book

Accountants' Handbook Volume Two: Special Industries and Special Topics, Eleventh Edition

Name: Accountants' Handbook Volume Two: Special Industries and Special Topics, Eleventh Edition
ISBN: 9780471790396

by O. RAY WHITTINGTON, D. R. CARMICHAEL, LYNFORD GRAHAM

April 2007

Intermediate to advanced

864 pages

36h 2m

English

Wiley

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Copyright
ABOUT THE EDITORS
ABOUT THE CONTRIBUTORS
PREFACE
29. OIL, GAS, AND OTHER NATURAL RESOURCES
29.1. INTRODUCTION29.2. OIL AND GAS EXPLORATION AND PRODUCING OPERATIONS29.3. ACCOUNTING FOR JOINT OPERATIONS29.3.1. (a) OPERATOR ACCOUNTING.29.3.2. (b) NONOPERATOR ACCOUNTING.29.3.3. (c) OTHER ACCOUNTING PROCEDURES.29.3.4. (d) OVERVIEW OF ACCOUNTING STANDARDS.29.4. ACCEPTABLE ACCOUNTING METHODS29.4.1. (a) THE SUCCESSFUL EFFORTS METHOD.29.4.1.1. (i) Basic Rules.29.4.1.2. (ii) Exploratory versus Development Well Definition.29.4.1.3. (iii) Treatment of Costs of Exploratory Wells Whose Outcome Is Undetermined.29.4.1.3.1. Accounting When Drilling of an Exploration Well Is Completed.29.4.1.3.2. Accounting When Drilling of an Exploratory-Type Stratigraphic Test Well Is Completed.29.4.1.4. (iv) Successful Efforts Impairment Test.29.4.1.5. (v) Conveyances.29.4.2. (b) THE FULL COST METHOD.29.4.2.1. (i) Basic Rules.29.4.2.2. (ii) Exclusion of Costs from Amortization.29.4.2.3. (iii) The Full Cost Ceiling Test.29.4.2.4. (iv) Conveyances.29.5. ACCOUNTING FOR NATURAL GAS IMBALANCES29.5.1. (a) SALES METHOD.29.5.2. (b) ENTITLEMENTS METHOD.29.5.3. (c) GAS BALANCING EXAMPLE.29.6. HARD-ROCK MINING29.6.1. (a) MINING OPERATIONS.29.6.2. (b) SOURCES OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.29.7. ACCOUNTING FOR MINING COSTS29.7.1. (a) EXPLORATION AND DEVELOPMENT COSTS.29.7.2. (b) PRODUCTION COSTS.29.7.3. (c) INVENTORY.29.7.3.1. (i) Metals and Minerals.29.7.3.2. (ii) Materials and Supplies.29.7.4. (d) COMMODITIES, FUTURES TRANSACTIONS.29.7.5. (e) RECLAMATION AND REMEDIATION.29.7.6. (f) SHUTDOWN OF MINES.29.7.7. (g) ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS.29.8. ACCOUNTING FOR MINING REVENUES29.8.1. (a) SALES OF MINERALS.29.8.2. (b) TOLLING AND ROYALTY REVENUES.29.9. SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION—ORE RESERVES29.10. ACCOUNTING FOR INCOME TAXES29.11. FINANCIAL STATEMENT DISCLOSURES29.12. SOURCES AND SUGGESTED REFERENCES
30. REAL ESTATE AND CONSTRUCTION
30.1. THE REAL ESTATE INDUSTRY30.1.1. (a) OVERVIEW.30.2. SALES OF REAL ESTATE30.2.1. (a) ANALYSIS OF TRANSACTIONS.30.2.2. (b) ACCOUNTING BACKGROUND.30.2.3. (c) CRITERIA FOR RECORDING A SALE.30.2.4. (d) ADEQUACY OF DOWN PAYMENT.30.2.4.1. (i) Size of down Payment.30.2.4.2. (ii) Composition of down Payment.30.2.4.3. (iii) Inadequate down Payment.30.2.5. (e) RECEIVABLE FROM THE BUYER.30.2.5.1. (i) Assessment of Collectibility of Receivable.30.2.5.2. (ii) Amortization of Receivable.30.2.5.3. (iii) Receivable Subject to Future Subordination.30.2.5.4. (iv) Release Provisions.30.2.5.5. (v) Imputation of Interest.30.2.5.6. (vi) Inadequate Continuing Investment.30.2.6. (f) SELLER'S CONTINUED INVOLVEMENT.30.2.6.1. (i) Participation Solely in Future Profits.30.2.6.2. (ii) Option or Obligation to Repurchase the Property.30.2.6.3. (iii) General Partner in a Limited Partnership with a Significant Receivable.30.2.6.4. (iv) Lack of Permanent Financing.30.2.6.5. (v) Guaranteed Return of Buyer's Investment.30.2.6.6. (vi) Other Guaranteed Returns on Investment—Other than Sale-Leaseback.30.2.6.6.1. Extended Period.30.2.6.6.2. Limited Period.30.2.6.6.3. Guarantee Amount Determinable.30.2.6.6.4. Guarantee Amount Not Determinable.30.2.6.6.5. Guarantee Amount Not Determinable But Limited.30.2.6.7. (vii) Guaranteed Return on Investment—Sale-Leaseback.30.2.6.7.1. Profit Recognition.30.2.6.7.2. Loss Recognition.30.2.6.8. (viii) Services without Adequate Compensation.30.2.6.9. (ix) Development and Construction.30.2.6.9.1. Completed Contract Method.30.2.6.9.2. Percentage of Completion Method (Cost-Incurred Method).30.2.6.10. (x) Initiation and Support of Operations.30.2.6.10.1. Stated Support.30.2.6.10.2. Implied Support.30.2.6.10.3. Stated or Implied Support.30.2.6.11. (xi) Partial Sales.30.2.6.11.1. Sale of an Interest in Real Estate.30.2.6.11.2. Seller Has Equity Interest in Buyer.30.2.7. (g) SALES OF CONDOMINIUMS.30.2.7.1. (i) Criteria for Profit Recognition.30.2.7.2. (ii) Methods of Accounting.30.2.7.2.1. Closing Method.30.2.7.2.2. Percentage of Completion Method.30.2.7.3. (iii) Estimated Future Costs.30.2.8. (h) RETAIL LAND SALES.30.2.8.1. (i) Criteria for Recording a Sale.30.2.8.2. (ii) Criteria for Accrual Method.30.2.8.3. (iii) Accrual Method.30.2.8.4. (iv) Percentage of Completion Method.30.2.8.5. (v) Installment and Deposit Methods.30.2.9. (i) ACCOUNTING FOR SYNDICATION FEES.30.2.10. (j) ALTERNATE METHODS OF ACCOUNTING FOR SALES.30.2.10.1. (i) Deposit Method.30.2.10.2. (ii) Installment Method.30.2.10.3. (iii) Cost Recovery Method.30.2.10.4. (iv) Reduced Profit Method.30.2.10.5. (v) Financing Method.30.2.10.6. (vi) Lease Method.30.2.10.7. (vii) Profit-Sharing or Co-Venture Method.30.3. COST OF REAL ESTATE30.3.1. (a) CAPITALIZATION OF COSTS.30.3.2. (b) PREACQUISITION COSTS.30.3.3. (c) LAND ACQUISITION COSTS.30.3.4. (d) LAND IMPROVEMENT, DEVELOPMENT, AND CONSTRUCTION COSTS.30.3.5. (e) ENVIRONMENTAL ISSUES.30.3.6. (f) INTEREST COSTS.30.3.6.1. (i) Assets Qualifying for Interest Capitalization.30.3.6.2. (ii) Capitalization Period.30.3.6.3. (iii) Methods of Interest Capitalization.30.3.6.4. (iv) Accounting for Amount Capitalized.30.3.7. (g) TAXES AND INSURANCE.30.3.8. (h) INDIRECT PROJECT COSTS.30.3.9. (i) GENERAL AND ADMINISTRATIVE EXPENSES.30.3.10. (j) AMENITIES.30.3.11. (k) ABANDONMENTS AND CHANGES IN USE.30.3.12. (l) SELLING COSTS.30.3.13. (m) ACCOUNTING FOR FORECLOSED ASSETS.30.3.13.1. (i) Foreclosed Assets Held for Sale.30.3.13.2. (ii) Foreclosed Assets Held for Production of Income.30.3.14. (n) PROPERTY, PLANT, AND EQUIPMENT.30.4. ALLOCATION OF COSTS30.4.1. (a) METHODS OF ALLOCATION.30.4.1.1. (i) Specific Identification Method.30.4.1.2. (ii) Value Method.30.4.1.3. (iii) Area Method.30.5. VALUATION ISSUES30.5.1. (a) ASSETS TO BE HELD AND USED.30.5.2. (b) ASSETS TO BE DISPOSED OF.30.5.3. (c) REAL ESTATE DEVELOPMENT.30.6. CONSTRUCTION CONTRACTS30.6.1. (a) AUTHORITATIVE LITERATURE.30.6.2. (b) METHODS OF ACCOUNTING.30.6.2.1. (i) Percentage of Completion Method.30.6.2.2. (ii) Completed Contract Method.30.6.2.3. (iii) Consistency of Application.30.6.3. (c) PERCENTAGE OF COMPLETION METHOD.30.6.3.1. (i) Revenue Determination.30.6.3.2. (ii) Cost Determination.30.6.3.3. (iii) Revision of Estimates.30.6.4. (d) COMPLETED CONTRACT METHOD.30.6.5. (e) PROVISION FOR LOSSES.30.6.6. (f) CONTRACT CLAIMS.30.7. OPERATIONS OF INCOME-PRODUCING PROPERTIES30.7.1. (a) RENTAL OPERATIONS.30.7.2. (b) RENTAL INCOME.30.7.2.1. (i) Cost Escalation.30.7.2.2. (ii) Percentage Rents.30.7.3. (c) RENTAL COSTS.30.7.3.1. (i) Chargeable to Future Periods.30.7.3.2. (ii) Period Costs.30.7.4. (d) DEPRECIATION.30.7.5. (e) INITIAL RENTAL OPERATIONS.30.7.6. (f) RENTAL EXPENSE.30.8. ACCOUNTING FOR INVESTMENTS IN REAL ESTATE VENTURES30.8.1. (a) ORGANIZATION OF VENTURES.30.8.2. (b) ACCOUNTING BACKGROUND.30.8.3. (c) INVESTOR ACCOUNTING ISSUES.30.8.4. (d) ACCOUNTING FOR TAX BENEFITS RESULTING FROM INVESTMENTS IN AFFORDABLE HOUSING PROJECTS.30.9. FINANCIAL REPORTING30.9.1. (a) FINANCIAL STATEMENT PRESENTATION.30.9.1.1. (i) Balance Sheet.30.9.1.2. (ii) Statement of Income.30.9.2. (b) ACCOUNTING POLICIES.30.9.3. (c) NOTE DISCLOSURES.30.9.4. (d) FAIR VALUE AND CURRENT VALUE.30.9.4.1. (i) Financial Accounting Standards Board Fair Value Project.30.9.4.2. (ii) AICPA Current Value Project.30.9.4.3. (iii) Deferred Taxes.30.9.5. (e) ACCOUNTING BY PARTICIPATING MORTGAGE LOAN BORROWERS.30.9.6. (f) GUARANTEES.30.10. SOURCES AND SUGGESTED REFERENCES
31. FINANCIAL INSTITUTIONS
31.1. OVERVIEW31.1.1. (a) CHANGING THE ENVIRONMENT.31.1.2. (b) ROLE IN THE ECONOMY.31.1.3. (c) TYPES OF FINANCIAL INSTITUTIONS.31.1.3.1. (i) Banks and Savings Institutions.31.1.3.2. (ii) Mortgage Banking Activities.31.1.3.3. (iii) Investment Companies.31.1.3.4. (iv) Credit Unions.31.1.3.5. (v) Investment Banks.31.1.3.6. (vi) Insurance Companies.31.1.3.7. (vii) Finance Companies.31.1.3.8. (viii) Securities Brokers and Dealers.31.1.3.9. (ix) Real Estate Investment Trusts.31.2. BANKS AND SAVINGS INSTITUTIONS31.2.1. (a) PRIMARY RISKS OF BANKS AND SAVINGS INSTITUTIONS.31.2.1.1. (i) Interest-Rate Risk.31.2.1.2. (ii) Liquidity Risk.31.2.1.3. (iii) Asset-Quality Risk.31.2.1.4. (iv) Fiduciary Risk.31.2.1.5. (v) Processing Risk.31.2.2. (b) REGULATION AND SUPERVISION OF BANKS AND SAVINGS INSTITUTIONS.31.2.3. (c) REGULATORY BACKGROUND.31.2.3.1. (i) Office of the Comptroller of the Currency.31.2.3.2. (ii) Federal Reserve Board.31.2.3.3. (iii) Federal Deposit Insurance Corporation.31.2.3.4. (iv) Office of Thrift Supervision.31.2.4. (c) REGULATORY ENVIRONMENT.31.2.5. (d) FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT SECTION 112.31.2.5.1. (i) The Regulation and Guidelines.31.2.5.2. (ii) Basic Requirements.31.2.5.2.1. Annual Report.31.2.5.2.2. Audit Committee.31.2.5.3. (iii) Holding Company Exception.31.2.5.4. (iv) Availability of Reports.31.2.6. (e) CAPITAL ADEQUACY GUIDELINES.31.2.6.1. (i) Risk-Based and Leverage Ratios.31.2.6.2. (ii) Tier 1, Tier 2, and Tier 3 Components.31.2.6.3. (iii) Risk-Weighted Assets.31.2.6.4. (iv) Capital Calculations and Minimum Requirements.31.2.6.5. (v) Interest Rate Risk and Capital Adequacy.31.2.6.6. (vi) Capital Allocated for Market Risk.31.2.6.6.1. Backtesting.31.2.7. (g) PROMPT CORRECTIVE ACTION.31.2.8. (h) REGULATORY EXAMINATIONS.31.2.8.1. (i) Scope.31.2.8.2. (ii) Regulatory Rating Systems.31.2.8.3. (iii) Risk-Focused Examinations.31.2.9. (i) ENFORCEMENT ACTIONS.31.2.10. (j) DISCLOSURE OF CAPITAL MATTERS.31.2.11. (k) SECURITIES AND EXCHANGE COMMISSION.31.2.11.1. (i) Background.31.2.11.2. (i) Reporting Requirements.31.2.12. (l) FINANCIAL STATEMENT PRESENTATION.31.2.12.1. (i) Income Statements.31.2.12.2. (ii) Balance Sheets.31.2.12.3. (iii) Statements of Cash Flow.31.2.12.4. (iv) Commitments and Off-Balance-Sheet Risk.31.2.12.5. (v) Disclosures of Certain Significant Risks and Uncertainties.31.2.13. (m) ACCOUNTING GUIDANCE.31.2.14. (n) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES VERSUS REGULATORY ACCOUNTING PRINCIPLES.31.2.15. (o) LOANS AND COMMITMENTS.31.2.15.1. (i) Types of Loans.31.2.15.1.1. Commercial Loans.31.2.15.1.2. Secured Loans.31.2.15.1.3. Lines of Credit.31.2.15.1.4. Demand Loans.31.2.15.1.5. Term Loans.31.2.15.1.6. Asset-Based Lending.31.2.15.1.7. Syndications.31.2.15.1.8. Participations.31.2.15.1.9. Loans Held for Resale.31.2.15.1.10. Real Estate Loans.31.2.15.1.11. Mortgage Loans.31.2.15.1.12. Construction Loans.31.2.15.1.13. Direct Lease Financing.31.2.15.1.14. Consumer Loans.31.2.15.1.15. Installment Loans.31.2.15.1.16. Standby Letters of Credit.31.2.15.1.17. Sovereign Risk.31.2.15.1.18. Trade Finance31.2.15.2. (ii) Accounting for Loans31.2.15.2.1. Principal.31.2.15.2.2. Interest.31.2.15.2.3. Loan Fees.31.2.15.2.4. Acquisition, Development, and Construction Arrangements.31.2.15.2.5. Troubled Debt Restructurings and Impaired Loans.31.2.15.2.6. In-Substance Foreclosures.31.2.16. (p) CREDIT LOSSES.31.2.16.1. (i) Accounting Guidance.31.2.16.2. (ii) Regulatory Guidance.31.2.16.3. (iii) Allowance Methodologies.31.2.16.3.1. Common Factors to Consider.31.2.16.3.2. Portfolio Segments.31.2.16.3.3. Credit Classification Process.31.2.16.3.4. Pools of Smaller-Balance Homogeneous Loans.31.2.16.3.5. Foreign Loans.31.2.16.3.6. Documentation, Completeness, and Frequency.31.2.17. (q) LOAN SALES AND MORTGAGE BANKING ACTIVITIES.31.2.17.1. (i) Underwriting Standards.31.2.17.2. (ii) Securitizations.31.2.17.3. (iii) Loan Servicing.31.2.17.4. (iv) Regulatory Guidance.31.2.17.5. (v) Accounting Guidance.31.2.17.6. (vi) Valuation.31.2.18. (r) REAL ESTATE INVESTMENTS, REAL ESTATE OWNED, AND OTHER FORECLOSED ASSETS.31.2.18.1. (i) Real Estate Investments.31.2.18.2. (ii) Former Bank Premises.31.2.18.3. (iii) Foreclosed Assets.31.2.19. (s) INVESTMENTS IN DEBT AND EQUITY SECURITIES.31.2.19.1. (i) Accounting for Investments in Debt and Equity Securities.31.2.19.1.1. Held-to-Maturity.31.2.19.1.2. Trading.31.2.19.1.3. Available-for-Sale.31.2.19.2. (ii) Wash Sales.31.2.19.3. (iii) Short Sales.31.2.19.4. (iv) Securities Borrowing and Lending.31.2.20. (t) DEPOSITS.31.2.20.1. (i) Demand Deposits.31.2.20.2. (ii) Savings Deposits.31.2.20.3. (iii) Time Deposits.31.2.21. (u) FEDERAL FUNDS AND REPURCHASE AGREEMENTS.31.2.21.1. (i) Federal Funds Purchased.31.2.21.2. (ii) Repurchase Agreements.31.2.22. (v) DEBT.31.2.22.1. (i) Long-Term Debt.31.2.22.2. (ii) Short-Term Debt.31.2.22.3. (iii) Accounting Guidance.31.2.23. (w) TAXATION.31.2.23.1. (i) Loan Loss Reserves.31.2.23.1.1. Banks.31.2.23.1.2. Thrifts.31.2.23.2. (ii) Mark-to-Market.31.2.23.3. (iii) Tax-Exempt Securities.31.2.23.4. (iv) Nonaccrual Loans.31.2.23.5. (v) Hedging.31.2.23.6. (vi) Loan Origination Fees and Costs.31.2.23.7. (vii) Foreclosed Property31.2.23.7.1. Banks.31.2.23.7.2. Thrifts.31.2.23.8. (viii) Leasing Activities.31.2.23.9. (ix) FHLB Dividends.31.2.23.10. (x) Bank-Owned Life Insurance.31.2.23.11. (xi) Original Issue Discount.31.2.23.12. (xii) Market Discount.31.2.24. (x) FUTURES, FORWARDS, OPTIONS, SWAPS, AND SIMILAR FINANCIAL INSTRUMENTS.31.2.24.1. (i) Futures.31.2.24.2. (ii) Forwards.31.2.24.3. (iii) Options.31.2.24.4. (iv) Swaps.31.2.24.5. (v) Foreign Exchange Contracts.31.2.24.6. (vi) Other Variations.31.2.24.7. (vii) Accounting Guidance.31.2.25. (y) FIDUCIARY SERVICES AND OTHER FEE INCOME.31.2.25.1. (i) Fiduciary Services.31.2.25.2. (ii) Other Fee Income.31.2.26. (z) ELECTRONIC BANKING AND TECHNOLOGY RISKS.31.3. MORTGAGE BANKING ACTIVITIES31.3.1. (a) OVERVIEW.31.3.2. (b) ACCOUNTING GUIDANCE.31.3.3. (c) MORTGAGE LOANS HELD FOR SALE.31.3.4. (d) MORTGAGE LOANS HELD FOR INVESTMENT.31.3.5. (e) SALES OF MORTGAGE LOANS AND SECURITIES.31.3.5.1. (i) Gain or Loss on Sale of Mortgage Loans.31.3.5.2. (ii) Financial Assets Subject to Prepayment.31.3.6. (f) MORTGAGE SERVICING RIGHTS.31.3.6.1. (i) Initial Capitalization of Mortgage Servicing Rights.31.3.6.2. (ii) Amortization of Mortgage Servicing Rights.31.3.6.3. (iii) Impairment of Mortgage Servicing Rights.31.3.6.4. (iv) Fair Value of Mortgage Servicing Rights.31.3.6.5. (v) Sales of Mortgage Servicing Rights.31.3.6.6. (vi) Retained Interests.31.3.7. (g) TAXATION.31.3.7.1. (i) Mortgage Servicing Rights.31.3.7.2. (ii) Mark-to-Market.31.4. INVESTMENT COMPANIES31.4.1. (a) BACKGROUND.31.4.1.1. (i) Securities and Exchange Commission Statutes.31.4.1.2. (ii) Types of Investment Companies.31.4.1.2.1. Classification by Securities Law Definition.31.4.1.2.2. Classification by Investment Objectives.31.4.1.2.3. Classification by Form of Organization.31.4.2. (b) FUND OPERATIONS.31.4.2.1. (i) Fund Accounting Agent.31.4.2.2. (ii) Custodian.31.4.2.3. (iii) Transfer Agent.31.4.3. (c) ACCOUNTING.31.4.4. (d) FINANCIAL REPORTING.31.4.4.1. (i) New Registrants.31.4.4.2. (ii) General Reporting Requirements.31.4.4.3. (iii) Financial Statements.31.4.5. (e) TAXATION.31.4.6. (f) FILINGS.31.4.7. (g) INVESTMENT PARTNERSHIPS—SPECIAL CONSIDERATIONS.31.4.8. (h) OFFSHORE FUNDS—SPECIAL CONSIDERATIONS.31.5. SOURCES AND SUGGESTED REFERENCES31.5.1.31.5.1.1. Bank and Savings Institutions' Regulatory Guidance
