Chapter Five Notes FA
Chapter Five Notes FA ACCT-2100
Popular in Introduction to Financial Accounting
Popular in Accounting
This 6 page Class Notes was uploaded by John Ryan on Friday February 20, 2015. The Class Notes belongs to ACCT-2100 at University of Iowa taught by Thomas Carol in Fall. Since its upload, it has received 91 views. For similar materials see Introduction to Financial Accounting in Accounting at University of Iowa.
Reviews for Chapter Five Notes FA
These are great! I definitely recommend anyone to follow this notetaker
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 02/20/15
Financial Accounting Chapter Five Notes Chapter 5 Communicating and Interpreting Accounting Information Understanding The Business refers to the procedures designed to ensure that the company is managed in the interests of the shareholders is a law that strengthens US nancial reporting and corporate governance regulations The Fraud Triangle There must be 1 an incentive to commit fraud 2 the opportunity to commit fraud and 3 the ability to rationalize the misdeed Players In The Accounting Communication Process Regulators SEC FASB PCAOB Stock Exchanges is the US government agency that determines the nancial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements The SEC oversees both the FASB and PCAOB is the private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles GAAP is the private sector body given the primary responsibility to issue detailed auditing standards Managers CEO CFO and Accounting Staff The primary responsibility for the information in Apple s nancial statements and related disclosures lies with management speci cally the highest of cer in the company often called the Chief Executive Of cer CEO and the highest of cer associated with the nancial and accounting side of the business often called the Chief Financial Of cer CFO The accounting staff are those who actually prepare the details of the reports Board of Directors Audit Committee is elected by the shareholders to represent their interests its audit committee is responsible for maintaining the integrity of the company s nancial reports Auditors is an auditor s statement that the nancial statements are fair representations in all material respects in conformity with GAAP Subjecting the company s statements to independent veri cation reduces the risk that the company s nancial condition is misrepresented in the statements Information Intermediaries Information Services and Financial Analysts EDGAR Companies actually le their SEC forms electronically through the Electronic Data Gathering and Retrieval EDGAR service which is sponsored by the SEC Users can retrieve information from EDGAR within 24 hours of its submission Most companies also provide direct access to their nancial statements and other information over the Web Financial Analysts receive accounting reports and other information about the company from electronic information services They also gather information through conversation with company executives and visits to company facilities and competitors are predictions of earnings for future accounting periods prepared by nancial analysts Users Institutional and Private Investors Creditors and Others are managers of pension mutual endowment and other funds that invest on the behalf of others include individuals who purchase shares in companies include suppliers and nancial institutions that lend money to companies Lenders are the primary external user group for nancial statements of private companies requires that the bene ts of accounting for and reporting information outweigh the costs are amounts that are large enough to in uence a user s decisions Small amounts so not have to be reported separately or accounted for precisely according to GAAP if they would not in uence users decisions The Disclosure Process Managers and other insiders are also prohibited from trading their company s shares based on nonpublic insider information so that no party bene ts from early access Press Releases is a written public news announcement normally distributed to major news services Many companies follow these press releases with a conference call during which senior managers answer analysts questions about the quarterly results The difference between expected earnings and actual earnings is called unexpected earnings Annual Reports and Form 10K Annual Reports usually include only the following 1 JUN Four basic nancial statements income statement balance sheet stockholders equity or retained earnings statement and cash ow statement Related notes footnotes Report of Independent Accountants Auditor s Opinion if the statements are audited is the annual report that publicly traded companies must le with the SEC 1 2 3 Item 1 Business Description of business operations and company strategy Item 6 Selected Financial Data Summarized nancial data for a 5year period 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 periods and the risks it faces in the future Item 8 Financial Statements and Supplemental Data The four basic nancial statements and related notes the report of management and the auditor s report Report of Independent Registered Public Accounting Firm Quarterly Reports and Form 100 Private companies normally prepare quarterly reports for their lenders Public companies le their quarterly reports on Form 100 with the SEC is the quarterly report that publicly traded companies mist le with the SEC Other SEC Reports Form 8K is used by publicly traded companies to disclose any material event not previously reported that is important to investors ie auditor changes mergers A Closer Look At Financial Statement Formats and Notes Comparative nancial statements To allow users to compare performance from period to period companies report nancial statement values for the current period and one or more prior penods Additional subtotals and classi cations in nancial 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 nancial condition Classi ed Balance Sheet Intangible assets are reported net of accumulated amortization on the balance sheet Deferred revenues show up in two places current liabilities and noncurrent liabilities Classi ed Income Statement Gross Margin Net Sales Cost of Goods Sold Income from Operations Gross Pro t Operating Expenses Pretax Earnings Revenues All expenses except income tax expense Net Income Average Number of Shares of Common Stock Outstanding during the period Statement of Stockholders Equity Public companies must present information for the prior three years in their statements of stockholders equity Statement of Cash Flows Cash ows from Operating Activities This reports cash ows associated with earning income Cash ows from Investing Activities Cash ows 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 ows are related to nancing the business through borrowing and repaying loans from nancial institutions stock equity issuances and repurchases and dividend payments Using the indirect method helps the analyst understand the causes of differences between a company s net income and its cash ows Notes to Financial Statements Accounting Rules Applied in the Company39s Statements One of the rst notes is typically a summary of signi cant accounting policies GAAP permits companies to select from alternative methods for measuring the effects of transactions Additional Detail Supporting Reported Numbers The second category of notes provides supplemental information concerning data shown on the nancial statements Relevant Financial Information Not Disclosed on the Statements The nal category includes information that impacts the company nancially but is not shown on the statements Examples include information on legal matters and contractual agreements that do not result in an asset or liability on the balance sheet Voluntary Disclosures Many companies provide important disclosures beyond those required by GAAP and SEC Return On Assets Analysis A Framework For Evaluating Company Performance The most general framework for evaluating company performance is called return on assets ROA analysis Net Income Average Total Assets ROA Pro t Driver Analysis and Business Strategy Net Income Net Sales It measures how much of every saes dollar is pro t Net Sales Average Total Assets It measures how many saes dollars the company generates with each dollar of assets ROA Net Pro t Margin Total Asset Turnover Net IncomeAverage Total Assets Net IncomeNet Sales Net SalesAverage Total Assets Successful manufacturers often follow one of two business strategies 1 Companies following this strategy rely on research and development and product promotion to convince customers of the superiority or distinctiveness of their products This allows the company to charge higher prices and earn a higher net pro t margin which relies on ef cient management of accounts receivable inventory and productive assets to produce high asset turnover
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'