.2.1. Item 1—Legal Proceedings (Item 103 of Regulation S-K).
          2. 3.5.1.2.2. Item 2—Changes in Securities and Use of Proceeds (Item 701 of Regulation S-K).
          3. 3.5.1.2.3. Item 3—Defaults on Senior Securities.
          4. 3.5.1.2.4. Item 4—Submission of Matters to a Vote of Security Holders.
          5. 3.5.1.2.5. Item 5—Other Information.
          6. 3.5.1.2.6. Item 6—Exhibits and Reports on Form 8-K.
        3. 3.5.1.3. (iii) Omission of Information by Certain Wholly Owned Subsidiaries.
        4. 3.5.1.4. (iv) Signatures.
    6. 3.6. FORM 8-K
      1. 3.6.1. (a) OVERVIEW OF FORM 8-K REQUIREMENTS.
      2. 3.6.2. (b) EVENTS TO BE REPORTED.
        1. 3.6.2.1. (i) Item 1—Changes in Control of Registrant.
        2. 3.6.2.2. (ii) Item 2—Acquisition or Disposition of Assets.
        3. 3.6.2.3. (iii) Item 3—Bankruptcy or Receivership.
        4. 3.6.2.4. (iv) Item 4—Changes in Registrant's Independent Accountants.
        5. 3.6.2.5. (v) Item 5—Other Events.
        6. 3.6.2.6. (vi) Item 6—Resignation of Registrant's Directors.
        7. 3.6.2.7. (vii) Item 7—Financial Statements, Pro Forma Financial Information, and Exhibits.
        8. 3.6.2.8. (viii) Item 8—Change in Fiscal Year.
        9. 3.6.2.9. (ix) Item 9—Regulation FD Disclosures.
        10. 3.6.2.10. (x) Signatures.
    7. 3.7. PROXY STATEMENTS
      1. 3.7.1. (a) OVERVIEW.
      2. 3.7.2. (b) REGULATION 14A.
      3. 3.7.3. (c) SEC REVIEW REQUIREMENTS.
    8. 3.8. SOURCES AND SUGGESTED REFERENCES
  8. 4. INTRODUCTION TO INTERNAL CONTROL ASSESSMENT AND REPORTING
    1. 4.1. INTRODUCTION
    2. 4.2. DEFINITION OF INTERNAL CONTROL
    3. 4.3. MANAGEMENT'S REQUIRED REPORTS ON INTERNAL CONTROL
      1. 4.3.1. (a) ANNUAL REPORTING REQUIREMENTS.
        1. 4.3.1.1. (i) Effective Dates.
      2. 4.3.2. (b) QUARTERLY REPORTING REQUIREMENTS.
        1. 4.3.2.1. (i) Disclosure Controls and Procedures.
        2. 4.3.2.2. (ii) The Disclosure Committee.
    4. 4.4. MANAGEMENT CERTIFICATIONS
      1. 4.4.1. (a) SUBCERTIFICATION.
    5. 4.5. THE INDEPENDENT AUDITOR'S RESPONSIBILITIES
    6. 4.6. THE AUDIT STANDARDS
      1. 4.6.1. (a) OVERALL OBJECTIVE OF THE AUDITORS' ENGAGEMENT.
      2. 4.6.2. (b) EVALUATION OF MANAGEMENT'S ASSESSMENT PROCESS.
      3. 4.6.3. (c) DOCUMENTATION.
      4. 4.6.4. (d) SCOPE OF TEST WORK.
      5. 4.6.5. (e) USE OF WORK OF INTERNAL AUDITORS AND OTHERS.
        1. 4.6.5.1. (i) The External Auditor's Use of the Company's Internal Control Work.
        2. 4.6.5.2. (ii) Work That Must Be Performed by the External Auditors.
        3. 4.6.5.3. (iii) Using the Work of Others.
      6. 4.6.6. (f) DETERMINATION OF MATERIAL WEAKNESS.
      7. 4.6.7. (g) WORKING WITH THE INDEPENDENT AUDITORS.
    7. 4.7. A TOP-DOWN, RISK-BASED APPROACH FOR EVALUATING INTERNAL CONTROL
      1. 4.7.1. (a) PRINCIPLES OF A RISK-BASED, TOP-DOWN APPROACH.
    8. 4.8. COORDINATING WITH THE INDEPENDENT AUDITORS
    9. 4.9. A NEW ERA
  9. 5. PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
    1. 5.1. BACKGROUND
    2. 5.2. PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD AUTHORITY
    3. 5.3. STRUCTURE
      1. 5.3.1. (a) BOARD MEMBERS.
      2. 5.3.2. (b) STAFF.
      3. 5.3.3. (c) ADVISORY GROUPS.
    4. 5.4. FUNDING
    5. 5.5. REGISTRATION
    6. 5.6. STANDARDS
      1. 5.6.1. (a) AUDITORS SUBJECT TO THE STANDARDS.
      2. 5.6.2. (b) INTERIM STANDARDS.
      3. 5.6.3. (c) SARBANES-OXLEY MANDATED STANDARDS.
      4. 5.6.4. (d) STANDARD-SETTING.
      5. 5.6.5. (e) FORM OF GUIDANCE.
    7. 5.7. INSPECTIONS
      1. 5.7.1. (a) REQUIRED INSPECTIONS.
      2. 5.7.2. (b) INSPECTION SCOPE.
      3. 5.7.3. (c) INSPECTION RESULTS.
    8. 5.8. INVESTIGATIONS
  10. 6. EARNINGS MANAGEMENT
    1. 6.1. EARNINGS MANAGEMENT BY DISTORTING THE APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
    2. 6.2. EARNINGS MANAGEMENT BY THE FAULTY DESIGN OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
    3. 6.3. SOURCES AND SUGGESTED REFERENCES
  11. 7. FORGETTING OUR DUTIES TO THE USERS OF FINANCIAL REPORTS: THE LESSON OF ENRON
    1. 7.1. NEGLECT OF OUR DUTIES
    2. 7.2. OURSELVES TO BLAME
    3. 7.3. THE CENTRAL FAILURE
    4. 7.4. A GOOD START
  12. 8. MANAGEMENT DISCUSSION AND ANALYSIS
    1. 8.1. OVERVIEW
      1. 8.1.1. (a) INTRODUCTION.
      2. 8.1.2. (b) A BRIEF HISTORY.
      3. 8.1.3. (c) RECENT DEVELOPMENTS.
        1. 8.1.3.1. (i) Non-GAAP Measures.
        2. 8.1.3.2. (ii) Critical Accounting Estimates.
        3. 8.1.3.3. (iii) Off-Balance-Sheet Arrangements and Contractual Obligations.
        4. 8.1.3.4. (iv) General Guidance on MD&A.
    2. 8.2. CURRENT REQUIREMENTS
      1. 8.2.1. (a) OVERALL PRESENTATION.
      2. 8.2.2. (b) CONTENT AND FOCUS.
      3. 8.2.3. (c) GENERAL REQUIREMENTS.
      4. 8.2.4. (d) CRITICAL ACCOUNTING ESTIMATES.
      5. 8.2.5. (e) EFFECT OF NEWLY ISSUED BUT NOT YET EFFECTIVE ACCOUNTING STANDARDS.
    3. 8.3. RELATED ACCOUNTING LITERATURE
      1. 8.3.1. (a) NATURE OF OPERATIONS.
      2. 8.3.2. (b) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS.
      3. 8.3.3. (c) CERTAIN SIGNIFICANT ESTIMATES.
      4. 8.3.4. (d) CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS.
    4. 8.4. EXTERNAL AUDITOR INVOLVEMENT
  13. 9. GLOBAL ACCOUNTING AND AUDITING
    1. 9.1. INTRODUCTION
      1. 9.1.1. (a) MOVEMENT TOWARD A GLOBAL SET OF STANDARDS.
      2. 9.1.2. (b) ACHIEVING CONVERGENCE OF ACCOUNTING AND AUDITING STANDARDS.
    2. 9.2. INTERNATIONAL STANDARD-SETTING ORGANIZATIONS
      1. 9.2.1. (a) INTERNATIONAL ACCOUNTING STANDARDS BOARD.
        1. 9.2.1.1. (i) The Structure of the International Accounting Standards Board.
        2. 9.2.1.2. (ii) The International Accounting Standards Board Trustees.
        3. 9.2.1.3. (iii) The International Accounting Standards Board.
        4. 9.2.1.4. (iv) The Standards Advisory Council.
        5. 9.2.1.5. (v) The International Financial Reporting Interpretations Committee.
        6. 9.2.1.6. (vi) International Financial Reporting Standards.
          1. 9.2.1.6.1. Procedures for the Development of International Financial Reporting Standards.
          2. 9.2.1.6.2. International Financial Reporting Standards Issued.
      2. 9.2.2. (b) INTERNATIONAL FEDERATION OF ACCOUNTANTS.
        1. 9.2.2.1. (i) Membership.
        2. 9.2.2.2. (ii) Governance of the International Federation of Accountants.
          1. 9.2.2.2.1. Council.
          2. 9.2.2.2.2. The International Federation of Accountants Board.
          3. 9.2.2.2.3. The Standing Committees.
        3. 9.2.2.3. (iii) International Standards on Auditing.
      3. 9.2.3. (c) EUROPEAN UNION.
        1. 9.2.3.1. (i) Council Directives.
        2. 9.2.3.2. (ii) EU Procedures.
        3. 9.2.3.3. (iii) EU—Recent Developments.
      4. 9.2.4. (d) OTHER MAJOR GLOBAL STANDARD-SETTING ORGANIZATIONS.
        1. 9.2.4.1. (i) International Organization of Securities Commissions.
        2. 9.2.4.2. (ii) International Forum on Accountancy Development.
        3. 9.2.4.3. (iii) The Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting.
    3. 9.3. SOURCES AND SUGGESTED REFERENCES
    4. 9.4. VALUABLE WEB SITE SOURCES
  14. 10. FINANCIAL STATEMENTS: FORM AND CONTENT
    1. 10.1. INTRODUCTION
    2. 10.2. PRINCIPLES UNDERLYING FINANCIAL STATEMENTS
      1. 10.2.1. (a) OBJECTIVES OF FINANCIAL REPORTING.
      2. 10.2.2. (b) SELECTED UNDERLYING PRINCIPLES.
        1. 10.2.2.1. (i) Multiple Sources of Information.
        2. 10.2.2.2. (ii) Approximate Measures.
        3. 10.2.2.3. (iii) Historical Orientation.
        4. 10.2.2.4. (iv) General Purpose Financial Statements.
        5. 10.2.2.5. (v) Accrual Accounting.
        6. 10.2.2.6. (vi) Explanatory Notes and Disclosures.
    3. 10.3. BALANCE SHEET
      1. 10.3.1. (a) ASSETS.
        1. 10.3.1.1. (i) Current Assets.
        2. 10.3.1.2. (ii) Noncurrent Assets.
      2. 10.3.2. (b) LIABILITIES.
        1. 10.3.2.1. (i) Current Liabilities.
        2. 10.3.2.2. (ii) Noncurrent Liabilities.
        3. 10.3.2.3. (iii) Working Capital and the Current Ratio.
      3. 10.3.3. (c) STOCKHOLDERS' EQUITY.
        1. 10.3.3.1. (i) Contributed Equity.
        2. 10.3.3.2. (ii) Retained Earnings.
        3. 10.3.3.3. (iii) Subclassifying Stockholders' Equity.
    4. 10.4. INCOME STATEMENT
      1. 10.4.1. (a) REVENUES.
      2. 10.4.2. (b) EXPENSES.
      3. 10.4.3. (c) PRESENTATION ISSUES.
    5. 10.5. STATEMENT OF STOCKHOLDERS' EQUITY
    6. 10.6. STATEMENT OF CASH FLOWS
      1. 10.6.1. (a) OPERATING ACTIVITIES.
      2. 10.6.2. (b) INVESTING ACTIVITIES.
      3. 10.6.3. (c) FINANCING ACTIVITIES.
    7. 10.7. ARTICULATION OF FINANCIAL STATEMENTS
    8. 10.8. FINANCIAL STATEMENT DISCLOSURE
      1. 10.8.1. (a) BROAD DISCLOSURE REQUIREMENTS.
        1. 10.8.1.1. (i) Accounting Policies.
        2. 10.8.1.2. (ii) Related Party Transactions.
        3. 10.8.1.3. (iii) Subsequent Events.
        4. 10.8.1.4. (iv) Doubt Concerning Continued Existence.
        5. 10.8.1.5. (v) Contingent Liabilities.
        6. 10.8.1.6. (vi) Significant Risks and Uncertainties.
        7. 10.8.1.7. (vii) Disclosure Recommendations of the AICPA Special Committee on Financial Reporting.
      2. 10.8.2. (b) DISCLOSURES RELATED TO SPECIFIC FINANCIAL STATEMENT ELEMENTS.
        1. 10.8.2.1. (i) Debt and Equity Investments.
        2. 10.8.2.2. (ii) Inventories.
        3. 10.8.2.3. (iii) Plant Assets and Depreciation.
        4. 10.8.2.4. (iv) Long-Term Debt.
        5. 10.8.2.5. (v) Capital Structure.
      3. 10.8.3. (c) SPECIAL DISCLOSURES OF PUBLICLY HELD COMPANIES.
        1. 10.8.3.1. (i) Segment Disclosures.
        2. 10.8.3.2. (ii) Earnings per Share.
        3. 10.8.3.3. (iii) Interim Reporting.
      4. 10.8.4. (d) DISCLOSURE OVERLOAD.
    9. 10.9. LIMITATIONS OF FINANCIAL STATEMENTS
      1. 10.9.1. (a) STABLE MONETARY UNIT ASSUMPTION.
      2. 10.9.2. (b) HISTORICAL ORIENTATION.
      3. 10.9.3. (c) JUDGMENT AND ESTIMATION.
      4. 10.9.4. (d) MANAGEMENT ABILITY TO INFLUENCE CONTENT.
      5. 10.9.5. (e) UNRECORDED ITEMS.
      6. 10.9.6. (f) FLEXIBILITY VERSUS UNIFORMITY.
    10. 10.10. SOURCES AND SUGGESTED REFERENCES
  15. 11. INCOME STATEMENT PRESENTATION AND EARNINGS PER SHARE
    1. 11.1. OFFICIAL PRONOUNCEMENTS ON INCOME STATEMENT PRESENTATION
    2. 11.2. DISCONTINUED OPERATIONS
      1. 11.2.1. (a) MEASUREMENT DATE.
      2. 11.2.2. (b) DISPOSAL DATE.
      3. 11.2.3. (c) EXAMPLES OF DISCONTINUED OPERATIONS.
      4. 11.2.4. (d) RECORDING DISCONTINUED OPERATIONS.
      5. 11.2.5. (e) ACCOUNTING FOR DISCONTINUED OPERATIONS SUBSEQUENTLY RETAINED.
      6. 11.2.6. (f) ALLOCATION OF COSTS AND EXPENSES.
      7. 11.2.7. (g) DISCLOSURE OF DISCONTINUED OPERATIONS.
        1. 11.2.7.1. (i) Method of Disposal Not Determined.
        2. 11.2.7.2. (ii) Plan of Disposal Requiring More than One Year.
        3. 11.2.7.3. (iii) Accounting for Abandonment of a Business Segment.
        4. 11.2.7.4. (iv) Disposal of Operation with Significant Interest Retained.
        5. 11.2.7.5. (v) Classification and Disclosure of Contingencies Relating to Discontinued Operations.
