Accounting changes and error corrections
A change in accounting _____ is a change from one GAAP standard to another.
What is principle?
When operating assets increase, we need to _____ (add or subtract?) the change to/from net income.
What is subtract?
This term refers to a financial instrument that derives its value from some other security.
What is a derivative?
A change in accounting _____ involves revising an estimate because of new information.
What is estimate?
When operating liabilities increase, we need to _____ (add or subtract?) the change to/from net income.
What is add?
These are the different types of derivative instruments.
What are futures contracts, forward contracts, options, foreign currency futures, and interest rate swaps?
Under the _______ approach, we update the financial statements for this period and all prior periods.
What is retrospective?
These are some examples of non-cash expenses that need to be added back to net income when using the indirect method to calculate cash flows from operating activities. (Name 3)
What are: depreciation expense, amortization expense, impairment losses, stock-based compensation expense, and foreign currency losses?
This type of hedge is used to hedge against the exposure of changes in the fair value of an asset, liability, or firm commitment.
What is a fair value hedge?
Under the _____ approach, we fix the accounting in the current period and all future periods, but do not worry about fixing prior periods.
What is prospective?
These are examples of operating liabilities. (Name 3)
What are accounts payable, interest payable, other accrued expenses, deferred revenue, and income taxes payable.
This type of hedge is used to reduce a company's exposure to foreign currency fluctuations.
What is a foreign currency hedge?
This type of company - widely favored by Villanova accountants - is used to circumvent the stringent requirements associated with an initial public offering (IPO). These companies were responsible for a wave of restatements in 2021.
What are Special Purpose Acquisition Companies (SPACs)?
The indirect method is only used for this category of cash flows in the statement of cash flows.
What is operating activities?
This term describes the strategy of taking an action that intentionally exposes you to a risk that is opposite to a risk that you are already exposed to.
What is hedging?