32. PRODUCERS OR DISTRIBUTORS OF FILMS
32.1. HISTORY OF GUIDANCE32.2. REVENUE REPORTING32.2.1. (a) BASIC REVENUE REPORTING PRINCIPLES.32.2.2. (b) DETAILED REVENUE REPORTING PRINCIPLES.32.2.2.1. (i) Persuasive Evidence of an Arrangement.32.2.2.2. (ii) Delivery.32.2.2.3. (iii) Availability.32.2.2.4. (iv) Fixed or Determinable Fee.32.2.2.5. (v) Barter Revenue.32.2.2.6. (vi) Modifications of Arrangements.32.2.2.7. (vii) Returns and Price Concessions.32.2.2.8. (viii) Licensing of Film-Related Products.32.2.2.9. (ix) Present Value.32.3. COSTS AND EXPENSES32.3.1. (a) FILM COSTS—CAPITALIZATION.32.3.2. (b) FILM COSTS—AMORTIZATION AND PARTICIPATION COST ACCRUALS.32.3.3. (c) ULTIMATE REVENUE.32.3.4. (d) ULTIMATE PARTICIPATION COSTS.32.3.5. (e) FILM COSTS VALUATION.32.3.6. (f) SUBSEQUENT EVENTS.32.3.7. (g) EXPLOITATION COSTS.32.3.8. (h) MANUFACTURING COSTS.32.4. PRESENTATION AND DISCLOSURE
33. REGULATED UTILITIES
33.1. THE NATURE AND CHARACTERISTICS OF REGULATED UTILITIES33.1.1. (a) INTRODUCTION TO REGULATED UTILITIES.33.1.2. (b) DESCRIPTIVE CHARACTERISTICS OF UTILITIES.33.2. HISTORY OF REGULATION33.2.1. (a) MUNN V. ILLINOIS.33.2.2. (b) CHICAGO, MILWAUKEE & ST. PAUL RAILROAD CO. V. MINNESOTA EX REL. RAILROAD & WAREHOUSE COMM.33.2.3. (c) SMYTH V. AMES.33.3. REGULATORY COMMISSION JURISDICTIONS33.3.1. (a) FEDERAL REGULATORY COMMISSIONS.33.3.2. (b) STATE REGULATORY COMMISSIONS.33.4. THE TRADITIONAL RATE-MAKING PROCESS33.4.1. (a) HOW COMMISSIONS SET RATES.33.4.2. (b) THE RATE-MAKING FORMULA.33.4.3. (c) RATE BASE.33.4.4. (d) RATE BASE VALUATION.33.4.4.1. (i) Original Cost.33.4.4.2. (ii) Fair Value.33.4.4.3. (iii) Weighted Cost.33.4.4.4. (iv) Judicial Precedents—Rate Base.33.4.5. (e) RATE OF RETURN AND JUDICIAL PRECEDENTS.33.4.6. (f) OPERATING INCOME.33.4.7. (g) ALTERNATIVE FORMS OF REGULATION.33.4.7.1. (i) Price Ceilings or Caps.33.4.7.2. (ii) Rate Moratoriums.33.4.7.3. (iii) Sharing Formulas.33.4.7.4. (iv) Regulated Transition to Competition.33.5. INTERRELATIONSHIP OF REGULATORY REPORTING AND FINANCIAL REPORTING33.5.1. (a) ACCOUNTING AUTHORITY OF REGULATORY AGENCIES.33.5.2. (b) SECURITIES AND EXCHANGE COMMISSION AND FINANCIAL ACCOUNTING STANDARDS BOARD.33.5.3. (c) RELATIONSHIP BETWEEN RATE REGULATION AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES33.5.3.1. (i) Historical Perspective.33.5.3.2. (ii) The Addendum to Accounting Principles Board (APB) Opinion No. 2.33.6. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 71: "ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION"33.6.1. (a) SCOPE OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 71.33.6.2. (b) AMENDMENTS TO STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 71.33.6.3. (c) OVERVIEW OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 71.33.6.4. (d) GENERAL STANDARDS.33.6.4.1. (i) Regulatory Assets.33.6.4.2. (ii) Regulatory Liabilities.33.6.5. (e) SPECIFIC STANDARDS.33.6.5.1. (i) Allowance for Funds Used During Construction (AFUDC).33.6.5.2. (ii) Intercompany Profit.33.6.5.3. (iii) Accounting for Income Taxes.33.6.5.4. (iv) Refunds.33.6.5.5. (v) Deferred Costs Not Earning a Return.33.6.5.6. (vi) Examples of Application.33.7. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 90: "REGULATED ENTERPRISES—ACCOUNTING FOR ABANDONMENTS AND DISALLOWANCE OF PLANT COSTS"33.7.1. (a) SIGNIFICANT PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 90.33.7.1.1. (i) Accounting for Regulatory Disallowances of Newly Completed Plant.33.7.1.2. (ii) Accounting for Plant Abandonments.33.7.1.3. (iii) Income Statement Presentation.33.8. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 92: "REGULATED ENTERPRISES—ACCOUNTING FOR PHASE-IN PLANS"33.8.1. (a) SIGNIFICANT PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 92.33.8.1.1. (i) Accounting for Phase-In Plans.33.8.1.2. (ii) Financial Statement Classification.33.8.1.3. (iii) Allowance for Funds Used During Construction (AFUDC).33.8.1.4. (iv) Interrelationship of Phase-In Plans and Disallowances.33.8.1.5. (v) Financial Statement Disclosure.33.9. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 101: "REGULATED ENTERPRISES—ACCOUNTING FOR THE DISCONTINUATION OF APPLICATION OF FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 71"33.9.1. (a) FACTORS LEADING TO DISCONTINUING APPLICATION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 71.33.9.2. (b) REGULATORY ASSETS AND LIABILITIES.33.9.3. (c) FIXED ASSETS AND INVENTORY.33.9.4. (d) INCOME TAXES.33.9.5. (e) INVESTMENT TAX CREDITS.33.9.6. (f) INCOME STATEMENT PRESENTATION.33.9.7. (g) REAPPLICATION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 71.33.10. ISSUE NO. 97-433.11. OTHER SPECIALIZED UTILITY ACCOUNTING PRACTICES33.11.1. (a) UTILITY INCOME TAXES AND INCOME TAX CREDITS.33.11.1.1. (i) Interperiod Income Tax Allocation.33.11.1.2. (ii) Flow-Through.33.11.1.3. (iii) Provisions of the Internal Revenue Code.33.11.1.4. (iv) The Concept of Tax Incentives.33.11.1.5. (v) Tax Legislation.33.11.1.5.1. Tax Reform Act of 1969.33.11.1.5.2. Revenue Act of 1971.33.11.1.5.3. Economic Recovery Act of 1981.33.11.1.5.4. Tax Reform Act of 1986.33.11.1.6. (vi) "Accounting for Income Taxes"—Statement of Financial Accounting Standards No. 109.33.11.1.7. (vii) Investment Tax Credit.33.11.1.7.1. Tax Legislation and Regulatory Treatment.33.11.2. (b) REVENUE RECOGNITION—ALTERNATIVE PROGRAMS.33.11.3. (c) ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.33.11.4. (d) OTHER FINANCIAL STATEMENT DISCLOSURES33.11.4.1. (i) Purchase Power Contracts.33.11.4.2. (ii) Financing Through Construction Intermediaries.33.11.4.3. (iii) Jointly Owned Plants.33.11.4.4. (iv) Decommissioning Costs and Nuclear Fuel.33.11.4.5. (v) Securitization of Stranded Costs, Including Regulatory Assets.33.11.4.6. (vi) Statement of Financial Accounting Standards Nos. 71 and 101—Expanded Footnote Disclosure.33.12. SOURCES AND SUGGESTED REFERENCES
34. STATE AND LOCAL GOVERNMENT ACCOUNTING
34.1. INTRODUCTION34.2. THE NATURE AND ORGANIZATION OF STATE AND LOCAL GOVERNMENT ACTIVITIES34.2.1. (a) STRUCTURE OF GOVERNMENT.34.2.2. (b) OBJECTIVES OF GOVERNMENT.34.2.3. (c) ORGANIZATION OF GOVERNMENT.34.2.4. (d) SPECIAL CHARACTERISTICS OF GOVERNMENT.34.3. SOURCE OF ACCOUNTING PRINCIPLES FOR STATE AND LOCAL GOVERNMENT ACCOUNTING34.3.1. (a) NATIONAL COUNCIL ON GOVERNMENT ACCOUNTING.34.3.2. (b) GOVERNMENTAL ACCOUNTING STANDARDS BOARD.34.4. GOVERNMENTAL ACCOUNTING PRINCIPLES AND PRACTICES34.4.1. (a) SIMILARITIES TO PRIVATE SECTOR ACCOUNTING.34.4.2. (b) USERS AND USES OF FINANCIAL REPORTS.34.4.3. (c) SUMMARY STATEMENT OF PRINCIPLES.34.4.3.1. (i) Government-Wide Financial Statements.34.4.3.2. (ii) Fund Accounting Systems.34.4.3.3. (iii) Types of Funds.34.4.3.3.1. Governmental Funds.34.4.3.3.2. Proprietary Funds.34.4.3.3.3. Fiduciary Funds.34.4.3.4. (iv) Number of Funds.34.4.3.5. (v) Accounting for Capital Assets and Long-Term Liabilities.34.4.3.6. (vi) Valuation of Capital Assets.34.4.3.7. (vii) Depreciation of Capital Assets.34.4.3.8. (viii) Accrual Basis in Governmental Accounting.34.4.3.9. (ix) Budgeting, Budgetary Control, and Budgetary Reporting.34.4.3.10. (x) Transfer, Revenue, Expenditure, and Expense Account Classification.34.4.3.11. (xi) Common Terminology and Classification.34.4.3.12. (xii) Interim and Annual Financial Reports.34.4.4. (d) DISCUSSION OF THE PRINCIPLES.34.4.5. (e) LEGAL COMPLIANCE.34.4.6. (f) FUND ACCOUNTING.34.4.7. (g) TYPES AND NUMBER OF FUNDS.34.4.7.1. (i) GENERAL FUND.34.4.7.2. (ii) Special Revenue Funds.34.4.7.3. (iii) Debt Service Funds.34.4.7.4. (iv) Capital Projects Funds.34.4.7.4.1. Accounting for Capital Projects Fund Transactions.34.4.7.4.2. Bond Anticipation Notes (BANs).34.4.7.4.3. Project Budgets.34.4.7.5. (v) Permanent Funds.34.4.7.6. (vi) Proprietary Funds.34.4.7.7. (vii) Internal Service Funds.34.4.7.8. (viii) Fiduciary Funds.34.4.7.8.1. Trust Funds.34.4.7.8.2. Expendable and Nonexpendable Trust Funds.34.4.7.8.3. Pension (and Other Employee Benefit) Trust Funds.34.4.7.8.4. Investment Trust Funds.34.4.7.8.5. Private-Purpose Trust Funds34.4.7.8.6. Agency Funds.34.4.7.9. (ix) Special Assessment Activities.34.4.7.10. (x) Focus on Major Funds.34.4.8. (h) REPORTING CAPITAL ASSETS.34.4.8.1. (i) Methods for Calculating Depreciation.34.4.8.2. (ii) Subsidiary Property Records.34.4.8.3. (iii) Disposal or Retirement of Capital Assets.34.4.9. (i) LONG-TERM LIABILITIES.34.4.10. (j) MEASUREMENT FOCUS AND BASIS OF ACCOUNTING.34.4.10.1. (i) Measurement Focus.34.4.10.2. (ii) Basis of Accounting.34.4.10.2.1. Cash Basis.34.4.10.2.2. Accrual Basis.34.4.10.2.3. Modified Accrual Basis.34.4.10.3. (iii) Revenue Transactions.34.4.10.4. (iv) Expenditure Transactions.34.4.10.5. (v) Reporting on Nonexchange Transactions.34.4.11. (k) BUDGETARY ACCOUNTING.34.4.11.1. (i) Types of Operating Budgets.34.4.11.1.1. Line Item Budgeting.34.4.11.1.2. Program Budgeting.34.4.11.1.3. Performance Budgeting.34.4.11.1.4. Zero-Base Budgeting.34.4.11.2. (ii) Budget Preparation.34.4.11.2.1. Revenue and Expenditure Estimates.34.4.11.2.2. Personal Services.34.4.11.2.3. Presentation of the Budget.34.4.11.2.4. Adoption of the Budget.34.4.11.2.5. Appropriations.34.4.11.3. (iii) Budget Execution.34.4.11.3.1. Encumbrances.34.4.11.3.2. Allotments.34.4.11.3.3. Interim Reports.34.4.11.4. (iv) Proprietary Fund Budgeting.34.4.11.5. (v) Capital Budget.34.4.11.6. (vi) Budgetary Comparison Information.34.4.12. (l) CLASSIFICATION AND TERMINOLOGY.34.4.12.1. (i) Classification of Expenditures.34.4.12.2. (ii) Classifications of Other Transactions.34.4.12.3. (iii) Residual Equity Transfers.34.4.12.4. (iv) Classification of Fund Equity.34.4.12.4.1. Reconciliations.34.4.13. (m) EXTERNAL FINANCIAL REPORTING.34.4.13.1. (i) The Financial Reporting Entity.34.4.13.2. (ii) General Purpose Financial Statements.34.4.13.3. (iii) Comprehensive Annual Financial Report (CAFR).34.4.13.4. (iv) Certificate of Achievement Program.34.4.13.5. (v) Popular Reports.34.4.14. (n) REPORTING INTERFUND ACTIVITY.34.4.15. (o) REQUIRED RECONCILIATION TO GOVERNMENT-WIDE STATEMENTS.34.4.16. (p) REPORTING GENERAL CAPITAL ASSETS.34.5. MANAGEMENT DISCUSSION AND ANALYSIS34.6. GOVERNMENT-WIDE FINANCIAL STATEMENTS34.6.1. (a) FOCUS OF THE GOVERNMENT-WIDE FINANCIAL STATEMENTS.34.6.2. (b) STATEMENT OF NET ASSETS.34.6.2.1. (i) Invested in Capital Assets, Net of Related Debt.34.6.2.2. (ii) Restricted Net Assets.34.6.2.3. (iii) Unrestricted Net Assets.34.6.3. (c) STATEMENT OF ACTIVITIES.34.6.3.1. (i) Expenses.34.6.3.2. (ii) Revenues.34.6.3.3. (ii) Special and Extraordinary Items.34.6.4. (d) ELIMINATIONS AND RECLASSIFICATIONS.34.6.5. (e) REPORTING INTERNAL SERVICE FUND BALANCES.34.6.6. (f) STATEMENT OF NET ASSETS FORMAT.34.6.7. (g) STATEMENT OF ACTIVITIES FORMAT.34.7. DISCLOSURE REQUIREMENTS34.7.1. (a) GENERAL DISCLOSURE REQUIREMENTS.34.7.2. (b) REQUIRED NOTE DISCLOSURES ABOUT CAPITAL ASSETS AND LONG-TERM LIABILITIES.34.7.3. (c) DISCLOSURES ABOUT DONOR-RESTRICTED ENDOWMENTS.34.7.4. (d) SEGMENT INFORMATION.34.8. REPORTING COMPONENT UNITS34.9. REQUIRED SUPPLEMENTARY INFORMATION OTHER THAN MANAGEMENT'S DISCUSSION AND ANALYSIS34.9.1. (a) BUDGETARY COMPARISON INFORMATION.34.9.2. (b) MODIFIED APPROACH FOR REPORTING INFRASTRUCTURE.34.10. BASIC FINANCIAL STATEMENTS REQUIRED FOR SPECIAL-PURPOSE GOVERNMENTS34.10.1. (a) REPORTING BY SPECIAL-PURPOSE GOVERNMENTS ENGAGED IN GOVERNMENTAL ACTIVITIES.34.10.2. (b) REPORTING BY SPECIAL-PURPOSE GOVERNMENTS ENGAGED ONLY IN BUSINESS-TYPE ACTIVITIES.34.10.3. (c) REPORTING BY SPECIAL-PURPOSE GOVERNMENTS ENGAGED ONLY IN FIDUCIARY ACTIVITIES.34.11. IMPLEMENTING THE REQUIREMENTS OF GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 3434.11.1. (a) REPORTING GENERAL INFRASTRUCTURE ASSETS AT TRANSITION.34.11.2. (b) TRANSITION TO THE MODIFIED APPROACH FOR REPORTING INFRASTRUCTURE ASSETS.34.11.3. (c) INITIAL CAPITALIZATION OF GENERAL INFRASTRUCTURE.34.11.3.1. (i) Determining Major General Infrastructure Assets.34.11.3.2. (ii) Establishing Capitalization at Transition.34.11.3.3. (iii) Estimating Acquisition Cost—Current Replacement Cost.34.11.3.4. (iv) Estimated Acquisition Cost from Existing Information.34.12. GRANT ACCOUNTING34.12.1. (a) DEFINITIONS.34.12.2. (b) FUND IDENTIFICATION.34.12.3. (c) REVENUE AND EXPENDITURE (EXPENSE) RECOGNITION.34.13. ACCOUNTING PRINCIPLES AND PRACTICES—PUBLIC COLLEGES AND UNIVERSITIES34.14. AUDITS OF GOVERNMENTAL UNITS34.14.1. (a) THE SINGLE AUDIT ACT AMENDMENTS OF 1996.34.14.2. (b) OTHER CONSIDERATIONS.34.14.2.1. (i) Governmental Rotation of Auditors.34.14.2.2. (ii) Audit Committees.34.15. CONCLUDING REMARKS34.16. SOURCES AND SUGGESTED REFERENCES34.17. APPENDIX 34.1: PRONOUNCEMENTS ON STATE AND LOCAL GOVERNMENT ACCOUNTING