        6. 11.2.7.6. (vi) Accounting for Subsidiaries That Management Intends to Sell.
        7. 11.2.7.7. (vii) Accounting for the Spin-Off of a Subsidiary.
    3. 11.3. EXTRAORDINARY ITEMS
      1. 11.3.1. (a) UNUSUAL NATURE.
      2. 11.3.2. (b) INFREQUENTLY OCCURRING.
      3. 11.3.3. (c) APPLICATION OF CRITERIA.
      4. 11.3.4. (d) EXCEPTIONS TO CRITERIA.
      5. 11.3.5. (e) REPORTING AN EXTRAORDINARY ITEM.
    4. 11.4. MATERIAL GAINS AND LOSSES—UNUSUAL OR INFREQUENTLY OCCURRING, NOT EXTRAORDINARY
      1. 11.4.1. (a) DISPOSAL OF PART OF A SEGMENT OF A BUSINESS.
      2. 11.4.2. (b) RESTRUCTURING CHARGES.
      3. 11.4.3. (c) TAKEOVER DEFENSE.
      4. 11.4.4. (d) SALES OF STOCK BY A SUBSIDIARY.
    5. 11.5. ACCOUNTING CHANGES
      1. 11.5.1. (a) GENERAL CHANGES IN ACCOUNTING PRINCIPLE.
      2. 11.5.2. (b) ACCOUNTING FOR CHANGES IN ACCOUNTING PRINCIPLE.
        1. 11.5.2.1. (i) Impracticability of Determining Effects.
        2. 11.5.2.2. (ii) Direct and Indirect Effects.
      3. 11.5.3. (c) CHANGES IN ACCOUNTING ESTIMATE.
      4. 11.5.4. (d) CHANGES IN REPORTING ENTITY.
      5. 11.5.5. (e) CORRECTION OF AN ERROR.
      6. 11.5.6. (f) MATERIALITY.
      7. 11.5.7. (g) DISCLOSURES REQUIRED FOR ACCOUNTING CHANGES.
      8. 11.5.8. (h) PREFERABILITY LETTER.
    6. 11.6. PRIOR PERIOD ADJUSTMENTS
    7. 11.7. REPORTING OF UNUSUAL EVENTS AND TRANSACTIONS
    8. 11.8. SEC INCOME STATEMENT PRESENTATION REQUIREMENTS FOR SPECIFIC INDUSTRIES
      1. 11.8.1. (a) RETAIL COMPANIES.
      2. 11.8.2. (b) UTILITIES.
      3. 11.8.3. (c) CASINO-HOTELS.
    9. 11.9. REPORTING COMPREHENSIVE INCOME
      1. 11.9.1. (a) DEFINITION AND SCOPE.
      2. 11.9.2. (b) PURPOSE.
      3. 11.9.3. (c) DISPLAY AND CLASSIFICATION.
        1. 11.9.3.1. (i) Net Income.
        2. 11.9.3.2. (ii) Other Comprehensive Income.
        3. 11.9.3.3. (iii) Reclassification Adjustments.
      4. 11.9.4. (d) ALTERNATIVE FORMATS.
      5. 11.9.5. (e) OTHER ISSUES.
        1. 11.9.5.1. (i) Prior Period Adjustments.
        2. 11.9.5.2. (ii) Statement of Cash Flows.
        3. 11.9.5.3. (iii) Other Items Reported in Equity.
        4. 11.9.5.4. (iv) Equity Investees.
    10. 11.10. EARNINGS PER SHARE
      1. 11.10.1. (a) TERMS RELATED TO EARNINGS PER SHARE.
        1. 11.10.1.1. (i) Basic EPS.
        2. 11.10.1.2. (ii) Diluted EPS.
        3. 11.10.1.3. (iii) Contingently Issuable Shares.
        4. 11.10.1.4. (iv) Antidilution.
        5. 11.10.1.5. (v) Weighted Average Shares.
      2. 11.10.2. (b) BASIC EARNINGS PER SHARE.
      3. 11.10.3. (c) DILUTED EARNINGS PER SHARE.
        1. 11.10.3.1. (i) Antidilution.
        2. 11.10.3.2. (ii) Options, Warrants, and Their Equivalents.
        3. 11.10.3.3. (iii) Convertible Securities.
        4. 11.10.3.4. (iv) Contingently Issuable Shares.
        5. 11.10.3.5. (v) Calculation Sequence.
        6. 11.10.3.6. (vi) Interim Calculations.
    11. 11.11. PRESENTATION
    12. 11.12. DISCLOSURE
    13. 11.13. EFFECT ON EXISTING LITERATURE
    14. 11.14. COMPUTATIONAL GUIDANCE
      1. 11.14.1. (a) WEIGHTED AVERAGE.
    15. 11.15. SPECIAL EARNINGS PER SHARE REPORTING REQUIREMENT FOR COMPANIES REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
    16. 11.16. SOURCES AND SUGGESTED REFERENCES
  16. 12. ACCOUNTING FOR BUSINESS COMBINATIONS
    1. 12.1. BACKGROUND
    2. 12.2. SCOPE
    3. 12.3. THE PURCHASE METHOD OF ACCOUNTING
      1. 12.3.1. (a) IDENTIFYING THE ACQUIRING COMPANY.
        1. 12.3.1.1. (i) Reverse Acquisitions.
        2. 12.3.1.2. (ii) Applying Purchase Accounting to a Reverse Acquisition.
      2. 12.3.2. (b) DETERMINING THE COST OF THE ACQUIRED EQUITY.
        1. 12.3.2.1. (i) Fair Value of Consideration Given.
        2. 12.3.2.2. (ii) Options of the Acquiree.
        3. 12.3.2.3. (iii) Fair Value of the Acquired Company.
        4. 12.3.2.4. (iv) When to Value Shares Issued in a Business Combination.
      3. 12.3.3. (c) DIRECT COSTS OF THE BUSINESS COMBINATION.
        1. 12.3.3.1. (i) Acquisition Costs Incurred by the Acquiree.
        2. 12.3.3.2. (ii) Plant Closing Costs and Employee Severance Costs.
        3. 12.3.3.3. (iii) Payments to Employees: Acquisition Cost versus Employee Compensation Arrangements.
        4. 12.3.3.4. (iv) Discretionary Costs in Purchase Business Combinations.
      4. 12.3.4. (d) CONTINGENT CONSIDERATION.
        1. 12.3.4.1. (i) Contingencies Based on Earnings.
        2. 12.3.4.2. (ii) Contingencies Based on Security Prices.
        3. 12.3.4.3. (iii) Earnings per Share Consequences of Contingent Share Arrangements.
        4. 12.3.4.4. (iv) Adjustment of Acquisition Cost or Compensation Expense?.
      5. 12.3.5. (e) ACQUISITION OF MINORITY INTERESTS.
        1. 12.3.5.1. (i) Exchange of Ownership Interests Between Entities under Common Control.
        2. 12.3.5.2. (ii) Accounting for Simultaneous Common Control Mergers.
      6. 12.3.6. (f) IDENTIFYING ASSETS ACQUIRED AND LIABILITIES ASSUMED.
      7. 12.3.7. (g) ALLOCATION OF PURCHASE PRICE.
        1. 12.3.7.1. (i) Excess of the Fair Value of Acquired Net Assets over Cost.
        2. 12.3.7.2. (ii) Purchase Price Allocated to Inventories.
        3. 12.3.7.3. (iii) Last-In First-Out Inventories.
        4. 12.3.7.4. (iv) Determining Costs to Complete, Selling Costs, and Normal Profit Margin..
        5. 12.3.7.5. (v) Allocation to Noncurrent Tangible and Intangible Assets.
        6. 12.3.7.6. (vi) Assignment of Purchase Price to Leases.
        7. 12.3.7.7. (vii) Research and Development Acquired.
        8. 12.3.7.8. (viii) Allocation of Purchase Price to Assets to Be Sold.
        9. 12.3.7.9. (ix) Allocation of Purchase Price to Pensions.
        10. 12.3.7.10. (x) Postretirement Benefits of the Acquiree.
        11. 12.3.7.11. (xi) Postemployment Benefits of the Acquiree.
        12. 12.3.7.12. (xii) Assignment of Purchase Price to Liabilities Existing at the Acquisition Date.
        13. 12.3.7.13. (xiii) Income Tax Effects on the Purchase Price Allocation.
        14. 12.3.7.14. (xiv) Deferred Taxes Associated with Acquired Identifiable Intangible Assets with No Tax Basis.
        15. 12.3.7.15. (xv) Tax Deductibility of Goodwill Amortization.
        16. 12.3.7.16. (xvi) Allocation of Purchase Price When Less than 100 Percent Acquired.
        17. 12.3.7.17. (xvii) Concerns of Securities and Exchange Commission Staff.
      8. 12.3.8. (h) PREACQUISITION CONTINGENCIES.
      9. 12.3.9. (i) PUSHDOWN ACCOUNTING.
        1. 12.3.9.1. (i) Pushdown of Parent Company Debt.
        2. 12.3.9.2. (ii) Exceptions to Pushdown of Parent Company Debt.
      10. 12.3.10. (j) ALLOCATION PERIOD.
      11. 12.3.11. (k) SAB STAFF ACCOUNTING BULLETIN NO. 61.
      12. 12.3.12. (l) DATE USED TO RECORD THE ACQUISITION.
      13. 12.3.13. (m) DISCLOSURE IN FINANCIAL STATEMENTS.
        1. 12.3.13.1. (i) Pro Forma Disclosures.
        2. 12.3.13.2. (ii) Classification of Acquired Securities.
        3. 12.3.13.3. (iii) Disclosures in Interim Financial Information.
      14. 12.3.14. (n) DISCLOSURES IN SECURITIES AND EXCHANGE COMMISSION FILINGS.
      15. 12.3.15. (o) ILLUSTRATION OF THE PURCHASE METHOD OF ACCOUNTING.
      16. 12.3.16. (p) EFFECTIVE DATA AND TRANSMISSION.
    4. 12.4. LEVERAGED BUYOUT
      1. 12.4.1. (a) DEFINITION.
      2. 12.4.2. (b) STRUCTURE.
        1. 12.4.2.1. (i) Legal Form.
        2. 12.4.2.2. (ii) Management Participation.
        3. 12.4.2.3. (iii) Financing Arrangements.
        4. 12.4.2.4. (iv) Tax Considerations.
      3. 12.4.3. (c) HISTORICAL PERSPECTIVE.
      4. 12.4.4. (d) ACCOUNTING FOR THE LEVERAGED BUYOUT TRANSACTION.
      5. 12.4.5. (e) CHANGE IN CONTROL.
        1. 12.4.5.1. (i) Objective Criteria.
        2. 12.4.5.2. (ii) Subjective Criteria.
        3. 12.4.5.3. (iii) No Change in Control.
      6. 12.4.6. (f) DETERMINING THE CARRYING AMOUNT OF NEWCO'S INVESTMENT IN OLDCO.
      7. 12.4.7. (g) LIMITATION OF THE CARRYING AMOUNT OF NEWCO'S INVESTMENT IN OLDCO.
      8. 12.4.8. (h) LEVERAGED BUYOUT ACCOUNTING ILLUSTRATED.
      9. 12.4.9. (i) INTERNATIONAL ACCOUNTING STANDARDS BOARD INTERNATIONAL FINANCIAL REPORTING STANDARD NO. 3 "BUSINESS COMBINATIONS."
        1. 12.4.9.1. (i) IFRS 3.
    5. 12.5. SOURCES AND SUGGESTED REFERENCES
  17. 13. CONSOLIDATION, TRANSLATION, AND THE EQUITY METHOD
    1. 13.1. OVERVIEW
      1. 13.1.1. (a) CONSOLIDATION.
        1. 13.1.1.1. (i) Control.
        2. 13.1.1.2. (ii) Irrelevant Factors.
        3. 13.1.1.3. (iii) Intercompany Amounts.
        4. 13.1.1.4. (iv) Variable Interest Entities.
        5. 13.1.1.5. (v) Disclosures.
      2. 13.1.2. (b) BUSINESS COMBINATIONS.
      3. 13.1.3. (c) TRANSLATION.
      4. 13.1.4. (d) EQUITY METHOD.
      5. 13.1.5. (e) COMBINED FINANCIAL STATEMENTS.
      6. 13.1.6. (f) CONSOLIDATING STATEMENTS.
      7. 13.1.7. (g) SECURITIES AND EXCHANGE COMMISSION RULES AND REGULATIONS ON CONSOLIDATED FINANCIAL STATEMENTS.
        1. 13.1.7.1. (i) Selection of Reporting Entity.
        2. 13.1.7.2. (ii) Intercompany Items and Transactions.
        3. 13.1.7.3. (iii) Other Disclosures.
    2. 13.2. FOREIGN CURRENCY TRANSLATION
      1. 13.2.1. (a) OBJECTIVES OF TRANSLATION.
      2. 13.2.2. (b) ASSUMPTIONS CONCERNING TRANSLATION.
      3. 13.2.3. (c) TASKS REQUIRED FOR TRANSLATION.
        1. 13.2.3.1. (i) Identifying the Functional Currency.
        2. 13.2.3.2. (ii) Measuring in the Functional Currency.
        3. 13.2.3.3. (iii) Translation Using the Current Rate.
        4. 13.2.3.4. (iv) Translation Adjustments.
      4. 13.2.4. (d) TREATMENT OF FOREIGN COMPONENTS OR EXTENSIONS OF PARENT COMPANY OPERATIONS.
      5. 13.2.5. (e) TREATMENT OF FOREIGN CURRENCY TRANSACTIONS.
      6. 13.2.6. (f) FORWARD EXCHANGE CONTRACTS.
        1. 13.2.6.1. (i) Discounts or Premiums on Forward Exchange Contracts.
        2. 13.2.6.2. (ii) Gains or Losses on Forward Exchange Contracts.
      7. 13.2.7. (g) EXCLUSION OF TRANSACTION GAINS AND LOSSES FROM INCOME.
        1. 13.2.7.1. (i) Treatment as Translation Adjustments.
        2. 13.2.7.2. (ii) Deferral of Transaction Gains and Losses.
      8. 13.2.8. (h) OTHER TOPICS IN FOREIGN CURRENCY TRANSLATION.
        1. 13.2.8.1. (i) Income Tax Considerations.
        2. 13.2.8.2. (ii) Intercompany Profit Eliminations.
        3. 13.2.8.3. (iii) Selection of Exchange Rates.
        4. 13.2.8.4. (iv) Approximations.
      9. 13.2.9. (i) DISCLOSURES CONCERNING FOREIGN OPERATIONS.
    3. 13.3. THE EQUITY METHOD
      1. 13.3.1. (a) DIFFERENCES BETWEEN CONSOLIDATION AND THE EQUITY METHOD.
      2. 13.3.2. (b) USING THE EQUITY METHOD.
        1. 13.3.2.1. (i) Unconsolidated Subsidiaries.
        2. 13.3.2.2. (ii) Joint Ventures.
        3. 13.3.2.3. (iii) Investments in Common Stock Involving Significant Influence.
      3. 13.3.3. (c) APPLYING THE EQUITY METHOD.
        1. 13.3.3.1. (i) Bundle A.
        2. 13.3.3.2. (ii) Bundle B.
        3. 13.3.3.3. (iii) Bundle C.
        4. 13.3.3.4. (iv) Intercompany Profit or Loss.
        5. 13.3.3.5. (v) Special Considerations.
