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Chapter24-1
Full Disclosure inFull Disclosure inFinancial ReportingFinancial Reporting
ChapterChapter2424
Intermediate Accounting12th Edition
Kieso, Weygandt, and Warfield
Prepared by Coby Harmon, University of California, Santa Barbara
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Chapter24-3
AccountingAccounting
policiespolicies
CommonCommon
notesnotes
FullFull
DisclosureDisclosure
PrinciplePrinciple
Notes toNotes to
FinancialFinancial
StatementsStatements
DisclosureDisclosure
IssuesIssues
Auditors andAuditors and
ManagementsManagements
ReportReport
CurrentCurrent
ReportingReporting
IssuesIssues
Increase inIncrease in
reportingreporting
requirementsrequirements
DifferentialDifferential
disclosuredisclosure
SpecialSpecial
transactionstransactions
or eventsor events
PostPost--balancebalance--
sheet eventssheet events
DiversifiedDiversified
companiescompanies
InterimInterim
reportsreports
AuditorsAuditors
reportreport
ManagementsManagements
reportsreports
Reporting onReporting on
forecasts andforecasts and
projectionsprojections
Internet financialInternet financial
reportingreporting
FraudulentFraudulent
financialfinancial
reportingreporting
Criteria forCriteria for
accounting andaccounting and
reportingreporting
choiceschoices
Full Disclosure inFinancial ReportingFull Disclosure inFinancial Reporting
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Chapter24-5
ExamplesExamples
AccountingAccounting
PoliciesPolicies
ContingenciesContingencies InventoryInventory
MethodsMethods
SharesShares
OutstandingOutstanding
AlternativeAlternative
MeasuresMeasures
FinancialFinancialStatementsStatements
Notes toNotes to
FinancialFinancial
StatementsStatements
SupplementarySupplementaryInformationInformation
Other Means ofOther Means of
FinancialFinancial
ReportingReporting
OtherOtherInformationInformation
Balance sheetBalance sheet
Statement ofStatement of
IncomeIncome
Statement ofStatement ofCash FlowsCash Flows
Statement ofStatement ofChanges inChanges in
StockholdersStockholders
EquityEquity
Examples:Examples:
ChangingChanging
PricesPrices
DisclosuresDisclosures
Oil and GasOil and Gas
ReservesReserves
InformationInformation
Examples:Examples:
ManagementManagement
DiscussionDiscussion
and Analysisand Analysis
Letters toLetters to
StockholdersStockholders
Examples:Examples:
CompetitionCompetition
and Orderand Order
Backlog in SECBacklog in SECFormsForms
Analysts'Analysts'
reportsreports
EconomicEconomic
StatisticsStatistics
ArticlesArticles
LO 1 Review the full disclosure principle and describe implementation problems.
Full Disclosure PrincipleFull Disclosure Principle
BasicFinancial StatementsBasicFinancial Statements
Affected by ExistingFASB StandardsAffected by ExistingFASB Standards
Financial ReportingFinancial ReportingAll Information Useful for Investment, Credit, and Similar DecisionsAll Information Useful for Investment, Credit, and Similar Decisions
Illustration 24-1
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Chapter24-6
Increase in Reporting Requirements
Reasons:
Complexity of Business Environment.
Necessity for Timely Information.
Accounting as a Control and Monitoring Device.
LO 1 Review the full disclosure principle and describe implementation problems.
Full Disclosure PrincipleFull Disclosure Principle
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Chapter24-7
DifferentialDisclosure
Big GAAP versus Little GAAP.
FASB takes the position that there should be
one set of GAAP.
LO 1 Review the full disclosure principle and describe implementation problems.
Full Disclosure PrincipleFull Disclosure Principle
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Chapter24-8
Notes are the means of amplifying or explaining
the items presented in the main body of the
statements.
LO 2 Explain the use of notes in financial statement preparation.