35. NOT-FOR-PROFIT ORGANIZATIONS
35.1. THE NOT-FOR-PROFIT ACCOUNTING ENVIRONMENT35.1.1. (a) CURRENT STATUS OF ACCOUNTING PRINCIPLES.35.1.1.1. (i) Summary of Statement of Financial Accounting Standards Nos. 116 and 117.35.1.1.1.1. Implementation Schedule.35.1.1.1.2. Statement of Financial Accounting Standards No. 117 (Display).35.1.1.1.3. Statement of Financial Accounting Standards No. 116 (Contributions).35.1.1.2. (ii) Decisions.35.1.1.3. (iii) AICPA Audit Guide and Other Guidance.35.1.1.3.1. AICPA Guidance in Specific Areas.35.1.1.4. (iv) Projects in Process.35.1.1.4.1. Combinations of Not-for-Profit Organizations, Goodwill, and Intangible Assets.35.1.1.4.2. Consolidations Policy and Procedures.35.1.2. (b) GOVERNMENT AUDIT REQUIREMENTS.35.2. NOT-FOR-PROFIT ACCOUNTING PRINCIPLES AND REPORTING PRACTICES35.2.1. (a) PRINCIPAL ACCOUNTING AND REPORTING REQUIREMENTS.35.2.2. (b) BASIS OF ACCOUNTING: CASH OR ACCRUAL.35.2.3. (c) FUND ACCOUNTING.35.2.3.1. (i) Reclassification of Funds into Classes.35.2.4. (d) RECLASSIFICATIONS.35.2.5. (e) APPROPRIATIONS.35.2.6. (f) FIXED ASSETS.35.2.6.1. (i) Fixed Assets Where Title May Revert to Grantors.35.2.7. (g) DEPRECIATION.35.2.8. (h) INVESTMENT INCOME.35.2.9. (i) GAINS AND LOSSES ON INVESTMENTS.35.2.10. (j) CONTRIBUTIONS.35.2.10.1. (i) Expendable Current Support.35.2.10.1.1. Unrestricted Contributions.35.2.10.1.2. Current Restricted Contributions.35.2.10.1.3. Prepayment versus Cost Reimbursement.35.2.10.1.4. Investment Securities.35.2.10.2. (ii) Gifts-in-Kind35.2.10.2.1. Fixed Assets (Land, Buildings, and Equipment) and Supplies.35.2.10.2.2. Museum Collections.35.2.10.2.3. Contributed Services of Volunteers.35.2.10.2.4. Use of Facilities.35.2.10.3. (iii) Support Not Currently Expendable.35.2.10.3.1. Endowment Gifts.35.2.10.3.2. Pledges (Promises to Give).35.2.10.3.3. Bequests.35.2.10.4. (iv) Transfers of Assets to a Not-for-Profit Organization or Charitable Trust that Raises or Holds Contributions for Others.35.2.11. (k) RELATED ORGANIZATIONS.35.2.11.1. (i) Definition of the Reporting Entity.35.2.11.2. (ii) Pass-Through Gifts.35.2.12. (I) CASH FLOWS.35.2.13. (m) GOVERNMENTAL VERSUS NONGOVERNMENTAL ACCOUNTING.35.3. SPECIFIC TYPES OF ORGANIZATIONS35.3.1. (a) VOLUNTARY HEALTH AND WELFARE ORGANIZATIONS.35.3.1.1. (i) Financial Statements.35.3.1.2. (ii) Balance Sheet.35.3.1.2.1. Funds versus Classes.35.3.1.2.2. Comparison Column.35.3.1.2.3. Designation of Unrestricted Net Assets.35.3.1.3. (iii) Statement of Support, Revenue and Expenses, and Changes in Net Assets.35.3.1.3.1. Reporting of Expenses35.3.1.3.2. Allocation of Joint Costs of Multipurpose Activities.35.3.1.3.3. Appreciation of Investments.35.3.1.4. (iv) Statement of Cash Flows (Formerly Changes in Financial Position).35.3.1.5. (v) Statement of Functional Expenses.35.3.2. (b) COLLEGES AND UNIVERSITIES.35.3.2.1. (i) Fund Accounting.35.3.2.2. (ii) Encumbrance Accounting.35.3.3. (c) OTHER NOT-FOR-PROFIT ORGANIZATIONS35.3.3.1. (i) Accounting Principles.35.3.3.1.1. Subscription and Membership Income.35.3.3.1.2. Grants to Others.35.4. AUDIT CONSIDERATIONS FOR A NOT-FOR-PROFIT ORGANIZATION35.4.1. (a) GENERAL CONSIDERATIONS.35.4.2. (b) INTERNAL CONTROL.35.4.3. (c) MATERIALITY.35.4.4. (d) TAXES.35.4.5. (e) CONSOLIDATION.35.4.6. (f) COMPLIANCE AUDITING.35.4.7. (g) UNIQUE AUDITING AREAS.35.5. SOURCES AND SUGGESTED REFERENCES35.6. APPENDIX 35.1: FACTORS TO BE CONSIDERED IN DISTINGUISHING CONTRACTS FOR THE PURCHASE OF GOODS OR SERVICES FROM RESTRICTED GRANTS35.7. APPENDIX 35.2: FACTORS TO BE CONSIDERED IN ASSESSING WHETHER CONTRIBUTED SERVICES ARE CONSIDERED TO REQUIRE SPECIALIZED SKILLS (PER PARAGRAPH 9 OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 116, "ACCOUNTING FOR CONTRIBUTIONS RECEIVED")35.8. APPENDIX 35.3: CHECKLIST—FACTORS TO BE CONSIDERED IN DETERMINING WHETHER AN ORGANIZATION WOULD TYPICALLY NEED TO PURCHASE SERVICES IF NOT PROVIDED BY DONATION35.9. APPENDIX 35.4: FACTORS TO BE CONSIDERED IN ASSESSING WHETHER A DONOR HAS MADE A BONA FIDE PLEDGE TO A DONEE35.10. APPENDIX 35.5: CHECKLIST—FACTORS TO BE CONSIDERED IN DECIDING WHETHER A GIFT OR PLEDGE SUBJECT TO DONOR STIPULATIONS IS CONDITIONAL OR RESTRICTED (AS DISCUSSED IN STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 116, PARS. 7, 22–23, 57–71, 75–81)35.11. APPENDIX 35.6: CONSIDERATION OF WHETHER ITEMS MAY BE REPORTED AS OPERATING OR NONOPERATING (WITHIN THE CONTEXT OF PAR. 23 OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 117)
36. PROVIDERS OF HEALTH CARE SERVICES
36.1. THE HEALTH CARE INDUSTRY36.1.1. (a) OVERVIEW.36.1.2. (b) NOT-FOR-PROFIT PROVIDERS.36.1.3. (c) GOVERNMENTAL PROVIDERS.36.1.4. (d) INVESTOR-OWNED PROVIDERS.36.2. AUTHORITATIVE PRONOUNCEMENTS36.2.1. (a) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES—PRIVATE SECTOR.36.2.2. (b) GENERALLY ACCEPTED ACCOUNTING PRINCIPLES—PUBLIC SECTOR.36.2.3. (c) SECURITIES AND EXCHANGE COMMISSION REQUIREMENTS.36.2.4. (d) HEALTHCARE FINANCIAL MANAGEMENT ASSOCIATION PRINCIPLES AND PRACTICES BOARD.36.2.5. (e) AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS AUDIT GUIDE.36.2.6. (f) DEFINITION OF "PUBLIC COMPANY" IN THE APPLICATION OF FINANCIAL ACCOUNTING STANDARDS BOARD STANDARDS, HEALTH CARE ORGANIZATIONS, AND AUDITS OF NOT-FOR-PROFIT ORGANIZATIONS.36.3. ACCOUNTING PRINCIPLES36.3.1. (a) CLASSIFICATION AND REPORTING OF NET ASSETS.36.3.1.1. (i) Unrestricted Net Assets.36.3.1.2. (ii) Restricted Net Assets.36.3.1.3. (iii) Invested in Capital Assets, Net of Related Debt.36.3.2. (b) ASSETS WHOSE USE IS LIMITED.36.3.2.1. (i) Not-for-Profit Providers.36.3.2.2. (ii) Governmental Providers.36.3.3. (c) AGENCY TRANSACTIONS.36.3.4. (d) REVENUE OF HEALTH CARE FACILITIES.36.3.4.1. (i) Revenue Recognition.36.3.4.1.1. Patient Service Revenue.36.3.4.1.2. Capitation.36.3.4.1.3. Resident Service Revenue.36.3.4.2. (ii) Estimating Revenue Related to Governmental Programs.36.3.5. (e) REVENUE OF MANAGED CARE COMPANIES.36.3.5.1. (i) Reporting Revenue Net or Gross.36.3.5.1.1. Indicators of Gross Revenue Reporting36.3.5.1.2. Indicators of Net Revenue Reporting36.3.6. (f) SETTLEMENTS WITH THIRD-PARTY PAYERS.36.3.7. (g) BAD DEBTS.36.3.8. (h) CHARITY CARE.36.3.9. (i) REPORTING REVENUES, EXPENSES, GAINS, AND LOSSES.36.3.10. (j) CONCENTRATION OF CREDIT RISK.36.3.11. (k) CONTRIBUTIONS.36.3.11.1. (i) Not-for-Profit Providers.36.3.11.2. (ii) Governmental Providers.36.3.11.3. (iii) Contributions Established Through Trusts.36.3.11.4. (iv) Contributions Received Through Fund-Raising Foundations.36.3.11.4.1. Not-for-Profit Providers.36.3.11.4.2. Governmental Providers.36.3.11.5. (v) Financial Accounting Standards Board Statement No. 136.36.3.11.5.1. Financially Interrelated Organizations.36.3.11.5.2. Organizations Not Financially Interrelated.36.3.12. (I) INVESTMENTS.36.3.12.1. (i) Investments in Debt Securities and Certain Equity Securities.36.3.12.2. (ii) Unconsolidated Affiliates.36.3.12.3. Other Securities36.3.13. (m) DERIVATIVES.36.3.13.1. (i) Special Considerations for Not-for-Profit Entities.36.3.13.1.1. Cash Flow Hedge Accounting.36.3.13.1.2. Disclosures.36.3.13.1.3. Use of the Short-Cut Method.36.3.13.1.4. Split-Interest Agreements.36.3.13.2. (ii) Special Considerations for Governmental Entities.36.3.13.2.1. Cash Flow Hedge Accounting.36.3.13.2.2. Use of the Shortcut Method.36.3.14. (n) PROPERTY AND EQUIPMENT.36.3.14.1. (i) Capitalizing Costs Associated with Health Insurance Portability and Accountability Act Compliance.36.3.15. (o) INTANGIBLE ASSETS.36.3.15.1. (i) Special Considerations for Not-for-Profit Entities.36.3.15.2. (ii) Special Considerations for Governmental Entities.36.3.15.3. (iii) Special Considerations for Securities and Exchange Commission-Registered Companies.36.3.15.3.1. Allocation of Purchase Price.36.3.15.3.2. Goodwill Amortization Period.36.3.15.3.3. Contingent Consideration.36.3.16. (p)LEASES.36.3.17. (q) TAX-EXEMPT DEBT.36.3.17.1. (i) Municipal Securities Disclosure Requirements.36.3.17.2. (ii) Funds Held under Bond Indentures.36.3.17.3. (iii) Interest during Construction.36.3.17.4. (iv) Advance Refundings and Arbitrage.36.3.18. (r) DISCLOSURE OF RISKS, UNCERTAINTIES, AND CONTINGENCIES.36.3.18.1. (i) Statement of Position 94–6.36.3.18.2. (ii) Uncertainties Associated with Revenue Recognition.36.3.18.3. (iii) Illegal Acts Related to Government Programs.36.3.18.4. (iv) Malpractice Contingencies.36.3.19. (s) PENSIONS AND OTHER POSTEMPLOYMENT BENEFITS.36.3.20. (t) REPORTING ENTITY CONSIDERATIONS.36.3.20.1. (i) Not-for-Profit Consolidation/Reporting Entity Requirements.36.3.20.2. (ii) Governmental Consolidation/Reporting Entity Requirements.36.3.20.3. (iii) Not-for-Profit Foundations Associated with Governmental Entities.36.3.20.4. (iv) Obligated Group Financial Statements.36.3.20.5. (v) Joint Operating Agreements36.3.21. (u) BUSINESS COMBINATIONS.36.3.21.1. (i) Combinations Involving Not-for-Profit Organizations.36.3.21.2. (ii) Combinations Involving Governmental Entities.36.3.22. (v) TIMING DIFFERENCES.36.4. SPECIAL ACCOUNTING PROBLEMS OF SPECIFIC TYPES OF PROVIDERS36.4.1. (a) CONTINUING CARE RETIREMENT COMMUNITIES.36.4.1.1. (i) Refundable Advance Fees.36.4.1.2. (ii) Nonrefundable Advance Fees.36.4.1.3. (iii) Fees Refundable to Residents from Reoccupancy Proceeds of a Contract Holder's Unit.36.4.1.4. (iv) Amortization of Nonrefundable Advance Fees.36.4.1.5. (v) Obligation to Provide Future Services.36.4.1.6. (vi) Costs of Acquiring Initial Continuing Care Contracts.36.4.2. (b) PREPAID HEALTH CARE PLANS.36.4.2.1. (i) Expense Recognition