          1. 13.3.3.5.1. Preferred Dividends.
          2. 13.3.3.5.2. Investee's Capital Transactions.
          3. 13.3.3.5.3. Time Lag.
          4. 13.3.3.5.4. Permanent Decline in Value.
          5. 13.3.3.5.5. Excessive Losses.
          6. 13.3.3.5.6. Changed Conditions.
      4. 13.3.4. (d) DISCLOSURES CONCERNING THE EQUITY METHOD.
    4. 13.4. SUMMARY OF MAJOR PRONOUNCEMENTS
      1. 13.4.1. (a) CONSOLIDATION.
      2. 13.4.2. (b) FOREIGN CURRENCY TRANSLATION.
      3. 13.4.3. (c) EQUITY METHOD.
    5. 13.5. SOURCES AND SUGGESTED REFERENCES
  18. 14. STATEMENT OF CASH FLOWS
    1. 14.1. NATURE AND BACKGROUND OF THE STATEMENT OF CASH FLOWS
      1. 14.1.1. (a) PRONOUNCEMENTS ON THE STATEMENT OF CASH FLOWS.
      2. 14.1.2. (b) BACKGROUND.
      3. 14.1.3. (c) OBJECTIVES OF THE STATEMENT OF CASH FLOWS.
      4. 14.1.4. (d) SCOPE OF STATEMENT OF FINANCIAL ACCOUNTING NO. 95.
        1. 14.1.4.1. (i) Financial Institutions.
        2. 14.1.4.2. (ii) Not-for-Profit Organizations.
        3. 14.1.4.3. (iii) Exemption of Defined Benefit Plans from SFAS No. 95 Requirements.
        4. 14.1.4.4. (iv) Exemption of Investment Companies.
      5. 14.1.5. (e) FOCUS ON CASH AND CASH EQUIVALENTS.
        1. 14.1.5.1. (i) Cash.
        2. 14.1.5.2. (ii) Cash Equivalents.
        3. 14.1.5.3. (iii) Correspondence to Balance Sheet Cash Amount.
        4. 14.1.5.4. (iv) Restricted Cash.
      6. 14.1.6. (f) GROSS AND NET CASH FLOWS.
      7. 14.1.7. (g) CLASSIFICATION OF CASH RECEIPTS AND CASH PAYMENTS.
        1. 14.1.7.1. (i) Investing Activities.
        2. 14.1.7.2. (ii) Financing Activities.
        3. 14.1.7.3. (iii) Operating Activities.
        4. 14.1.7.4. (iv) Components of Cash Flows from Operating Activities.
        5. 14.1.7.5. (v) Additional Classification Guidance.
    2. 14.2. GUIDANCE ON STATEMENT PRESENTATION
      1. 14.2.1. (a) DIRECT METHOD.
      2. 14.2.2. (b) INDIRECT METHOD.
      3. 14.2.3. (c) RECONCILIATION OF NET CASH FLOWS FROM OPERATING ACTIVITIES TO NET INCOME.
      4. 14.2.4. (d) SURVEY OF ADJUSTMENTS USING THE INDIRECT METHOD.
      5. 14.2.5. (e) NONCASH TRANSACTIONS.
        1. 14.2.5.1. (i) Survey of Noncash Items in Cash Flow Disclosures.
        2. 14.2.5.2. (ii) Noncash Items Not Disclosed.
      6. 14.2.6. (f) CASH FLOWS FROM DISCONTINUED OPERATIONS.
      7. 14.2.7. (g) EXTRAORDINARY ITEMS.
      8. 14.2.8. (h) ACCOUNTING CHANGES AND PRIOR PERIOD ADJUSTMENTS.
        1. 14.2.8.1. (i) Business Combinations.
    3. 14.3. WORKSHEET TECHNIQUE
      1. 14.3.1. (a) DIRECT METHOD.
      2. 14.3.2. (b) INDIRECT METHOD.
      3. 14.3.3. (c) CONVERSION OF INDIRECT TO DIRECT METHOD OF OPERATING CASH FLOW.
    4. 14.4. FOREIGN CURRENCY CASH FLOWS
      1. 14.4.1. (a) CONSOLIDATING FOREIGN OPERATIONS.
      2. 14.4.2. (b) PRESENTATION OF THE EFFECTS OF EXCHANGE RATE CHANGES ON CASH BALANCE.
      3. 14.4.3. (c) EXCHANGE RATE GAINS OR LOSSES.
      4. 14.4.4. (d) DETERMINING EXCHANGE GAIN OR LOSS MODIFIED BY STATEMENT OF FINANCIAL ACCOUNTING NO. 95.
      5. 14.4.5. (e) FOREIGN CURRENCY TRANSACTIONS.
      6. 14.4.6. (f) TRANSLATION OF FOREIGN OPERATIONS—A CASE.
    5. 14.5. DISCLOSURE
      1. 14.5.1. (a) SUMMARY OF REQUIRED DISCLOSURES.
      2. 14.5.2. (b) CASH FLOWS PER SHARE.
    6. 14.6. APPLICATION OF STATEMENT OF CASH FLOWS TO SPECIAL INDUSTRIES
    7. 14.7. SOURCES AND SUGGESTED REFERENCES
  19. 15. INTERIM FINANCIAL STATEMENTS
    1. 15.1. IMPORTANCE OF INTERIM FINANCIAL INFORMATION: TIMELY DISCLOSURE
    2. 15.2. APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO INTERIM FINANCIAL STATEMENTS
      1. 15.2.1. (a) ALTERNATIVE VIEWS.
        1. 15.2.1.1. (i) The Discrete View.
        2. 15.2.1.2. (ii) The Integral View.
      2. 15.2.2. (b) CONCERNS COMMON TO BOTH VIEWS.
      3. 15.2.3. (c) CURRENT VIEW OF APPLICATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO INTERIM REPORTING.
    3. 15.3. MEASUREMENT PRINCIPLES FOR INTERIM REPORTING
      1. 15.3.1. (a) REVENUE.
      2. 15.3.2. (b) COSTS AND EXPENSES.
      3. 15.3.3. (c) COSTS ASSOCIATED WITH REVENUE.
        1. 15.3.3.1. (i) Gross Profit Estimation.
        2. 15.3.3.2. (ii) LIFO.
        3. 15.3.3.3. (iii) Illustrations of LIFO Liquidation.
        4. 15.3.3.4. (iv) Market below Cost.
        5. 15.3.3.5. (v) Standard Cost.
      4. 15.3.4. (d) OTHER COSTS AND EXPENSES.
      5. 15.3.5. (e) INCOME TAX PROVISIONS.
      6. 15.3.6. (f) DISPOSAL OF A SEGMENT OF A BUSINESS AND EXTRAORDINARY ITEMS.
      7. 15.3.7. (g) ACCOUNTING CHANGES.
    4. 15.4. DISCLOSURE OF INTERIM FINANCIAL INFORMATION
      1. 15.4.1. (a) VARIATIONS IN DISCLOSURE.
      2. 15.4.2. (b) MINIMUM DISCLOSURE FOR PUBLIC COMPANIES.
      3. 15.4.3. (c) DISCLOSURE REQUIREMENTS OF STOCK EXCHANGES.
      4. 15.4.4. (d) SECURITIES AND EXCHANGE COMMISSION REQUIREMENTS FOR INTERIM REPORTING.
    5. 15.5. ROLE OF THE INDEPENDENT AUDITOR
      1. 15.5.1. (a) ROLE OF THE INDEPENDENT AUDITOR.
      2. 15.5.2. (b) THE OBJECTIVES AND PROCEDURES FOR A REVIEW OF INTERIM FINANCIAL INFORMATION.
    6. 15.6. SOURCES AND SUGGESTED REFERENCES
  20. 16. ANALYZING FINANCIAL STATEMENTS
    1. 16.1. SCOPE OF FINANCIAL STATEMENT ANALYSIS
      1. 16.1.1. (a) EXTERNAL USERS OF PUBLISHED FINANCIAL STATEMENTS.
      2. 16.1.2. (b) USER GROUPS AND THEIR ANALYTICAL OBJECTIVES.
        1. 16.1.2.1. (i) Equity Investors.
        2. 16.1.2.2. (ii) Creditors.
      3. 16.1.3. (c) SOURCES OF FINANCIAL INFORMATION.
      4. 16.1.4. (d) FRAMEWORK FOR ANALYSIS.
    2. 16.2. INCOME STATEMENT ANALYSIS
      1. 16.2.1. (a) THE CONCEPTS OF EARNING POWER AND RISK.
      2. 16.2.2. (b) SALES AND REVENUE ANALYSIS.
        1. 16.2.2.1. (i) Trend Analysis.
        2. 16.2.2.2. (ii) Variability.
        3. 16.2.2.3. (iii) Components of Sales Trends.
        4. 16.2.2.4. (iv) Comparative Trend Analysis.
      3. 16.2.3. (c) COST AND EXPENSE ANALYSIS.
        1. 16.2.3.1. (i) Classification of Costs.
        2. 16.2.3.2. (ii) Margin Analysis.
        3. 16.2.3.3. (iii) Analytical Adjustments.
        4. 16.2.3.4. (iv) Operating Leverage.
        5. 16.2.3.5. (v) Fixed Charges.
        6. 16.2.3.6. (vi) Preferred Dividend Coverage.
      4. 16.2.4. (d) INCOME TAX ANALYSIS.
      5. 16.2.5. (e) EARNING POWER ANALYSIS.
    3. 16.3. ACCOUNTING AND REPORTING ISSUES
      1. 16.3.1. (a) THE QUALITY OF EARNINGS.
      2. 16.3.2. (b) INVENTORY.
      3. 16.3.3. (c) DEPRECIATION.
      4. 16.3.4. (d) EXPENSE DEFERRALS.
      5. 16.3.5. (e) REVENUE RECOGNITION.
      6. 16.3.6. (f) DISCONTINUED OPERATIONS, EXTRAORDINARY GAINS (LOSSES), AND UNUSUAL ITEMS.
      7. 16.3.7. (g) CHANGING PRICES.
      8. 16.3.8. (h) FOREIGN OPERATIONS.
      9. 16.3.9. (i) POSTEMPLOYMENT BENEFITS.
        1. 16.3.9.1. (i) Analysis of SFAS No. 106 Disclosures.
        2. 16.3.9.2. (ii) Impact of Actuarial Assumptions.
        3. 16.3.9.3. (iii) Impact of Mergers and Acquisitions.
      10. 16.3.10. (j) MERGERS AND ACQUISITIONS.
      11. 16.3.11. (k) PUSH DOWN ACCOUNTING.
      12. 16.3.12. (l) ANALYSIS OF SEGMENT DATA.
      13. 16.3.13. (m) ANALYSIS OF INTERIM RESULTS.
      14. 16.3.14. (n) INTERNATIONAL REPORTING DIFFERENCES.
        1. 16.3.14.1. (i) International Accounting Standards Board (IASB).
        2. 16.3.14.2. (ii) Reporting by Foreign Issuers in the United States.
      15. 16.3.15. (o) ANALYSIS OF INVESTMENTS.
      16. 16.3.16. (p) STOCK COMPENSATION PLANS.
      17. 16.3.17. (q) EARNINGS PER SHARE.
    4. 16.4. BALANCE SHEET ANALYSIS
      1. 16.4.1. (a) ELEMENTS OF THE BALANCE SHEET.
      2. 16.4.2. (b) LIQUIDITY ANALYSIS.
        1. 16.4.2.1. (i) Analytical Ratios.
          1. 16.4.2.1.1. Using the Ratios.
          2. 16.4.2.1.2. Seasonal and Cyclical Factors.
          3. 16.4.2.1.3. A Fast Turnover Business.
          4. 16.4.2.1.4. A Slow Turnover Business.
        2. 16.4.2.2. (ii) Activity Ratios.
      3. 16.4.3. (c) ANALYSIS OF LONG-TERM ASSETS AND LIABILITIES.
        1. 16.4.3.1. (i) Fixed Asset Turnover Ratio.
        2. 16.4.3.2. (ii) Capitalization Analysis.
        3. 16.4.3.3. (iii) Capitalization Table.
        4. 16.4.3.4. (iv) Debt Ratios.
        5. 16.4.3.5. (v) Preferred Stock Ratios.
        6. 16.4.3.6. (vi) Off-Balance-Sheet (OBS) Obligations.
        7. 16.4.3.7. (vii) Examples of Off-Balance-Sheet Financing Techniques.
          1. 16.4.3.7.1. Accounts Receivable.
          2. 16.4.3.7.2. Inventories.
          3. 16.4.3.7.3. Fixed Assets.
          4. 16.4.3.7.4. Joint Ventures.
          5. 16.4.3.7.5. Investments.
          6. 16.4.3.7.6. Currency and Interest-rate Exposure.
        8. 16.4.3.8. (viii) Property Analysis.
    5. 16.5. CASH FLOW ANALYSIS
      1. 16.5.1. (a) DIRECT VERSUS INDIRECT METHODS.
      2. 16.5.2. (b) COMPARING CASH FLOWS.
    6. 16.6. INTEGRATED ANALYSIS OF FINANCIAL STATEMENTS
    7. 16.7. FIXED INCOME ANALYSIS
      1. 16.7.1. (a) EARNINGS PROTECTION.
    8. 16.8. FINANCE COMPANY DEBT ANALYSIS
      1. 16.8.1. (a) THE OPERATING AGREEMENT.
      2. 16.8.2. (b) ASSET PROTECTION RATIOS.
      3. 16.8.3. (c) RESERVE AND LOSS RATIOS.
      4. 16.8.4. (d) LOAN SPREADS.
      5. 16.8.5. (e) LIQUIDITY.
      6. 16.8.6. (f) CAPITALIZATION.
    9. 16.9. GLOSSARY
    10. 16.10. SOURCES AND SUGGESTED REFERENCES
  21. 17. PRICE-CHANGE REPORTING
    1. 17.1. FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 33
      1. 17.1.1. (a) INFLATION REPORTING.
      2. 17.1.2. (b) CURRENT COST REPORTING.
    2. 17.2. THE RELATIONSHIP BETWEEN INFLATION REPORTING AND CURRENT COST REPORTING
    3. 17.3. THE FAILURE OF FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 33
      1. 17.3.1. (a) THE BACKGROUND OF FINANCIAL ACCOUTING STANDARDS BOARD STATEMENT NO. 33.
      2. 17.3.2. (b) THE DEFECTS OF FINANCIAL ACCOUTING STANDARDS BOARD STATEMENT NO. 33.
        1. 17.3.2.1. (i) The Use of Supplementary Statements.
        2. 17.3.2.2. (ii) The Use of Current Buying Prices.
      3. 17.3.3. (c) A MIXED BLESSING.
      4. 17.3.4. (d) A NOBLE FAILURE.
    4. 17.4. SOURCES AND SUGGESTED REFERENCES
  22. 18. CASH, TRANSFERS OF FINANCIAL ASSETS, LOANS, AND INVESTMENTS
    1. 18.1. 18.1 INTRODUCTION TO CASH
      1. 18.1.1. (a) NATURE AND IMPORTANCE OF CASH.
      2. 18.1.2. (b) CASH ACCOUNTING AND CONTROL.
      3. 18.1.3. (c) MISREPRESENTED CASH BALANCES.
    2. 18.2. 18.2 ACCOUNTING FOR AND REPORTING CASH
      1. 18.2.1. (a) CLASSIFICATION AND PRESENTATION.
