Textbook Notes (369,154)
United States (206,213)
Accounting (115)
ACCT 1201 (75)
Chapter 5

ACCT Chapter 5 Condensed(1).docx

7 Pages

Course Code
ACCT 1201
Ronen Gal-or

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Chapter 5 CondensedI Players in the Accounting Communication Process II Disclosure Process III Review of Financial Statement Format and Contents IV Return on Assets ROA Profit Margin and Total Asset Turnover RatiosI Players in the Accounting Communication ProcessA Regulators SEC FASB PCAOB Stock ExchangesSEC oversees the FASB PCAOB and Stock ExchangesRegulators oversee the process stock exchanges are their own regulators FASB oversees GAAP PCAOB oversees auditors the people who oversee GAAPCorporate governance refers to the procedures designed to ensure that the company is managed in the interests of the shareholders elected by shareholdersB Managers CEO CFO Accounting StaffAn executive who knowingly certifies false financial reports is subject to a 5 million fine and a 20year prison termSo why would management commit fraud To get more investors reduce taxes get bonusesA Incentives to increase income a Reach certain thresholds i0 iilast year iiianalyst forecasts reach or exceed ivbonus thresholds if you have to have certain earnings to get a bonus vcovenant ratios ex interest coverage ratio incomeinterest expense when you issue bonds you want enough income to cover your interest expense current assetscurrent liabilitiesB Incentives to decrease income a Reduce Taxes b Encourage government bailoutintervention c Bonus threshold met so management waits to recognize revenue in a future periodC Board of Directors Audit CommitteeResponsible for maintaining the integrity of the companys financial reportsWho hires the auditorAudit Committee or Management Nominating Committee hires Board of Directors Finance Committee decides on debt v equity The only important committee for this class is the Audit Committeea Before SOX b After SOX 1
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