Issues.36.4.2.1.1. Contractual or Regulatory Obligations.36.4.2.1.2. IBNR Incurred but not Reported Accruals.36.4.2.1.3. Termination of Contract.36.4.2.2. (ii) Loss Contracts.36.4.2.3. (iii) Risk Pools.36.4.2.4. (iv) Stop-Loss Insurance.36.4.2.5. (v) Acquisition Costs.36.4.2.6. (vi) Billing and Reconciliation.36.4.3. (c) PHYSICIAN PRACTICE MANAGEMENT COMPANIES.36.4.3.1. (i) Establishment of Controlling Financial Interest.36.4.3.1.1. Contract Term.36.4.3.1.2. Control over Medical Entity.36.4.3.1.3. Financial Interest.36.4.3.2. (ii) Business Combination Issues.36.4.3.3. (iii) Consolidation and Employee Status.36.4.3.4. (iv) Financial Reporting Considerations.36.4.3.5. (v) SEC Reporting Issues.36.4.3.5.1. Inclusion of Separate Financial Statements of Affiliated Medical Practices in IPO Filings.36.4.3.5.2. Disclosure Issues.36.4.3.5.3. What is the nature of the PPM's business?36.4.3.5.4. What is the PPM's relationship with managed care providers?36.4.3.5.5. Is the PPM subject to any state or federal regulations?36.5. FINANCIAL REPORTING PRACTICES36.5.1. (a) USERS OF FINANCIAL STATEMENTS.36.5.2. (b) BASIC FINANCIAL STATEMENTS.36.5.3. (c) BALANCE SHEET.36.5.3.1. (i) Not-for-Profit Providers.36.5.3.2. (ii) Governmental Providers.36.5.4. (d) OPERATING STATEMENT.36.5.4.1. (i) Requirements for Investor-Owned Providers.36.5.4.2. (ii) Requirements for Not-for-Profit Providers.36.5.4.3. (iii) Requirements for Governmental Providers.36.5.5. (e) STATEMENT OF CHANGES IN NET ASSETS/EQUITY.36.5.6. (i) STATEMENT OF CASH FLOWS.36.5.6.1. (i) Considerations for Not-for-Profit Providers.36.5.6.2. (ii) Considerations for Governmental Providers.36.6. STATUTORY/REGULATORY REPORTING ISSUES36.6.1. (a) STATUTORY FINANCIAL STATEMENTS.36.6.2. (b) RISK-BASED CAPITAL FOR MANAGED CARE ORGANIZATIONS.36.6.3. (c) OFFICE OF MANAGEMENT AND BUDGET CIRCULAR A-133.36.7. SOURCES AND SUGGESTED REFERENCES
37. ACCOUNTING FOR GOVERNMENT CONTRACTS
37.1. UNIQUE ACCOUNTING REQUIREMENTS FOR FEDERAL CONTRACTORS37.2. MANAGEMENT INFORMATION SYSTEM REQUIREMENTS37.2.1. (a) COST ACCOUNTING SYSTEMS.37.2.2. (d) COST ESTIMATING SYSTEMS.37.2.3. (c) MATERIAL MANAGEMENT AND ACCOUNTING SYSTEMS.37.2.4. (d) PROJECT MANAGEMENT SYSTEMS.37.2.5. (e) BILLING SYSTEMS.37.2.5.1. (i) Cost-Reimbursement Contracts.37.2.5.2. (ii) Fixed-Price Contracts.37.2.6. (f) RECORD-RETENTION REQUIREMENTS.37.3. SPECIFIC ACCOUNTING REQUIREMENTS37.3.1. (a) EFFECTS ON CONTRACTORS.37.3.2. (b) COST PRINCIPLES.37.3.2.1. (i) Advance Agreements on Particular Cost Items (Federal Acquisition Regulation 31.109).37.3.2.2. (ii) Composition of Total Allowable Costs.37.3.2.3. (iii) Factors Affecting Allowability (Federal Acquisition Regulation 31.201).37.3.2.3.1. Reasonableness.37.3.2.3.2. Allocability.37.3.2.3.3. Cost Accounting Standards or Generally Accepted Accounting Principles.37.3.2.3.4. Selected Costs.37.3.3. (C) COST ACCOUNTING STANDARDS.37.3.3.1. (i) Contract Coverage.37.3.3.1.1. Exemptions and Waivers.37.3.3.1.2. Contract Clauses.37.3.3.2. (ii) Price Adjustments.37.3.3.3. (iii) Disclosure Statements.37.3.3.3.1. Purposes and Uses.37.3.3.3.2. Filing Requirements.37.3.3.3.3. Determination of Adequacy.37.3.3.3.4. Determination of Compliance.37.3.3.3.5. Contents and Problem Areas.37.3.3.4. (iv) The Standards.37.3.3.4.1. Consistency in Estimating, Accumulating, and Reporting Costs (9904.401 and 9905.501).37.3.3.4.2. Consistency in Allocating Costs Incurred for the Same Purpose (9904.402 and 9905.502).37.3.3.4.3. Allocation of Home Office Expenses to Segments (9904.403).37.3.3.4.4. Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives (9904.410).37.3.3.4.5. Allocation of Direct and Indirect Cost (9904.418).37.3.3.4.6. Accounting for Independent Research and Development Costs and Bid and Proposal Costs (9904.420).37.3.3.4.7. Capitalization of Tangible Assets (9904.404).37.3.3.4.8. Depreciation of Tangible Capital Assets (9904.409).37.3.3.4.9. Cost of Money as an Element of the Cost of Facilities Capital (9904.414).37.3.3.4.10. Cost of Money as an Element of the Cost of Capital Assets Under Construction (9904.417).37.3.3.4.11. Accounting for Costs of Compensated Personal Absence (9904.408).37.3.3.4.12. Composition and Measurement of Pension Cost (9904. 412).37.3.3.4.13. Adjustment and Allocation of Pension Cost (9904.413).37.3.3.4.14. Accounting for the Cost of Deferred Compensation (9904.415).37.3.3.4.15. Accounting for Unallowable Costs (9904.405 and 9905.505).37.3.3.4.16. Cost Accounting Period (9904.406 and 9905.506).37.3.3.4.17. Use of Standard Costs for Direct Material and Direct Labor (9904.407).37.3.3.4.18. Accounting for Acquisition Costs of Material (9904.411).37.3.3.4.19. Accounting for Insurance Costs (9904.416).37.3.4. (d) CONTRACT CHANGES AND TERMINATIONS.37.3.4.1. (i) Contract Changes.37.3.4.2. (ii) Contract Terminations.
38. PENSION PLANS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
38.1. BACKGROUND, ENVIRONMENT, AND OVERVIEW38.1.1. (a) INTRODUCTION.38.1.2. (b) DEVELOPMENT OF THE PRIVATE PENSION SYSTEM.38.1.2.1. (i) The Past.38.1.2.2. (ii) The Period of Growth.38.1.2.3. (iii) The Present.38.1.3. (c) PLAN ADMINISTRATION.38.1.4. (d) EVOLUTION OF PENSION ACCOUNTING STANDARDS.38.2. SPONSOR ACCOUNTING38.2.1. (a) SCOPE OF STATEMENT OF FINANCIAL ACCOUNTING CONCEPTS NO. 87.38.2.2. (b) APPLICABILITY OF STATEMENT OF FINANCIAL ACCOUNTING CONCEPTS NO. 87.38.2.3. (c) BASIC ELEMENTS OF PENSION ACCOUNTING.38.2.3.1. (i) Attribution.38.2.3.2. (ii) Actuarial Assumptions.38.2.3.3. (iii) Interest Rates.38.2.3.4. (iv) Consistency.38.2.3.5. (v) Actuarial Present Value of Benefits.38.2.3.6. (vi) Measurement Date.38.2.4. (d) NET PERIODIC PENSION COST.38.2.4.1. (i) Service Cost Component.38.2.4.2. (ii) Interest Cost Component.38.2.4.3. (iii) Expected Return on Plan Assets Component.38.2.4.4. Amortization of Unrecognized Net Gains and Losses Component38.2.4.5. (v) Amortization of Unrecognized Prior Service Cost Component.38.2.4.6. (vi) Amortization of Unrecognized Net Obligation or Net Asset Component.38.2.5. (e) PLAN ASSETS.38.2.6. (f) RECOGNITION OF LIABILITIES AND ASSETS.38.2.7. (g) INTERIM MEASUREMENTS.38.2.8. (h) FINANCIAL STATEMENT DISCLOSURES.38.2.8.1. (i) Annuity Contracts.38.2.9. (i) DEFINED CONTRIBUTION PENSION PLANS.38.2.10. (j) Non-U.S. Pension Plans.38.2.11. (k) MULTIEMPLOYER PLANS.38.2.12. (I) MULTIPLE EMPLOYER PLANS.38.2.13. (m) FUNDING AND INCOME TAX ACCOUNTING.38.3. SPONSOR ACCOUNTING FOR NONRECURRING EVENTS38.3.1. (a) OVERVIEW.38.3.2. (b) SETTLEMENT.38.3.2.1. (i) Timing.38.3.2.2. (ii) Gain or Loss.38.3.2.3. (iii) Use of Participating Annuities.38.3.3. (c) CURTAILMENT.38.3.4. (d) DISPOSAL OF A BUSINESS.38.3.5. (e) PLAN MERGER, SPINOFF, AND TERMINATION.38.3.6. (f) TERMINATION BENEFITS.38.3.7. (g) BUSINESS COMBINATIONS.38.3.8. (h) SEQUENCE OF MEASUREMENT STEPS.38.3.9. (i) DISCLOSURE REQUIREMENTS FOR NONRECURRING EVENTS.38.3.10. (j) ILLUSTRATION—NONRECURRING EVENTS.38.4. SPONSOR ACCOUNTING FOR NONQUALIFIED PLANS38.4.1. (a) QUALIFIED VERSUS NONQUALIFIED PLANS.38.4.2. (b) NONQUALIFIED PLAN ASSETS.38.4.3. (c) NONQUALIFIED DEFINED CONTRIBUTION PLANS.38.4.4. (d) NONQUALIFIED DEFINED BENEFIT PLANS.38.5. PLAN ACCOUNTING38.5.1. (a) BACKGROUND.38.5.2. (b) OBJECTIVE AND CONTENT OF FINANCIAL STATEMENTS.38.5.3. (c) NET ASSETS AVAILABLE FOR BENEFITS.38.5.3.1. (i) Good Faith Valuations.38.5.3.2. (ii) Disclosures for Investments.38.5.3.3. (iii) Operating Assets.38.5.3.4. (iv) Contributions Receivable.38.5.4. (d) CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS.38.5.5. (e) ACTUARIAL PRESENT VALUE OF ACCUMULATED PLAN BENEFITS.38.5.5.1. (i) Actuarial Assumptions.38.5.5.2. (ii) Disclosures for Actuarial Present Value of Accumulated Plan Benefits.38.5.6. (f) CHANGES IN THE ACTUARIAL PRESENT VALUE OF ACCUMULATED PLAN BENEFITS.38.5.7. (g) ILLUSTRATIVE PLAN FINANCIAL STATEMENTS.38.5.8. (h) ADDITIONAL FINANCIAL STATEMENT DISCLOSURES.38.5.9. (i) DECISION TO PREPARE PLAN FINANCIAL STATEMENTS.38.5.10. (j) DEFINED CONTRIBUTION PLANS.38.5.10.1. (i) Separate Accounts.38.5.10.2. (ii) Types of Plans.38.5.10.3. (iii) Financial Statements.38.5.11. (k) POSTRETIREMENT MEDICAL BENEFIT FEATURES OF DEFINED BENEFIT PENSION PLANS.38.6. ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS38.6.1. (a) BACKGROUND.38.6.2. (b) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 106.38.6.2.1. (i) Similarities to Statement of Financial Accounting Standards No. 87.38.6.2.2. (ii) Differences from Statement of Financial Accounting Standards No. 87.38.6.3. (c) ACTUARIAL ASSUMPTIONS.38.6.4. (d) NONRECURRING EVENTS.38.6.5. (e) DISCLOSURES.38.7. EMPLOYERS' ACCOUNTING FOR POSTEMPLOYMENT BENEFITS38.7.1. (a) BACKGROUND.38.7.2. (b) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 112.38.7.2.1. (i) Application (Statement of Financial Accounting Standards No. 43 versus Statement of Financial Accounting Standards No. 5).38.7.2.2. (ii) Differences in Accrual Accounting.38.7.2.3. (iii) Measurement Issues.38.7.2.4. (iv) Disclosures.38.7.2.5. (v) Illustration.38.8. SOURCES AND SUGGESTED REFERENCES
39. STOCK-BASED COMPENSATION
