ACCT 240 004 10 1 Chapter 5 Communicating and Interpreting Accounting Information Regulators Securities and Exchange Commision Protect investors and aintain integrity of the securities market Financial Accounting Standards Board Set generall Accepted Accounting Standards GAP Public Company Accounting Oversight Board Sets auditing standards for independent auditors CPAs of public companies Stock Exchanges Along with state governments set overall corporate governance standards Management Responsible for info in the financial statements ad disclosures CEO Chief Financial Officer Highest officer of the company Chief Financial Officer CFO Highest officer associated with the financial and accounting side of the business Accounting Staff Prepare the details of the reports and bear professional responsibility for the accuracy of the information Board of directors Audit Committee Responsible for ensuring that processes are in place for maintaining the integrity of the company s accounting financial statement preparation and financial accounting Independent Auditors Follow established auditing standards to assess the fairness of financial statements and related presentations An unqualified or clean opinion states that the financial statements are fair presentations in all material respects in conformity with GAAP In short the reports are good enough Information Intermediary Financial Analysts and Info Services 1 Receive reports and other info from electronic sources 2 Gather info through conversations with executives and visits to company and competitors 3 Release a report with their findings Users Institutional investors Mutual Funds etc Private Investors Lenders or creditors Pg 259 M5 1 1 D 2 C 3 B 4 A Guiding Principals for Communicating Useful Information Primary Objective of External Financial Reporting To provide economic information to external users for decision making Primary Qualitative Characteristics Relevance Timely and Predictive Feedback value Reliability Accurate Unbiased verifiable Secondary Qualitative Characteristics Comparability Across businesses Consistency Over time Annual Reports For privately held companies annual reports are simple documents that include 1 Four basic financial statements 2 Related notes footnotes 3 For public companies annual reports elaborate due to SEC reporting requirements 1 Nonfinancial statement letter to shareholders description of philosophy etc 2 Financial Statements as explained before in other chapters Quarterly reports Begin with short letter to shareholders Condensed unaudited income state ent and balance set for quarter Often cash flow state ent and statement of SE are omitted Some notes to the financial statements may be omitted SEC Reports 10 K 10 Q 8 k Form 10k Due 90 days after end of year audited Form 10 Q Due within 45 days of end of quarter unaudited Form 8 K Due within 15 days of major event date can be unaudited Pg 262 E5 7 Cash 43 000 Common Stocks 102 Shares x Par Value Additional Paid in capital APIC 42 898 Classified Income Statement Net sales Cost of goods sold Gross Profit Operating Expenses Income from Operations Nonoperating revenues expenses and gains losses Income before taxes Taxes Net Income Nonrecurring items Income statements include 3 sections 1 Continuing operations 2 Nonrecurring items a Discontinued operations b Extraordinary items 3 Earnings per share EPS Net income Average number of shares outstanding Statement of cash flows 1 Cash flows from operating activities 2 investing 3 financing Return on Assets ROA Return on assets Net income Average total assets E5 18 on page 265 Current 36 796 394 143 0934 9 3 Prior 32 735 390 728 083 8 3 Company is using their assets more efficiently than prior year