Financial Reporting and Analysis
Finansų skaidrės. Financial Reporting and Analysis. Content. Financial reporting environment. Types of statutory financial reports. Factors affecting financial report. Generally Accepted Accounting Principles (GAAP). Managers. Monitoring and enforcement mechanisms. Alternative information sources. Functions of intermediaries. Nature and purpose of financial accounting. Qualities of accounting information. Important Principles of Accounting. Limitations of financial statement information. Accruals. Types of cash flows. Accruals. Accrual accounting vs. Cash accounting. Accrual process. Relevance of accrual accounting. Accruals vs. Cash Flows. Accounting analysis. Factors and implication to financial statement analysis. Earnings Management. Earnings Management Strategies. Motivations for Earnings Management. Mechanics of Earnings Management. Analysis implications of earnings management. Evaluating earnings quality. Adjusting financial statements. Auditing. Earnings quality. Thank you!
Financial reporting environment Nature and purpose of financial accounting Accruals Accounting analysis Auditing Earnings quality.
Financial statements - publicizes company’s products and achievements to shareholders. Earnings announcements – key summary information about company position before financial statements. Proxy statement - sent along with the notice of the annual shareholders’ meeting. Prospectus - accompanies an application for an equity offering.
Earnings management can reduce confidence in reporting process.
Analysts’ forecasts and recommendations; Economic, industry, company-specific news; Voluntary disclosure; Information intermediaries.
Information gathering; Information interpretation; Prospective analysis; Recommendation.
Intermediaries – 1) reflective of the investing community, 2) contribute to increased complexity in financial statements.
Double entry (duality); Historical cost (fair and objective); Accrual accounting (revenues/expenses); Full disclosure (understandable/beneficial); Materiality (misstatement); Conservatism (least optimistic view).
Timeliness (3-6 weeks after quarter-end); Frequency (each quarter); Forward-looking (limited forecasts, recognition lags).
(related to working capital items, timing differences between income and cash flow ).
(such as depreciation and amortization, arise from capitalization).
Cash flows don’t occur contemporaneously with business activities yielding the cash flows.
Cash inflows and outflows aren’t matched in time with each other.
Short-term: Help record revenues when earned and expenses when incurred. Long-term: Free cash flow is negative in the growth stage but positive in the decline stage, accrual accounting capitalize investments and allocate their costs over future benefit periods.