Wiley GAAP: Financial Statement Disclosure Manual - Joanne M. Flood

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      Joanne M. Flood, CPA, is an author and independent consultant on accounting and auditing technical topics and e‐learning. She has experience as an auditor in both an international firm and a local firm and worked as a senior manager in the AICPA's Professional Development group. She received her MBA summa cum laude in accounting from Adelphi University and her bachelor's degree in English from Molloy College.

      While in public accounting, Joanne worked on major clients in retail, manufacturing, and finance and on small business clients in construction, manufacturing, and professional services. At the AICPA, she developed and wrote e‐learning, text, and instructor‐led training courses on U.S. and international standards. She also produced training materials in a wide variety of media, including print, video, and audio, and pioneered the AICPA's e‐learning product line. Joanne resides on Long Island, New York, with her daughter, Elizabeth. She is the author of the following Wiley publications:

       Financial Disclosure Checklist

       Wiley GAAP 2021: Interpretation and Application of Generally Accepted Accounting Principles

       Wiley Practitioner's Guide to GAAS 2021: Covering all SASs, SSAEs, SSARSs, and Interpretations

       Wiley GAAP: Financial Statement Disclosures Manual (Wiley Regulatory Reporting)

       Wiley Revenue Recognition

      1  Authoritative Literature What Is GAAP? Accounting Principles and Concepts Recognition Principles Disclosure Principles The Concept of Materiality Descriptions of Materiality Quantitative Factors Qualitative Factors Degree of Precision

      2  Disclosure and Presentation Requirements

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

      The Codification (ASC) is the:

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

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

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

       Practices that are widely recognized and prevalent either generally or in the industry

       FASB Concepts Statements

       American Institute of Certified Public Accountants (AICPA) Issues Papers

       International Financial Reporting Standards of the International Accounting Standards Board

       Pronouncements of professional associations or regulatory agencies

       Technical Information Service Inquiries and Replies included in AICPA Technical Practice Aids

       Accounting textbooks, handbooks, and articles(ASC 105‐10‐05‐3)

      GAAP is concerned with:

       The measurement of economic activity,

       The time when such measurements are to be made and recorded,

       The disclosures surrounding this activity, and

       The preparation and presentation of summarized economic information in the form of financial statements.

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

       Expand on some quantitative data,

       Explain assumptions underlying the numerical information, and

       Provide additional information on accounting policies, contingencies, uncertainties, etc.

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

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

       QC11. Relevance and materiality are defined by what influences or makes a difference to an investor or other decision maker; however, these two concepts can be distinguished from each other. Relevance is a general notion about what type of information is useful to investors. Materiality is entity specific. The omission or misstatement of an item in a financial report is material if, in light of surrounding circumstances,

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