      2. 18.2.2. (b) DEFINITION OF CASH.
      3. 18.2.3. (c) RESTRICTED CASH.
      4. 18.2.4. (d) BANK OVERDRAFTS.
      5. 18.2.5. (e) FOREIGN BALANCES.
      6. 18.2.6. (f) COMPENSATING CASH BALANCES.
        1. 18.2.6.1. (i) Disclosure.
        2. 18.2.6.2. (ii) Segregation in the Balance Sheet.
      7. 18.2.7. (g) UNUSED LINES OF CREDIT.
        1. 18.2.7.1. (i) Fee Paid for Future Credit Availability.
        2. 18.2.7.2. (ii) Disclosure.
      8. 18.2.8. (h) CONCENTRATION OF CREDIT RISK.
      9. 18.2.9. (i) FAIR VALUE DISCLOSURES.
    3. 18.3. TRANSFERS OF FINANCIAL ASSETS
      1. 18.3.1. (a) INTRODUCTION.
      2. 18.3.2. (b) GENERAL PROVISIONS.
      3. 18.3.3. (c) TRANSFERS ACCOUNTED FOR AS A SALE.
      4. 18.3.4. (d) SECURED BORROWINGS AND COLLATERAL.
      5. 18.3.5. (e) FINANCIAL ASSETS SUBJECT TO PREPAYMENT.
      6. 18.3.6. (f) SERVICING ASSETS AND LIABILITIES.
      7. 18.3.7. (g) REPURCHASE AGREEMENTS AND "WASH SALES".
      8. 18.3.8. (h) LOAN SYNDICATIONS.
      9. 18.3.9. (i) LOAN PARTICIPATIONS.
      10. 18.3.10. (j) BANKERS' ACCEPTANCES AND RISK PARTICIPATIONS IN THEM.
      11. 18.3.11. (k) FACTORING ARRANGEMENTS.
      12. 18.3.12. (l) TRANSFERS OF RECEIVABLES WITH RECOURSE.
      13. 18.3.13. (m) EXTINGUISHMENTS OF LIABILITIES.
      14. 18.3.14. (n) DISCLOSURES.
    4. 18.4. LOANS
      1. 18.4.1. (a) INTRODUCTION.
      2. 18.4.2. (b) INITIAL RECOGNITION AND MEASUREMENT.
      3. 18.4.3. (c) LOAN IMPAIRMENT AND INCOME RECOGNITION.
        1. 18.4.3.1. (i) Impairment Measurement Guidelines.
        2. 18.4.3.2. (ii) Income Recognition.
      4. 18.4.4. (d) TROUBLED DEBT RESTRUCTURINGS.
      5. 18.4.5. (e) NOTES RECEIVED FOR CAPITAL STOCK.
      6. 18.4.6. (f) DISCLOSURES.
    5. 18.5. DEBT SECURITIES
      1. 18.5.1. (a) INTRODUCTION.
      2. 18.5.2. (b) INITIAL RECOGNITION AND MEASUREMENT.
        1. 18.5.2.1. (i) Held-to-Maturity.
        2. 18.5.2.2. (ii) Trading.
        3. 18.5.2.3. (iii) Available-for-Sale.
      3. 18.5.3. (c) ACCOUNTING AFTER ACQUISITION.
        1. 18.5.3.1. (i) Held-to-Maturity.
        2. 18.5.3.2. (ii) Trading.
        3. 18.5.3.3. (iii) Available-for-Sale.
        4. 18.5.3.4. (iv) Transfers between Categories.
      4. 18.5.4. (d) IMPAIRMENT.
      5. 18.5.5. (e) REPORTING COMPREHENSIVE INCOME.
      6. 18.5.6. (f) DISCLOSURES.
    6. 18.6. EQUITY SECURITIES
      1. 18.6.1. (a) INTRODUCTION.
      2. 18.6.2. (b) INITIAL RECOGNITION AND MEASUREMENT.
      3. 18.6.3. (c) ACCOUNTING AFTER ACQUISITION.
      4. 18.6.4. (d) IMPAIRMENT.
      5. 18.6.5. (e) TRANSFERS BETWEEN CATEGORIES.
      6. 18.6.6. (f) REPORTING COMPREHENSIVE INCOME.
      7. 18.6.7. (g) DISCLOSURES.
    7. 18.7. SOURCES AND SUGGESTED REFERENCES
  23. 19. REVENUES AND RECEIVABLES
    1. 19.1. NATURE AND MEASUREMENT OF REVENUE
      1. 19.1.1. (a) DEFINITION AND COMPONENTS OF REVENUE.
      2. 19.1.2. (b) CLASSIFICATION OF REVENUE.
      3. 19.1.3. (c) MEASUREMENT, EARNING, REALIZATION, AND RECOGNITION OF REVENUE.
        1. 19.1.3.1. (i) Measurement of Revenue.
        2. 19.1.3.2. (ii) Earning of Revenue.
        3. 19.1.3.3. (iii) Revenue Realization and Recognition.
      4. 19.1.4. (d) REVENUE RECOGNITION ALTERNATIVES.
        1. 19.1.4.1. (i) Delivery.
          1. 19.1.4.1.1. Objections to Using Delivery.
        2. 19.1.4.2. (ii) Recognition before Delivery.
          1. 19.1.4.2.1. Construction Contracts.
          2. 19.1.4.2.2. Extractive Industries and Agriculture.
          3. 19.1.4.2.3. Accretion.
          4. 19.1.4.2.4. Appreciation.
          5. 19.1.4.2.5. Cost Savings versus Revenue.
        3. 19.1.4.3. (iii) Recognition after Delivery.
          1. 19.1.4.3.1. Installment Method and Cost Recovery Method.
          2. 19.1.4.3.2. Deposit Method.
    2. 19.2. NATURE AND SIGNIFICANCE OF RECEIVABLES
      1. 19.2.1. (a) RECEIVABLES DEFINED.
      2. 19.2.2. (b) TYPES OF ACCOUNTS RECEIVABLE.
      3. 19.2.3. (c) TYPES OF NOTES RECEIVABLE.
      4. 19.2.4. (d) CREDIT CARD RECEIVABLES.
    3. 19.3. CRITERIA FOR RECOGNIZING REVENUE
      1. 19.3.1. (a) GENERAL CRITERIA.
      2. 19.3.2. (b) ATTRIBUTES MEASURED BY ENTRY AND EXIT VALUES.
      3. 19.3.3. (c) FINANCIAL ACCOUNTING STANDARDS BOARD CONCEPTUAL FRAMEWORK AND REVENUE RECOGNITION.
      4. 19.3.4. (d) SPECIFIC RECOGNITION CRITERIA.
      5. 19.3.5. (e) CHARACTERISTICS OF THE REVENUE EVENT OR TRANSACTION.
        1. 19.3.5.1. (i) Nonreversibility.
        2. 19.3.5.2. (ii) Transfer of the Risks and Rewards of Ownership.
        3. 19.3.5.3. (iii) Recognition Based on Events.
      6. 19.3.6. (f) CHARACTERISTICS OF THE ASSET RECEIVED.
        1. 19.3.6.1. (i) Asset Liquidity.
        2. 19.3.6.2. (ii) Absence of Obligations and Restrictions.
        3. 19.3.6.3. (iii) Asset Collectibility.
        4. 19.3.6.4. (iv) Asset Measurability.
      7. 19.3.7. (g) CHARACTERISTICS OF THE REVENUE RECOGNIZED.
      8. 19.3.8. (h) SECURITIES AND EXCHANGE COMMISSION STAFF'S VIEWS ON RECOGNIZING REVENUES.
        1. 19.3.8.1. (i) Persuasive Evidence of an Arrangement.
        2. 19.3.8.2. (ii) Delivery and Performance.
        3. 19.3.8.3. (iii) Fixed or Determinable Sales Price.
        4. 19.3.8.4. (iv) Sales of Leased or Licensed Departments.
        5. 19.3.8.5. (v) Staff Accounting Bulletin No. 104.
        6. 19.3.8.6. (vi) Revenue Recognition Criteria Used Outside the United States.
    4. 19.4. TYPES OF REVENUE TRANSACTIONS
      1. 19.4.1. (a) SPECIAL REVENUE RECOGNITION PROBLEMS.
        1. 19.4.1.1. (i) Revenue Recognition Problems Discussed in Other Chapters.
        2. 19.4.1.2. (ii) Transfers of Receivables.
        3. 19.4.1.3. (iii) Product Financing Arrangements.
        4. 19.4.1.4. (iv) Revenue Recognition When Right of Return Exists.
        5. 19.4.1.5. (v) Service Transactions.
        6. 19.4.1.6. (vi) Sales of Future Revenues.
        7. 19.4.1.7. (vii) Barter Transactions Involving Barter Credits.
        8. 19.4.1.8. (viii) Revenue Recognition for Separately Priced Extended Warranty and Product Maintenance Contracts.
        9. 19.4.1.9. (ix) Sales with Multiple Deliverables.
        10. 19.4.1.10. (x) Inventory Purchases and Sales with Same Counterparty.
      2. 19.4.2. (b) SPECIALIZED INDUSTRY PROBLEMS.
        1. 19.4.2.1. (i) Specialized Industries Discussed in Other Chapters.
        2. 19.4.2.2. (ii) Cable Television Companies.
        3. 19.4.2.3. (iii) Franchising Companies.
        4. 19.4.2.4. (iv) Record and Music Industry.
        5. 19.4.2.5. (v) Motion Picture Films; Broadcasting Industry.
        6. 19.4.2.6. (vi) Software Revenue Recognition.
        7. 19.4.2.7. (vii) Internet Companies.
      3. 19.4.3. (c) NEED FOR ADDITIONAL GUIDANCE.
      4. 19.4.4. (d) FINANCIAL ACCOUNTING STANDARDS BOARD PROJECT ON REVENUE RECOGNITION.
    5. 19.5. REVENUE ADJUSTMENTS AND AFTERCOSTS
      1. 19.5.1. (a) NATURE OF REVENUE ADJUSTMENTS AND AFTERCOSTS.
      2. 19.5.2. (b) SALES RETURNS.
      3. 19.5.3. (c) SALES ALLOWANCES.
      4. 19.5.4. (d) SALES INCENTIVES.
        1. 19.5.4.1. (i) Cash or Equity Consideration.
        2. 19.5.4.2. (ii) Other Forms of Consideration.
        3. 19.5.4.3. (iii) Customers' Accounting for Sales Incentives.
      5. 19.5.5. (e) UNCOLLECTIBLE RECEIVABLES.
        1. 19.5.5.1. (i) Percentage-of-Sales Method.
        2. 19.5.5.2. (ii) Percentage-of-Receivables Method.
        3. 19.5.5.3. (iii) Aging-of-Receivables Method.
      6. 19.5.6. (f) WARRANTIES AND GUARANTEES.
      7. 19.5.7. (g) OBLIGATIONS RELATED TO PRODUCT DEFECTS.
    6. 19.6. ANCILLARY REVENUE
      1. 19.6.1. (a) DIVIDENDS.
      2. 19.6.2. (b) INTEREST.
      3. 19.6.3. (c) PROFITS ON SALES OF MISCELLANEOUS ASSETS.
      4. 19.6.4. (d) RENTS.
      5. 19.6.5. (e) ROYALTIES.
      6. 19.6.6. (f) BY-PRODUCT, JOINT PRODUCT, AND SCRAP SALES.
      7. 19.6.7. (g) SHIPPING AND HANDLING FEES.
      8. 19.6.8. (h) LOAN GUARANTEES.
    7. 19.7. STATEMENT PRESENTATION
      1. 19.7.1. (a) INCOME STATEMENT AND REVENUE-RELATED DISCLOSURES.
      2. 19.7.2. (b) BALANCE SHEET DISCLOSURES.
        1. 19.7.2.1. (i) Presentation of Single-Payment Accounts Receivable.
        2. 19.7.2.2. (ii) Presentation of Installment Receivables.
        3. 19.7.2.3. (iii) Interest on Receivables.
    8. 19.8. SOURCES AND SUGGESTED REFERENCES
  24. 20. INVENTORY
    1. 20.1. OVERVIEW
    2. 20.2. ESSENTIAL INVENTORY CONCEPTS
      1. 20.2.1. (a) INVENTORY AS AN ASSET.
      2. 20.2.2. (b) DEFINITION OF INVENTORY.
      3. 20.2.3. (c) OBJECTIVES OF ACCOUNTING FOR INVENTORY.
    3. 20.3. TYPES OF INVENTORY
      1. 20.3.1. (a) RETAIL–WHOLESALE.
      2. 20.3.2. (b) MANUFACTURING.
        1. 20.3.2.1. (i) Raw Materials.
        2. 20.3.2.2. (ii) Work in Process.
        3. 20.3.2.3. (iii) Finished Goods.
        4. 20.3.2.4. (iv) Supplies.
      3. 20.3.3. (c) CONSIGNMENT.
      4. 20.3.4. (d) TRADE-IN.
      5. 20.3.5. (e) REPOSSESSED.
      6. 20.3.6. (f) CONTRACT PRODUCTION.
      7. 20.3.7. (g) PRODUCTS MATURING IN MORE THAN ONE YEAR.
      8. 20.3.8. (h) SPARE PARTS.
        1. 20.3.8.1. (i) Miscellaneous.
    4. 20.4. DETERMINING PHYSICAL QUANTITIES
      1. 20.4.1. (a) INTRODUCTION.
      2. 20.4.2. (b) PERIODIC SYSTEM.
        1. 20.4.2.1. (i) Physical Count Procedures.
        2. 20.4.2.2. (ii) Cutoff.
      3. 20.4.3. (c) PERPETUAL SYSTEM.
        1. 20.4.3.1. (i) Record-Keeping Procedures.
        2. 20.4.3.2. (ii) Cutoff.
      4. 20.4.4. (d) PROCEDURES TO CONTROL INVENTORY QUANTITIES.
    5. 20.5. VALUATION METHODS
      1. 20.5.1. (a) COST.
        1. 20.5.1.1. (i) Job-Order Costing.
        2. 20.5.1.2. (ii) Process Costing.
        3. 20.5.1.3. (iii) Direct Material Component.
        4. 20.5.1.4. (iv) Direct Labor Component.
        5. 20.5.1.5. (v) Overhead Component.
        6. 20.5.1.6. (vi) Overhead Allocation.
      2. 20.5.2. (b) LOWER OF COST OR MARKET.
        1. 20.5.2.1. (i) LIFO Considerations.
      3. 20.5.3. (c) RETAIL METHOD.
      4. 20.5.4. (d) ABOVE COST.
      5. 20.5.5. (e) REPLACEMENT COST.
      6. 20.5.6. (f) NET REALIZABLE VALUE.
      7. 20.5.7. (g) GROSS MARGIN METHOD.
      8. 20.5.8. (h) IN CONNECTION WITH A PURCHASE BUSINESS COMBINATION.
      9. 20.5.9. (i) CONTROL PROCEDURES TO HELP ACHIEVE A PROPER INVENTORY VALUATION.
    6. 20.6. FLOW OF COSTS
      1. 20.6.1. (a) INTRODUCTION.
      2. 20.6.2. (b) FIRST-IN, FIRST-OUT.
      3. 20.6.3. (c) LAST-IN, FIRST-OUT.
        1. 20.6.3.1. (i) Specific Goods Method.
        2. 20.6.3.2. (ii) Dollar-Value Method.
        3. 20.6.3.3. (iii) Double-Extension Technique.
