Kế toán, kiểm toán - Chapter 5: Communicating and interpreting accounting information

Communicating and Interpreting Accounting InformationChapter 5Players in the AccountingCommunication ProcessRegulatorsSecurities and Exchange CommissionPrimary ResponsibilityProtect investors and maintain the integrity of the securities market.Stock ExchangesPrimary ResponsibilityAlong with state governments, set overall corporate governance standards.Financial Accounting Standards BoardPrimary ResponsibilitySet Generally Accepted Accounting Standards (GAAP).Public Company Accounting Oversight BoardPrimary ResponsibilitySets auditing standards for independent auditors (CPAs)of public companies.ManagersManagementPrimary ResponsibilityResponsible for the information in the financial statements and disclosures.Chief Executive Officer (CEO): highest officer of the companyChief Financial Officer (CFO): highest officer associated with the financial and accounting side of the businessAccounting Staff: prepare the details of the reports and bear professional responsibility for the accuracy of the information.Board of Directors (Audit Committee)Board of DirectorsPrimary ResponsibilityResponsible 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 ResponsibilityIs 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.Independent AuditorsPrimary ResponsibilityFollow established auditing standards to assess the fairness of the financial statements and related presentationsAuditorsAn unqualified, or clean, opinion states that the financial statements are fair presentations in all material respects in conformity with GAAP. Unqualified OpinionInformation Intermediaries: Financial Analysts and Information ServicesInformation IntermediariesAnalysis and AdviceReceive accounting reports and other information about the company from electronic information servicesGather information through conversations with company executives and visits to company facilities and competitorsResults of their analyses are combined into analysts’ reports.Users: Institutional and Private Investors, Creditors, and OtherInstitutional InvestorsIncludes pension, mutual, endowment and other funds that invest on the behalf of othersPrivate InvestorsIndividuals who purchase shares in companiesLenders or CreditorsSuppliers, banks, commercial credit companies, and other financial institutions that lend money to companiesGuiding Principles for CommunicatingUseful InformationPrimary Objective of External Financial Reporting To provide economic information to external users for decision making. Primary Qualitative CharacteristicsRelevance: Timely and Predictive Feedback ValueReliability: Accurate, Unbiased, and VerifiableSecondary Qualitative CharacteristicsComparability: Across businesses Consistency: Over timeDifferences in Accounting MethodsAnnual Reports For privately held companies, annual reports are simple documents that include:Four basic financial statements.Related notes (footnotes).Report of independent accountants (auditor’s opinion) if the statements are audited.Annual Reports For public companies, annual reports are elaborate due to SEC reporting requirements:Nonfinancial SectionIncludes a letter to the stockholders, a description of management’s philosophy, products, successes, etc.Financial SectionSEC sets minimum disclosure standards for the financial section for public companies.Annual ReportsSummarized financial data for 5- or 10-years.Management Discussion and Analysis (MD&A).The four basic financial statements.Notes (footnotes).Independent Accountant’s Report and the Management Certification. Recent stock price information.Summaries of the unaudited quarterly financial data.Lists of directors and officers of the company and relevant addresses.Quarterly ReportsUsually begin with short letter to stockholdersCondensed 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.SEC Reports – 10-K, 10-Q, 8-KForm 10-K Annual ReportDue within 90 days of the fiscal year-end. Contains audited financial statements. Form 10-Q Quarterly ReportDue within 45 days of the end of the quarter.Financial statements can be unaudited. Form 8-K Current ReportDue within 15 days of the major event date. Financial statements can be unaudited. End of Chapter 5