39.1. HISTORY OF ACCOUNTING FOR STOCK-BASED COMPENSATION39.2. SCOPE OF ACCOUNTING PRINCIPLES BOARD OPINION NO. 2539.3. APPLICATION OF APB OPINION NO. 2539.3.1. (a) NONCOMPENSATORY AND COMPENSATORY PLANS.39.3.2. (b) MEASUREMENT OF COMPENSATION: GENERAL PRINCIPLE.39.3.3. (c) APPLICATION OF THE MEASUREMENT PRINCIPLE.39.3.3.1. (i) Measurement of Compensation Cost Based on Cost of Treasury Stock.39.3.3.2. (ii) Vesting Contingent on Continued Employment.39.3.3.3. (iii) Designation of Measurement Date.39.3.3.4. (iv) Impact of Renewals, Extensions, and Other Modifications of Stock Options and Purchase Rights.39.3.3.5. (v) Transfer of Stock or Assets to a Trustee, Agent, or Other Third Party.39.3.3.6. (vi) Awards of Convertible Stock or Rights.39.3.3.7. (vii) Settlement of Awards.39.3.3.7.1. Emerging Issues Task Force Issue No. 84–13, "Purchase of Stock Options and Stock Appreciation Rights in a Leveraged Buyout."39.3.3.7.2. Emerging Issues Task Force Issue No. 85–45, "Business Combinations: Settlement of Stock Options and Awards."39.3.3.7.3. Emerging Issues Task Force Issue No. 87–6, "Adjustments Relating to Stock Compensation Plans."39.3.3.7.4. Emerging Issues Task Force Issue No. 87–23, "Book Value Stock Purchase Plans."39.3.3.7.5. Emerging Issues Task Force Issue No. 87–33, "Stock Compensation Issues Related to Market Decline."39.3.3.7.6. Emerging Issues Task Force Issue No. 88–6, "Book Value Stock Plans in an Initial Public Offering."39.3.3.7.7. Emerging Issues Task Force Issue No. 94–6, "Accounting for the Buyout of Compensatory Stock Options."39.3.3.8. (viii) Combination Plans and Awards.39.3.3.9. (ix) Stock Option Pyramiding.39.3.3.10. (x) Stock Option Gain Deferrals.39.3.3.11. (xi) Use of Stock Option Shares to Cover Required Tax Withholding.39.3.4. (d) ALLOCATION OF COMPENSATION COST: DETERMINING THE SERVICE PERIOD.39.3.4.1. (i) Allocation of Compensation Cost Related to Fixed Awards.39.3.4.2. (ii) Allocation of Compensation Cost Related to Variable Awards.39.3.5. (e) CANCELED OR FORFEITED RIGHTS.39.3.6. (f) ACCOUNTING FOR INCOME TAXES UNDER APB OPINION NO. 25.39.3.7. (g) OTHER APB OPINION NO. 25 ISSUES.39.3.7.1. (i) Time Accelerated Restricted Stock Award Plan.39.3.7.2. (ii) Applying APB Opinion No. 25 to Nonemployees.39.3.7.3. (iii) Nominal Issuances.39.4. EARNINGS PER SHARE UNDER APB OPINION NO. 2539.4.1. (a) BASIC EARNINGS PER SHARE.39.4.2. (b) DILUTED EARNINGS PER SHARE.39.4.3. (c) DILUTED EARNINGS PER SHARE COMPUTATIONS FOR FIXED AWARDS.39.4.4. (d) DILUTED EARNINGS PER SHARE COMPUTATIONS FOR VARIABLE AWARDS SUBJECT ONLY TO TIME-BASED VESTING.39.4.5. (e) DILUTED EARNINGS PER SHARE COMPUTATIONS FOR VARIABLE AWARDS SUBJECT TO PERFORMANCE-BASED VESTING.39.5. ILLUSTRATIONS OF ACCOUNTING UNDER APB OPINION NO. 2539.5.1. (a) FIXED AWARD.39.5.1.1. (i) Definition.39.5.1.2. (ii) Accounting by Employer for Compensation Expense.39.5.1.3. (iii) Accounting by Employer for Federal Income Taxes.39.5.1.4. (iv) Accounting by Employer for Earnings per Share.39.5.1.5. (v) Illustration of a Fixed Award.39.5.2. (b) VARIABLE AWARD—STOCK APPRECIATION RIGHT.39.5.2.1. (i) Definition.39.5.2.2. (ii) Accounting by Employer for Compensation Expense.39.5.2.3. (iii) Accounting by Employer for Federal Income Taxes.39.5.2.4. (iv) Accounting by Employer for Earnings per Share.39.5.2.5. (v) Illustration of a Variable Award.39.5.3. (c) VARIABLE AWARD—PERFORMANCE STOCK OPTION.39.5.3.1. (i) Definition.39.5.3.2. (ii) Accounting by Employer for Compensation Expense.39.5.3.3. (iii) Accounting by Employer for Federal Income Taxes.39.5.3.4. (iv) Accounting by Employer for Earnings per Share.39.5.3.5. (v) Illustration of a Performance Award.39.5.4. (d) BOOK VALUE OR FORMULA AWARD.39.5.4.1. (i) Definition.39.5.4.2. (ii) Accounting by Employer for Compensation Expense.39.5.4.3. (iii) Accounting by Employer for Federal Income Taxes.39.5.4.4. (iv) Accounting by Employer for Earnings per Share.39.5.4.5. (v) Illustration of a Formula Award.39.6. APPLICATION OF FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 12339.6.1. (a) SCOPE OF FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 123.39.6.2. (b) MEASUREMENT OF AWARDS.39.6.3. (c) MEASUREMENT DATE.39.6.4. (d) OPTION PRICING MODELS.39.6.4.1. (i) Expected Volatility.39.6.4.2. (ii) Expected Dividends.39.6.4.3. (iii) Expected Option Lives.39.6.4.4. (iv) Minimum Value Method.39.6.5. (e) RECOGNITION OF COMPENSATION COST.39.6.6. (f) ADJUSTMENTS OF INITIAL ESTIMATES.39.6.7. (g) MODIFICATIONS TO GRANTS.39.6.8. (h) OPTIONS WITH RELOAD FEATURES.39.6.9. (i) SETTLEMENT OF AWARDS.39.6.10. (j) TANDEM PLANS AND COMBINATION PLANS.39.6.11. (k) EMPLOYEE STOCK PURCHASE PLANS.39.6.12. (l) LOOK-BACK OPTIONS.39.6.13. (m) AWARDS REQUIRING SETTLEMENT IN CASH.39.6.14. (n) TRANSACTIONS WITH NONEMPLOYEES.39.6.15. (o) ACCOUNTING FOR INCOME TAXES UNDER FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 123.39.6.16. (p) EFFECTIVE DATE AND TRANSITION.39.7. EARNINGS PER SHARE UNDER FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 12339.8. FINANCIAL STATEMENT DISCLOSURES39.8.1. (a) DISCLOSURE REQUIREMENTS FOR ALL COMPANIES.39.8.2. (b) DISCLOSURES BY COMPANIES THAT CONTINUE TO APPLY THE PROVISIONS OF APB OPINION NO. 25.39.9. SOURCES AND SUGGESTED REFERENCES
40. PROSPECTIVE FINANCIAL STATEMENTS
40.1. TYPES OF PROSPECTIVE FINANCIAL STATEMENTS40.1.1. (a) DEFINITIONS.40.1.1.1. (i) Financial Forecasts.40.1.1.2. (ii) Financial Projections.40.1.2. (b) OTHER PRESENTATIONS THAT LOOK LIKE PROSPECTIVE FINANCIAL STATEMENTS.40.1.2.1. (i) Presentations for Wholly Expired Periods.40.1.2.2. (ii) Partial Presentations.40.1.2.3. (iii) Pro Formas.40.1.2.4. (iv) Financial Analyses.40.2. LIMITATIONS ON THE USE OF PROSPECTIVE FINANCIAL STATEMENTS40.2.1. (a) HOW PROSPECTIVE FINANCIAL STATEMENTS ARE USED.40.2.2. (b) GENERAL USE.40.2.3. (c) LIMITED USE.40.2.4. (d) INTERNAL USE.40.3. DEVELOPING PROSPECTIVE FINANCIAL STATEMENTS40.3.1. (a) GENERAL GUIDELINES.40.3.2. (b) IDENTIFYING KEY FACTORS.40.3.3. (c) DEVELOPING ASSUMPTIONS.40.3.3.1. (i) Mathematical Models.40.3.3.2. (ii) Length of the Prospective Period.40.3.4. (d) ASSEMBLING THE PROSPECTIVE FINANCIAL STATEMENTS.40.4. PRESENTATION AND DISCLOSURE OF PROSPECTIVE FINANCIAL STATEMENTS40.4.1. (a) AUTHORITATIVE GUIDANCE.40.4.2. (b) FORM OF PROSPECTIVE FINANCIAL STATEMENTS.40.4.2.1. (i) Amounts Presented.40.4.2.2. (ii) Titles.40.4.3. (c) DISCLOSURES.40.4.3.1. (i) Description of the Presentation.40.4.3.2. (ii) Significant Assumptions.40.4.3.3. (iii) Significant Accounting Principles.40.4.3.4. (iv) Other Matters.40.5. TYPES OF ACCOUNTANTS' SERVICES40.5.1. (a) OBJECTIVE OF ACCOUNTANTS' SERVICES.40.5.2. (b) STANDARD ACCOUNTANTS' SERVICES.40.5.2.1. (i) Prospective Financial Statements.40.5.2.2. (ii) Third-Party Use.40.5.2.3. (iii) Assemble and Submit.40.5.3. (c) INTERNAL USE.40.5.4. (d) PROHIBITED ENGAGEMENTS.40.5.5. (e) MATERIALITY.40.5.6. (f) SECURITIES AND EXCHANGE COMMISSION PERSPECTIVE.40.5.6.1. (i) Compilations in Securities and Exchange Commission Filings.40.5.6.2. (ii) Independence.40.5.7. (g) INTERNAL REVENUE SERVICE PERSPECTIVE.40.6. COMPILATION SERVICES40.6.1. (a) SCOPE OF THE COMPILATION SERVICE.40.6.2. (b) ASSEMBLY.40.6.3. (c) COMPILATION PROCEDURES.40.6.4. (d) REPORTING ON A COMPILATION.40.6.5. (e) PROBLEM SITUATIONS.40.6.5.1. (i) Scope Limitations.40.6.5.2. (ii) Presentation Deficiencies.40.6.5.3. (iii) Independence.40.7. EXAMINATION SERVICES40.7.1. (a) SCOPE OF AN EXAMINATION.40.7.1.1. (i) Evaluating Preparation.40.7.1.2. (ii) Evaluating Assumptions.40.7.1.3. (iii) Evaluating Presentation.40.7.2. (b) STANDARD EXAMINATION REPORT.40.7.3. (c) MODIFIED EXAMINATION REPORTS.40.7.3.1. (i) Qualified Opinion.40.7.3.2. (ii) Adverse Report.40.7.3.3. (iii) Disclaimer.40.7.3.4. (iv) Divided Responsibility.40.7.4. (d) INDEPENDENCE.40.8. AGREED-UPON PROCEDURES40.8.1. (a) SCOPE OF SERVICE.40.8.2. (b) PROCEDURES.40.8.3. (c) REPORTS.40.9. INTERNAL USE SERVICES40.9.1. (a) SCOPE OF SERVICES.40.9.2. (b) DETERMINING WHETHER USE IS INTERNAL.40.9.3. (c) PROCEDURES.40.9.4. (d) REPORTS.40.9.4.1. (i) Plain Paper.40.9.4.2. (ii) Legend.40.9.4.3. (iii) Formal Report.40.10. SOURCES AND SUGGESTED REFERENCES
41. PERSONAL FINANCIAL STATEMENTS
41.1. WHAT ARE THEY? AND WHY DO WE NEED THEM?41.1.1. (a) WHAT IS A PERSONAL FINANCIAL STATEMENT?41.1.2. (b) WHOSE FINANCIAL STATEMENT IS IT?41.1.3. (c) WHY ARE THEY NEEDED?41.1.4. (d) CASH, ACCRUAL, OR SOMETHING ELSE?41.1.5. (e) WHICH ASSET/LIABILITY GOES FIRST?41.2. PRACTICAL TIPS41.2.1. (a) DUE DILIGENCE IN THE ACCOUNTANT-CLIENT RELATIONSHIP.41.2.2. (b) MAKING SURE THE ENGAGEMENT IS CLEAR TO ALL PARTIES.41.2.3. (c) THE VALUE OF A WRITTEN UNDERSTANDING.41.2.4. (d) THE OPERATING RULES ARE OTHERWISE KNOWN AS THE "APPLICABLE PROFESSIONAL STANDARDS".41.3. RULES AND GUIDANCE IN PRESENTING ASSET VALUES41.3.1. (a) START BY USING THE ESTIMATED CURRENT VALUE.41.3.2. (b) WHAT IS OWED BY OTHERS?41.3.3. (c) THE STOCK MARKET AND OTHER MARKETS.41.3.4. (d) LIMITED PARTNERSHIP INTERESTS ARE LIMITED.41.3.5. (e) GOLD, SILVER, AND OTHER PRECIOUS METALS.41.3.6. (f) OPTIONS ON ASSETS OTHER THAN MARKETABLE SECURITIES.41.3.7. (g) LIFE INSURANCE.41.3.8. (h) A REAL CHALLENGE IS VALUING A CLOSELY HELD BUSINESS.41.3.9. (i) REALTY.41.3.9.1. (i) Location, Location, Location.41.3.10. (j) PERSONAL PROPERTY.41.3.11. (k) INTANGIBLE ASSETS.41.3.12. (l) FUTURE INTERESTS.41.4. RULES AND GUIDANCE IN PRESENTING LIABILITIES41.4.1. (a) START BY USING THE ESTIMATED CURRENT AMOUNT OF THE DEBT OR LIABILITY.41.4.2. (b) FIXED COMMITMENTS.41.4.3. (c) CONTINGENCIES: WAITING FOR THE OTHER SHOE TO DROP.41.4.4. (d) PAYING THE DEVIL HIS DUE! INCOME TAXES!41.5. PROVISION FOR INCOME TAXES41.5.1. (a) DEFINITION.41.5.2. (b) COMPUTING THE PROVISION FOR INCOME TAXES.41.5.3. (c) TAX BASIS.41.5.4. (d) DISCLAIMER.41.5.5. (e) OMISSION OF DISCLOSURE.41.6. STATEMENT OF CHANGES IN NET WORTH41.6.1. (a) DEFINITION.41.6.2. (b) USES.41.6.3. (c) FORMAT.41.7. DISCLOSURES41.8. COMPILATION41.9. REVIEW41.10. AUDITS41.11. REPORTS41.11.1. (a) STANDARD COMPILATION REPORT.41.11.2. (b) REPORTING WHEN SUBSTANTIALLY ALL DISCLOSURES ARE OMITTED.41.11.3. (c) REPORTING WHEN THE ACCOUNTANT IS NOT INDEPENDENT.41.11.4. (d) REPORTING ON PRESCRIBED FORMS.41.11.5. (e) REPORTING WHEN THERE IS A DEPARTURE FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.41.11.6. (f) STANDARD REVIEW REPORT.41.11.7. (g) STANDARD AUDIT REPORT.41.12. COMPILED STATEMENTS ONLY FOR CLIENT INTERNAL USE41.13. SOURCES AND SUGGESTED REFERENCES
