ACCT1021 Chapter Notes - Chapter 5: Profit Margin, Product Differentiation, Form 10-Q

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Chapter Five: Communicating and Interpreting Accounting Information
9/23/16
Understanding the Business
Corporate governance: procedures designed to ensure that the company is
managed in the interest of the shareholders
oIntegrity in financial reporting
Sarbanes-Oxley Act: a law that strengthens US financial reporting and corporate
governance regulations
Players in the Accounting Communication Process
Regulators
SEC: US governmental agency that determines the financial statements that
public companies must provide to stockholders and the measurement rules that
they must use in producing those statements
oOversees FASB: private sector body given the primary responsibility to
work out the detailed rules that become generally accepted accounting
principles
FASB sets GAAP and PCAOB – sets auditing standards for CPAs
Managers
CEO and CFO – highest managers
oCheck that reports are not untrue or information is omitted
oReveal weaknesses and show internal controls for fraud
Don’t provide false information
Board of Directors
Elected by stockholders
Represent shareholders interest
Audit committee is responsible for maintaining the integrity of the company’s
financial reports
Auditors
SEC – requires public companies be independently audited according to PCAOB
standards
Unqualified audit options: auditors statement that the financial statements are fair
presentations in all material respects in conformity with the GAAP
Information Intermediaries: Information Services and Financial Analysis
Information services allow investors to gather their own information about the
company
oMonitor recommendations of analysts
Financial analysts receive accounting reports and other information from
information services
oCombine information into analysts reports
Forecasts, earnings per share etc.
oEarnings forecast: predictions of earnings for future accounting periods,
prepared by financial analysts
Users: Institutional and Private Investors Etc.
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Document Summary

Corporate governance: procedures designed to ensure that the company is managed in the interest of the shareholders: integrity in financial reporting. Sarbanes-oxley act: a law that strengthens us financial reporting and corporate governance regulations. Fasb sets gaap and pcaob sets auditing standards for cpas. Ceo and cfo highest managers: check that reports are not untrue or information is omitted, reveal weaknesses and show internal controls for fraud. Audit committee is responsible for maintaining the integrity of the company"s financial reports. Sec requires public companies be independently audited according to pcaob standards. Unqualified audit options: auditors statement that the financial statements are fair presentations in all material respects in conformity with the gaap. Information services allow investors to gather their own information about the company: monitor recommendations of analysts. Financial analysts receive accounting reports and other information from information services: combine information into analysts reports.

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