        4. 20.6.3.4. (iv) Link-Chain Technique.
        5. 20.6.3.5. (v) Retail LIFO Method.
        6. 20.6.3.6. (vi) Valuing the Current-Year Layer.
        7. 20.6.3.7. (vii) New Items.
        8. 20.6.3.8. (viii) Other LIFO Matters.
      4. 20.6.4. (d) AVERAGE COST.
      5. 20.6.5. (e) SPECIFIC IDENTIFICATION.
      6. 20.6.6. (f) OTHER ASSUMPTIONS.
    7. 20.7. CONTROL OBJECTIVES AND PROCEDURES
      1. 20.7.1. (a) GENERAL CONTROL PROCEDURES.
        1. 20.7.1.1. (i) Physical Safeguards.
        2. 20.7.1.2. (ii) Written Policies.
        3. 20.7.1.3. (iii) Reconciliations.
        4. 20.7.1.4. (iv) Budgets.
        5. 20.7.1.5. (v) Use of Standard Costs and Analysis of Variances.
      2. 20.7.2. (b) SPECIFIED CONTROL PROCEDURES.
    8. 20.8. EFFECTS OF TAX REGULATIONS
      1. 20.8.1. (a) INTRODUCTION.
      2. 20.8.2. (b) CAPITALIZATION OF INDIRECT COSTS.
      3. 20.8.3. (c) WRITE-DOWNS.
    9. 20.9. FINANCIAL STATEMENT DISCLOSURE REQUIREMENTS
      1. 20.9.1. (a) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES REQUIREMENTS.
      2. 20.9.2. (b) SECURITIES AND EXCHANGE COMMISSION REQUIREMENTS.
    10. 20.10. SOURCES AND SUGGESTED REFERENCES
  25. 21. PROPERTY, PLANT, EQUIPMENT, AND DEPRECIATION
    1. 21.1. NATURE OF PROPERTY, PLANT, AND EQUIPMENT
      1. 21.1.1. (a) DEFINITION.
      2. 21.1.2. (b) CHARACTERISTICS.
      3. 21.1.3. (c) AUTHORITATIVE LITERATURE.
    2. 21.2. COST
      1. 21.2.1. (a) DETERMINING COST.
        1. 21.2.1.1. (i) Acquisition by Exchange.
        2. 21.2.1.2. (ii) Acquisition by Issuing Debt.
        3. 21.2.1.3. (iii) Acquisition by Issuing Stock.
        4. 21.2.1.4. (iv) Mixed Acquisition for Lump Sum.
        5. 21.2.1.5. (v) Donated Assets.
      2. 21.2.2. (b) OVERHEAD ON SELF-CONSTRUCTED ASSETS.
      3. 21.2.3. (c) INTEREST CAPITALIZED.
      4. 21.2.4. (d) COST OF LAND.
        1. 21.2.4.1. (i) Purchase Options.
        2. 21.2.4.2. (ii) Interest.
        3. 21.2.4.3. (iii) Other Carrying Charges.
      5. 21.2.5. (e) COST OF ASSETS HELD FOR RESEARCH AND DEVELOPMENT ACTIVITIES.
    3. 21.3. IMPAIRMENT OF VALUE
      1. 21.3.1. (a) AUTHORITATIVE PRONOUNCEMENTS.
      2. 21.3.2. (b) ASSETS TO BE HELD AND USED.
        1. 21.3.2.1. (i) Recognition.
        2. 21.3.2.2. (ii) Measurement.
      3. 21.3.3. (c) ASSETS TO BE DISPOSED OF.
    4. 21.4. EXPENDITURES DURING OWNERSHIP
      1. 21.4.1. (a) DISTINGUISHING CAPITAL EXPENDITURES FROM OPERATING EXPENDITURES.
      2. 21.4.2. (b) MAINTENANCE AND REPAIRS.
        1. 21.4.2.1. (i) Accounting Alternatives.
        2. 21.4.2.2. (ii) Extraordinary Repairs.
      3. 21.4.3. (c) REPLACEMENTS, IMPROVEMENTS, AND ADDITIONS.
      4. 21.4.4. (d) REHABILITATION.
      5. 21.4.5. (e) REARRANGEMENT AND REINSTALLATION.
      6. 21.4.6. (f) ASBESTOS REMOVAL OR CONTAINMENT.
      7. 21.4.7. (g) COSTS TO TREAT ENVIRONMENTAL CONTAMINATION.
    5. 21.5. DISPOSALS
      1. 21.5.1. (a) RETIREMENTS, SALES, AND TRADE-INS.
      2. 21.5.2. (b) CASUALTIES.
    6. 21.6. ASSET RETIREMENT OBLIGATIONS
      1. 21.6.1. (a) INITIAL RECOGNITION AND MEASUREMENT.
      2. 21.6.2. (b) SUBSEQUENT RECOGNITION AND MEASUREMENT.
    7. 21.7. RECENT DEVELOPMENTS
      1. 21.7.1. (a) PRELIMINARY STAGE.
      2. 21.7.2. (b) PREACQUISITION STAGE.
      3. 21.7.3. (c) ACQUISITION-OR-CONSTRUCTION STAGE.
      4. 21.7.4. (d) IN-SERVICE STAGE.
      5. 21.7.5. (e) PLANNED MAJOR MAINTENANCE ACTIVITIES.
      6. 21.7.6. (f) COMPONENT ACCOUNTING.
      7. 21.7.7. (g) EFFECT ON CURRENT PRACTICE.
    8. 21.8. DEPRECIATION
      1. 21.8.1. (a) DEPRECIATION DEFINED.
      2. 21.8.2. (b) BASIC FACTORS IN THE COMPUTATION OF DEPRECIATION.
    9. 21.9. SERVICE LIFE
      1. 21.9.1. (a) SERVICE LIFE AS DISTINGUISHED FROM PHYSICAL LIFE.
      2. 21.9.2. (b) FACTORS AFFECTING SERVICE LIFE.
        1. 21.9.2.1. (i) Physical Factors.
        2. 21.9.2.2. (ii) Functional Factors.
      3. 21.9.3. (c) THE EFFECT OF MAINTENANCE.
      4. 21.9.4. (d) STATISTICAL METHODS OF ESTIMATING SERVICE LIVES.
      5. 21.9.5. (e) SERVICE LIVES OF LEASEHOLD IMPROVEMENTS.
      6. 21.9.6. (f) REVISIONS OF ESTIMATED SERVICE LIVES.
    10. 21.10. DEPRECIATION BASE
      1. 21.10.1. (a) NET SALVAGE VALUE.
      2. 21.10.2. (b) PROPERTY UNDER CONSTRUCTION.
      3. 21.10.3. (c) IDLE AND AUXILIARY EQUIPMENT.
      4. 21.10.4. (d) ASSETS TO BE DISPOSED OF.
      5. 21.10.5. (e) USED ASSETS.
    11. 21.11. DEPRECIATION METHODS
      1. 21.11.1. (a) STRAIGHT-LINE METHOD.
      2. 21.11.2. (b) USAGE METHODS.
        1. 21.11.2.1. (i) Service-Hours Method.
        2. 21.11.2.2. (ii) Productive-Output Method.
      3. 21.11.3. (c) DECREASING-CHARGE METHODS.
        1. 21.11.3.1. (i) Sum-of-Digits Method.
        2. 21.11.3.2. (ii) Fixed-Percentage-of-Declining-Balance Method.
        3. 21.11.3.3. (iii) Double-Declining-Balance Method.
      4. 21.11.4. (d) INTEREST METHODS.
        1. 21.11.4.1. (i) Annuity Method.
        2. 21.11.4.2. (ii) Sinking-Fund Method.
      5. 21.11.5. (e) OTHER METHODS.
        1. 21.11.5.1. (i) Appraisal Method.
        2. 21.11.5.2. (ii) Retirement and Replacement Methods.
        3. 21.11.5.3. (iii) Arbitrary Assignment.
      6. 21.11.6. (f) DEPRECIATION FOR PARTIAL PERIODS.
      7. 21.11.7. (g) CHANGE IN DEPRECIATION METHOD.
    12. 21.12. DEPRECIATION RATES
      1. 21.12.1. (a) SOURCES OF DEPRECIATION RATES.
      2. 21.12.2. (b) GROUP AND COMPOSITE RATES.
        1. 21.12.2.1. (i) Group Depreciation.
        2. 21.12.2.2. (ii) Composite Depreciation.
      3. 21.12.3. (c) THE EFFECTS OF REPLACEMENTS, IMPROVEMENTS, AND ADDITIONS.
      4. 21.12.4. (d) TOOLS AND RELATED ASSETS.
    13. 21.13. DEPRECIATION FOR TAX PURPOSES
      1. 21.13.1. (a) CURRENT REQUIREMENTS.
      2. 21.13.2. (b) MODIFIED ACCELERATED COST RECOVERY SYSTEM.
      3. 21.13.3. (c) ADDITIONAL FIRST-YEAR DEPRECIATION.
    14. 21.14. FINANCIAL STATEMENT PRESENTATION AND DISCLOSURE
      1. 21.14.1. (a) GENERAL REQUIREMENTS.
      2. 21.14.2. (b) CONSTRUCTION IN PROGRESS.
      3. 21.14.3. (c) GAIN OR LOSS ON RETIREMENT.
      4. 21.14.4. (d) FULLY DEPRECIATED AND IDLE ASSETS.
      5. 21.14.5. (e) IMPAIRMENT OF ASSETS.
        1. 21.14.5.1. (i) Presentation.
        2. 21.14.5.2. (ii) Disclosures for Assets to Be Held and Used.
        3. 21.14.5.3. (iii) Disclosures for Assets to Be Disposed Of.
      6. 21.14.6. (f) SEGMENT INFORMATION.
    15. 21.15. SOURCES AND SUGGESTED REFERENCES
  26. 22. GOODWILL AND OTHER INTANGIBLE ASSETS
    1. 22.1. CHARACTERIZATION OF INTANGIBLE ASSETS
    2. 22.2. ACCOUNTING OVERVIEW
      1. 22.2.1. (a) INTANGIBLE ASSETS AND GOODWILL ACQUIRED IN A BUSINESS COMBINATION.
      2. 22.2.2. (b) INTANGIBLE ASSETS ACQUIRED SEPARATELY OR WITH OTHER ASSETS.
      3. 22.2.3. (c) INTERNALLY DEVELOPED INTANGIBLE ASSETS.
      4. 22.2.4. (d) INTANGIBLE ASSETS RECOGNIZED ON ACQUISITION OF A NONCONTROLLING INTEREST IN A SUBSIDIARY.
      5. 22.2.5. (e) GOODWILL RECOGNIZED WHEN APPLYING THE EQUITY METHOD.
      6. 22.2.6. (f) SPECIFIC GUIDANCE ON CERTAIN INTANGIBLES.
      7. 22.2.7. (g) INTANGIBLE ASSETS IN SPECIALIZED INDUSTRIES.
    3. 22.3. INITIAL RECOGNITION AND MEASUREMENT OF INTANGIBLE ASSETS
      1. 22.3.1. (a) ACQUIRED INTANGIBLE ASSETS.
      2. 22.3.2. (b) INTERNALLY DEVELOPED INTANGIBLE ASSETS.
    4. 22.4. ACCOUNTING FOR INTANGIBLE ASSETS
      1. 22.4.1. (a) DETERMINING THE USEFUL LIFE OF AN INTANGIBLE ASSET.
      2. 22.4.2. (b) INTANGIBLE ASSETS SUBJECT TO AMORTIZATION.
      3. 22.4.3. (c) INTANGIBLE ASSETS NOT SUBJECT TO AMORTIZATION.
    5. 22.5. CERTAIN IDENTIFIABLE INTANGIBLE ASSETS
      1. 22.5.1. (a) COPYRIGHTS.
        1. 22.5.1.1. (i) Capitalizable Amounts for Copyrights.
        2. 22.5.1.2. (ii) Amortization of Copyrights.
      2. 22.5.2. (b) CUSTOMER AND SUPPLIER LISTS.
        1. 22.5.2.1. (i) Capitalizable Amounts for Customer and Supplier Lists.
        2. 22.5.2.2. (ii) Amortization of Customer and Supplier Lists.
      3. 22.5.3. (c) FRANCHISES.
        1. 22.5.3.1. (i) Capitalizable Amounts for Franchise and Amortization Period.
      4. 22.5.4. (d) LEASES AND LEASEHOLD RIGHTS.
        1. 22.5.4.1. (i) Capitalizable Amounts for Favorable Leases and Leasehold Rights.
        2. 22.5.4.2. (ii) Amortization of Favorable Leases.
      5. 22.5.5. (e) ORGANIZATION COSTS.
      6. 22.5.6. (f) PATENTS.
        1. 22.5.6.1. (i) Capitalizable Amounts for Patents.
        2. 22.5.6.2. (ii) Amortization of Patents.
      7. 22.5.7. (g) REGISTRATION COSTS.
      8. 22.5.8. (h) MOVING COSTS.
      9. 22.5.9. (i) RESEARCH AND DEVELOPMENT COSTS.
      10. 22.5.10. (j) ROYALTY AND LICENSE AGREEMENTS.
      11. 22.5.11. (k) SECRET FORMULAS AND PROCESSES.
      12. 22.5.12. (l) START-UP ACTIVITIES.
      13. 22.5.13. (m) TOOLING COSTS.
      14. 22.5.14. (n) TRADEMARKS AND TRADE NAMES.
        1. 22.5.14.1. (i) Capitalizable Amounts for Trademarks and Trade Names Costs.
        2. 22.5.14.2. (ii) Amortization of Trademarks and Trade Names.
      15. 22.5.15. (o) ADVERTISING.
      16. 22.5.16. (p) WEB SITE DEVELOPMENT COSTS.
    6. 22.6. INTANGIBLE ASSETS IN SPECIALIZED INDUSTRIES
      1. 22.6.1. (a) AIRLINES.
      2. 22.6.2. (b) BANKING AND THRIFTS.
      3. 22.6.3. (c) MORTGAGE BANKING.
      4. 22.6.4. (d) BROADCASTING INDUSTRY.
        1. 22.6.4.1. (i) Broadcast Rights.
        2. 22.6.4.2. (ii) Revoked or Nonrenewed Broadcast Licenses.
      5. 22.6.5. (e) CABLE TELEVISION.
      6. 22.6.6. (f) COMPUTER SOFTWARE.
      7. 22.6.7. (g) EXTRACTIVE INDUSTRIES.
      8. 22.6.8. (h) PRODUCERS OR DISTRIBUTORS OF FILMS.
      9. 22.6.9. (i) Public Utilities.
      10. 22.6.10. (j) RECORD AND MUSIC INDUSTRY.
      11. 22.6.11. (k) TIMBER INDUSTRY.
    7. 22.7. ACCOUNTING FOR GOODWILL
      1. 22.7.1. (a) INITIAL VALUATION.
      2. 22.7.2. (b) SUBSEQUENT ACCOUNTING.
        1. 22.7.2.1. (i) Recognition and Measurement of an Impairment Loss.
        2. 22.7.2.2. (ii) Fair Value Measurements.
        3. 22.7.2.3. (iii) When to Test Goodwill for Impairment.
        4. 22.7.2.4. (iv) Reporting Unit.
        5. 22.7.2.5. (v) Goodwill Impairment Testing by a Subsidiary.
        6. 22.7.2.6. (vi) Goodwill Impairment Testing.
        7. 22.7.2.7. (vii) Disposal of All or a Portion of a Reporting Unit.
