1. A basic understanding of financial statements is needed due to ongoing financial turmoil and major corporate failures.
2. The SEC requires all companies, both public and private, to file annually a Form 10-K report.
3. Financial statements are currently prepared according to generally accepted accounting principles in the U.S.
4. The FASB was given Congressional authority to write accounting rules.
5. The goal of the International Accounting Standards Board is the adoption of uniform international accounting standards.
6. In 2006, the IASB and the FASB agreed to work on all major projects jointly.
7. Annual reports of public companies can only be found on the SEC’s EDGAR database.
8. A corporate annual report contains three basic financial statements.
9. The notes to financial statements, while helpful, are not an integral part of the statements.
10. Management is responsible for the preparation of the financial statements, including the notes, and the auditors report attests to the fairness of the presentation.
11. The Sarbanes-Oxley Act eliminated the need for internal auditors.
12. An unqualified auditor’s report states that the financial statements present fairly the financial position, results of operation, and the cash flows of the entity.
13. The Sarbanes-Oxley Act of 2002 requires all members of management as well as directors to certify the accuracy of the financial statements.
14. Despite the enactment of the Sarbanes-Oxley Act of 2002, corruption and unethical behavior continued in the 2000s.
15. The management discussion and analysis is of potential interest to the analyst because it contains information that cannot be found in the financial data.
16. The management discussion and analysis should contain a discussion of the commitments for capital expenditures, the purpose of such commitments, and expected sources of funding.
17. The shareholders’ letter from the CEO of a firm offers factual information needed to analyze the financial statements.
18. The proxy statement offers information about such items as corporate governance, audit-related matters, directors and executive compensation, and related party transactions.
19. Publicity in the media can impact a firms financial performance.
20. Conglomerates operating in diversified lines of business are required to create separate annual reports for each line of business.
21. Accounting choices and estimates rarely have a significant impact on financial statement numbers.
22. The accrual basis of accounting means that revenues are recognized when the sale is made rather than when cash is received.
23. United States accounting rules have been perceived as being less complex than international standards.
24. The matching principle requires that expenses be matched with the generation of revenues in order to determine net income for an accounting period.
25. Examples of discretionary items include repairs and maintenance, research and development and advertising.