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35 Cards in this Set

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Balance sheet
It shows the financial position of a firm on a particular date.
Purpose of the Cash Flows statement?
Provides info about the cash inflows and outflows from operating, financing, and investing activities during an accounting period.
Income or Earnings Statement
It presents the results of operations for the accounting period.
Statement of Stockholders' Equity
It reconciles the beginning and ending balances of all accounts that appear in the OE's section of the balance sheet.
What does the balance sheet include?
Assets, Liabilities, Owners' Equity
What do the Notes to the Financial Statements include?
--Major acquisitions or divestitures;
--Officer and employee retirement, Pension, and
stock options plans.
--Leasing arrangements
--Income taxes
What does the Income Statement include?
-Revenues
-Expenses
-Net Profit or Loss
-Net Profit or Loss per share
Qualified Opinion
The auditor encounters one of 2 types of situations which, although they don't comply with GAAP, the rest of the financial statements are presented fairly. An explanatory paragraph is added.
Auditor's report
A report by an independent auditor that attests to the fairness of the financial statements of a company.
1st type of situation that would cause an auditor to issue a Qualified Opinion
1. Single deviation from GAAP
(Depreciation not calculated correctly)
2nd type of situation that causes an auditor to issue a Qualified Opinion
2. Auditor could not audit one or more areas of the financial statements (not being able to audit the inventory, so it was unverifiable, but the rest of fin. stmts are presented fairly)
UNQUALIFIED OPINION WITH EXPLANATORY LANGUAGE
A consistency departure from GAAP due to a change in accounting principle, uncertainty caused by future events, or risky events or going-concern problems that the auditor wishes to add explanation.
ADVERSE OPINION
Auditor determines that the financial statements are materially misstated and do not conform to GAAP. (opposite of Unqualified)
MANAGEMENT DISCUSSION AND ANALYSIS (MD&A)
Financial review that contains info that cannot be found in the financial data.
What does the MD&A include?
Coverage of any favorable or unfavorable trends and significant events or uncertainties in the areas of Liquidity, Capital Resources, and results of Operations.
LIQUIDITY (in MD&A)
-Internal / External sources
-Ability to pay near-term obligations and plans to remedy
CAPITAL RESOURCES (in MD&A)
Commitments for, purpose, sources of funding and changes in the mix and cost of financing
RESULTS OF OPERATIONS (in MD&A)
-Breakdown of sales into price and volume components
-Discussion of events that cause material changes between revenue and costs
-Unusual occurrences affecting income from continuing operations
Internal and External sources of liquidity
Where do they get cash?
MD&A
Material deficiencies in liquidity and how they will be remedied
What are they doing to get cash and prevent bankruptcy?
MD&A
Commitments for capital expenditures, purpose of such commitments, and expected sources of funding
How much are they going to spend next year for investments in property, plant and equipment or acquisitions? How will they pay for them?
MD&A
Anticipated changes in the mix and cost of financing resources
Will the percentage of debt and equity change in the future relative to prior years? Will the company borrow more or less, sell stock, generate more profits or losses?
MD&A
Unusual or infrequent transactions that affect income from continuing operations
Will revenues or expenses be affected in the future by events not expected in the normal course of business ops?
MD&A
Events that cause material changes in the relationship between costs and revenues
Will there be major changes that cause revenues (or expenses) to increase or decrease without a corresponding change in expenses (or revenues)?
MD&A
A breakdown of sales increases into price and volume components
Did the company's sales increase because they sold more products or services or was the increase the result of price increases (or decrease in volume)?
MD&A
Summary of Selected Financial Data (Highlights)
Offers a quick look at some overall trends (5+ years)
Summary of Selected Financial Data (Highlights)includes:
-Net Sales
-Income or Loss from continuing operations
-Income or Loss from continuing ops per common share
-Total Assets
-Long-term obligations
-Redeemable preferred stock
-Cash dividends per common share
Proxy Statement
contains voting procedures and info, background info about nominated directors, director and executive compensation, audit committee report, breakdown of audit fees.
Quality of Financial Reporting (Earnings Quality)
To present, realistically and accurately, the TRUE financial POSITION of a firm.
Purpose behind depreciating an asset
To allocate the cost of an asset over its estimated life
Examples of Discretionary expenses (Earning quality)
1. Research and Development
2. Repair and maintenance
3. Advertising
4. Replacement of plant assets
5. Develop new product lines, disposal of operating division
4 ways in which you can affect earnings quality
1. Accounting policies, Estimates - Choices and Changes
2. Timing of Revenue and Expense Recognition
3. Discretionary Items
4. Non-Recurring and Non-Operating Items
Examples of Accounting policies and Estimates
(Earnings quality)
1. Choice in Depreciation method
2. Change in accounting policy - Inventory LIFO to FIFO or FIFO to LIFO
3. Change in estimate of life of L-T assets
Examples of Timing of revenue and expense recognition
(Earnings quality)
1. Should stay with revenue recognition and matching principle
2. Lean towards conservatism in writing off uncollectible receivables or writing down inventories to reflect market value.
Examples of Non-Recurring and Non-Operating Items
1. Gains and losses on sale of asset or business segment
2. Write-downs for the impairment of assets
3. Accounting changes
4. Extraordinary items