        8. 22.7.2.8. (viii) Equity Method Investments.
        9. 22.7.2.9. (ix) Entities Emerging from Bankruptcy.
    8. 22.8. DEFERRED INCOME TAXES
    9. 22.9. FINANCIAL STATEMENT PRESENTATION
      1. 22.9.1. (a) INTANGIBLE ASSETS.
      2. 22.9.2. (b) GOODWILL.
    10. 22.10. DISCLOSURES
    11. 22.11. EFFECTIVE DATE AND TRANSITION PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142
      1. 22.11.1. (a) GOODWILL AND INTANGIBLE ASSETS ACQUIRED AFTER JUNE 30, 2001.
      2. 22.11.2. (b) PREVIOUSLY RECOGNIZED INTANGIBLE ASSETS.
      3. 22.11.3. (c) PREVIOUSLY RECOGNIZED GOODWILL.
      4. 22.11.4. (d) EQUITY METHOD GOODWILL.
      5. 22.11.5. (e) TRANSITIONAL DISCLOSURES.
    12. 22.12. SOURCES AND SUGGESTED REFERENCES
  27. 23. LEASES
    1. 23.1. INTRODUCTION AND BACKGROUND INFORMATION
      1. 23.1.1. (a) FINANCING ADVANTAGES OF LEASING.
      2. 23.1.2. (b) FINANCING DISADVANTAGES OF LEASING.
    2. 23.2. ACCOUNTING ISSUES AND PRONOUNCEMENTS
      1. 23.2.1. (a) LEASE ACCOUNTING CLASSIFICATION—LESSEE.
      2. 23.2.2. (b) LEASE ACCOUNTING CLASSIFICATION—LESSOR.
      3. 23.2.3. (c) DEFINITIONS OF LEASE TERMS.
    3. 23.3. OPERATING LEASES
      1. 23.3.1. (a) LESSEE ACCOUNTING FOR OPERATING LEASES.
      2. 23.3.2. (b) LESSEE DISCLOSURES FOR OPERATING LEASES.
      3. 23.3.3. (c) LESSOR ACCOUNTING FOR OPERATING LEASES.
      4. 23.3.4. (d) AN EXAMPLE OF OPERATING LEASES.
    4. 23.4. CAPITAL LEASES
      1. 23.4.1. (a) ACCOUNTING FOR CAPITAL LEASES.
      2. 23.4.2. (b) DISCLOSURE FOR CAPITAL LEASES.
      3. 23.4.3. (c) AN EXAMPLE OF CAPITAL LEASE—LESSEE.
        1. 23.4.3.1. (i) Minimum Lease Payments.
        2. 23.4.3.2. (ii) Lease Classification.
        3. 23.4.3.3. (iii) Lessee Accounting at Inception.
        4. 23.4.3.4. (iv) Lessee Depreciation.
        5. 23.4.3.5. (v) Lease Payments.
    5. 23.5. DIRECT FINANCING LEASES
      1. 23.5.1. (a) ACCOUNTING FOR DIRECT FINANCING LEASES.
      2. 23.5.2. (b) AN EXAMPLE OF DIRECT FINANCING LEASES.
    6. 23.6. SALES-TYPE LEASES
      1. 23.6.1. (a) ACCOUNTING FOR SALES-TYPE LEASES.
      2. 23.6.2. (b) AN EXAMPLE OF SALES-TYPE LEASES.
    7. 23.7. SALE OR ASSIGNMENT OF A LEASE OR OF PROPERTY SUBJECT TO A LEASE ACCOUNTED FOR AS A SALES-TYPE OR DIRECT FINANCING LEASE
    8. 23.8. LEVERAGED LEASES
      1. 23.8.1. (a) LEVERAGED LEASE ACCOUNTING.
        1. 23.8.1.1. (i) Characteristics of a Leveraged Lease.
        2. 23.8.1.2. (ii) Lessee Accounting.
        3. 23.8.1.3. (iii) Lessor Accounting for Investment.
        4. 23.8.1.4. (iv) Lessor Recognition of Income.
      2. 23.8.2. (b) LEVERAGED LEASE DISCLOSURES.
    9. 23.9. REAL ESTATE LEASES
      1. 23.9.1. (a) LEASES INVOLVING LAND ONLY.
      2. 23.9.2. (b) LEASES INVOLVING LAND AND BUILDINGS.
      3. 23.9.3. (c) LEASES INVOLVING LAND AND EQUIPMENT.
      4. 23.9.4. (d) LEASES INVOLVING ONLY PART OF A BUILDING.
    10. 23.10. SELECTED ISSUES IN LEASE ACCOUNTING
      1. 23.10.1. (a) PARTICIPATION BY THIRD PARTIES.
      2. 23.10.2. (b) RELATED PARTY LEASES.
      3. 23.10.3. (c) SUBLEASES.
      4. 23.10.4. (d) CHANGES IN THE PROVISIONS OF LEASES.
      5. 23.10.5. (e) RENEWAL, EXTENSION, OR TERMINATION OF LEASES.
      6. 23.10.6. (f) LEASES AND BUSINESS COMBINATIONS.
      7. 23.10.7. (g) CHANGE IN RESIDUAL VALUE.
      8. 23.10.8. (h) SALE AND LEASEBACK.
        1. 23.10.8.1. (i) Lessee Accounting.
        2. 23.10.8.2. (ii) Lessor Accounting.
        3. 23.10.8.3. (iii) Sale-Leaseback for Real Estate.
        4. 23.10.8.4. (i) GUIDANCE FOR SELECTED LEASING TRANSACTIONS.
        5. 23.10.8.5. (i) EITF Abstracts No. 84-37—Sale-Leaseback Transaction with Repurchase Option
          1. 23.10.8.5.1. Emerging Issues Task Force Discussion.
        6. 23.10.8.6. (ii) EITF Abstracts No. 86-17—Deferred Profit on Sale-Leaseback Transaction with Lessee Guarantee of Residual Value
        7. 23.10.8.7. (iii) EITF Abstracts No. 88-21—Accounting for the Sale of Property Subject to the Seller's Pre-Existing Lease
        8. 23.10.8.8. (iv) EITF Abstracts No. 89-16—Consideration of Executory Costs in Sale-Leaseback Transactions
        9. 23.10.8.9. (v) EITF Abstracts No. 89-20—Accounting for Cross-Border Tax Benefit Leases
        10. 23.10.8.10. (vi) EITF Abstracts No. 90-14—Unsecured Guarantee by Parent of Subsidiary's Lease Payments in a Sale-Leaseback Transaction
        11. 23.10.8.11. (vii) EITF Abstracts No. 90-20—Impact of an Uncollateralized Irrevocable Letter of Credit on a Real Estate Sale-Leaseback Transaction
        12. 23.10.8.12. (viii) EITF Abstracts No. 92-1—Allocation of Residual Value or First-Loss Guarantee to Minimum Lease Payments in Lease Involving Land and Building(s)
        13. 23.10.8.13. (ix) EITF Abstracts No. 93-8—Accounting for the Sale and Leaseback of an Asset That Is Leased to Another Party
        14. 23.10.8.14. (x) EITF Abstracts No. 95-1—Revenue Recognition on Sales with a Guaranteed Minimum
        15. 23.10.8.15. (xi) EITF Abstracts No. 95-4—Revenue Recognition on Equipment Sold and Subsequently Repurchased Subject to an Operating Lease
        16. 23.10.8.16. (xii) EITF Abstracts No. 95-17—Accounting for Modifications to an Operating Lease That Do Not Change the Lease Classification
        17. 23.10.8.17. (xiii) EITF Abstracts No. 96-21—Implementation Issues in Accounting for Leasing Transactions Involving Special-Purpose Entities
          1. 23.10.8.17.1. EITF Discussion
        18. 23.10.8.18. (xiv) EITF Abstracts No. 97-1—Implementation Issues in Accounting for Lease Transactions, Including Those Involving Special-Purpose Entities
        19. 23.10.8.19. (xv) EITF Abstracts No. 97-10—The Effect of Lessee Involvement in Asset Construction
        20. 23.10.8.20. (xvi) EITF Abstracts No. 98-9—Accounting for Contingent Rent
        21. 23.10.8.21. (xvii) EITF Abstracts No. 00-11—Lessors' Evaluation of Whether Leases of Certain Integral Equipment Meet the Ownership Transfer Requirements of FASB Statement No. 13
        22. 23.10.8.22. (xviii) EITF Abstracts No. 00-13—Determining Whether Equipment Is "Integral Equipment" Subject to FASB Statements No. 66 and No. 98
        23. 23.10.8.23. (xix) EITF Abstracts No. 01-8—Determining Whether an Arrangement Contains a Lease
        24. 23.10.8.24. (xx) EITF Abstracts No. 01-12—The Impact of the Requirements of FASB Statement No. 133 on Residual Value Guarantees in Connection with a Lease
        25. 23.10.8.25. (xxi) EITF Abstracts No. 03-12—Impact of FASB Interpretation No. 45 on Issue No. 95-1
      9. 23.10.9. (j) ARE ACTIVE LEASES EXECUTORY CONTRACTS?
      10. 23.10.10. (k) SHOULD ALL ACTIVE NONCANCELABLE LEASES OF LESSEES BE REPORTED AS PROVIDING ASSETS AND CAUSING LIABILITIES?
    11. 23.11. EXAMPLES OF LEASE DISCLOSURE
    12. 23.12. THE FASB ADDS LEASE ACCOUNTING BACK ON IT'S AGENDA
    13. 23.13. SOURCES AND SUGGESTED REFERENCES
  28. 24. ACCOUNTING FOR INCOME TAXES
    1. 24.1. ACCOUNTING RECOGNITION OF INCOME TAXES
      1. 24.1.1. (a) THE BASIC PROBLEM.
      2. 24.1.2. (b) TAX RECOGNITION CONCEPTS.
        1. 24.1.2.1. (i) Development in the United States.
          1. 24.1.2.1.1. Deferred Method.
          2. 24.1.2.1.2. Liability Method.
          3. 24.1.2.1.3. Net-of-Tax Method.
          4. 24.1.2.1.4. Comprehensive Recognition.
          5. 24.1.2.1.5. Partial Recognition.
        2. 24.1.2.2. (ii) Move to the Liability Method.
        3. 24.1.2.3. (iii) Delay and Reconsideration.
      3. 24.1.3. (c) GENERAL APPROACH TO RECOGNITION OF INCOME TAXES AND EXCEPTIONS.
        1. 24.1.3.1. (i) General Approach to Recognition.
        2. 24.1.3.2. (ii) Valuation Allowance.
        3. 24.1.3.3. (iii) Goodwill and Leveraged Lease Exceptions.
        4. 24.1.3.4. (iv) Transfers of Assets.
        5. 24.1.3.5. (v) Foreign Nonmonetary Assets.
        6. 24.1.3.6. (vi) Other Special Areas.
    2. 24.2. APPLYING STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109
      1. 24.2.1. (a) BASIC PRINCIPLES.
        1. 24.2.1.1. (i) Temporary Differences.
        2. 24.2.1.2. (ii) Annual Computation.
      2. 24.2.2. (b) RECOGNITION AND MEASUREMENT.
        1. 24.2.2.1. (i) Recognition of Deferred Tax Liabilities and Assets.
        2. 24.2.2.2. (ii) Recognition of a Valuation Allowance.
          1. 24.2.2.2.1. Future Reversals of Taxable Temporary Differences.
          2. 24.2.2.2.2. Future Taxable Income Exclusive of Reversals.
          3. 24.2.2.2.3. Taxable Income in the Current or Prior Years.
          4. 24.2.2.2.4. Tax-Planning Strategies.
        3. 24.2.2.3. (iii) Recognition of a Change in the Valuation Allowance.
        4. 24.2.2.4. (iv) Measurement of Deferred Tax Liabilities and Assets.
          1. 24.2.2.4.1. Alternative Minimum Tax.
          2. 24.2.2.4.2. An Enacted Change in Tax Laws or Rates.
          3. 24.2.2.4.3. A Change in Tax Status.
      3. 24.2.3. (c) SPECIAL APPLICATIONS.
        1. 24.2.3.1. (i) Regulated Companies.
        2. 24.2.3.2. (ii) Leveraged Leases.
        3. 24.2.3.3. (iii) Business Combinations.
          1. 24.2.3.3.1. Nontaxable Business Combinations.
          2. 24.2.3.3.2. Taxable Business Combinations.
          3. 24.2.3.3.3. Carryforwards—Purchase Method.
          4. 24.2.3.3.4. Subsequent Recognition of Carryforwards.
        4. 24.2.3.4. (iv) Quasi Reorganizations.
        5. 24.2.3.5. (v) Separate Financial Statements of a Subsidiary.
        6. 24.2.3.6. (vi) Issues Addressed by the Emerging Issues Task Force.
        7. 24.2.3.7. (vii) Other Technical Matters.
          1. 24.2.3.7.1. FASB Staff Positions.
    3. 24.3. ACCOUNTING FOR THE INVESTMENT TAX CREDIT
      1. 24.3.1. (a) BACKGROUND.
      2. 24.3.2. (b) CONCEPTUAL APPROACHES AND THE RESULTING CONTROVERSY.
      3. 24.3.3. (c) DEFERRAL METHOD.
      4. 24.3.4. (d) FLOW-THROUGH METHOD AND RECOGNITION OF THE CREDIT.
      5. 24.3.5. (e) INVESTMENT CREDITS IN FINANCING LEASES.
    4. 24.4. FINANCIAL REPORTING
      1. 24.4.1. (a) TAX ALLOCATION WITHIN A PERIOD.
      2. 24.4.2. (b) FINANCIAL STATEMENT PRESENTATION AND DISCLOSURE.
      3. 24.4.3. (c) OTHER DISCLOSURES.
    5. 24.5. ACCOUNTING FOR INCOME TAXES IN INTERIM PERIODS
      1. 24.5.1. (a) RELEVANT PRONOUNCEMENTS.
      2. 24.5.2. (b) ESTIMATED ANNUAL EFFECTIVE TAX RATE.
      3. 24.5.3. (c) INTERIM PERIOD TAX.
      4. 24.5.4. (d) SPECIAL INTERIM PERIOD PROBLEMS.
    6. 24.6. COMPARISON OF U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES TO THOSE OF OTHER COUNTRIES
      1. 24.6.1. GENERAL COMPARISON.
      2. 24.6.2. (b) UNITED KINGDOM.
      3. 24.6.3. (c) INTERNATIONAL STANDARDS.
    7. 24.7. SOURCES AND SUGGESTED REFERENCES
  29. 25. LIABILITIES
    1. 25.1. NATURE OF LIABILITIES
      1. 25.1.1. (a) DEFINITION OF LIABILITIES.
        1. 25.1.1.1. (i) Executory Contracts as Liabilities.
        2. 25.1.1.2. (ii) Credit Balances That Are Not Liabilities.
      2. 25.1.2. (b) OFFSETTING OF LIABILITIES AGAINST ASSETS.
      3. 25.1.3. (c) MEASUREMENT OF LIABILITIES.
      4. 25.1.4. (d) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS.
    2. 25.2. INTEREST
    3. 25.3. CURRENT LIABILITIES
      1. 25.3.1. (a) NATURE OF CURRENT LIABILITIES.
        1. 25.3.1.1. (i) Long-Term Obligations Approaching Maturity.
        2. 25.3.1.2. (ii) Short-Term Obligations to Be Refinanced.