42. PARTNERSHIPS AND JOINT VENTURES
42.1. NATURE AND ORGANIZATION OF PARTNERSHIP ENTITY42.1.1. (a) DEFINITION OF PARTNERSHIP.42.1.2. (b) ADVANTAGES AND DISADVANTAGES OF A PARTNERSHIP.42.1.3. (c) TAX CONSIDERATIONS.42.1.4. (d) IMPORTANCE OF PARTNERSHIP.42.1.5. (e) FORMATION OF PARTNERSHIP.42.1.6. (f) INITIAL BALANCE SHEET.42.2. ACCOUNTING FOR PARTNERSHIP OPERATIONS42.2.1. (a) PECULIARITIES OF PARTNERSHIP ACCOUNTING.42.2.2. (b) METHODS OF DIVIDING PROFITS AND LOSSES.42.2.3. (c) EXAMPLE USING AVERAGE CAPITAL RATIO.42.2.4. (d) TREATMENT OF TRANSACTIONS BETWEEN PARTNER AND FIRM.42.2.4.1. (i) Interest on Invested Capital.42.2.4.2. (ii) Partners' Salaries.42.2.4.3. (iii) Bonuses.42.2.4.4. (iv) Debtor–Creditor Relationship.42.2.4.5. (v) Landlord–Tenant Relationship.42.2.4.6. (vi) Statement Presentation.42.2.5. (e) CLOSING OPERATING ACCOUNTS.42.2.5.1. (i) Division of Profits Illustrated.42.2.5.2. (ii) Statement of Partners' Capitals Illustrated.42.2.6. (f) INCOME TAXES.42.3. ACCOUNTING FOR CHANGES IN FIRM MEMBERSHIP42.3.1. (a) EFFECT OF CHANGE IN PARTNERS.42.3.2. (b) NEW PARTNER PURCHASING AN INTEREST.42.3.2.1. (i) Purchase at Book Value.42.3.2.2. (ii) Purchase at More than Book Value.42.3.2.2.1. Goodwill Method.42.3.2.3. (iii) Purchase at Less than Book Value.42.3.2.3.1. Bonus Method.42.3.2.3.2. Revaluation of Assets Method.42.3.3. (c) NEW PARTNER'S INVESTMENT TO ACQUIRE AN INTEREST.42.3.3.1. (i) Investment at Book Value.42.3.3.2. (ii) Investment at More than Book Value.42.3.3.2.1. Bonus Method.42.3.3.2.2. Goodwill Method.42.3.3.3. (iii) Investment at Less than Book Value.42.3.3.3.1. Bonus Method.42.3.3.3.2. Revaluation of Assets Method.42.3.3.4. (iv) Goodwill Method.42.3.4. (d) SETTLING WITH WITHDRAWING PARTNER THROUGH OUTSIDE FUNDS.42.3.4.1. (i) Sale at Book Value.42.3.4.2. (ii) Sale at More than Book Value.42.3.4.2.1. Bonus Method.42.3.4.2.2. Goodwill Method.42.3.4.3. (iii) Sale at Less than Book Value.42.3.4.3.1. Bonus Method.42.3.4.3.2. Revaluation of Assets Method.42.3.5. (e) SETTLEMENT THROUGH FIRM FUNDS.42.3.5.1. (i) Premium Paid to Retiring Partner.42.3.5.2. (ii) Discount Given by Retiring Partner.42.3.6. (f) ADJUSTMENT OF CAPITAL RATIOS.42.4. INCORPORATION OF A PARTNERSHIP42.5. PARTNERSHIP REALIZATION AND LIQUIDATION42.5.1. (a) BASIC CONSIDERATIONS.42.5.2. (b) LIQUIDATION BY SINGLE CASH DISTRIBUTION.42.5.3. (c) LIQUIDATION BY INSTALLMENTS.42.5.4. (d) CAPITAL CREDITS ONLY—NO CAPITAL DEFICIENCY.42.5.4.1. (i) Capital Credits Only—Capital Deficiency of One Partner.42.5.4.2. (ii) Installment Distribution Plan.42.6. LIMITED PARTNERSHIPS42.6.1. (a) DEFINITION.42.6.2. (b) DIFFERENCES BETWEEN LIMITED PARTNERSHIPS AND GENERAL PARTNERSHIPS.42.6.3. (c) FORMATION OF LIMITED PARTNERSHIPS.42.6.4. (d) ACCOUNTING AND FINANCIAL CONSIDERATIONS.42.6.4.1. (i) Financial Statement Reporting Issues.42.6.4.2. (ii) Financial Statement Disclosure Issues.42.6.4.3. (iii) Accounting Issues.42.7. NONPUBLIC INVESTMENT PARTNERSHIPS42.8. JOINT VENTURES42.8.1. (a) DEFINITION.42.8.2. (b) ACCOUNTING BY JOINT VENTURES.42.8.3. (c) ACCOUNTING FOR INVESTMENTS IN JOINT VENTURES.42.8.3.1. (i) Financial Statement Presentation.42.8.3.1.1. One-Line Equity Method.42.8.3.1.2. Proportionate Consolidation Method.42.8.3.1.3. Full Consolidation.42.8.3.1.4. Cost Method.42.8.3.2. (ii) Combination of Methods.42.8.3.3. (iii) Income Tax Issues.42.8.4. (d) CURRENT DEVELOPMENTS.42.9. SOURCES AND SUGGESTED REFERENCES
43. ESTATES AND TRUSTS
43.1. ESTATES—LEGAL BACKGROUND43.1.1. (a) EXECUTING A WILL.43.1.2. (b) WILL PROVISIONS.43.1.3. (c) RULES UNDER INTESTACY.43.1.4. (d) DOMICILE.43.1.5. (a) PROBATE PROCEDURES: WILL.43.1.6. (f) PROBATE PROCEDURES: FAILURE OF EXECUTOR.43.1.7. (g) PROBATE PROCEDURES: INTESTACY.43.1.8. (g) SETTLEMENT OF SMALL ESTATES.43.1.9. (i) FIDUCIARY RESPONSIBILITIES.43.1.9.1. (i) Executor versus Administrator.43.1.9.2. (i) General Duties of Representatives.43.1.9.3. (iii) Preliminary Administration.43.1.9.4. (iv) Specific Duties of Representatives.43.1.9.5. (v) Possession of Assets.43.1.9.6. (vi) Probate versus Nonprobate Assets.43.1.9.7. (vii) Personal Property Exemptions.43.1.9.8. (viii) Real Property.43.1.9.9. (ix) Inventory of Assets.43.1.9.10. (x) Valuation of Assets.43.1.9.11. (xi) Management of Estate Funds.43.1.9.12. (xii) Payments of Debts.43.1.9.13. (xiii) Advertising for Creditors.43.1.9.14. (xiv) Order of Debt Payment.43.1.9.15. (xv) Source of Funds for Debt Payment.43.1.9.16. (xvi) Administration Expenses.43.1.9.17. (xvii) Distribution of Estate Assets.43.1.9.18. (xviii) Payment of Legacies.43.1.9.19. (xix) Abatement of Legacies.43.1.9.20. (xx) Deductions from Legacies.43.1.9.21. (xxi) Lapsed Legacies.43.1.9.22. (xxii) Advancement and Hotchpot.43.1.9.23. (xxiii) Surviving Spouse's Right of Election against the Will.43.1.9.24. (xxiv) Disclaimers.43.1.9.25. (xxv) Decree of Distribution and Postdecree Procedure.43.1.9.26. (xxvi) Funding of Trusts.43.1.10. (j) POWERS OF ESTATE REPRESENTATIVE.43.1.10.1. (i) Executor versus Administrator.43.1.10.2. (ii) Will Powers Not Conferred by Statute.43.1.10.3. (iii) Will Powers versus Statutory Powers.43.1.11. (k) COMMISSIONS OF REPRESENTATIVES.43.1.12. (l) TAXATION OF ESTATES.43.1.12.1. (i) Final Individual Income Taxes.43.1.12.2. (ii) Federal Estate Tax.43.1.12.3. (iii) State Estate and Inheritance Taxes.43.1.12.4. (iv) Generation Skipping Transfer Tax.43.1.12.5. (v) Estate Income Taxes.43.2. ACCOUNTING FOR ESTATES43.2.1. (a) GOVERNING CONCEPTS.43.2.1.1. (i) Accounting Period.43.2.1.2. (ii) Principal and Income.43.2.1.3. (iii) Treatment of Liabilities.43.2.2. (b) RECORD-KEEPING SYSTEM.43.2.2.1. (i) Journals.43.2.2.2. (ii) Operation of a Going Business.43.2.2.3. (iii) Final Accounting.43.2.3. (c) REPORTS OF EXECUTOR OR ADMINISTRATOR.43.3. TRUSTS AND TRUSTEES—LEGAL BACKGROUND43.3.1. (a) NATURE AND TYPES OF TRUSTS.43.3.1.1. (i) Limitations on Private Trusts.43.3.1.2. (ii) Revocation of Trusts.43.3.2. (b) APPOINTMENT AND REMOVAL OF TRUSTEES.43.3.2.1. (i) Choice of Trustee.43.3.2.2. (ii) Methods of Appointment.43.3.2.3. (iii) Acceptance or Disclaimer.43.3.2.4. (iv) Resignation of Trustee.43.3.2.5. (v) Removal of Trustee.43.3.3. (c) POWERS AND DUTIES OF TRUSTEES.43.3.3.1. (i) General Powers.43.3.3.2. (ii) Duties.43.3.4. (d) PROPER TRUST INVESTMENTS.43.3.5. (e) TRUSTEE'S PERSONAL LIABILITIES AND LIABILITY FOR ACTS OF CO-TRUSTEE.43.3.6. (f) GUARDIANS.43.3.7. (g) TESTAMENTARY TRUSTEE.43.3.8. (h) COMPENSATION OF TRUSTEES.43.3.9. (i) RIGHTS OF BENEFICIARY.43.3.10. (j) DISTINCTION BETWEEN PRINCIPAL AND INCOME.43.3.10.1. (i) Receipts of Principal.43.3.10.2. (ii) Disbursements of Principal.43.3.10.3. (iii) Receipts of Income.43.3.10.4. (iv) Disbursements of or Charges to Income.43.3.11. (k) PRINCIPAL AND INCOME—SPECIAL PROBLEMS.43.3.11.1. (i) Unproductive Property.43.3.11.2. (ii) Accruals.43.3.11.3. (iii) Dividends.43.3.11.4. (iv) Premium and Discount on Bonds.43.3.11.5. (v) Depreciation and Depletion.43.3.12. (f) TAX STATUS OF TRUST.43.3.13. (m) TERMINATION OF TRUST.43.4. ACCOUNTING FOR TRUSTS43.4.1. (a) GENERAL FEATURES.43.4.1.1. (i) Accounting Period.43.4.1.2. (ii) Recording Principal and Income.43.4.1.3. (iii) Accounting for Multiple Trusts.43.4.1.4. (iv) Treatment of Liabilities.43.4.2. (b) RECORD-KEEPING SYSTEM.43.4.2.1. (i) Journals.43.4.2.2. (ii) Principal and Income Accounts.43.4.2.3. (iii) Opening Books of Account.43.4.2.4. (iv) Amortization of Bond Premium or Discount.43.4.2.5. (v) Depreciation.43.4.2.6. (vi) Payments of Expenses.43.4.3. (c) TRUSTEE'S REPORTS.43.5. SOURCES AND SUGGESTED REFERENCES
44. VALUATION OF NONPUBLIC COMPANIES
44.1. DEFINITION OF VALUE44.1.1. (a) DEFINITION OF NONPUBLIC.44.1.2. (a) PURPOSES FOR VALUATIONS.44.1.3. (a) FAIR MARKET VALUE.44.2. GENERAL PROCEDURE FOR VALUATION44.2.1. (a) COMPILE BACKGROUND INFORMATION ABOUT THE COMPANY.44.2.2. (b) COMPILE FINANCIAL INFORMATION REGARDING THE COMPANY.44.2.3. (c) SELECT GUIDELINE COMPANIES.44.2.3.1. (i) Compile Data on Guideline Companies.44.2.3.2. (ii) Calculate Market Value Ratios.44.2.4. (d) ESTIMATE DIVIDEND-PAYING CAPACITY.44.2.5. (e) JUDGMENTAL MODIFICATION OF THE VALUATION RATIOS.44.2.6. (f) APPLICATION OF THE MARKET VALUE RATIOS.44.2.6.1. (i) Discount for Lack of Marketability.44.2.6.2. (ii) Discount for Minority Interest.44.2.7. (g) DISCOUNTED FUTURE BENEFITS APPROACHES.44.2.8. (h) USE OF FORMULAS.44.2.9. (i) NET ASSET VALUE APPROACH.44.3. SPECIAL SITUATIONS44.3.1. (a) WHOLESALE AND RETAIL COMPANIES.44.3.2. (b) VALUATION OF SERVICE COMPANIES.44.3.3. (c) COMPANIES WITH LOW EARNINGS.44.3.4. (d) HOLDING COMPANIES.44.3.5. (e) REAL ESTATE COMPANIES.44.3.6. (f) COMPANIES WITH NONOPERATING ASSETS.44.3.7. (g) LIFE INSURANCE PROCEEDS.44.3.8. (h) COMPANIES WITH AN EXTREMELY STRONG FINANCIAL POSITION.44.3.9. (i) PREFERRED STOCK.44.3.10. (j) EMPLOYEE STOCK OWNERSHIP PLANS.44.3.11. (k) VALUATIONS FOR MARITAL DISSOLUTIONS.44.3.12. (l) RESTRICTIVE AGREEMENTS.44.3.13. (m) S CORPORATIONS.44.3.14. (n) START-UP COMPANIES.44.3.15. (o) NONVOTING STOCK.44.3.16. (p) VALUATION OF A CONTROLLING INTEREST.44.3.17. (q) FIFTY PERCENT INTEREST.44.4. COURT DECISIONS ON VALUATION ISSUES44.5. SAMPLE CONDENSED VALUATION ANALYSIS44.5.1. (a) COMPANY BACKGROUND.44.5.2. (b) SELECTION OF GUIDELINE COMPANIES.44.5.3. (c) QUALITATIVE CONSIDERATIONS.44.5.4. (d) QUANTITATIVE CONSIDERATIONS.44.5.5. (e) APPLICATION OF THE VALUATION RATIOS.44.6. SOURCES AND SUGGESTED REFERENCES
