CH 9: Communicating and Analyzing Accounting Information Flashcards
Sabarenes oxley act
A law that strengthens financial reporting and corporate governance for public companies
Corporate governance
Procedures to ensure that the company is managed in the interest of its shareholders
Fraud triangle
Opportunity, pressure, rationalization
3 conditions necessary for good corporate governance
Regulators
sec, fasb, pcaob
protects investors and maintains the integrity of the securities market
SEC
sets GAAP
fasb
sets auditing standards for independent auditors (CPAs)
pcaob
CEO
highest officer of the company
CFO
highest financial accounting office
have professional responsibility for the accuracy of the information
Accounting staff
Board of directors
Oversees the CEO/other senior management and assures that interests of shareholders are being served
Elected by stockholders
The big 4
EY, deloitte, PwC, KPMG
Institutional investor
pension, mutual, endowment and other refunds that invest on the behalf of others
private investor
Individuals, including large individual investors such as venture capitalists, who purchase shares in companies
Lenders
Suppliers, banks, commercial credit companies, and other financial institutions that lend money to companies
Material Amount
Amount large enough to influence users’
decisions
CEO and CFO
Management primarily responsible for
accounting information
Financial Analyst
An individual who analyzes financial
information and provides advice
Auditor
An independent party who verifies financial
statements
Institutional investors
Managers of pension, mutual, endowment,
and other funds who invest on the behalf of
others
independent auditors
The independent auditors provide and opinion with respect to the overall fairness of the financial statements
SEC regulation FD
requires that
companies provide all investors equal access to all important
company news.
Managers and other insiders are prohibited from trading their
company’s shares based on nonpublic (insider) information so that no
party benefits from early access.
true
Public companies announce quarterly and annual earnings through a
press release
The annual reports for privately
e simple documents
including:
- Four basic financial statements.
- Related notes (footnotes).
- Report of Independent Accountants (Auditor’s Opinion) if the
statements are audited.
The annual reports of public companies (called Form 10-K)
Item 1. Business: Description of business operations and strategy.
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations: Management’s views on the causes of its
successes and failures during the reporting period and the risks it faces in
the future.
Item 8. Financial Statements and Supplemental Data: The four basic
financial statements and related notes, the report of management, and
the auditor’s report.
Comparative financial statements
. To allow users to compare performance from period to period,
companies report financial statement values for the current period and one or more prior periods. (2 years
for balance sheets, 3 years for all other statements
Additional subtotals and classifications in financial statements
. You should not be confused when you
notice slightly different statement formats used by different companies.
Additional disclosures.
Most companies present voluminous notes that are necessary to understand a
company’s performance and financial condition.
gross profit percentage
gross profit/net sales
measures a company’s ability to charge premium prices and produce goods
and services at low cost
Cash Flows from Operating
Activities.
This section
reports cash flows associated
with earning income.
Cash Flows from Investing Activities.
Cash flows in this section are associated
with the purchase and sale of (1)
productive assets (other than
inventory) and (2) investments in other
companies
Cash Flows from Financing Activities.
These
cash flows are related to financing the business
through borrowing and repaying loans from
financial institutions, stock (equity) issuances
and repurchases, and dividend payments.
return or assets (ROA)
net income/ average total assets
Financial institution or supplier that lends money to the company.
Creditor
Chief executive officer and chief financial officer who have primary responsibility for the information presented in financial statements
CEO and CFO
Manager of pension, mutual, and endowment funds that invest on the behalf of others.
Institutional investor
Securities and Exchange Commission, which regulates financial disclosure requirements.
SEC
A company that gathers, combines, and transmits (paper and electronic) financial and related information from various sources.
Information service
Adviser who analyzes financial and other economic information to form forecasts and stock recommendations.
Financial analyst
Individual who purchases shares in companies.
Private investor
Independent CPA who examines financial statements and attests to their fairness.
Independent auditor
Report of special events (e.g., auditor changes, mergers) filed by public companies with the SEC.
Form 8-K
Brief unaudited report for quarter normally containing summary income statement and balance sheet.
Quarterly report
Quarterly report filed by public companies with the SEC that contains additional unaudited financial information.
information. Form 10-Q
Written public news announcement that is normally distributed to major news services.
Press release
Annual report filed by public companies with the SEC that contains additional detailed financial information.
Form 10-K
Report containing the four basic financial statements for the year, related notes, and often statements by management and auditors
Annual report
1) Summarized financial data for 5-year period.
annual rep, form 10k
Notes to financial statements.
annual rep, form 10k
The four basic financial statements for the year.
annual rep, form 10k
Description of those responsible for the financial statements.
annual rep, form 10k
) Initial announcement of hiring of new vice president for sales.
press release
Complete quarterly income statement, balance sheet, and cash flow statement.
10-q
Initial announcement of quarterly earnings.
press release
Announcement of a change in auditors.
8-k
Detailed discussion of the company’s competition.
Form 10-K
Summarized income statement information for the quarter.
Quarterly report
expenses
inc statement