        3. 25.3.1.3. (iii) Classification of Obligations Callable by the Creditor.
        4. 25.3.1.4. (iv) Demand Notes.
        5. 25.3.1.5. (v) Subjective Acceleration Clause in Long-Term Debt Agreements.
      2. 25.3.2. (b) KINDS OF CURRENT LIABILITY.
      3. 25.3.3. (c) ACCOUNTS PAYABLE: TRADE.
      4. 25.3.4. (d) NOTES PAYABLE: BANK.
      5. 25.3.5. (e) NOTES PAYABLE: TRADE AND OTHERS.
      6. 25.3.6. (f) ACCRUED EXPENSES.
        1. 25.3.6.1. (i) Interest Payable.
        2. 25.3.6.2. (ii) Accrued Payrolls.
        3. 25.3.6.3. (iii) Vacation Pay.
        4. 25.3.6.4. (iv) Commissions and Fees.
        5. 25.3.6.5. (v) Federal Income Taxes.
        6. 25.3.6.6. (vi) Property Taxes.
        7. 25.3.6.7. (vii) Rent Liabilities.
      7. 25.3.7. (g) ADVANCES FROM OFFICERS AND EMPLOYEES.
      8. 25.3.8. (h) DIVIDENDS PAYABLE.
        1. 25.3.8.1. (i) Deferred Revenue.
      9. 25.3.9. (i) CONTINGENCIES.
        1. 25.3.9.1. (i) Likelihood of Contingencies.
        2. 25.3.9.2. (ii) Examples of Loss Contingencies.
        3. 25.3.9.3. (iii) Accrual of Loss Contingencies.
        4. 25.3.9.4. (iv) Estimating Amounts to Be Accrued.
        5. 25.3.9.5. (v) Disclosure of Loss Contingencies.
        6. 25.3.9.6. (vi) Uninsured Risks.
        7. 25.3.9.7. (vii) Litigation, Claims, and Assessments.
        8. 25.3.9.8. (viii) General Reserves for Contingencies Not Permitted.
        9. 25.3.9.9. (ix) Warranty Obligations.
        10. 25.3.9.10. (x) Accounting for Environmental Liabilities.
        11. 25.3.9.11. (xi) Vulnerability from Concentrations.
      10. 25.3.10. (j) EXIT OR DISPOSAL ACTIVITY OBLIGATIONS.
        1. 25.3.10.1. (i) One-Time Termination Benefits.
        2. 25.3.10.2. (ii) Contract Termination Costs.
        3. 25.3.10.3. (iii) Other Associated Costs.
        4. 25.3.10.4. (iv) Financial Statement Presentation.
        5. 25.3.10.5. (v) Disclosure.
      11. 25.3.11. (k) TRANSLATION OF LIABILITIES IN FOREIGN CURRENCIES.
      12. 25.3.12. (l) STATEMENT PRESENTATION OF CURRENT LIABILITIES.
        1. 25.3.12.1. (i) Balance Sheet Classification.
        2. 25.3.12.2. (ii) Other Current Liabilities.
    4. 25.4. NATURE AND ISSUE OF BONDS PAYABLE
      1. 25.4.1. (a) BONDS DEFINED.
      2. 25.4.2. (b) BONDS CLASSIFIED.
        1. 25.4.2.1. (i) Convertible Bonds.
        2. 25.4.2.2. (ii) Serial Bonds and Sinking Funds.
      3. 25.4.3. (c) AUTHORITY TO ISSUE BONDS.
      4. 25.4.4. (d) OUTLINE OF ISSUING PROCEDURE.
      5. 25.4.5. (e) RECORDING ISSUE OF BONDS.
        1. 25.4.5.1. (i) Origin of Bond Discount and Premium.
        2. 25.4.5.2. (ii) Issue of Bonds at Discount and Premium.
        3. 25.4.5.3. (iii) Segregation of Bond Issue Costs.
        4. 25.4.5.4. (iv) Allocation of Debt–Issue Costs in a Business Combination.
        5. 25.4.5.5. (v) Bonds Issued between Interest Dates.
      6. 25.4.6. (f) DETERMINATION OF BOND ISSUE PRICE.
      7. 25.4.7. (g) BOND DISCOUNT AND PREMIUM IN THE BALANCE SHEET.
    5. 25.5. BOND INTEREST PAYMENTS, PREMIUM, AND DISCOUNT AMORTIZATION
      1. 25.5.1. (a) ACCRUAL OF BOND INTEREST.
      2. 25.5.2. (b) PAYMENT OF INTEREST.
        1. 25.5.2.1. (i) Interest on Treasury Bonds.
        2. 25.5.2.2. (ii) Interest on Bonds Held by Trustee.
      3. 25.5.3. (c) PREMIUM AND DISCOUNT AMORTIZATION.
      4. 25.5.4. (d) DISCOUNT ON CONVERTIBLE BONDS AND BONDS WITH WARRANTS.
      5. 25.5.5. (e) BLOCKS ISSUED AT DIFFERENT RATES.
      6. 25.5.6. (f) TREATMENT OF SERIAL BONDS.
    6. 25.6. BOND REDEMPTION, REFUNDING, AND CONVERSION
      1. 25.6.1. (a) PAYMENT AT MATURITY.
      2. 25.6.2. (b) SETTLEMENT AFTER MATURITY.
      3. 25.6.3. (c) DEFAULTED BONDS.
      4. 25.6.4. (d) CLASSIFICATION OF OBLIGATIONS BY THE CREDITOR.
      5. 25.6.5. (e) COMPOSITIONS WITH CREDITORS.
      6. 25.6.6. (f) REDEMPTION BEFORE MATURITY.
        1. 25.6.6.1. (i) Gains and Losses from Extinguishment of Debt.
        2. 25.6.6.2. (ii) Noncash Extinguishments.
      7. 25.6.7. (g) TREATMENT AND REISSUE OF TREASURY BONDS.
      8. 25.6.8. (h) USE OF SINKING FUNDS.
        1. 25.6.8.1. (i) Payment by Refunding.
      9. 25.6.9. (i) DETERMINING WHEN TO REFUND.
      10. 25.6.10. (j) BOND CONVERSION.
      11. 25.6.11. (k) INDUCED CONVERSION.
      12. 25.6.12. (l) ACCRUED INTEREST UPON CONVERSION OF CONVERTIBLE DEBT.
      13. 25.6.13. (m) SUBSCRIPTION RIGHTS AND WARRANTS SOLD WITH BONDS.
    7. 25.7. STATEMENT PRESENTATION OF LONG-TERM DEBT
    8. 25.8. 25.8 Other Long-Term Liabilities
      1. 25.8.1. (a) Mortgages and Long-Term Notes.
        1. 25.8.1.1. (i) Related-Party Transactions.
        2. 25.8.1.2. (ii) Debtor's Accounting for Forfeiture of Real Estate Subject to a Nonrecourse Mortgage.
      2. 25.8.2. (b) Installment Purchase Contracts.
      3. 25.8.3. (c) Long-Term Leases.
      4. 25.8.4. (d) Deferred Revenue Obligations.
      5. 25.8.5. (e) Long-Term Expense Accruals.
      6. 25.8.6. (f) Borrowings on Open Account.
      7. 25.8.7. (g) Asset Retirement Obligations.
      8. 25.8.8. (h) Pension Plans and Deferred Compensation Contracts.
      9. 25.8.9. (i) Future Income Taxes.
      10. 25.8.10. (j) Disclosure of Unconditional Purchase and Other Long-Term Obligations.
      11. 25.8.11. (k) Guarantee Obligations.
        1. 25.8.11.1. (i) Scope of Interpretation 45.
        2. 25.8.11.2. (ii) Initial Recognition.
        3. 25.8.11.3. (iii) Subsequent Accounting.
        4. 25.8.11.4. (iv) Disclosure.
    9. 25.9. FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY
      1. 25.9.12. (a) FINANCIAL INSTRUMENTS CLASSIFIED AS LIABILITIES.
        1. 25.8.12.1. (i) Mandatorily Redeemable Financial Instruments.
        2. 25.8.12.2. (ii) Obligations to Repurchase the Issuer's Equity Shares.
        3. 25.8.12.3. (iii) Certain Obligations to Issue a Variable Number of Shares.
      2. 25.8.13. (b) MEASUREMENT.
      3. 25.8.14. (c) PRESENTATION AND DISCLOSURE.
    10. 25.9. RESTRUCTURING AND EXTINGUISHMENT OF LIABILITIES
      1. 25.9.1. (a) TROUBLED DEBT RESTRUCTURINGS.
      2. 25.9.2. (b) EXTINGUISHMENT OF LIABILITIES.
    11. 25.10. ACCOUNTING FOR SELECTED FINANCING INSTRUMENTS
      1. 25.10.1. (a) INTRODUCTION.
        1. 25.10.1.1. (i) EITF Issue No. 85-29—Convertible Bonds with a Premium Put.
        2. 25.10.1.2. (ii) EITF Issue No. 86-15—Increasing-Rate Debt.
        3. 25.10.1.3. (iii) EITF Issue No. 86-28—Accounting Implications of Indexed Debt Instruments.
        4. 25.10.1.4. (iv) EITF Issue No. 00-19—Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock.
        5. 25.10.1.5. (v) EITF Issue No. 90-19—Convertible Bonds with Issuer Option to Settle for Cash upon Conversion.
      2. 25.10.2. (b) ASSET-SECURITIZATION TRANSACTIONS.
    12. 25.11. SOURCES AND SUGGESTED REFERENCES
  30. 26. DERIVATIVES AND HEDGE ACCOUNTING
    1. 26.1. INTRODUCTION
      1. 26.1.1. (a) THE FUNDAMENTAL CONCEPTS.
      2. 26.1.2. (b) SCOPE OF STATEMENT NO. 133
        1. 26.1.2.1. (i) General Scope Provisions.
        2. 26.1.2.2. (ii) What Is a Derivative?
        3. 26.1.2.3. (iii) What Is an "underlying"?
        4. 26.1.2.4. (iv) Notional Amount.
        5. 26.1.2.5. (v) Initial Net Investment.
        6. 26.1.2.6. (vi) Net Settlement.
        7. 26.1.2.7. (vii) "Surprise" Derivatives.
        8. 26.1.2.8. (viii) Items the Financial Accounting Standards Board Specifically Excluded from the Definition of a Derivative.
        9. 26.1.2.9. (ix) Embedded Derivatives.
      3. 26.1.3. (c) GENERAL REQUIREMENTS.
      4. 26.1.4. (d) HEDGE EFFECTIVENESS AND OTHER CRITERIA FOR SPECIAL ACCOUNTING
        1. 26.1.4.1. (i) Hedge Effectiveness.
        2. 26.1.4.2. (ii) Derivatives with Inherent Ineffectiveness.
        3. 26.1.4.3. (iii) Derivatives with Ineffective Designs.
        4. 26.1.4.4. (iv) The Shortcut Method.
      5. 26.1.5. (e) CRITERIA FOR HEDGING.
        1. 26.1.5.1. (i) Hedge Criteria (All Hedges).
        2. 26.1.5.2. (ii) Hedged Item Criteria (Fair Value Hedges and Cash Flow Hedges)
    2. 26.2. FAIR VALUE HEDGES
      1. 26.2.1. (a) WHAT IS A FAIR VALUE HEDGE?
      2. 26.2.2. (b) THE ACCOUNTING TREATMENT FOR A FAIR VALUE HEDGE.
        1. 26.2.2.1. (i) What is a Firm Commitment?
        2. 26.2.2.2. (ii) Hedge Ineffectiveness.
      3. 26.2.3. (c) FAIR VALUE HEDGES OF FOREIGN CURRENCY EXPOSURE.
      4. 26.2.4. (d) EXAMPLES OF FAIR VALUE HEDGES.
    3. 26.3. CASH FLOW HEDGES
      1. 26.3.1. (a) WHAT IS A CASH FLOW HEDGE?
        1. 26.3.1.1. (i) Difference between a Forecasted Transaction and a Firm Commitment.
        2. 26.3.1.2. (ii) Criteria Specific to Cash Flow Hedges.
      2. 26.3.2. (b) THE ACCOUNTING TREATMENT FOR CASH FLOW HEDGES.
        1. 26.3.2.1. (i) Hedge Ineffectiveness.
      3. 26.3.3. (c) HEDGING FOREIGN CURRENCY CASH FLOWS.
        1. 26.3.3.1. (i) Examples of Cash Flow Hedges.
      4. 26.3.4. (d) BUSINESS IMPLICATIONS OF CASH FLOW HEDGES.
    4. 26.4. FOREIGN CURRENCY NET INVESTMENT HEDGES
      1. 26.4.1. (a) HEDGES OF THE FOREIGN CURRENCY EXPOSURE OF A NET INVESTMENT IN A FOREIGN OPERATION.
        1. 26.4.1.1. (i) Criteria Specific to Net Investment Hedges.
      2. 26.4.2. (b) THE ACCOUNTING TREATMENT FOR NET INVESTMENT HEDGES.
        1. 26.4.2.1. (i) Hedge Ineffectiveness.
      3. 26.4.3. (c) EXAMPLE OF A NET INVESTMENT HEDGE.
    5. 26.5. DISCLOSURES
      1. 26.5.1. (a) GENERAL DISCLOSURE REQUIREMENTS.
      2. 26.5.2. (b) ADDITIONAL DISCLOSURE SPECIFIC TO FAIR VALUE HEDGES.
      3. 26.5.3. (c) ADDITIONAL DISCLOSURES SPECIFIC TO CASH FLOW HEDGES.
      4. 26.5.4. (d) ADDITIONAL DISCLOSURE SPECIFIC TO HEDGES OF THE NET INVESTMENT IN A FOREIGN OPERATION.
      5. 26.5.5. (e) ACCOUNTING POLICY DISCLOSURES.
    6. 26.6. EFFECTIVE DATE AND TRANSITION
      1. 26.6.1. (a) EFFECTIVE DATE.
      2. 26.6.2. (b) TRANSITION REQUIREMENTS.
      3. 26.6.3. (c) DISCLOSURES UPON ADOPTION.
      4. 26.6.4. (d) EXAMPLE OF ADOPTION DISCLOSURE.
      5. 26.6.5. (e) COMPARISON OF OLD RULES TO STATEMENT NO. 133.
  31. 27. SHAREHOLDERS' EQUITY
    1. 27.1. THE CORPORATION
      1. 27.1.1. (a) DEFINITION.
      2. 27.1.2. (b) ADVANTAGES OF CORPORATE FORM.
      3. 27.1.3. (c) OWNERS' INTERESTS.
      4. 27.1.4. (d) CERTIFICATE OF INCORPORATION.
    2. 27.2. SHARES OF STOCK
      1. 27.2.1. (a) CERTIFICATES REPRESENTING SHARES.
      2. 27.2.2. (b) COMMON STOCK.
      3. 27.2.3. (c) PREFERRED STOCK.
        1. 27.2.3.1. (i) Preferred Stock Subject to Mandatory Redemption.
        2. 27.2.3.2. (ii) Classification Requirements for Mandatory Redeemable Preferred Stock.
        3. 27.2.3.3. (iii) Dividends on Mandatory Redeemable Preferred Stock.
        4. 27.2.3.4. (iv) Carrying Amount of Mandatory Redeemable Preferred Stock.
        5. 27.2.3.5. (v) Callable Preferred Stock.
        6. 27.2.3.6. (vi) Cumulative Preferred Stock.
        7. 27.2.3.7. (vii) Fully Participating Preferred Stock.