Notes to the Financial StatementsNotes to the Financial Statements
Accounting Policies
Companies should present a statement
identifying the accounting policies adopted(Summary of Significant Accounting Policies).
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Chapter24-9
CommonNotes
Inventory
Property, Plant, andEquipment
CreditorClaims
EquityHoldersClaims
ContingenciesandCommitments
DeferredTaxes, Pensions,andLeases
ChangesinAccountingPrinciples
LO 2 Explain the use of notes in financial statement preparation.
Notes to theFinancial StatementsNotes to theFinancial Statements
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Chapter24-10
Disclosureof Special Transactionsor Events
Related-party transactions
Illegal acts
LO 2 Explain the use of notes in financial statement preparation.
Disclosure IssuesDisclosure Issues
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Chapter
24-12
ReportingforDiversified Companies
LO 3Discuss the disclosurerequirementsformajor businesssegments.
DisclosureIssuesDisclosureIssues
Investors and investment analysts income
statement, balance sheet, and cash flow
information on the individualsegments that
compose the total income figure.
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Chapter
24-13
ObjectiveofReporting Segmented Information
LO 3 Discuss the disclosurerequirementsformajorbusiness segments.
Disclosure IssuesDisclosure Issues
To provide information about the different types
ofbusinessactivitiesin which an enterprise
engages and the differenteconomicenvironments
in which it operates.
A company can meet objective by providing financial
statements segmented based on how the companys
operations are managed (Operating Segment).
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Chapter
24-14
Segmented InformationReported
LO 3 Discuss the disclosurerequirementsformajor business segments.
Disclosure IssuesDisclosure Issues
1. General information about operating segments.
2. Segment profit and loss and related information.
3. Segment assets.
4. Reconciliations.
5. Information about products and services andgeographic areas.
6. Major customers.
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Chapter
24-15
InterimReports
LO 4 Describe the accountingproblems associated with interimreporting.
Disclosure IssuesDisclosure Issues
Cover periods of less than one year.
Two viewpoints exist:
1. The discrete approach
2. The integral approach
Companies should use the same accountingprinciples for interim reports that they use forannual reports.
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Chapter
24-17 LO 5Identify the majordisclosures in the auditors report.
Auditors andManagements ReportsAuditors andManagements Reports
Auditors Report
Standard unqualified opinion auditor expressesthe opinion that the financial statements are
presented fairly, in all material respects, inconformity with GAAP.
Other opinions:
QualifiedAdverse
DisclaimIllustration 24-14
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Chapter
24-18 LO 5Identify the majordisclosures in the auditors report.
Auditors andManagements ReportsAuditors andManagements Reports
Managements Report
The SEC mandates inclusion of managements
discussionand analysis (MD&A).
Management highlights favorable or unfavorable
trends related to liquidity, capital resources,
and results of operations.
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Chapter
24-19 LO 6 Understandmanagements responsibilities for financials.
Auditors andManagements ReportsAuditors andManagements Reports
Managements Responsibilities forFinancial
Statements
The Sarbanes-Oxley Act requires the SEC to
develop guidelines for all publicly traded
companies to report on managements
responsibilities for, and assessment of, the
internal control system.
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Chapter
24-20 LO 7Identify issues related to financial forecasts and projections.
Current ReportingIssuesCurrent ReportingIssues
Reporting onFinancialForecasts and Projections
Financial forecastis a set of prospective financial
statements that present, a companys expected
financial position, results of operations, and cashflows.
Financialprojections are prospective financial
statements that present, given one or morehypothetical assumptions, an entitys expected
financial position, results of operations, and cash
flows. SEC Safe Harbor Rule
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Chapter
24-21 LO 8 Describe the professions response to fraudulent financial reporting.
Current ReportingIssuesCurrent ReportingIssues
FraudulentFinancial Reporting
Intentional or reckless conduct, whether
through act or omission, that results in
materially misleading financial statements.
The Sarbanes-Oxley Act has numerous
provisions intended to help prevent fraudulent
financial reporting.
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Chapter
24-22
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