45. BANKRUPTCY
45.1. OVERVIEW45.2. ALTERNATIVES AVAILABLE TO TROUBLED COMPANIES45.2.1. (a) OUT-OF-COURT SETTLEMENTS.45.2.1.1. (i) Appointment of Creditors' Committee.45.2.1.2. (ii) Plan of Settlement.45.2.2. (b) ASSIGNMENT FOR BENEFIT OF CREDITORS.45.2.3. (c) BANKRUPTCY COURT PROCEEDINGS.45.2.3.1. (i) Title 11—Bankruptcy Code.45.2.3.2. (ii) Chapter 7—Liquidation.45.2.3.3. (iii) Chapter 12—Adjustment of Debt of a Family Farmer with Regular Annual Income.45.2.3.4. (iv) Prepackaged Chapter 11 Plans.45.2.4. (d) THE ACCOUNTANT'S SERVICES IN PROCEEDINGS.45.3. GENERAL PROVISIONS OF BANKRUPTCY CODE45.3.1. (a) FILING OF PETITION.45.3.2. (b) TIMING OF PETITION—TAX CONSIDERATIONS.45.3.3. (c) ACCOUNTING SERVICES—DATA REQUIRED IN THE PETITION.45.3.4. (d) ADEQUATE PROTECTION AND AUTOMATIC STAY.45.3.4.1. (i) Relief from the Stay.45.3.4.2. (ii) Accounting Services—Determining Equity in Property.45.3.5. (e) EXECUTORY CONTRACTS AND LEASES.45.3.5.1. (i) Limitations on Executory Contracts.45.3.5.2. (ii) Accounting Services—Rejection of Executory Contracts.45.3.6. (f) AVOIDING POWER.45.3.7. (g) PREFERENCES.45.3.7.1. (i) Exceptions to Preferential Transfers.45.3.7.2. (ii) Accounting Services—Search for Preferential Payments.45.3.8. (b) FRAUDULENT TRANSFERS.45.3.8.1. (i) Leveraged Buyout as a Fraudulent Transfer.45.3.8.2. (ii) Accounting Services—Search for Fraudulent Transfers.45.3.9. (i) POSTPETITION TRANSFERS.45.3.9.1. (i) Adequate Value Received.45.3.9.2. (ii) Accounting Services—Preventing Unauthorized Transfers.45.3.10. (j) SETOFFS.45.3.10.1. (i) Early Setoff Penalty.45.3.10.2. (ii) Accounting Services—Setoffs.45.3.11. (k) RECLAMATION.45.3.12. (l) U.S. TRUSTEE.45.4. HANDLING OF CLAIMS UNDER CHAPTER 1145.4.1. (a) PROOF OF CLAIMS.45.4.2. (b) UNDERSECURED CLAIMS.45.4.3. (c) ADMINISTRATIVE EXPENSES.45.4.4. (d) PRIORITIES.45.4.5. (e) PROCESSING OF CLAIMS.45.5. OPERATING UNDER CHAPTER 1145.5.1. (a) USE OF PROPERTY.45.5.1.1. (i) Cash Collateral.45.5.1.2. (ii) Accounting Services—Assisting Debtor in Providing Information to Secured Lender.45.5.2. (b) OBTAINING CREDIT.45.5.3. (c) APPOINTMENT OF TRUSTEES.45.5.4. (d) APPOINTMENT OF EXAMINER.45.5.4.1. (i) Functions of Examiner.45.5.4.2. (ii) Accountants as Examiners.45.5.5. (e) OPERATING STATEMENTS.45.5.6. (f) REPORTING IN CHAPTER 11.45.5.6.1. (i) Balance Sheet.45.5.6.2. (ii) Statement of Operations.45.5.6.3. (iii) Statement of Cash Flows.45.6. CHAPTER 11 PLAN45.6.1. (a) CLASSIFICATION OF CLAIMS.45.6.2. (b) DEVELOPMENT OF PLAN.45.6.3. (c) DISCLOSURE STATEMENT.45.6.3.1. (i) Definition of Adequate Information.45.6.3.2. (ii) Content.45.6.4. (d) CONFIRMATION OF PLAN.45.6.5. (e) CONFIRMATION REQUIREMENTS.45.6.6. (f) ACCOUNTING SERVICES—ASSISTANCE TO DEBTOR.45.6.6.1. (i) Liquidation Value of Assets.45.6.6.2. (ii) Projections of Future Operations.45.6.6.3. (iii) Reorganization Value.45.6.6.4. (iv) Pro Forma Balance Sheet.45.6.6.5. (v) Reorganization Model.45.6.7. (g) ACCOUNTING SERVICES—ASSISTANCE TO CREDITORS' COMMITTEE.45.6.7.1. (i) Assistance in the Bargaining Process.45.6.7.2. (ii) Evaluation of Debtor's Projections.45.6.7.3. (iii) Reorganization Value.45.6.7.4. (iv) Review of Plan and Disclosure Statement.45.6.8. (h) ACCOUNTING FOR THE REORGANIZATION.45.6.8.1. (i) Requirements for Fresh Start Reporting.45.6.8.2. (ii) Allocation of Reorganization Value.45.6.8.3. (iii) Disclosure Requirements.45.6.8.4. (iv) Reporting by Debtors Not Qualifying for Fresh Start.45.6.9. (i) ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS UNDER CHAPTER 11.45.7. REPORTING REQUIREMENTS IN BANKRUPTCY CASES45.7.1. (a) LITIGATION SERVICES.45.7.2. (b) DISCLOSURE REQUIREMENTS.45.7.3. (c) OPERATING REPORTS.45.7.4. (d) INVESTIGATIVE SERVICES.45.7.5. (e) FINANCIAL PROJECTIONS.45.8. SOURCES AND SUGGESTED REFERENCES
46. FORENSIC ACCOUNTING AND LITIGATION CONSULTING SERVICES
46.1. INTRODUCTION46.2. THE LEGAL CONTEXT46.2.1. (a) THE ADVERSARIAL PROCESS.46.2.2. (b) STAGES IN A CIVIL SUIT.46.2.2.1. (i) Pleadings.46.2.2.2. (ii) Pretrial Discovery.46.2.2.3. (iii) Trial.46.2.2.4. (iv) Settlement.46.2.3. (c) ALTERNATIVE DISPUTE RESOLUTION.46.2.4. (d) REQUIRED PROOFS.46.2.4.1. (i) Liability.46.2.4.2. (ii) Causation.46.2.4.3. (iii) Damages.46.3. THE ACCOUNTANT'S ROLE IN THE LITIGATION PROCESS46.3.1. (a) THE TESTIFYING EXPERT.46.3.2. (b) NONTESTIFYING CONSULTANT.46.3.3. (c) COMPARING LITIGATION CONSULTING SERVICES TO ATTEST SERVICES.46.3.4. (d) CASE ANALYSIS AND PLANNING.46.3.5. (e) DISCOVERY.46.3.6. (f) SETTLEMENT ANALYSIS.46.3.7. (g) PRETRIAL.46.3.8. (h) TRIAL.46.3.8.1. (i) Credentials and Certifications.46.4. TYPES OF SERVICES46.4.1. (a) GENERAL ROLE OF ACCOUNTANT.46.4.2. (b) EXAMPLES OF LITIGATION AND INVESTIGATORY SERVICES.46.4.2.1. (i) Breach of Contract.46.4.2.2. (ii) Business Interruption.46.4.2.3. (iii) Intellectual Property.46.4.2.4. (iv) Antitrust.46.4.2.5. (v) White-Collar Crime and Fraud.46.4.2.6. (vi) Securities Act Violations.46.4.2.7. (vii) Bankruptcy and Bankruptcy Frauds.46.4.2.8. (viii) Lender Liability.46.4.2.9. (iv) Employment Litigation.46.4.2.10. (v) Accountant's Liability.46.4.2.11. (xi) Contractual Purchases Litigation.46.4.2.12. (xii) Breach of Fiduciary Duty.46.4.2.13. (xiii) Marital Dissolution.46.4.2.14. (ii) Partnership Dissolution.46.4.2.15. (iii) Personal Injury.46.5. CALCULATING DAMAGES46.5.1. (a) GENERAL CONCEPTS.46.5.2. (b) MEASURING DAMAGES.46.5.3. (c) MITIGATION.46.5.4. (d) INTEREST ON DAMAGE AWARDS.46.5.5. (e) PRESENT VALUE AND INFLATION.46.5.6. (f) INCOME TAXES.46.6. SUPPORT FOR OPINIONS46.6.1. (a) SOURCES OF INFORMATION.46.6.2. (b) RELIANCE ON OTHERS.46.6.3. (c) DOCUMENTATION.46.6.4. (d) ENGAGEMENT LETTERS.46.7. TESTIMONY46.7.1. (a) GIVING DEPOSITION TESTIMONY.46.7.2. (b) GIVING TRIAL TESTIMONY46.7.2.1. (i) Direct Testimony.46.7.2.2. (ii) Cross-Examination.46.7.2.3. (iii) Redirect Examination.46.8. PROFESSIONAL STANDARDS RELEVANT TO LITIGATION CONSULTING46.8.1. (a) AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS CODE OF PROFESSIONAL CONDUCT.46.8.1.1. (i) Rule 101: Independence.46.8.1.2. (ii) Rule 102: Integrity and Objectivity.46.8.1.3. (iii) Conflicts of Interest.46.8.1.4. (iv) Rule 201: General Standards.46.8.1.5. (v) Rule 202: Compliance with Standards.46.8.1.6. (vi) Rule 203: Accounting Principles.46.8.1.7. (vii) Rule 301: Confidential Client Information.46.8.2. (b) STATEMENT ON STANDARDS FOR CONSULTING SERVICES.46.8.2.1. (i) General Standards.46.8.2.2. (ii) Consulting Standards.46.8.3. (c) AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS CONSULTING SERVICES PRACTICE AIDS.46.9. FEDERAL RULES OF EVIDENCE46.9.1. (a) FEDERAL RULE OF EVIDENCE 702.46.9.2. (b) EFFECT OF DAUBERT V. MERRELL DOW PHARMACEUTICALS.46.9.3. (c) FEDERAL RULE OF CIVIL PROCEDURE 26.46.10. SOURCES AND SUGGESTED REFERENCES
47. FINANCIAL EXPERT WITNESS CHALLENGES AND EXCLUSIONS: RESULTS AND TRENDS IN FEDERAL AND STATE CASES SINCE KUMHO TIRE
47.1. INTRODUCTION47.2. METHODOLOGY AND OVERVIEW OF OBSERVATIONS AND CONCLUSIONS47.3. EXPERT WITNESS CHALLENGES AND EXCLUSIONS: 2000–200247.4. REASONS FINANCIAL EXPERTS WERE EXCLUDED: RELEVANCE, RELIABILITY, AND QUALIFICATIONS47.5. EXCLUSION OF PLAINTIFF FINANCIAL EXPERTS47.6. TYPES OF FINANCIAL EXPERTS EXCLUDED47.7. JUNE 30, 2003 UPDATE: THE MOST RECENT OBSERVATIONS47.8. SUMMARY AND CONCLUSIONS47.9. FINAL COMMENTS RELEVANT TO THE CERTIFIED PUBLIC ACCOUNTANT DESIGNATION
48. INTRODUCTION TO E-DISCOVERY
48.1. COMPUTERS? NOW THAT CHANGES EVERYTHING!48.2. SHIFT TO DIGITAL DATA STORAGE AND COMMUNICATION48.3. INCREASING DATA VOLUMES48.4. INCREASED VALUE OF DIGITAL DATA48.5. GOING AFTER EVIDENCE48.6. THE LEGAL SETTING48.7. TODAY'S USE OF ELECTRONIC DISCOVERY TECHNIQUES48.8. MORE/BETTER SUBSTANTIVE INFORMATION (METADATA)48.9. AUDIT TRAILS (TRAFFIC DATA)48.10. FASTER/BETTER/CHEAPER48.11. THE ROLE OF COMPUTER FORENSICS48.12. EVIDENCE PRESERVATION48.13. PHYSICAL IMAGING VERSUS LOGICAL BACKUPS48.14. FORENSIC RECORD KEEPING48.15. ACQUISITION NOTES48.16. CHAIN OF CUSTODY DOCUMENTATION48.17. ANALYSIS WORK PAPERS48.18. GET THE "WHOLE ENCHILADA"48.19. EVIDENCE DISCOVERY48.19.1. (a) DE-DUPLICATION.48.19.2. (b) DATA SORTING.48.19.2.1. (i) Date/Time.48.19.2.2. (ii) Owner/Author.48.19.2.3. (iii) File Types/Extension.48.20. DATA SEARCHING48.20.1. (a) KEY WORD SEARCHES.48.20.2. (b) KNOWN FILE SEARCHES (HASH VALUES).48.21. DELETED/SLACK/UNALLOCATED SPACE48.22. CONCLUSION
49. DETECTING FRAUD
49.1. INTRODUCTION49.2. TYPES OF FRAUD49.3. FIGHTING FRAUD—AN OVERVIEW49.4. FRAUD DETECTION—THE EARLIEST APPROACHES49.5. FRAUD DETECTION—THE RED FLAG APPROACH49.6. MANAGEMENT AND THE BOARD OF DIRECTORS49.6.1. (a) UNDERSTANDING MANAGEMENT AND DIRECTOR BACKGROUNDS.49.6.2. (b) UNDERSTANDING MANAGEMENT AND DIRECTOR MOTIVATIONS.49.6.3. (c) UNDERSTANDING THE DEGREE OF INFLUENCE OF KEY MEMBERS OF MANAGEMENT AND THE BOARD OF DIRECTORS.49.7. RELATIONSHIPS WITH OTHERS49.7.1. (a) RELATIONSHIPS WITH FINANCIAL INSTITUTIONS.49.7.2. (b) RELATIONSHIPS WITH RELATED PARTIES.49.7.3. (c) RELATIONSHIPS WITH AUDITORS.49.7.4. (d) RELATIONSHIPS WITH LAWYERS.49.7.5. (e) RELATIONSHIPS WITH INVESTORS.49.7.6. (f) RELATIONSHIPS WITH REGULATORY BODIES.49.8. ORGANIZATION AND INDUSTRY49.9. FINANCIAL RESULTS AND OPERATING CHARACTERISTICS49.10. STRATEGIC FRAUD DETECTION49.11. CONCLUSION