        8. 27.2.3.8. (viii) Partially Participating Preferred Stock.
        9. 27.2.3.9. (ix) Convertible Preferred Stock.
        10. 27.2.3.10. (x) Increasing-Rate Preferred Stock—Staff Accounting Bulletin (SAB) No. 68.
          1. 27.2.3.10.1. Balance Sheet Treatment.
          2. 27.2.3.10.2. Amortization of Discount.
          3. 27.2.3.10.3. Computation of Discount and Amortization.
        11. 27.2.3.11. (xi) Voting Rights of Preferred Stock.
      4. 27.2.4. (d) PAR AND NO PAR VALUE STOCK.
      5. 27.2.5. (e) RECORDING THE ISSUANCE OF STOCK.
      6. 27.2.6. (f) STATED CAPITAL.
      7. 27.2.7. (g) BALANCE SHEET PRESENTATION.
    3. 27.3. ISSUANCE OF STOCK
      1. 27.3.1. (a) AUTHORIZED CAPITAL STOCK.
      2. 27.3.2. (b) COST OF ISSUING STOCK.
      3. 27.3.3. (c) ISSUANCE OF SHARES FOR CASH.
      4. 27.3.4. (d) ISSUANCE OF SHARES FOR PROPERTY OR SERVICES.
      5. 27.3.5. (e) SUBSCRIPTION FOR SHARES.
        1. 27.3.5.1. (i) Recording Subscription.
        2. 27.3.5.2. (ii) Balance Sheet Presentation.
        3. 27.3.5.3. (iii) Defaulted Subscriptions.
      6. 27.3.6. (f) STOCK PREMIUM AND STOCK DISCOUNT.
    4. 27.4. COMMON STOCK ADJUSTMENTS
      1. 27.4.1. (a) STOCK SPLITS.
        1. 27.4.1.1. (i) Split with Change in Par Value.
        2. 27.4.1.2. (ii) Split with No Change in Par Value.
        3. 27.4.1.3. (iii) Reverse Splits.
    5. 27.5. REACQUISITION AND RETIREMENT OF CAPITAL STOCK
      1. 27.5.1. (a) TREASURY STOCK.
        1. 27.5.1.1. (i) Restrictions on Retained Earnings.
        2. 27.5.1.2. (ii) Agreements to Purchase.
      2. 27.5.2. (b) BALANCE SHEET PRESENTATION OF TREASURY STOCK.
      3. 27.5.3. (c) REPORTING TREASURY STOCK TRANSACTIONS—COST METHOD.
        1. 27.5.3.1. (i) Disposition of Treasury Stock.
        2. 27.5.3.2. (ii) Treasury Stock Retired.
      4. 27.5.4. (d) REPORTING TREASURY STOCK TRANSACTIONS—PAR VALUE METHOD.
      5. 27.5.5. (e) DONATED TREASURY STOCK.
      6. 27.5.6. (f) CONTRAST IN ACCOUNTING FOR TREASURY STOCK TRANSACTIONS UNDER THE COST AND PAR VALUE METHODS.
      7. 27.5.7. (g) PRESENTATION OF TREASURY STOCK IN SHAREHOLDERS' EQUITY.
      8. 27.5.8. (h) PURCHASE OF TREASURY SHARES AT A PRICE SIGNIFICANTLY IN EXCESS OF CURRENT MARKET PRICE.
    6. 27.6. STOCK EQUIVALENTS
      1. 27.6.1. (a) USE OF STOCK EQUIVALENTS.
      2. 27.6.2. (b) STOCK WARRANTS AND STOCK RIGHTS.
        1. 27.6.2.1. (i) Issued with Debt.
        2. 27.6.2.2. (ii) Sale of Warrants.
        3. 27.6.2.3. (iii) Issued for Services.
        4. 27.6.2.4. (iv) Exercise of Warrants.
        5. 27.6.2.5. (v) Stock Rights.
        6. 27.6.2.6. (vi) Lapsed Warrants and Rights.
        7. 27.6.2.7. (vii) Tax Consequence of Lapsed Warrants.
        8. 27.6.2.8. (viii) Reacquisition of Warrants.
        9. 27.6.2.9. (ix) Contingent Warrants.
      3. 27.6.3. (c) EMPLOYEE STOCK OPTIONS.
        1. 27.6.3.1. (i) Compensatory Stock Options.
        2. 27.6.3.2. (ii) Disclosure Requirements.
      4. 27.6.4. (d) EMPLOYEE STOCK OWNERSHIP PLANS (ESOP); REPORTING THE ESOP.
        1. 27.6.4.1. (i) Reporting the Purchase of Shares by Employee Stock Ownership Plans.
        2. 27.6.4.2. (ii) Reporting the Release of Employee Stock Ownership Plan Shares.
        3. 27.6.4.3. (iii) Reporting Dividends on Employee Stock Ownership Plan Shares.
        4. 27.6.4.4. (iv) Reporting Redemptions of Employee Stock Ownership Plan Shares.
      5. 27.6.5. (e) OTHER STOCK COMPENSATION PLANS.
    7. 27.7. RETAINED EARNINGS
      1. 27.7.1. (a) DEFINITION.
      2. 27.7.2. (b) EVENTS AFFECTING RETAINED EARNINGS.
      3. 27.7.3. (c) PRIOR PERIOD ADJUSTMENTS.
        1. 27.7.3.1. (i) Correction of an Error in Prior Period Financial Statements.
        2. 27.7.3.2. (ii) Reporting Prior Period Adjustments.
      4. 27.7.4. (d) OTHER PRIOR PERIOD ADJUSTMENTS.
      5. 27.7.5. (e) DIVIDENDS.
      6. 27.7.6. (f) DIVIDEND DATES.
      7. 27.7.7. (g) CASH DIVIDENDS.
      8. 27.7.8. (h) STOCK DIVIDENDS.
        1. 27.7.8.1. (i) Small Stock Dividend.
        2. 27.7.8.2. (ii) Large Stock Dividend.
        3. 27.7.8.3. (iii) Closely Held Corporation.
        4. 27.7.8.4. (iv) Record Date.
        5. 27.7.8.5. (v) Reasons for Stock Dividends.
      9. 27.7.9. (i) PROPERTY DIVIDENDS.
      10. 27.7.10. (j) SCRIP OR LIABILITY DIVIDENDS.
      11. 27.7.11. (k) LIQUIDATING DIVIDENDS.
      12. 27.7.12. (l) QUASI REORGANIZATION.
        1. 27.7.12.1. (i) Procedures in a Quasi Reorganization.
        2. 27.7.12.2. (ii) Retained Earnings After Readjustment.
        3. 27.7.12.3. (iii) Tax Loss Carryforwards.
      13. 27.7.13. (m) RESTRICTIONS OF RETAINED EARNINGS.
        1. 27.7.13.1. (i) Legal Restrictions.
        2. 27.7.13.2. (ii) Contractual Restrictions.
        3. 27.7.13.3. (iii) Voluntary Restrictions.
        4. 27.7.13.4. (iv) Liquidating Value of Preferred Stock.
      14. 27.7.14. (n) APPROPRIATIONS OF RETAINED EARNINGS.
      15. 27.7.15. (o) LOSS CONTINGENCIES.
    8. 27.8. OTHER ITEMS AFFECTING STOCKHOLDERS' EQUITY
      1. 27.8.1. (a) MINORITY INTERESTS.
      2. 27.8.2. (b) COMBINED FINANCIAL STATEMENTS.
      3. 27.8.3. (c) INVESTOR AND INVESTEE TRANSACTIONS.
        1. 27.8.3.1. (i) Investee Sale at Book Value.
        2. 27.8.3.2. (ii) Investee Sale in Excess of Book Value.
        3. 27.8.3.3. (iii) Investee Sale Below Book Value.
        4. 27.8.3.4. (iv) Staff Accounting Bulletin (SAB) No. 51.
        5. 27.8.3.5. (v) No Parent Subsidiary Relationship.
      4. 27.8.4. d) REPORTING COMPREHENSIVE INCOME.
    9. 27.9. DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
      1. 27.9.1. (a) PREFERRED STOCK.
    10. 27.10. 27.10 Sources and Suggested References
  32. 28. AUDITING STANDARDS AND AUDIT REPORTS FOR NONPUBLIC COMPANIES
    1. 28.1. SERVICES OFFERED BY INDEPENDENT ACCOUNTANTS
      1. 28.1.1. (a) CLASSIFICATION OF SERVICES.
      2. 28.1.2. (b) AUDITING SERVICES.
        1. 28.1.2.1. (i) Generally Accepted Auditing Standards.
        2. 28.1.2.2. (ii) Statements on Auditing Standards.
        3. 28.1.2.3. (iii) Interpretive Publications.
        4. 28.1.2.4. (iv) Other Auditing Publications.
      3. 28.1.3. (c) ACCOUNTING SERVICES.
      4. 28.1.4. (d) RELATED SERVICES.
        1. 28.1.4.1. (i) Tax Services.
        2. 28.1.4.2. (ii) Consulting Services.
        3. 28.1.4.3. (iii) Other Special Services.
    2. 28.2. The Audit Process for Nonpublic Audits
      1. 28.2.1. (a) OBJECTIVE OF THE AUDIT.
      2. 28.2.2. (b) PLAN THE AUDIT.
      3. 28.2.3. (c) GATHER AND EVALUATE INFORMATION ABOUT THE ENTITY AND ITS ENVIRONMENT, INCLUDING INTERNAL CONTROL.
        1. 28.2.3.1. (i) Internal Control Considerations.
          1. 28.2.3.1.1. Components of Internal Control.
          2. 28.2.3.1.2. Understanding Internal Control.
        2. 28.2.3.2. (ii) Evaluate the Information about the Entity and its Environment.
      4. 28.2.4. (d) ASSESS RISKS OF MATERIAL MISSTATEMENT.
        1. 28.2.4.1. (i) Significant Risks.
        2. 28.2.4.2. (ii) Other Factors That Affect the Auditor's Risk Assessment.
          1. 28.2.4.2.1. Fraud.
          2. 28.2.4.2.2. Related Party Transactions.
          3. 28.2.4.2.3. Illegal Acts.
          4. 28.2.4.2.4. Going Concern.
      5. 28.2.5. (e) DESIGN AN AUDIT RESPONSE AND FURTHER AUDIT PROCEDURES.
      6. 28.2.6. (f) PERFORM FURTHER AUDIT PROCEDURES.
        1. 28.2.6.1. (i) Tests of Controls.
        2. 28.2.6.2. (ii) Analytical Procedures.
        3. 28.2.6.3. (iii) Accounting Estimates.
        4. 28.2.6.4. (iv) Other Required Auditing Procedures.
        5. 28.2.6.5. (v) Communication with Predecessor Auditors.
        6. 28.2.6.6. (vi) Confirmation of Receivables.
        7. 28.2.6.7. (vii) Observation of Inventories.
        8. 28.2.6.8. (viii) Management's Written Representations.
        9. 28.2.6.9. (ix) Inquiry of a Client's Lawyer.
      7. 28.2.7. (g) REVIEW OF AUDIT WORK.
      8. 28.2.8. (h) REQUIRED AUDITOR COMMUNICATIONS.
    3. 28.3. THE INDEPENDENT AUDITOR'S REPORT
      1. 28.3.1. (a) FORMAT OF REPORT DOCUMENT.
      2. 28.3.2. (b) THE AUDITOR'S STANDARD REPORT.
      3. 28.3.3. (c) CONTENT OF THE AUDITOR'S STANDARD REPORT.
        1. 28.3.3.1. (i) Title.
        2. 28.3.3.2. (ii) Addressee.
        3. 28.3.3.3. (iii) Introductory Paragraph.
        4. 28.3.3.4. (iv) Scope Paragraph.
        5. 28.3.3.5. (v) Opinion Paragraph.
        6. 28.3.3.6. (vi) Signature.
        7. 28.3.3.7. (vii) Date.
      4. 28.3.4. (d) DEPARTURES FROM THE AUDITOR'S STANDARD REPORT.
        1. 28.3.4.1. (i) Types of Audit Opinions.
        2. 28.3.4.2. (ii) Modification of Both Wording and Opinion.
          1. 28.3.4.2.1. Scope Limitation.
          2. 28.3.4.2.2. Departure from Generally Accepted Accounting Principles.
          3. 28.3.4.2.3. Lack of Independence.
        3. 28.3.4.3. (iii) Modification of Wording Only.
          1. 28.3.4.3.1. Part of Audit Performed by Another Independent Auditor.
          2. 28.3.4.3.2. Departure from a Promulgated Principle.
          3. 28.3.4.3.3. Going Concern Matters.
          4. 28.3.4.3.4. Lack of Consistency.
          5. 28.3.4.3.5. Emphasis of a Matter.
      5. 28.3.5. (e) COMPARATIVE FINANCIAL STATEMENTS.
        1. 28.3.5.1. (i) Continuing Auditor.
        2. 28.3.5.2. (ii) Predecessor Auditor.
        3. 28.3.5.3. (iii) Prior Period Unaudited.
    4. 28.4. OTHER REPORTS
      1. 28.4.1. (a) SPECIAL REPORTS.
        1. 28.4.1.1. (i) Other Comprehensive Bases of Accounting.
        2. 28.4.1.2. (ii) Opinions on Specified Elements, Accounts, or Items of a Financial Statement.
        3. 28.4.1.3. (iii) Applying Agreed-Upon Procedures.
        4. 28.4.1.4. (iv) Compliance Reports Related to Audited Financial Statements.
        5. 28.4.1.5. (v) Financial Presentations to Comply with Contractual Agreements or Regulatory Provisions.
        6. 28.4.1.6. (vi) Prescribed Forms.
      2. 28.4.2. (b) REPORTS ON AN ENTITY'S INTERNAL CONTROL OVER FINANCIAL REPORTING.
      3. 28.4.3. (c) INVOLVEMENT WITH OTHER INFORMATION.
        1. 28.4.3.1. (i) Client-Prepared Documents.
        2. 28.4.3.2. (ii) Auditor-Submitted Documents.
        3. 28.4.3.3. (iii) Supplementary Information Required by the FASB or GASB.
      4. 28.4.4. (d) PROSPECTIVE FINANCIAL STATEMENTS.
        1. 28.4.4.1. (i) Financial Forecasts and Financial Projections.
        2. 28.4.4.2. (ii) Levels of Service.
      5. 28.4.5. (e) REPORTING ON FINANCIAL STATEMENTS PREPARED FOR USE IN OTHER COUNTRIES.
      6. 28.4.6. (f) REPORTS ON THE APPLICATION OF ACCOUNTING PRINCIPLES.
      7. 28.4.7. (g) REPORTS ON COMPLIANCE WITH LAWS AND REGULATIONS.
    5. 28.5. COMPILATION AND REVIEW SERVICES
      1. 28.5.1. (a) STANDARD COMPILATION REPORT.
      2. 28.5.2. (b) STANDARD REVIEW REPORT.
      3. 28.5.3. (c) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES DEPARTURES.
        1. 28.5.3.1. (i) Omision of a Statement of Cash Flows.
        2. 28.5.3.2. (ii) Omission of Disclosure.
        3. 28.5.3.3. (iii) Uncertainties and Inconsistent Application of Generally Accepted Accounting Principles.
        4. 28.5.3.4. (iv) Lack of Independence.
        5. 28.5.3.5. (v) Change in Engagement from Audit to Review or Compilation.
    6. 28.6. Sources and Suggested References