Download [Business Communication]

Communicating and Interpreting
Accounting Information
Chapter 5
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Players in the Accounting
Communication Process
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Regulators
Securities and Exchange Commission
Primary Responsibility
Protect investors and maintain the integrity of the securities market.
Financial Accounting Standards Board
Primary Responsibility
Set Generally Accepted Accounting Standards (GAAP).
Public Company Accounting Oversight Board
Primary Responsibility
Sets auditing standards for independent auditors (CPAs)
of public companies.
Stock Exchanges
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Primary Responsibility
Along with state governments, set overall corporate governance
standards.
Managers
Management
Primary Responsibility
Responsible for the information in the financial statements
and disclosures.
 Chief Executive Officer (CEO): 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.
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Board of Directors (Audit Committee)
Board of Directors
Primary Responsibility
Responsible for ensuring that processes are in place for
maintaining the integrity of the company’s accounting, financial
statement preparation, and financial reporting.
Board of Directors (Audit Committee)
Primary Responsibility
Is composed of non-management (independent) directors with
financial knowledge and is responsible for hiring the company’s
independent auditors. They also meet separately with the
auditors to discuss management’s compliance with their
financial reporting responsibilities.
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Auditors
Independent Auditors
Primary Responsibility
Follow established auditing standards to assess the fairness of
the 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.
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Unqualified
Opinion
Information Intermediaries: Financial
Analysts and Information Services
Information Intermediaries
Analysis and Advice
1. Receive accounting reports and other information about the
company from electronic information services
2. Gather information through conversations with company
executives and visits to company facilities and competitors
3. Results of their analyses are combined into analysts’ reports.
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Users: Institutional and Private
Investors, Creditors, and Other
Institutional Investors
Includes pension, mutual, endowment and other funds that invest on the
behalf of others
Private Investors
Individuals who purchase shares in companies
Lenders or Creditors
Suppliers, banks, commercial credit companies, and other financial
institutions that lend money to companies
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Guiding Principles 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, and Verifiable
Secondary Qualitative Characteristics
Comparability: Across businesses
Consistency: Over time
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Differences in Accounting Methods
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Annual Reports
For privately held companies, annual
reports are simple documents that include:
1. Four basic financial statements.
2. Related notes (footnotes).
3. Report of independent accountants (auditor’s
opinion) if the statements are audited.
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Annual Reports
For public companies, annual reports are elaborate
due to SEC reporting requirements:
1. Nonfinancial Section
•
Includes a letter to the stockholders, a description of
management’s philosophy, products, successes, etc.
2. Financial Section
•
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SEC sets minimum disclosure standards for the
financial section for public companies.
Annual Reports
1. Summarized financial
data for 5- or 10-years.
2. Management Discussion
and Analysis (MD&A).
3. The four basic financial
statements.
4. Notes (footnotes).
5. Independent Accountant’s
Report and the
Management
Certification.
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6. Recent stock price
information.
7. Summaries of the
unaudited quarterly
financial data.
8. Lists of directors and
officers of the company
and relevant addresses.
Quarterly Reports
 Usually begin with short letter to stockholders
 Condensed unaudited income statement and
balance sheet for the quarter.
 Often, cash flow statement and statement of
stockholders’ equity are omitted. Some notes to
the financial statements also may be omitted.
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SEC Reports – 10-K, 10-Q, 8-K
Form 10-K Annual Report
•Due within 90 days of the fiscal year-end.
•Contains audited financial statements.
Form 10-Q Quarterly Report
•Due within 45 days of the end of the quarter.
•Financial statements can be unaudited.
Form 8-K Current Report
•Due within 15 days of the major event date.
•Financial statements can be unaudited.
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End of Chapter 5
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