Content preview from Accountants' Handbook Volume Two: Special Industries and Special Topics, Eleventh Edition

Chapter 49. DETECTING FRAUD

W. Steve Albrecht

Brigham Young University

Conan C. Albrecht

Brigham Young University

INTRODUCTION

Fraud is different from most crimes in that it is seldom observed. Traditional crimes usually leave evidence that can be seen. For example, if a bank is robbed, there are usually witnesses, physical money is missing, and the entire episode is often captured on video. Similarly, the discovery of a body that is obviously the victim of murder leaves little question about whether a crime has been committed. With fraud, however, it is not usually obvious that a crime has been committed. Only fraud symptoms or indicators, called red flags, are observed. In addition, these red flags can often be caused by nonfraud factors, such as unintentional control weaknesses or missing documents, so significant investigation is required before investigators can know for certain that fraud has occurred.

To detect fraud, managers, auditors, employees, and examiners must learn to recognize these red flags and pursue them until sufficient evidence has been collected. Investigators must discover whether the symptoms resulted from actual fraud or were caused by other factors. Unfortunately, in many cases, many fraud symptoms go unnoticed, and even symptoms that are recognized are often not vigorously pursued.

TYPES OF FRAUD

Before discussing the detection of fraud, it is important to discuss the different types of frauds. Statement on Auditing Standards (SAS) No. 99 discusses two types ...

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Accountants' Handbook, Volume Two, Special Industries and Special Topics, 12th Edition

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